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+              Ramiro M. Fernandez-Moris, Daniel S. Lezak, and Ramiro Rafael ("Ray") Fernandez
+           
+     
+ 
+
+   
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+             
+        Ramiro M. Fernandez-Moris, Daniel S. Lezak, and Ramiro Rafael ("Ray") Fernandez
+       
+
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+ Litigation Release No.  17916 / January 7, 2003
+
+  Accounting and Auditing Enforcement Release No.  1697 / January 7, 2003
+
+  SEC AMENDS COMPLAINT AND JOINS RAMIRO RAFAEL ("RAY") FERNANDEZ AS DEFENDANT IN ACTION AGAINST FORMER EXECUTIVES OF TIMBER COMPANY MADERA INTERNATIONAL, INC.
+
+   SEC v. Ramiro M. Fernandez-Moris, Daniel S. Lezak, and Ramiro Rafael ("Ray") Fernandez,  01 Civ. 1985 (JR) (D.D.C. filed Sept. 19, 2001)
+
+  The Securities and Exchange Commission today announced that, on January 3, 2003, it filed an amended complaint in the United States District Court for the District of Columbia joining Ramiro Rafael ("Ray") Fernandez as an additional defendant in its action against former executives of timber company Madera International, Inc.  The amended complaint also alleges additional facts concerning the falsification of Madera's financial statements from 1994 through 2000. 
+
+  Ray Fernandez was Madera's Executive Vice President in charge of sales and marketing and Chief Executive Officer of Madera International Environmental, Inc., a wholly-owned subsidiary of Madera.  In December 1998, he was additionally elected Chairman of the Board of Directors of Madera, and later, in November 2000, also became its Chief Executive Officer, replacing his father, Ramiro M. Fernandez-Moris.  The amended complaint alleges that 
+      Fernandez signed, in his capacities as Director and Chairman of the Board, Madera's fiscal year 1999 annual report on Form 10-K that was filed with the SEC on March 8, 2000 and that contained numerous false statements.  
+
+     Fernandez posted numerous false statements concerning Madera on an Internet message board during the period April through September 19, 2001.  
+
+     At the same time he inflated the share price of Madera through these fraudulent public disclosures about Madera's assets, operations, and revenues, Fernandez sold personal holdings of Madera common stock.  Specifically, from May 2000 through July 2001, Fernandez sold at least 7,939,200 shares of Madera common stock and obtained proceeds of at least $68,791.65.
+   The Commission seeks relief against Fernandez consisting of a permanent injunction against future violations of Sections 10(b) and 13(a) of the Exchange Act and Rule 10b-5 thereunder, disgorgement of all ill-gotten gains together with an accounting of his proceeds of his sales of Madera common stock, civil monetary penalties, and an order permanently barring him from serving as an officer or director of a public company.
+
+  The amended complaint also alleges additional facts concerning Madera's purported acquisitions totaling nearly 730,000 acres of timber property located in the Brazilian rain forest in July 1994 and May 1997.  It alleges that, under Brazilian law, Madera never acquired valid legal title to any of this property.
+
+  The Court previously entered a Final Judgment of Permanent Injunction By Default against Madera International, Inc.  The judgment enjoins Madera from violating the antifraud, reporting, books and records, and internal control provisions of the Securities Exchange Act of 1934 (Sections 10(b), 13(a) and 13(b)(2)(A) and (B), and Rules 10b-5, 12b-20, 13a-1 and 13a-13).  Litigation Release No. 17546 (June 6, 2002).
+
+  For more information, see  Litigation Release No. 17140  (September 19, 2001).
+
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diff --git a/raw/aaer/2003/AAER-1698.txt b/raw/aaer/2003/AAER-1698.txt
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+     SEC.gov | Jeffrey Kalina 
+     
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+ Former Homestore mergers and acquisitions manager agrees to settle with the SEC; Defendant agrees to plead guilty to criminal securities fraud charge 
+ 
+The United States Securities and Exchange Commission and the United States Attorney's Office for the Central District of California today announced the filing of civil and criminal charges against another former executive of Homestore, Inc.  The Commission's complaint charges Jeffrey M. Kalina, Homestore's former senior manager of mergers and acquisitions, with participating in a financial fraud scheme involving "round-trip" transactions in which Homestore used its own cash to generate revenues and thereby meet Wall Street expectations.  Kalina, 31, of Woodland Hills, California, has agreed to settle the Commission's lawsuit, to plead guilty to criminal charges, and to cooperate with the government in its investigation. 
+ 
+The Commission's civil complaint and the Department of Justice's criminal charges, which were both filed this morning in United States District Court in Los Angeles, allege that Kalina assisted senior Homestore executives in a scheme to inflate revenues during 2001 through the round-trip transactions that had no economic substance and to conceal the improper conduct from the company's independent auditors.  As a result of the fraudulent scheme, Homestore overstated advertising revenues by $46 million (64 percent) for the first three quarters of 2001 and total revenues by up to 15 percent, causing the company to report false and misleading financial information to shareholders and to the public in its Form 10-Q quarterly reports. 
+ 
+The Commission's complaint further alleges that Kalina knew that the round-trip transactions had no economic substance and that Homestore's reporting of revenues from these transactions violated generally accepted accounting principles (GAAP). Nevertheless, he assisted management in implementing the scheme and concealing parts of the transactions from the auditors. 
+ 
+The Commission charged Kalina with securities fraud, falsifying Homestore's books and records, and aiding and abetting Homestore's reporting and record-keeping violations, as well as Homestore management's lying to an accountant violations. Kalina settled the Commission's lawsuit without admitting or denying the allegations in the complaint. Kalina agreed to the entry of an order that (1) permanently enjoins him from committing future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-13, 13b2-1, and 13b2-2 thereunder; and (2) requires him to disgorge $74,348, including interest, from the exercise of his Homestore stock options during his involvement in the fraudulent scheme. These funds will be paid to the benefit of Homestore shareholders.  Additionally, Kalina has agreed to the entry of a public administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending him from practicing or appearing before the Commission as an accountant. 
+ 
+In the related criminal case, Kalina has agreed to plead guilty to a one-count information charging him with securities fraud. In a plea agreement also filed this morning, Kalina admitted that he coordinated the efforts of Homestore sales staff in connection with the fraudulent transactions, thereby causing false and misleading statements to be made to the investing public about Homestore's revenues. The criminal case closely mirrors the allegations made in the Commission's complaint. The charge against Kalina carries a maximum possible penalty of five years in prison and a $250,000 fine. 
+ 
+The Commission and the U.S. Attorney's office previously charged three other former executives for their involvement in the round-trip scheme. John Giesecke, Jr., Homestore's former chief operating officer; Joseph J. Shew, the company's former chief financial officer; and John DeSimone, Homestore's former vice president of transactions, have all pleaded guilty to criminal charges, settled the Commission's civil charges, and agreed to collectively pay almost $5 million in disgorgement and civil penalties. 
+ 
+At the time of the violations, Homestore was one of the top Internet portals for real estate and related services. Homestore, Inc. (formerly Homestore.com Inc.) is based in Westlake Village, California. Homestore provides Internet real estate listings on Realtor.com and related websites. 
+ 
+This civil case is the product of an ongoing investigation by the Securities and Exchange Commission. The criminal case was investigated by the Federal Bureau of Investigation. 
+ 
+    SEC Complaint in this matter  
+-->
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+              Securities Exchange Act of 1934  Release No. 47168 / January 13, 2003  Accounting and Auditing Enforcement  Release No. 1700 / January 13, 2003  Administrative Proceeding  File No. 3-11007   IN THE MATTER OF JOHN J. CANEPA, CPA   SEC INSTITUTES ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS AGAINST FORMER ANDERSEN PARTNER JOHN J. CANEPA  The Commission announced today that it has instituted administrative and cease-and-desist proceedings against John J. Canepa, a certified public accountant and former audit partner at Andersen, for his role in connection with the improper recognition of revenue by Anika Therapeutics, Inc. ("Anika"). In the Order Instituting Proceedings ("Order"), the Division of Enforcement alleges that Canepa caused Anika to improperly recognize approximately $1.3 million in revenue in 1999 and 2000 from certain sales of its product, Orthovisc, to a distributor, in violation of generally accepted accounting principles ("GAAP"). The Order further alleges that Canepa engaged in improper professional conduct within the meaning of Rule 102(e)(1) of the Commission's Rules of Practice, in connection with this same activity.  According to the Order, Anika improperly recorded on its books and records and reported in periodic Commission filings revenue from three large "bill-and-hold" transactions with a distributor. In such transactions, the customer agrees to purchase goods, but the seller retains possession until a later date. Anika improperly recognized revenue at the time of invoicing and prior to delivery of the product to the customer, contrary to GAAP. The Order further alleges that Canepa reviewed and approved Anika's recognition of revenue from its bill-and-hold transactions. Moreover, the Order alleges that Canepa caused Anika to improperly recognize over $300,000 in revenue from a 1998 bill-and-hold transaction in its restatement of revenue in March 2000, which resulted in the company filing a second restatement in September 2001.  A hearing will be held before an administrative law judge to determine whether Canepa caused violations of Sections 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 12b-20, 13a-1, and 13a-13 thereunder, and whether he engaged in improper professional conduct within the meaning of Rule 102(e)(1) of the Commission's Rules of Practice, and if so, whether he should be ordered to cease and desist from future violations of the above provisions of the Exchange Act, and whether remedial sanctions should be entered against him, including a censure or temporary or permanent denial of the privilege of appearing or practicing before the Commission.  In related proceedings, the Commission today instituted settled administrative proceedings against Anika and two of its former officers, J. Mellville Engle and Sean F. Moran. [ See  In the Matter of Anika Therapeutics, Inc. et al.,  Rel. 34-47167 , File No. 3-11006].          
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diff --git a/raw/aaer/2003/AAER-1703.txt b/raw/aaer/2003/AAER-1703.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e265e3d7865648b4a568babe38aa357c6541c207
--- /dev/null
+++ b/raw/aaer/2003/AAER-1703.txt
@@ -0,0 +1,1655 @@
+
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+     SEC.gov | Glenn R. Ohlhauser, C.A. 
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+              Glenn R. Ohlhauser, C.A.
+           
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+        Glenn R. Ohlhauser, C.A.
+       
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+                        
+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 47256 / January 27, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1703 / January 27, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11018 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			 In the Matter of 
+
+			 GLENN R. OHLHAUSER, C.A., 
+
+			 Respondent. 
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			 
+			 ORDER INSTITUTING PUBLIC 
+			ADMINISTRATIVE PROCEEDINGS, 
+			MAKING FINDINGS AND IMPOSING 
+			AN 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 that public administrative proceedings be, and hereby are, instituted against Glenn R. Ohlhauser, C.A. ("Ohlhauser") pursuant to Rules 102(e)(1)(ii) and 102(e)(3)(i)(A) of the Commission's Rules of Practice [17 C.F.R. §§ 201.102(e)(1)(ii) and 201.102(e)(3)(i)(A)].  1   
+
+  II.  
+
+ In anticipation of the institution of these proceedings, Ohlhauser 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, Ohlhauser consents to the issuance of this Order and to the entry of the findings and imposition of the remedial sanctions set forth below, without admitting or denying the Commission's findings, except that Ohlhauser admits that the Commission has jurisdiction over him and over the subject matter of this proceeding, and admits the Commission's finding in Section IV.B relating to his having been permanently enjoined from future violations of the Federal securities law. 
+
+  III.  
+
+ On the basis of this Order and the Respondent's Offer, the Commission finds  2   that: 
+
+  A. Summary  
+
+ Glenn Ohlhauser, a Chartered Accountant, was the partner in charge of the audit of the December 31, 1997 financial statements of Solucorp Industries Ltd. ("Solucorp"), which were filed in a Form 10-KSB with the Commission. The financial statements overstated revenues by at least 27%. The overstatement resulted from the improper accrual of license fees under an agreement with a Hong-Kong based closely-held company, Smart International Ltd. ("Smart"). 
+
+ In conducting the audit, Ohlhauser failed to exercise due professional care and to obtain sufficient evidential matter to support the company's recognition of the license fees. Indeed, on the basis of information known to him, Ohlhauser had ample reason to know that Solucorp's accrual of the license fees was not in conformity with generally accepted accounting principles ("GAAP"). Nonetheless, Ohlhauser, on behalf of his firm, MacKay & Partners LLP, now MacKay LLP, ("MacKay"), signed and issued an unqualified audit report on Solucorp's December 31, 1997 financial statements. 
+
+  B. Respondent  
+
+ Glenn R. Ohlhauser, age 49, a Chartered Accountant ("C.A.") licensed in British Columbia, Canada,  3   was the MacKay partner in charge of the audit of Solucorp's financial statements for the period ended December 31, 1997. He had been the partner in charge of the audits of Solucorp's financial statements for two years prior to 1997, and continued in that capacity through the audit of Solucorp's December 31, 1998 financial statements. Ohlhauser resigned from MacKay in 2000. 
+
+  C. Relevant Entity   
+
+ Solucorp Industries Ltd. is a Yukon Territory corporation headquartered in New York that engages in the treatment and disposal of contaminated soil and in developing, marketing and licensing of products for use in environmental cleanups, including its so-called "Molecular Bonding System" ("MBS"). Solucorp's securities are registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"). During the relevant time period, Solucorp undertook to prepare its financial statements in conformity with Canadian GAAP. 
+
+  D. Facts  
+
+ In December 1997, Ohlhauser was asked by Solucorp to reconcile Solucorp's financial statements for the quarter ended September 30, 1997 from Canadian GAAP to U.S. GAAP for inclusion in a registration statement Solucorp planned to file with the Commission. On the basis of a limited review of the financial statements, Ohlhauser concluded that they were materially misstated because the company had improperly accrued $500,000 in license fees purportedly receivable from Smart, which comprised 40% of Solucorp's reported revenues for the quarter. The only document in existence at the time between Solucorp and Smart pertaining to Smart's use of MBS in China was a non-binding "agreement in principle" dated June 4, 1997. Ohlhauser regarded this agreement as too vague and contingent to support revenue recognition. 
+
+ On December 18 and 19, 1997, Ohlhauser conveyed his concerns to Victor Herman, the chief financial officer of Solucorp's chief operating subsidiary, and recommended that Solucorp restate its September 30, 1997 financial statements, which had already been filed with a Canadian regulatory authority in November 1997. Herman responded that no restatement was necessary as revenue recognition of the license fees was proper. Herman told Ohlhauser that Solucorp and Smart had spent the last several months of 1997 negotiating the terms of the final agreement, and that Solucorp representatives had traveled to China in the fall for that purpose. Herman further stated that Smart had already paid $200,000 and would be paying $300,000 shortly.  4   He further explained that the final agreement, which had yet to be memorialized, would address Ohlhauser's concerns. Ohlhauser continued to regard the financial statements as materially misstated. 
+
+ Solucorp filed its Form 10-KSB registration statement with the Commission on December 22, 1997. The company was required to attach copies of all material contracts ( see  17 C.F.R. § 228.601(b)(10)). With respect to its agreement with Smart, the company attached only a copy of the non-binding June 4, 1997 agreement in principle. No mention was made of the parties finalizing the terms of a license agreement, with the exception of a footnote to the June 30, 1997 financial statements included in the Form 10-KSB, which described the terms of the June 4 agreement in principle and stated simply that the parties had finalized the agreement after June 30, 1997. 
+
+ In late 1997, Solucorp changed its fiscal year from June 30 to December 31. In its financial statements for the six-month transition period ended December 31, 1997, Solucorp recognized $1,090,000 in Smart license fees, which comprised approximately 50% of its total revenues. MacKay audited the financial statements in early 1998. 
+
+ In late February 1998, during the audit, Ohlhauser requested to see a copy of the final license agreement negotiated by the parties. Solucorp provided Ohlhauser with a copy of the license agreement with Smart that superseded the June 4, 1997 agreement in principle. 
+
+ The final agreement included a provision that enabled Smart, at its own determination in limited circumstances, to convert amounts owed to Solucorp to "pre-paid inventory" of calcium sulfide. Smart produced calcium sulfide for use in the MBS process pursuant to an agreement entered into in March 1997. In effect, Smart could substitute future production of calcium sulfide for monies owed to Solucorp. However, Smart was under no legal obligation to produce calcium sulfide. 
+
+ This superseding agreement had a commencement date of June 1, 1997 and was "dated as of" September 15, 1997. The signers of the agreement, Solucorp's president, Peter Mantia, and Smart's principal, both cited September 15, 1997 as their signature date. In fact, the agreement's terms had been finalized and executed on or about December 30, 1997. 
+
+ Ohlhauser observed in a March 10, 1998 memo to Herman that the agreement appeared to have been backdated, as no mention of the agreement was made in the Form 10-KSB registration statement filed with the Commission on December 22, 1997. Ohlhauser further observed that he did not "know what [the] SEC may say if these new `facts' aren't consistent with items previously filed." Notwithstanding that Herman had informed Ohlhauser in December 1997 that the parties were then engaged in negotiations that had been going on for several months, he now contended to Ohlhauser that Mantia had finalized the contract during a visit to China on September 15, 1997, and that Herman would address the issue of backdating with the Commission if it arose. 
+
+ While grappling with the accounting issues arising from the backdating of the license agreement, Ohlhauser also questioned the parties' noncompliance with the terms of the agreement "dated as of" September 15, 1997. Of particular concern to him was Smart's failure to pay the license fee in accordance with the agreement's terms, and the fee's questionable collectibility. As of December 31, 1997, Smart had paid only $500,000 in license fees. This consisted of a $150,000 payment in cash, and an offset of $350,000 in overdue license fees against an equivalent amount Solucorp would owe Smart for Smart's production of calcium sulfide. 
+
+ In a memo to Herman dated February 27, 1998, Ohlhauser observed that "GAAP (both Can[adian] and US) states that `revenues from the use of others of enterprise resources should be recognized when reasonable assurance exists regarding measurement and collectibility.'" Commenting that at that time he lacked the information necessary to assess the appropriateness of revenue recognition, Ohlhauser requested information relating to, among other things, Smart's ability to pay. He commented further that Solucorp had a "potential problem if [Smart] intend[s] to pay in product," questioning where the product would be stored and how Solucorp would get to the inventory in the event of default. 
+
+ In March 1998, Smart confirmed to Ohlhauser the $150,000 cash payment and $350,000 offset, and amounts earned and unbilled as of March 1998. With this confirmation in hand, Ohlhauser continued to press Herman over the next month for evidence of the fees' collectibility. Of particular concern to Ohlhauser was the fact that Smart had made no further payments, even though an additional $1 million in license fees had been due as of March 31, 1998 under the terms of the final agreement.  5   Moreover, throughout this period, Solucorp continued to advance funds to Smart toward the purchase of calcium sulfide even though Smart was delinquent in paying its license fees. 
+
+ In a memo to Herman dated April 3, 1998, Ohlhauser stated that he was "still waiting for additional evidence regarding payment or other evidence to show amount is collectable." In another memo to Herman dated April 9, 1998, Ohlhauser stated that he had not resolved the issue of Solucorp's license fee accrual. Ohlhauser further stated that he did not "see evidence that [the] contract terms are being complied with." Ohlhauser cautioned that, "[i]f there was an inference that [Solucorp's] collection might be dependent on Smart developing future business and sales from the agreement, then I think [the] SEC would only allow revenues to be recorded as received. . . ." 
+
+ Ohlhauser repeatedly requested that Herman obtain financial statements from Smart or other comparable data that would address Smart's financial wherewithal to pay the license fees. Herman refused to obtain this information on the grounds that it would offend the Chinese company.  6   Herman insisted that the fees were collectible, but that Solucorp refused to pressure Smart for payment because Smart had agreed in 1997 to undertake the manufacture of calcium sulfide when Solucorp encountered difficulty locating another supplier. 
+
+ In his final memorandum to the file, dated April 14, 1998, summarizing the key audit issues, Ohlhauser wrote that Solucorp's accrual of license fees was reasonable provided that collection could be properly determined. Observing that he had "no information on ability of Smart to pay," Ohlhauser added that the "audit evidence on collectibility" such as it was, consisted of Smart's confirmation and the fact that Smart was a supplier of calcium sulfide. Ohlhauser further acknowledged in the memo his concern that if license fees "are not paid there is no recourse for collection." 
+
+ Ohlhauser issued an unqualified audit report on Solucorp's financial statements for the six-month transition period ended December 31, 1997. These financial statements were included in the Form 10-KSB Solucorp filed with the Commission on April 15, 1998. 
+
+  E. Legal Analysis  
+
+  1.  Solucorp Improperly Recognized the Smart License Fees    
+
+ Section 4-01 of Regulation S-X [17 C.F.R. § 240.4-01(a)(1)] requires that financial statements included in a transition report filed with the Commission must be prepared in accordance with GAAP. Financial statements prepared in accordance with a comprehensive set of GAAP other than U.S. GAAP must be reconciled to U.S. GAAP in the footnotes to the financial statements. Solucorp undertook to prepare its December 31, 1997 financial statements in accordance with Canadian GAAP, which are substantially the same as U.S. GAAP with regard to the transactions at issue here. Solucorp confirmed this in the footnotes to its December 31, 1997 financial statements, stating that there were no differences to report between Canadian and U.S. GAAP with regard to its financial statements as the differences were not considered significant. Accordingly, the requirements of U.S. GAAP are set forth below, with citations to the comparable Canadian GAAP provisions (signified by the citations to the Canadian Institute of Chartered Accountants Handbook ("CICA Handbook")). 
+
+  a.  GAAP governing recognition of Smart license fees   
+
+ GAAP requires that persuasive evidence of an arrangement must exist before revenue can be recognized. Statement of Position 97-2; CICA Handbook § 1000.21. In order for revenue to be recognized, it must be earned and realized or realizable. Statement of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business Enterprises ("CON 5"), ¶ 83; CICA Handbook §§ 1000.47, 3400.06, 3400.08-.09. Revenues are earned when the reporting entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. Revenues are realizable when related assets received or held are readily convertible to known amounts of cash or claims to cash. CON 5, ¶ 83; CICA Handbook § 3400.06, 3400.08-.09. If collectibility is not reasonably assured, revenues should be recognized on the basis of cash received. CON 5, ¶ 84g;  see also  Accounting Research Bulletin No. 43 ("ARB 43"), Ch. 1A, ¶ 1; Accounting Principles Board Opinion No. 10 ("APB 10"); CICA Handbook § 3400.16. If payment is subject to a significant contingency, revenue recognition is improper. Statement of Financial Accounting Standards No. 5 ("SFAS 5"),  Accounting for Contingencies ; CICA Handbook § 3400.06. 
+
+  b.  Solucorp's nonconformance with GAAP    
+
+ Solucorp's accrual of at least $590,910 in Smart license fees as revenue during the six-month transition period ended December 31, 1997 was not in conformity with GAAP. First, Solucorp could not claim to have earned license fees for a period during which no agreement between the parties existed. SOP 97-2; CON 5, ¶ 83; CICA Handbook § 1000.21, 3400.16. Second, collectibility of the license fees was not reasonably assured as of December 31, 1997. CON 5, ¶ 84g; ARB 43, Ch. 1A, ¶ 1; APB 10; CICA Handbook § 3400.16. 
+
+  2. The Failure to Audit in Accordance with GAAS  
+
+ Section 13a-10 of Regulation S-X [17 C.F.R. § 240.13a-10] requires that financial statements contained in a report with respect to a transition period of six months or longer must be audited in accordance with generally accepted auditing standards ("GAAS"). This section further requires that an accountant's audit report must state "whether the audit was made in accordance with [GAAS]." MacKay undertook to conduct its audit of Solucorp's financial statements for the six-month transition period ended December 31, 1997 in accordance with Canadian GAAS (signified by "CICA Handbook § __"). 
+
+  a.  GAAS governing the audit of Solucorp's financial statements    
+
+ An auditor must maintain an attitude of professional skepticism when performing audit procedures and gathering and analyzing audit evidence. CICA Handbook § 5135.06. An auditor must also obtain sufficient appropriate audit evidence to afford a reasonable basis for an opinion regarding the financial statements under audit (CICA Handbook § 5100.02), and cannot rely solely on management representations. CICA Handbook § 5300.26. 
+
+  b. The failure to audit Solucorp's December 31,   
+
+   1997 financial statements in accordance with GAAS   
+
+ The audit of Solucorp's December 31, 1997 financial statements was not conducted in conformity with GAAS. Ohlhauser believed that Solucorp had materially misstated its September 30, 1997 financial statements and had backdated the final license agreement with Smart to September 15, 1997. Management's misrepresentations that the license agreement had in fact been finalized, though not signed, on September 15, 1997 dissuaded Ohlhauser from pursuing the issue further.  7   His efforts to obtain competent evidential matter on collectibility were also stymied, with Herman refusing outright to procure information on Smart's financial condition. At the conclusion of the audit, Ohlhauser noted that there was limited evidence to indicate that the parties were complying with the terms of the agreement and no evidence that Smart had the ability to pay license fees, further observing that Solucorp had no recourse for collection if Smart did not pay. 
+
+ Any reliance placed by Ohlhauser on management's expectation of offsets was misplaced. First, the possibility of offsets was contingent on continued demand for calcium sulfide, which, in turn, was contingent on securing remediation jobs using MBS. Ohlhauser was sufficiently aware of this to observe in his April 9, 1998 memo to Herman that, "[i]f there was an inference that your collection might be dependent on Smart developing future business and sales [from] the agreement, then I think [the] SEC would only allow revenues to be recorded as received. . . ." Second, an auditor cannot rely solely on management's representations, but is required under GAAS to obtain corroborative evidential matter. 
+
+ In the context of all that was known to him, Ohlhauser's issuance of an unqualified audit report falsely stating that Solucorp's December 31, 1997 financial statements presented fairly, in all material respects, the financial position of the company in conformity with GAAP and that MacKay audited those financial statements in accordance with GAAS was improper. He recklessly failed to exercise professional skepticism and to gather competent evidential matter necessary to afford a reasonable basis for his audit opinion. 
+
+  IV.  
+
+  FINDINGS  
+
+ On the basis of this Order and the Respondent's Offer, the Commission finds that: 
+
+ A. Ohlhauser engaged in improper professional conduct for purposes of Rule 102(e)(1)(ii) of the Commission's Rules of Practice; and 
+
+ B. on January 16, 2003, the United States District Court for the Southern District of New York entered a final judgment permanently enjoining Ohlhauser from violating Exchange Act Section 10A. 
+
+  V.  
+
+  UNDERTAKINGS  
+
+ In connection with this proceeding and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party, the Respondent undertakes to: (i) produce documents within his possession, custody or control and provide interviews at the request of the Commission staff; (ii) accept service by mail or facsimile transmission of subpoenas for documents or testimony at depositions, hearings or trials; (iii) in connection with such subpoena, waive the territorial limits on service contained in Fed. R. Civ. Proc. 45 or applicable local rules for such subpoenas, and waive the requirements of Fed. R. Civ. Proc. 28; (iv) appoint Andrew Tretter of the law firm of McDonough Marcus Cohn Tretter Heller & Kanca, L.L.P. as agent to receive such service; and (v) give truthful and accurate information and testimony and not assert any evidentiary or other privilege other than the attorney-client and work product privileges. 
+
+ In determining whether to accept the Offer, the Commission considered these undertakings. 
+
+  VI.  
+
+  ORDER  
+
+ Accordingly,  IT IS HEREBY ORDERED , effective immediately that: 
+
+  
+
+ 
+	 Ohlhauser is denied the privilege of appearing or practicing before the Commission as an accountant.
+	  
+	 
+	 After two (2) years from the date of this Order, Ohlhauser may request that the Commission consider his reinstatement by submitting an application to the 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 application must satisfy the Commission that Ohlhauser'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 application must satisfy the Commission that:
+		 (a) Ohlhauser, 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") or an equivalent Canadian organization that includes or is supplemented by 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 appears or practices before the Commission as an independent accountant; 
+
+		 (b) Ohlhauser, or the firm with which he is associated, 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 or equivalent Canadian organization; and 
+
+		 (c) as long as Ohlhauser 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 or equivalent Canadian organization and will comply with all applicable SEC Practice Section or equivalent Canadian organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+		 
+	 
+
+	  
+	 
+	 The Commission will consider an application by Ohlhauser to resume appearing or practicing before the Commission provided that his chartered accountant license is current and he has resolved any and all other disciplinary issues with the applicable institute of chartered accountants. If licensure is dependant on reinstatement by the Commission, however, the Commission will consider an application on its other merits. The Commission's review of any request or application by Ohlhauser to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Ohlhauser's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+ 
+
+ By the Commission. 
+
+ 
+ 
+ 
+ 
+ Jonathan G. Katz 
+Secretary 
+ 
+ 
+ 
+ 
+
+ ______________________ 
+
+ 
+	 
+		 
+			   1   
+			 Rule 102(e) provides, in pertinent part:
+			 (1) 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 . . . to have engaged in . . . (ii) improper professional conduct. 
+
+			 (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) [p]ermanently enjoined by any court of competent jurisdiction, by reason of his . . . 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. . . . 
+
+			 (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 (e)(3) to have been enjoined by reason of the misconduct alleged in the complaint. 
+			 
+		 
+		 
+			   2   
+			 The findings herein are not binding on anyone other than the Respondent. 
+		 
+		 
+			   3   
+			 In Canada, a C.A. is the professional equivalent of a Certified Public Accountant in the United States. 
+		 
+		 
+			   4   
+			 In fact, as of December 18 and 19, 1997, when Ohlhauser spoke with Herman about his concerns, Smart had paid only $150,000, which had been wired on October 21, 1997. In an October 22, 1997 press release, Solucorp had characterized the payment as "confirmation of Smart's commitment to obtaining an exclusive license to market and apply" MBS in China. 
+		 
+		 
+			   5   
+			 Under the terms of the final agreement, Smart was required to pay the first year license fee in installments as follows: $200,000 by each of July 31, 1997, September 30, 1997, and November 30, 1997; $400,000 by January 31, 1998; and $500,000 by each of March 31, 1998 and May 31, 1998. The agreement set forth this payment schedule notwithstanding that as of the purported date of the agreement, September 15, 1997, no payment had been made in July; as of mid-November 1997, when the parties met in China to finalize the agreement, no payment had been made in September; and as of December 30, 1997, when the written agreement was finalized and executed, no payment had been made in November. 
+		 
+		 
+			   6   
+			 Had Ohlhauser obtained the only audited financial statements available for Smart at the time, which related to the fiscal year ended March 31, 1997, he would have seen that the company was dormant as of the end of that period and had assets of only $2,850 HK. 
+		 
+		 
+			   7   
+			 Ohlhauser's alleged failure to take appropriate steps in accordance with Exchange Act Section 10A on becoming aware of the backdating is the subject of a separately instituted civil injunctive action,  SEC  v.  Solucorp Industries, Ltd., et al. , 99 Civ. 11965 (S.D.N.Y.), in which senior management is also alleged to have lied to Ohlhauser about the date as of when the license agreement was finalized. On January 16, 2003, the United States District Court for the Southern District of New York entered a final judgment in that action permanently enjoining Ohlhauser from future violations of Exchange Act Section 10A. Ohlhauser consented to entry of the judgment without admitting or denying the allegations of the Commission's complaint.  See   Lit. Rel. No. 17951  (January 27, 2003). 
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diff --git a/raw/aaer/2003/AAER-1704.txt b/raw/aaer/2003/AAER-1704.txt
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+ 
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+              Solucorp Industries Ltd., et al.
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+ LITIGATION RELEASE NO. 17951 / January 27, 2003
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1704 / January 27, 2003
+
+  SECURITIES AND EXCHANGE COMMISSION v. SOLUCORP INDUSTRIES LTD., ET AL., 99 Civ. 11965 (S.D.N.Y.) (WCC)
+  FORMER AUDITOR OF SOLUCORP INDUSTRIES LTD.'S 
+ FINANCIAL STATEMENTS  IS ENJOINED 
+ Former Auditor Barred From Appearing or Practicing 
+ Before the Commission For Two Years
+
+  On January 16, 2003, the Commission obtained a final judgment against Glenn R. Ohlhauser, a Canadian Chartered Accountant and former engagement partner on audits of the financial statements of Solucorp Industries Ltd., a Yukon Territory corporation headquartered in West Nyack, New York that engages in environmental remediation.  The United States District Court for the Southern District of New York entered the final judgment against Ohlhauser. The judgment permanently enjoins Ohlhauser from violating Section 10A of the Securities Exchange Act of 1934 by, among other things, failing to take the steps required by that section on detecting or otherwise becoming aware of information, during the course of auditing a public company, that an illegal act has or may have occurred.  Without admitting or denying the Commission's allegations against him, Ohlhauser consented to the entry of the final judgment. 
+
+  The Commission's complaint in this case, which was filed in December 1999 and amended in October 2000 and September 2001, charged Ohlhauser with failing to take appropriate action on discovering possible illegal conduct during an audit of Solucorp's December 31, 1997 financial statements.  The Complaint, which also names Solucorp and certain of its current and former officers and directors as defendants, alleges that Solucorp's management backdated a license agreement in order to cover-up Solucorp's improper recognition during the quarter ended September 30, 1997 of $500,000 in license fees, or 40% of its revenues, and to materially overstate revenues for the six-month reporting period ended December 31, 1997.    ( See   Lit. Rel. No. 16388/December 13, 1999 )  The Complaint further alleges that, on being presented during the audit with the final license agreement, Ohlhauser reasonably concluded that the agreement appeared to have been backdated for improper accounting purposes.  He allegedly failed, however, to take the appropriate steps under Section 10A to determine, in accordance with generally accepted auditing standards, the likelihood that an illegal act had occurred, and to disclose, or assure the disclosure of, any illegal acts that he uncovered.  ( See   Lit. Rel. No. 16785/October 31, 2000 )  The illegal acts at issue here included the commission of fraud by Solucorp's president, who is alleged to have purposefully backdated the license agreement for purposes of supporting Solucorp's improper revenue recognition.  
+
+  In a related proceeding, the Commission today issued an administrative order pursuant to Rule 102(e) of its Rules of Practice that denies Ohlhauser the privilege of appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after two years.  In addition to finding that Ohlhauser has been permanently enjoined, as described above, the Commission finds in its Order that Ohlhauser engaged in improper professional conduct.  This is based on Ohlhauser's failure to exercise professional skepticism and to gather competent evidential matter concerning the collectibility of license fees to afford a reasonable basis for the issuance of an unqualified audit report regarding Solucorp's December 31, 1997 financial statements.  Ohlhauser, who admits to the Commission's finding that a final judgment was entered against him, but neither admits nor denies the second finding of improper professional conduct, consented to the entry of the administrative order against him.   See    In the Matter of Glenn R. Ohlhauser, C.A  ., Admin. Proc. No. 3-11018 (January 27, 2003).
+
+    The case is still pending against the remaining defendants, Solucorp Industries Ltd., Joseph S. Kemprowski, Peter R. Mantia, James G. Spartz, Robert Kuhn, Victor Herman, Arle Pierro and W. Bryan Fair.   
+  
+ 
+  
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+    SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1705.txt b/raw/aaer/2003/AAER-1705.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e832609f65a3e51a0add7390dfa0da0fb46d2efa
--- /dev/null
+++ b/raw/aaer/2003/AAER-1705.txt
@@ -0,0 +1,1487 @@
+
+
+ 
+ 
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+     SEC.gov | Robert J. Gluck 
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+              Robert J. Gluck
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+        Robert J. Gluck
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+Securities Exchange Act of 1934 
+Release No.  47260 / January 27, 2003 
+ 
+Accounting and Auditing Enforcement 
+Release No.  1705 / January 27, 2003 
+ 
+Administrative Proceeding 
+File No.  3-11019 
+        
+In the Matter of 
+  
+Robert J. Gluck,        
+  
+Respondent.   
+     
+    : : : : : : :   
+   ORDER INSTITUTING PROCEEDINGS 
+PURSUANT TO RULE 102(e)(3) 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 Robert J. Gluck ("Gluck" or "Respondent"), pursuant to Rule 102(e)(3) of the Commission's Rules of Practice [17 C.F.R. § 200.102(e)(3)].    1   
+
+ II. 
+ 
+In anticipation of the institution of the administrative proceedings, Respondent has sub-mitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept.  Solely for the pur-poses 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 find-ings con-tained herein, except that he admits the jurisdiction of the Commission over him and over the subject matter of this proceeding, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Rule 102(e)(3) of the Commission's Rule of Practice, Making Findings, and Imposing Remedial Sanctions (the "Order") as set forth below. 
+
+ III. 
+ 
+The Commission makes the following findings:  
+  Gluck served as Comptroller for Sunbeam, a public company, from 1996 through 1998.   
+
+ On January 27, 2003, a Final Judgment was entered against Gluck in SEC  v. Albert J. Dunlap., et al., 01-8437-CIV (S..D. Fla., May 15, 2001), in the United States District Court for the Southern District of Florida, that, among other things, permanently enjoins Gluck from violating or aiding and abetting violations of Section 17(a)(1) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder. 
+  IV. 
+ 
+Based upon the foregoing, the Commission finds that: 
+  Gluck practiced before the Commission within the meaning of Rule 102(f) of the Commission's Rules of Practice (17 C.F.R. § 201.102(f)) in connection with the preparation of the financial statements of a public company.   
+
+ Gluck has been enjoined by a court of competent jurisdiction, by reason of his conduct in an action brought by the Commission, from violating provisions of the federal securities laws and the rules and regulations thereunder within the meaning of Rule 102(e)(3) of the Commission's Rules of Practice; and 
+  
+Accordingly, the Commission deems it appropriate and in the public interest to impose the sanctions consented to in the Offer submitted by Gluck and hereby ORDERS, effective immediately, that: 
+  Respondent is suspended from appearing or practicing before the Commission as an accountant.   
+
+ After 5 years from the date of this order, Respondent may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:   
+
+  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) 
+ Respondent, 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization");    (b) 
+ Respondent, 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 or equivalent organization; and     (c) 
+ As long as Respondent 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.     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. 
+   
+ 
+Jonathan G. Katz 
+Secretary 
+ 
+ 
+ 
+        1   
+ Rule 102(e)(3)(i) provides, in pertinent 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:. . . (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 . . . any provision of the Federal securities laws or of the rules and regulations thereunder.     
+ 
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diff --git a/raw/aaer/2003/AAER-1707.txt b/raw/aaer/2003/AAER-1707.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9cb5702c589cac2eb70289ad6fd350131240ecb4
--- /dev/null
+++ b/raw/aaer/2003/AAER-1707.txt
@@ -0,0 +1,1389 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Albert Dunlap et al. 
+     
+     
+     
+     
+     
+     
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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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+ Litigation Release No.  17952 / January 27, 2003
+
+  Accounting and Auditing Enforcement Release No.  1707 / January 27, 2003
+
+  Former Arthur Andersen Auditor and Two Additional Former Sunbeam Officers Settle SEC Charges
+
+   Securities and Exchange Commission v. Albert Dunlap et al. , Civil Action No. 01-8437-CIV (Middlebrooks)(S.D. Fla.)
+
+  Phillip E. Harlow, the audit partner on the Arthur Andersen engagements to audit Sunbeam's 1996 and 1997 year-end financial statements, Robert J. Gluck, Sunbeam's former controller and chief accounting officer, and Donald R. Uzzi, a former Sunbeam vice-president for sales, have settled charges brought against them by the Securities and Exchange Commission.  These settlements resolve all outstanding matters in the Sunbeam litigation.
+
+  Pursuant to his offer of settlement, the Commission today entered an Order denying Phillip Harlow ("Harlow") the privilege or appearing or practicing before the Commission as an accountant, with a right to reapply after three years.   In the Matter of Phillip A. Harlow, CPA , Exchange Act Release No. 34-47261, Accounting and Auditing Enforcement Release No.  17952.  The Commission found that, in connection with Arthur Andersen's audits of Sunbeam's 1996 and 1997 year-end financial statements:
+
+        Harlow failed to exercise professional skepticism when performing audit procedures and gathering and analyzing audit evidence.  In some instances, moreover, Harlow accepted uncorroborated representations of Sunbeam's management in lieu of performing appropriate audit procedures.
+
+       Harlow failed to exercise due professional care in performing the audit and preparing the audit report.  Although Harlow identified a number of audit risks and accounting issues associated with the Sunbeam engagement and should have known these items could have a material impact on the financial statements, he failed to perform sufficient audit procedures to determine whether the financial statements were in conformity with GAAP.  Specifically, Harlow did not adequately address the Company's excessive restructuring and litigation reserves at year-end 1996, which resulted in the overstatement of the Company's income in 1997.  Similarly, his lack of care in conducting the 1997 year-end audit allowed management to recognize revenue on sales that did not comport with applicable accounting standards.     
+
+       Harlow failed to obtain sufficient competent evidential matter through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an audit opinion regarding the financial statements under audit.  
+
+       Harlow failed to render an accurate audit report.  To the contrary of the representations made by Harlow in the Arthur Andersen audit reports on Sunbeam's 1996 and 1997 year-end financial statements, the financial statements were not in conformity with GAAP, and the audits werel not performed in accordance with GAAS.  
+
+       Harlow, therefore, engaged in "improper professional conduct" for purposes of Commission Rule 102(e).
+
+   Harlow consented to the entry of the order without admitting or denying the findings therein.  In conjunction with the entry of the administrative order, the Commission withdrew and dismissed its complaint in district court as to Harlow.
+
+  Robert Gluck ("Gluck"), without admitting or denying the allegations in the Commission's complaint, agreed to the entry of a judgment: (1) permanently enjoining him from violating or aiding and abetting violations of the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws: Section 17(a) of the Securities Act of 1933 ("Securities Act") 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 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder; (2) barring him for a period of five years from serving as an officer or director of any public company, and (3) requiring him to pay a civil penalty of $100,000.  Gluck has also consented to the entry of a Commission order barring him from appearing or practicing before the Commission as an accountant, with a right to reapply after five years.  
+
+  Donald Uzzi, without admitting or denying the allegations in the Commission's complaint, agreed to the entry of a judgment: (1) permanently enjoining him from violating Section 17(a) of the Securities Act and from violating or aiding and abetting 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, and 13b2-1 thereunder; and (2) requiring him to pay a civil penalty of $100,000.  The Honorable Judge Donald Middlebrooks signed the final judgments as to Gluck and Uzzi today.  
+
+  Former Sunbeam CEO Albert J. Dunlap, CFO Russell A. Kersh and vice-president of sales Lee B. Griffith previously settled the Commission's charges against them in the district court action.  
+
+   See also  Lit. Release Nos.  17001  (May 15, 2001) and  17710  (September 4, 2002) and  Accounting and Auditing Enforcement Release No. 1393  (May 15, 2001).
+
+  
+ 
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diff --git a/raw/aaer/2003/AAER-1709.txt b/raw/aaer/2003/AAER-1709.txt
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+     SEC.gov | KPMG LLP, Joseph T. Boyle, Michael A. Conway, Anthony P. Dolanski and Ronald A. Safran 
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+              KPMG LLP, Joseph T. Boyle, Michael A. Conway, Anthony P. Dolanski and Ronald A. Safran
+           
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+
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+        KPMG LLP, Joseph T. Boyle, Michael A. Conway, Anthony P. Dolanski and Ronald A. Safran
+       
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+ Litigation Release No. 17954 / January 29, 2003 
+Accounting and Auditing Enforcement Release No. 1709 / January 29, 2003 
+
+  Securities and Exchange Commission v. KPMG LLP, Joseph T. Boyle, Michael A. Conway, Anthony P. Dolanski and Ronald A. Safran , Civil Action No. 03 CV 0671 (DLC) (S.D.N.Y.) (January 29, 2003) 
+
+ SEC Charges KPMG and Four KPMG Partners with Fraud in Connection with Audits of Xerox 
+
+ SEC Seeks Injunction, Disgorgement and Penalties 
+
+ On January 29, 2003, the Securities and Exchange Commission filed a civil fraud injunctive action in the United States District Court for the Southern District of New York against KPMG LLP and four KPMG partners - including the head of the firm's department of professional practice - in connection with KPMG's audits of Xerox Corporation from 1997 through 2000.  The complaint charges the firm and four partners with fraud, and seeks injunctions, disgorgement of all fees and civil money penalties.   
+
+ The complaint alleges that KPMG and its partners permitted Xerox to manipulate its accounting practices to close a $3 billion "gap" between actual operating results and results reported to the investing public.  Year after year, the defendants falsely represented to the public that their audits were conducted in accordance with generally accepted auditing standards (GAAS) and that Xerox's financial reports fairly represented the company's financial condition and were prepared in accordance with generally accepted accounting principles (GAAP).   
+
+ The four partners named as defendants, all of whom are certified public accountants, are: 
+
+  Michael A. Conway, 59, a resident of Westport, CT, has been KPMG's Senior Professional Practice Partner and the National Managing Partner of KPMG's Department of Professional Practice since 1990.  He was the senior engagement partner on the Xerox account from 1983 to 1985.  He again became the lead worldwide Xerox engagement partner for the 2000 audit.  Conway also is a member of the KPMG board and is chairman of the KPMG Audit and Finance Committee.   
+
+ Joseph T. Boyle, 59, a resident of New York City, was the "relationship partner" on the Xerox engagement in 1999 and 2000 and is a managing partner of the New York office of KPMG and of the Northeast Area Assurance (Audit) Practice.  As the relationship partner, Boyle's chief duty was serving as liaison between KPMG and the Xerox Board of Directors, including its Audit Committee.   
+
+ Anthony P. Dolanski, 56, a resident of Malvern, PA, was the lead engagement partner overseeing Xerox's audits from 1995 through 1997.  He left KPMG in 1998.  He is currently the chief financial officer of the Internet Capital Group, a public company.   
+
+ Ronald A. Safran, 49, a resident of Darien, CT, was the lead engagement partner on the 1998 and 1999 Xerox audits.  He was removed as engagement partner at Xerox's request after completing the 1999 audit and was replaced by Conway.  KPMG or its predecessor has employed Safran since his graduation from college in 1976.   The Commission's complaint alleges that beginning at least as early as 1997, Xerox initiated or increased reliance on various accounting devices to manipulate its equipment revenues and earnings.  Most of these "topside accounting devices" violated GAAP and most improperly increased the amount of equipment revenue from leased office equipment products which Xerox recognized in its quarterly and annual financial statements filed with the Commission and distributed to investors and the public.  This improper revenue recognition had the effect of inflating equipment revenues and earnings beyond what actual operating results warranted.  In addition, the complaint alleges that the defendants fraudulently permitted Xerox to manipulate reserves to boost the company's earnings. 
+
+ The complaint alleges that under GAAP, when lessors such as Xerox enter into a "sales type lease" they must recognize immediately nearly all of the revenue attributed to the value of the product, but must spread recognition of financing, servicing and supply revenues over the life of the lease.  Traditionally, Xerox local offices in each country booked the value of leased products at the time a lease was entered into, accounting also for the cost of financing and servicing the equipment during the lease period, based on local market conditions.  Beginning in at least 1997, Xerox altered its accounting to treat more finance and servicing revenue as part of the value of the equipment, allowing Xerox to recognize a greater portion of revenue from new leases immediately in its financial statements.  These calculations were made either by management at Stamford or by local country managers based on explicit assumptions dictated by Stamford, which ignored local economic conditions.  The complaint refers to these new methods as "topside accounting devices" imposed by senior Xerox financial managers.  Xerox told KPMG it needed to resort to these improper accounting devices because it could no longer rely on the traditional way it established the fair value of its products. 
+
+ Although adoption of these new methods made Xerox revenue and earnings reports not comparable to earlier periods, and resulted in less revenue and earnings for reporting in future periods, Xerox never informed the public of the changes. 
+
+ According to the complaint, KPMG affiliate offices in Europe, Brazil, Canada and Japan, as well as KPMG auditors at Xerox's main U.S. operations facility in Rochester, N.Y., repeatedly warned the defendant KPMG partners, who had overall responsibility for the Xerox audit engagement, that manipulative actions taken by Xerox to improve revenues and earnings were unnecessary, were not adequately tested, and distorted true business results.  The defendant KPMG partners, who worked near Xerox headquarters in Stamford, Connecticut or at KPMG's New York headquarters, gave little weight to these warnings from on-the-scene KPMG affiliates and did not demand that Xerox justify the reasons for departures from historic accounting methods or establish the accuracy of the new, manipulative practices.     
+
+ The warnings provided to the defendant KPMG partners from KPMG affiliate offices included the following: 
+
+  In 1997, KPMG's Canadian affiliate warned Dolanski that Xerox's new method for moving revenue from financing to equipment was "not supportable" and posed an "unnecessary control risk with regard to accounting records."  KPMG's Brazil office told Safran the following year that the finance assumptions generated by Xerox's new accounting were significantly below prevailing interest rates and that they "did not consider all of the uncertainties inherent in [Xerox Brazil's] business and, consequently, on its cash flow."  Similarly, KPMG's affiliate in Tokyo in 1999 objected to the use of the new interest rate formula by Fuji Xerox because it did "not match the actual status" of Fuji's business and no procedures had been performed to determine if it might.   
+
+ KPMG's affiliate in the United Kingdom voiced numerous concerns to the defendant partners over the years about the new methods of lease accounting imposed by Xerox senior management in Connecticut on European offices.  The UK auditors repeatedly informed the defendant partners that there was no objective basis for the new accounting devices, that they carried a "high risk of significant misstatement" and were "potentially arbitrary".  In 2000, KPMG in the UK told defendant Conway that Xerox's accounting changes to reduce service revenues and increase equipment revenues "are not considered to produce results which reflect commercial reality."   Although the defendants occasionally voiced concern to Xerox management about the "topside accounting devices" developed and manipulated by senior corporate financial managers to increase revenue and earnings, the defendants did little or nothing when Xerox ignored their concerns and continued manipulating its financial results.  The defendants then knowingly or recklessly set aside their reservations, failed in their professional duties as auditors, and gave a clean bill of health to Xerox's financial statements.  Rather than put at risk a lucrative financial relationship with a premier client, the defendants failed to challenge Xerox's improper accounting actions and make the company accurately report its financial results.   
+
+ After this fraudulent conduct was investigated and exposed, Xerox, employing a new auditor, issued a $6.1 billion restatement of its equipment revenues and a $1.9 billion restatement of its pre-tax earnings for the years 1997 through 2000.  The Commission's complaint alleges that the defendants' fraudulent conduct allowed Xerox to inflate equipment revenues by approximately $3 billion and inflate pre-tax earnings by approximately $1.2 billion in the company's 1997 through 2000 financial results. 
+
+ The Complaint alleges that each defendant violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 10A of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5, and aided and abetted violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 13a-1, 13a-13, 12b-20 and 13b2-1. 
+
+ On April 11, 2002, the Commission brought an injunctive action against Xerox based on the same allegations of accounting fraud as are alleged against the KPMG defendants, as well as other allegations.  Without admitting or denying the allegations of the complaint, Xerox consented to the entry of a Final Judgment that permanently enjoined the company from violating the antifraud, reporting and record keeping provisions of the federal securities laws.  Xerox also paid a $10 million civil penalty, agreed to restate its financial statements and agreed to hire a consultant to review the company's internal accounting controls and policies.   Securities and Exchange Commission v. Xerox Corporation , Civil Action No. 02-CV-2780 (DLC) (S.D.N.Y.) (April 11, 2002).   See   Litigation Release No. 17465  / April 11, 2002 / Accounting and Auditing Enforcement Release No. 1542 / April 11, 2002. 
+
+ The SEC is continuing its investigation of this matter. 
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diff --git a/raw/aaer/2003/AAER-1711.txt b/raw/aaer/2003/AAER-1711.txt
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+++ b/raw/aaer/2003/AAER-1711.txt
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+     SEC.gov | Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson 
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+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
+   
+
+             
+                        
+             
+
+
+ 
+Litigation Release No. 17966  / February 4 , 2003 
+
+  
+
+Accounting and Auditing Enforcement Release No. 1711 / February 4, 2003
+
+  
+
+ U.S. Securities and Exchange Commission v. Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson , U.S. District Court for the Southern District of Indiana, Cause No. IP 02-1118 C H/S (S.D. Indiana 2002).
+
+
+  
+
+The U.S. Securities and Exchange Commission (Commission) announced that on January 31, 2003, the Honorable Judge David F. Hamilton of the United States District Court for the Southern District of Indiana entered an Order (A) Approving Plan for Noteholder Repayment by Church Extension of the Church of God, Inc. and United Management Services, Inc. (entity defendants) and (B) Granting Related Relief.  The Commission commenced its enforcement case on July 22, 2002, alleging, among other things, that the defendants fraudulently raised approximately $85 million from the sale of investment notes to thousands of investors nationwide.  
+
+  
+
+On July 31, 2002, Judge Hamilton entered a Final Judgment and Order of Permanent Injunction and Other Equitable Relief (Final Judgment) against the entity defendants, enjoining them from future violations of the antifraud provisions of the federal securities laws and ordering disgorgement of approximately $81 million.  The entity defendants consented to the entry of the Final Judgment without admitting or denying the allegations of the Commission's complaint.  The litigation is currently pending against the individual defendants.
+
+  
+
+  
+
+The Plan for Noteholder Repayment provides for the continuation of the entity defendants so that they may orderly liquidate their assets over a five-year period in order to pay disgorgement to investors and other creditors.  During this period, the Commission and Jeff J. Marwil, the court-appointed conservator in this matter, will aggressively monitor the liquidation process.  In addition, a new company (Newco) will be formed and 10% of any funds or proceeds that Newco receives shall be transferred to the entity defendants for distribution to investors and other creditors.  
+
+  
+
+Other key provisions of the Plan for Noteholder Repayment include:  
+
+     Newco will execute a $10 million note payable to the entity defendants, which will mature at the end of the five-year period and will be paid to investors and other creditors;  
+
+    Judge Hamilton empowered Mr. Marwil to bring cases against third parties for the benefit of investors and other creditors; and  
+
+    A stay against enforcement actions by all of the entity defendants' creditors.
+   
+
+The Plan for Noteholder Repayment also provides for interim principal payments to investors and other creditors.  The first distribution shall be made by no later than February 28, 2003, and the distributions shall continue to be made on a quarterly basis, pending the availability of sufficient funds.
+
+  
+
+For further information, please see Litigation Release Numbers  17656  (August 5, 2002) [final judgment entered against entity defendants] and  17623  (July 22, 2002) [complaint filed].
+
+  
+
+To receive a copy of the Plan for Noteholder Repayment, please send your request to  conservator@jenner.com 
+  
+
+
+ 
+
+ 
+  
+       SEC Complaint  in this matter.   
+-->
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diff --git a/raw/aaer/2003/AAER-1712.txt b/raw/aaer/2003/AAER-1712.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b8125631ca2a2c27d8b46bf82b8a6b984e8603cc
--- /dev/null
+++ b/raw/aaer/2003/AAER-1712.txt
@@ -0,0 +1,1505 @@
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+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  47339 / February 10, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  1712 / February 10, 2003   
+
+ADMINISTRATIVE PROCEEDING 
+File No.  11038  
+
+  
+       In the Matter of 
+   Donald F. Marcus,
+
+  Respondent. 
+  
+ : : : : : : : : 
+ 
+   
+    
+	ORDER INSTITUTING PUBLIC
+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 public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Donald F. Marcus ("Marcus" 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 in which the Commission is a party, and without admitting or denying the findings herein, except that the Respondent admits the Commission's jurisdiction over him and the subject matter of the proceedings, Respondent consents to the entry of this Order Instituting Public 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").
+
+   III.    
+
+On the basis of this Order and Respondent's Offer, the Commission finds  1   that:
+
+    Respondent    
+
+	Respondent Marcus is the president and owner of Morris Marcus & Son, Inc. ("Morris Marcus"), a wholesale distributor of outdoor apparel.  Marcus, 57 years old, is a resident of Horseshoe Bay, Texas.   
+    Other Relevant Entities    
+Morris Marcus, a private company, is a wholesale distributor of outdoor apparel.  Morris Marcus's principal place of business is in Horseshoe Bay, Texas.   
+The North Face, Inc. ("The North Face") was a Delaware corporation with its headquarters in San Leandro, California and Carbondale, Colorado.  The North Face is now a wholly-owned subsidiary of VF Corporation, but during the relevant time period it was a publicly-traded company.  The North Face products include outerwear, skiwear, and outdoor equipment designed for activities such as mountaineering, backpacking, skiing, hiking, training, and adventure travel.   
+    Conduct    
+The North Face had a network of what it called variously "wholesale distributors" or "premium dealers" or "Territory 68"; these were primarily small operations that diverted The North Face product into "gray market" export channels.  Morris Marcus was a Territory 68 customer.  It was a one-person operation owned by Donald Marcus, who ran the business from a home office.  He had no other facilities and the only employee was a part-time bookkeeper.  Prior to the third quarter of 1998, Marcus had not placed an order with The North Face for more than $1 million; his total orders for 1996 were $1 million and for 1997 were just $90,000.   
+In the third quarter of 1998, certain employees of The North Face, including an officer of the company, arranged a $9.3 million consignment sale to Morris Marcus.  The true terms of the sale were not disclosed and the sale was improperly recorded by the company as a normal sale-with immediate, improper recognition of revenue and full profit margin.   2    
+During the audit of The North Face's 1998 financial statement in early 1999, its independent auditor raised certain questions and requested that The North Face conduct an internal investigation into various issues.  The sale to Morris Marcus was included in the internal investigation.  The auditors were to be informed of the results of the investigation.  The North Face's audit committee conducted an investigation and was assisted by an accounting firm different from the independent auditor as well as company employees and outside counsel.  As part of the internal investigation it was conducting, the audit committee investigators arranged a conference call with Marcus in March 1999.  The purpose of the call was to learn more about the third quarter 1998 transaction to determine if it was a bona fide normal sale.  The participants in the conference call included company employees and accountants from the accounting firm assisting the audit committee.   
+Certain company employees, including an officer of the company, provided a script of misrepresentations for Marcus to tell the accountants-principally that the sale was a normal sale, but that he had lost a significant customer to whom he had expected to re-sell the product.  The misrepresentations also included saying that (i) Marcus's customers were located in Latin America, (ii) Marcus had the ability and the intent to pay the balance of the receivable on time (without payment depending on sales to third-parties), (iii) he did not intend to return the product, (iv) he had no right to return the product, and (v) the company had not agreed in advance to pay the storage costs.  During the conference call, Marcus followed the scripted misrepresentations.   
+The audit committee investigators, unaware that there was no purchase order for the Morris Marcus sale, had requested to see it during the internal investigation.  Marcus and certain company employees, including an officer of the company, were aware that no purchase order existed.  The company employees created a purchase order for the Morris Marcus sale, back-dated it to September 1998, and asked Marcus to sign it.  Marcus signed the document.  The fake purchase order was given to the CEO, other company employees, accountants from the accounting firm assisting the audit committee, and the auditors.  There was no indication on the document that it had just been created and backdated, nor did the company employees or Marcus disclose that there had never been a contemporaneous purchase order.   
+Marcus returned the inventory in May 1999.  Before doing so, however, Marcus signed a confirmation letter from The North Face's independent auditors falsely stating that he owned the product as of December 1998.  A company employee, acting on the instructions of an officer of the company, asked Marcus to sign the false confirmation letter.    
+	As a result of the conduct described above, Marcus caused violations of Rule 13b2-2 promulgated under the Exchange Act, which prohibits officers and directors of an issuer from (i) making or causing to be made materially false or misleading statements, or (ii) omitting to state, or causing another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with any audit or examination of the financial statements of the issuer or the preparation or filing of any document or report required to be filed with the Commission. 
+
+   IV.   
+  
+	In view of the foregoing, it is appropriate to impose the sanctions agreed to in the Offer submitted by Respondent.  Accordingly,
+  
+IT IS ORDERED, pursuant to Section 21C of the Exchange Act, that Respondent  cease and desist from committing or causing any violations and any future violations of Rule 13b2-2 promulgated under the Exchange Act.
+  
+By the Commission.
+
+
+
+							  Jonathan G. Katz 
+						Secretary 
+
+
+ 
+  Footnotes 
+
+   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   Statement of Financial Accounting Standards No. 48, "Revenue Recognition When Right of Return Exists," does not allow the seller to recognize revenue [or, therefore, profit] when the customer can return the product and payment to the seller is contingent upon resale by the customer.  Thus, recognition of revenue and profit for a contingent sale is improper since payment to the seller being contingent upon resale by the customer is the essence of a consignment sale. 
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diff --git a/raw/aaer/2003/AAER-1713.txt b/raw/aaer/2003/AAER-1713.txt
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No.  47340 / February 10, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  1713 / February 10, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+File No.  11039
+
+
+  
+       In the Matter of 
+   Richard C. Tyrer,
+
+  Respondent. 
+  
+ : : : : : : : : 
+ 
+   
+    
+ORDER INSTITUTING PUBLIC
+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 public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Richard C. Tyrer ("Tyrer" 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 in which the Commission is a party, and without admitting or denying the findings herein, except that the Respondent admits the Commission's jurisdiction over him and the subject matter of the proceedings, Respondent consents to the entry of this Order Instituting Public 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"). 
+
+   III.    
+
+On the basis of this Order and Respondent's Offer, the Commission finds  1    that: 
+
+    Respondent    
+
+  Respondent Tyrer was the Vice President, Western Region Sales for The North Face, Inc. ("The North Face").  Throughout his association with The North Face, Tyrer's responsibilities were limited to sales.  Tyrer, 50 years old, is a U.S. citizen residing in Los Barriles, Mexico.
+    Other Relevant Entities    
+  The North Face was a Delaware corporation with its headquarters in San Leandro, California and Carbondale, Colorado.  The North Face is now a wholly-owned subsidiary of VF Corporation, but during the relevant time period it was a publicly-traded company.  The North Face products include outerwear, skiwear, and outdoor equipment designed for activities such as mountaineering, backpacking, skiing, hiking, training, and adventure travel.
+    Conduct    
+  The North Face had a network of what it called variously "wholesale distributors" or "premium dealers" or "Territory 68"; these were primarily small operations that diverted North Face product into "gray market" export channels.  
+  In the third quarter of 1998, The North Face arranged a $9.3 million consignment sale to a Territory 68 customer based in Texas.  The Texas customer was a one-person operation owned by an individual who ran his business from a home office.  He had no other facilities and the only employee was a part-time bookkeeper.  Prior to the third quarter of 1998, the Texas customer had not placed an order with The North Face for more than $1 million; his total orders for 1996 were $1 million and for 1997 were just $90,000.  The true terms of the third quarter sale were not disclosed and the sale was improperly recorded by the company as a normal sale-with immediate, improper recognition of revenue and full profit margin.  2    The third quarter sale to the Texas customer began as a proposed consignment sale in late August 1998.  Tyrer met with the Texas customer to discuss a potential sale of approximately $1 million.  Tyrer, with the express authority of his superior, an officer of the company, offered that the company would pay all storage costs for the product, that the Texas customer could return any product he was unable to sell, and that the Texas customer did not have to pay for the product unless he was able to sell it.  Based on these terms, the Texas customer agreed to the consignment sale.  The Texas customer did not place an order for specific items-the company was to select the product to be included in the sale.  The North Face selected a third-party warehouse near the Texas customer to store the goods, and made all of the arrangements for the storage and shipping of the goods, without the Texas customer's involvement.
+  Without consulting the Texas customer, the company "increased" the sale from $1 million as discussed in August to $9.3 million.  The sale was booked and the product shipped at the very end of the quarter.  This third quarter transaction was the largest single sale in the history of the company.  It instantly made the Texas customer one of the top customers for the entire year.  The Texas customer never sent or signed a purchase order for the sale-indeed he was not aware that the amount had increased to $9.3 million until December 1998. 
+  During the audit of The North Face's 1998 financial statement in early 1999, its independent auditor raised certain questions and requested that The North Face conduct an internal investigation into various issues.  One of the items included in the internal investigation was the sale to the Texas customer.  The auditors were to be informed of the results of the investigation.  The North Face's audit committee conducted an investigation and was assisted by an accounting firm different from the independent auditor as well as company employees and outside counsel.  
+  Tyrer assisted his superior in concealing the real terms of the sale to the Texas customer from the company's audit committee, independent auditors and senior management.  As part of the internal investigation it was conducting, the audit committee investigators arranged a conference call with the Texas customer in March 1999.  The purpose of the call was to learn more about the third quarter 1998 transaction to determine if it was a bona fide normal sale.  Tyrer participated in a material portion of the conference call, which also included his superior, other company employees, and accountants from the accounting firm assisting the audit committee.  
+  Prior to the conference call, Tyrer and his superior told the Texas customer what he should say to the accountants-principally that he should misrepresent the transaction as a normal sale, not a consignment sale.  The misrepresentations Tyrer and his superior asked the Texas customer to make also included saying, among other things, that (i) the Texas customer's clients were located in Latin America, (ii) the Texas customer had the ability and the intent to pay the balance of the receivable on time (without payment depending on sales to third-parties), (iii) he did not intend to return the product, and (iv) he had no right to return the product.  During the conference call, the Texas customer made these misrepresentations, thereby providing false and misleading information about the transaction.
+  Despite the misinformation provided in the conference call, questions remained about the transaction.  The North Face CEO asked for a face-to-face meeting to address the remaining concerns about the sale.  The Texas customer was flown to Aspen, Colorado at the company's expense to meet with the CEO.  The Texas customer repeated essentially the same story to the CEO, portraying the sale as a normal sale.  
+  The audit committee investigators, unaware that there was no purchase order for the sale to the Texas customer, or any other contemporaneous documentation of the terms of the sale, had requested to see documentation for the transaction during the internal investigation.  During the Aspen trip, the Texas customer met with Tyrer and his superior at a hotel.  All three were aware that no purchase order or other documents supporting the sale existed.  At the hotel, they created a purchase order for the third quarter sale, back-dated it to September 1998, and asked the Texas customer to sign it.  The Texas customer signed the document.  That newly created and back-dated document was given to the CEO, Company employees, accountants from the accounting firm assisting the audit committee, and the auditors.  There was no indication on the document that it had just been created and backdated, nor did Tyrer, or his superior, disclose that there was no purchase order at the time of the transaction.
+  The Texas customer returned the inventory in May 1999.  Before doing so, however, the Texas customer signed a confirmation letter from The North Face's independent auditors falsely stating that he owned the product as of December 1998.  Tyrer, acting on the instructions of his superior, asked the Texas customer to sign the false confirmation letter.
+  In the fourth quarter of 1998, The North Face arranged a $2.6 million consignment sale to a Territory 68 customer based in California.  The true terms of the sale were not disclosed and the sale was improperly recorded by the company as a normal sale-with immediate, improper recognition of revenue and full profit margin.   
+Tyrer and his superior arranged the sale of $2.6 million consignment sale to the California customer.  The California customer successfully had sold The North Face product for years, but ordinarily he would not place a large order unless it was "matched".  In a "matched" order, the California customer acted as a broker.  He would receive a purchase order from a client, re-format the order as being from his company and send it to The North Face.  The fourth quarter sale, however, was not a matched sale.  When the California customer saw the product list of what had been shipped to his warehouse, he told the Tyrer that he would not be able to sell it to his normal customers.  Tyrer asked him to hold the product and said that the company would work with him to identify potential sales channels.    
+The North Face's independent auditors, in connection with their audit of the 1998 year-end financial statements, sent a confirmation letter to the California customer regarding the fourth quarter transaction.  The letter was more detailed than a typical confirmation: it set for all of the elements of a bona fide normal sale and asked the California customer to confirm that the description of the transaction was accurate.  The California customer knew that the terms the auditors sought to confirm in the letter were false.  Tyrer, following the directions of his superior, asked the California customer to sign the confirmation.  After being assured by Tyrer that the company was not trying to change the consignment terms of the transaction, the California customer agreed to sign the confirmation letter.  The California customer signed the confirmation letter and returned it to the auditors.  The auditors were thereby provided with materially false and misleading information about the fourth quarter sale.
+   Violations    
+  As a result of the conduct described above, Tyrer violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder and caused violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 13a-1, 13a-13 and 13b2-2 thereunder.
+  Section 10(b) provides that it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility or any national securities exchange, to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange . . . any manipulative or deceptive device or contrivance in contravention of such rules as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.   Rule 10b-5 provides that it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility or any national securities exchange, (1) to employ any device, scheme, or artifice to defraud, (2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made not misleading, or (3) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
+  Section 13(b)(5) provides that no person shall knowingly circumvent or knowingly fail to implement a system of internal controls or knowingly falsify any book, record, or account [required to be made and kept pursuant to Section 13(b)(2)].
+  Rule 13b2-1 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 Securities Exchange Act.
+  Section 13(a) provides, inter alia, that every issuer of a security registered pursuant to Section 12 of [the Exchange Act] shall file with the Commission, in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security … such annual reports . . . and such quarterly reports . . . as the Commission may prescribe.  Rule 13a-1 provides that every issuer having securities registered pursuant to Section 12 of the [Exchange] Act. . . shall file an annual report on the appropriate form authorized or prescribed therefore; and Rule 13a-13 provides that every such issuer must also file a quarterly report.
+  Sections 13(b)(2)(A) and (B) provide that every issuer which has a class of securities registered pursuant to section 12 of [the Exchange Act] . . . shall (A) make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the issuer; and (B) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that -(i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
+  Rule 13b2-2 prohibits officers and directors of an issuer from (i) making or causing to be made materially false or misleading statements, or (ii) omitting to state, or causing another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with any audit or examination of the financial statements of the issuer or the preparation or filing of any document or report required to be filed with the Commission. 
+   IV.   
+  In view of the foregoing, it is appropriate to impose the sanctions agreed to in the Offer submitted by Respondent.  Accordingly,
+  
+IT IS ORDERED, pursuant to Section 21C of the Exchange Act, that Respondent 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, 13b2-1, and 13b2-2 thereunder, and from causing any violations or any future violations of Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.
+  
+By the Commission.
+
+
+						  Jonathan G. Katz 
+						Secretary 
+
+
+ 
+  Footnotes 
+
+   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   Statement of Financial Accounting Standards No. 48, "Revenue Recognition When Right of Return Exists," does not allow the seller to recognize revenue [or, therefore, profit] when the customer can return the product and payment to the seller is contingent upon resale by the customer.  Thus, recognition of revenue and profit for a contingent sale is improper since payment to the seller being contingent upon resale by the customer is the essence of a consignment sale. 
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+              Harry P. Adler
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+        Harry P. Adler
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 47341 / February 10, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  1714 / February 10, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+File No. 11040
+
+
+  
+       In the Matter of 
+   Harry P. Adler,
+
+  Respondent. 
+  
+ : : : : : : : : 
+ 
+   
+    
+	ORDER INSTITUTING PUBLIC
+	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 public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Harry P. Adler ("Adler" 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 in which the Commission is a party, and without admitting or denying the findings herein, except that the Respondent admits the Commission's jurisdiction over him and the subject matter of the proceedings, Respondent consents to the entry of this Order Instituting Public 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").
+
+   III.    
+
+
+On the basis of this Order and Respondent's Offer, the Commission finds  1   that: 
+
+    Respondent    
+
+
+Respondent Adler is the president, co-founder, and co-owner of TWS Shoe, Inc. ("TWS"), a wholesale distributor of outdoor apparel.  Adler, 69 years old, is a resident of Santa Ana, California.
+
+    Other Relevant Entities    
+
+
+TWS, a private company formed in California in 1990, is a wholesale distributor of outdoor apparel.  TWS's principal place of business is in Anaheim, California.  From at least 1997 through 1999, TWS primarily sold product manufactured by The North Face, Inc. ("The North Face").
+  
+The North Face was a Delaware corporation with its headquarters in San Leandro, California and Carbondale, Colorado.  The North Face is now a wholly-owned subsidiary of VF Corporation, but during the relevant time period it was a publicly-traded company.  The North Face products include outerwear, skiwear, and outdoor equipment designed for activities such as mountaineering, backpacking, skiing, hiking, training, and adventure travel.
+
+    Conduct    
+
+The North Face had a network of what it called variously "wholesale distributors" or "premium dealers" or "Territory 68"; these were primarily small operations that diverted North Face product into "gray market" export channels.  TWS was a Territory 68 customer.  In the fourth quarter of 1998, The North Face arranged a $2.6 million consignment sale to TWS.  The true terms of the sale were not disclosed and the sale was improperly recorded by the company as a normal sale-with immediate, improper recognition of revenue and full profit margin.   2    
+The fourth quarter transaction occurred after certain employees of The North Face, including an officer of the company, offered to sell $2.6 million worth of product on consignment terms to TWS.  Adler successfully had sold The North Face product for years, but ordinarily he would not place a large order unless it was "matched".  In a "matched" order, Adler acted as a broker.  He would receive a purchase order from a client, re-format the order as being from TWS and send it to The North Face.  The fourth quarter sale was not, however, a matched sale.  When Adler saw the product list of what had been shipped to his warehouse, he told a company employee that he would not be able to sell it to his normal customers.  The company employee asked him to hold the product and said that the company would work with him to identify potential sales channels.  
+  
+The North Face's independent auditors, in connection with their audit of the 1998 year-end financial statements, sent a confirmation letter to Adler regarding the fourth quarter transaction.  The letter was more detailed than a typical confirmation: it set forth all of the elements of a bona fide normal sale and asked Adler to confirm that the description of the transaction was accurate.  Adler knew that, other than the ostensible price of the product, each of the elements the auditors sought to confirm in the letter was false.  An officer of the company instructed an employee to persuade Adler to sign the false confirmation.  After being assured by the company employee that the company was not trying to change the consignment terms of the sale, Adler agreed to sign the confirmation letter.  Adler signed the false confirmation letter and returned it to the auditors.  The auditors were thereby provided with materially false and misleading information about the fourth quarter sale.
+  
+As a result of the conduct described above, Adler caused violations of Rule 13b2-2 promulgated under the Exchange Act, which prohibits officers and directors of an issuer from (i) making or causing to be made materially false or misleading statements, or (ii) omitting to state, or causing another person to omit to state, any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with any audit or examination of the financial statements of the issuer or the preparation or filing of any document or report required to be filed with the Commission.
+
+   IV.   
+
+	In view of the foregoing, it is appropriate to impose the sanctions agreed to in the Offer submitted by Respondent.  Accordingly,
+  
+IT IS ORDERED, pursuant to Section 21C of the Exchange Act, that Respondent  cease and desist from committing or causing any violations and any future violations of Rule 13b2-2 promulgated under the Exchange Act.
+  
+By the Commission.   
+
+
+
+						 Jonathan G. Katz 
+						Secretary 
+
+
+ 
+  Footnotes 
+
+   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   Statement of Financial Accounting Standards No. 48, "Revenue Recognition When Right of Return Exists," does not allow the seller to recognize revenue [or, therefore, profit] when the customer can return the product and payment to the seller is contingent upon resale by the customer.  Thus, recognition of revenue and profit for a contingent sale is improper since payment to the seller being contingent upon resale by the customer is the essence of a consignment sale.
+
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diff --git a/raw/aaer/2003/AAER-1716.txt b/raw/aaer/2003/AAER-1716.txt
new file mode 100644
index 0000000000000000000000000000000000000000..de5fb0b649aaf4680faf8bdbf4db30f89d9cd4b4
--- /dev/null
+++ b/raw/aaer/2003/AAER-1716.txt
@@ -0,0 +1,1504 @@
+
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+     SEC.gov | Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA 
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+              Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA
+           
+     
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+
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+        Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA
+       
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+
+ SECURITIES ACT OF 1933
+ Release No.  8191 / February 13, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1716 / February 13, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10858
+
+         In the Matter of    
+   Glen Morinaka, CPA,   
+     Respondent.    
+     
+    : : : : : : :   
+    ORDER MAKING FINDINGS AND
+		  IMPOSING A CEASE-AND-DESIST ORDER
+		 PURSUANT TO SECTION 8A OF THE
+		 SECURITIES ACT OF 1933 AND IMPOSING
+          SANCTIONS PURSUANT TO RULE 102(e) OF
+		 THE COMMISSION'S RULES OF PRACTICE
+	    AS TO GLEN MORINAKA, CPA      I. 
+
+    In these proceedings instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), and Rule 102(e)(1)(iii) of the Rules of Practice of the Securities and Exchange Commission ("Commission"),  1   Respondent Glen Morinaka, CPA ("Morinaka") has submitted an offer of settlement that the Commission has determined to accept.  2     II. 
+
+    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 Making Findings and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Imposing Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order"), as set forth below.  
+
+   III. 
+
+    On the basis of this Order and Respondent's Offer, the Commission finds  3   that: 
+
+    Respondent  
+
+    A. Morinaka, age 47, of Monterey Park, California, is licensed as a Certified Public Accountant in the State of California.  He is the Chief Financial Officer and the Chairman of the Board of Directors of Gas & Oil.  He is currently a sole practitioner of accounting in Los Angeles and is a member of both the American Institute of Certified Public Accountants and the California Society of CPAs.  
+
+    Other Relevant Person and Entity  
+
+    B. Gas and Oil Technologies, Inc. ("Gas & Oil") is a Delaware corporation headquartered in Woodland Hills, California.  It has no public market for its securities but has applied to have its common stock quoted on NASDAQ under the symbol "GAOL."  On October 15, 2001, Gas & Oil filed a registration statement on Form S-1, seeking to raise up to $60 million from the sale of its common stock in an initial public offering. 
+
+    C. Ingrid Aliet-Gass ("Gass"), age 50, of Monrovia, California, is the Chief Executive Officer and a director of Gas & Oil.  Gass organized Gas & Oil and holds a controlling interest in its stock.  At all times relevant to this matter she has personally carried out and/or supervised all aspects of the business of Gas & Oil.  
+
+    Facts  
+
+    D. The registration statement filed by Gas & Oil on October 15, 2001 included financial statements for the year ended December 31, 2000, and for periods ended June 30, 2001, and September 30, 2001.  Morinaka prepared these financial statements on behalf of Gas & Oil.  
+
+  E. In the financial statements for the periods ended June 30 and September 30, 2001, Gas & Oil valued certain technology patents the company had acquired from a Russian scientist based solely on the stated value of $21.75 million in the "Certified Certificate of Valuation" on Patent No. 1776 issued by the Ministry of Justice of the Russian Federation.   This accounting was contrary to generally accepted accounting principles ("GAAP").  GAAP requires that patents be recorded consistent with Accounting Principles Board Opinion No. 17, which states that intangibles should be recorded at cost at date of acquisition.  If these costs are not determinable, GAAP requires that the patents be recorded at their fair value.  
+
+  F. Nevertheless, in its financial statements for the periods ended June 30 and September 30, 2001, Gas & Oil recorded the value of these patents at $21.75 million without any reasonable basis for doing so.  It also recorded both an asset and income from the purchase of patents in the amount of $21.75 million which represented 100% of both its assets and income, without receiving any persuasive evidence of either the fair value of the patents or their cost at date of acquisition. 
+
+  G. Because of the method utilized by Gas & Oil for the recording of the acquisition of patents, the financial statements included in the Form S-1 were not prepared in accordance with GAAP.   In fact, they materially overstated Gas & Oil's assets, equity and income.  
+
+  H. The registration statement also omitted certain material information about the patents; for example, it omitted to state that the patents had not been filed or registered in any country other than Russia.   
+
+  I. The registration statement also contained affirmative material misrepresentations.  It refers to Gas & Oil's factories and its sales of product, but Gas & Oil has had no factories and has never made a sale.  Further, it stated Gas & Oil had used net cash of $8.4 million in operating activities for the nine months ended September 30, 2001, and had used net cash of $21.7 million in investing activities for the same period, when, in fact, the company had virtually no cash.  
+
+  J. Gass and Morinaka assisted in the preparation and drafting of the disclosures in the registration statement.  They were intimately familiar with the company's business and knew very well that it had no factories, no sales of product, no cash and no operations.  Gass and Morinaka knew that the patents had not been filed or registered in any country other than Russia.   
+
+    K. As a result of the conduct described above, Morinaka willfully violated Section 17(a) of the Securities Act.  
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Morinaka's Offer.
+
+  Accordingly, IT IS HEREBY ORDERED, effective immediately, that : 
+
+    A. Morinaka shall cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act.
+
+
+
+  B. Morinaka is denied the privilege of appearing or practicing before the Commission as an accountant.  
+
+  For the Commission, by its Secretary, pursuant to delegated authority.
+
+                            Jonathan G. Katz
+               Secretary
+             
+ _________________________
+      1     Rule 102(e)(1)(iii) provides, in relevant part, that:
+
+ The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it 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.
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+      2     An Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice and Notice of Hearing was issued by the Commission on August 2, 2002.  
+
+      3      The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. 
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diff --git a/raw/aaer/2003/AAER-1717.txt b/raw/aaer/2003/AAER-1717.txt
new file mode 100644
index 0000000000000000000000000000000000000000..61d323c41e30331b0acc772b186140c68b87e396
--- /dev/null
+++ b/raw/aaer/2003/AAER-1717.txt
@@ -0,0 +1,1493 @@
+
+
+ 
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+     SEC.gov | Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA 
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+              Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA
+           
+     
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+
+   
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+     
+
+      
+      
+             
+        Gas and Oil Technologies, Inc., Ingrid Aliet-Gass and Glen Morinaka, CPA
+       
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+             
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+
+ SECURITIES ACT OF 1933
+ Release No.  8192 / February 13, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1717 / February 13, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-10858
+
+         In the Matter of    
+   Gas & Oil Technologies, Inc.  
+    and     
+  Ingrid Aliet-Gass,    
+     Respondents   
+      
+    : : : : : : :   
+    ORDER MAKING FINDINGS AND
+         IMPOSING A CEASE-AND-DESIST
+   ORDER PURSUANT TO SECTION 8A
+  OF THE SECURITIES ACT OF 1933
+  AS TO GAS & OIL TECHNOLOGIES,
+   INC. AND INGRID ALIET-GASS      I. 
+
+    In these proceedings instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), Respondents Gas & Oil Technologies, Inc. ("Gas & Oil") and Ingrid Aliet-Gass ("Gass") have submitted offers of settlement that the Securities and Exchange Commission (the "Commission") has determined to accept.   1     II. 
+
+    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 Making Findings and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 ("Order"), as set forth below.  
+
+   III. 
+
+    On the basis of this Order and Respondents' Offer, the Commission finds  2   that:
+
+    Respondents  
+
+    A. Gas & Oil is a Delaware corporation headquartered in Woodland Hills, California.  It has no public market for its securities but has applied to have its common stock quoted on NASDAQ under the symbol "GAOL."  On October 15, 2001, Gas & Oil filed a registration statement on Form S-1, seeking to raise up to $60 million from the sale of its common stock in an initial public offering. 
+
+    B. Gass, age 50, of Monrovia, California, is the Chief Executive Officer and a director of Gas & Oil.  Gass organized Gas & Oil and holds a controlling interest in its stock.  At all times relevant to this matter she has personally carried out and/or supervised all aspects of the business of Gas & Oil.  
+
+      Background  
+
+    C. The registration statement filed by Gas & Oil on October 15, 2001 included financial statements for the year ended December 31, 2000, and for periods ended June 30, 2001, and September 30, 2001.  
+
+  D. In the financial statements for the periods ended June 30 and September 30, 2001, Gas & Oil valued certain technology patents the company had acquired from a Russian scientist based solely on the stated value of $21.75 million in the "Certified Certificate of Valuation" on Patent No. 1776 issued by the Ministry of Justice of the Russian Federation.   This accounting was contrary to generally accepted accounting principles ("GAAP").  GAAP requires that patents be recorded consistent with Accounting Principles Board Opinion No. 17, which states that intangibles should be recorded at cost at date of acquisition.  If these costs are not determinable, GAAP requires that the patents be recorded at their fair value.  
+
+  E. Nevertheless, in its financial statements for the periods ended June 30 and September 30, 2001, Gas & Oil recorded the value of these patents at $21.75 million without any reasonable basis for doing so.  It also recorded both an asset and income from the purchase of patents in the amount of $21.75 million which represented 100% of both its assets and income, without receiving any persuasive evidence of either the fair value of the patents or their cost at date of acquisition. 
+
+  F. Because of the method utilized by Gas & Oil for the recording of the acquisition of patents, the financial statements included in the Form S-1 were not prepared in accordance with GAAP.   In fact, they materially overstated Gas & Oil's assets, equity and income.  
+
+  G. The registration statement also omitted certain material information about the patents; for example, it omitted to state that the patents had not been filed or registered in any country other than Russia.   
+
+  H. The registration statement also contained affirmative material misrepresentations.  It refers to Gas & Oil's factories and its sales of product, but Gas & Oil has had no factories and has never made a sale.  Further, it stated Gas & Oil had used net cash of $8.4 million in operating activities for the nine months ended September 30, 2001, and had used net cash of $21.7 million in investing activities for the same period, when, in fact, the company had virtually no cash.  
+
+  I. Gass assisted in the preparation and drafting of the disclosures in the registration statement.  She was intimately familiar with the company's business and knew very well that it had no factories, no sales of product, no cash and no operations.  Gass knew that the patents had not been filed or registered in any country other than Russia.   
+
+  J. As a result of the conduct described above, Gas & Oil and Gass committed violations of Section 17(a) of the Securities Act.
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in the Offer of Respondents Gas & Oil and Gass.
+
+     ACCORDINGLY, IT IS HEREBY ORDERED  that, pursuant to Section 8A of the Securities Act, Respondents Gas & Oil and Gass cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act.
+
+    For the Commission, by its Secretary, pursuant to delegated authority.
+
+                    Jonathan G. Katz
+
+               Secretary
+     
+
+ _______________________
+      1      An Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice and Notice of Hearing was issued by the Commission on August 2, 2002.  
+
+   NAME="P40_1718" HREF="#P40_1719">2  The findings herein are made pursuant to Respondents' Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
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diff --git a/raw/aaer/2003/AAER-1718.txt b/raw/aaer/2003/AAER-1718.txt
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+++ b/raw/aaer/2003/AAER-1718.txt
@@ -0,0 +1,1365 @@
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+              Umesh Malhotra, Paul Chopra, and David Manigault
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+        Umesh Malhotra, Paul Chopra, and David Manigault
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+  Securities and Exchange Commission v. Umesh Malhotra, Paul Chopra, and David Manigault , Civil Action No. 1:03CV00211 (D.D.C.) (filed February 10, 2003) 
+ 
+On February 10, 2003, the Commission filed a settled Complaint in the United States District Court for the District of Columbia against three former senior officers of COHR, Inc. ("COHR"), alleging that they defrauded investors by improperly recognizing revenue in violation of generally accepted accounting principles and by engaging in other accounting tricks that fraudulently inflated COHR's revenue and pre-tax profit. 
+ 
+The Complaint alleges that the fraud was carried out between 1996 and 1998 by COHR's senior management at the time, Umesh Malhotra ("Malhotra"), its former Chief Financial Officer, Paul Chopra ("Chopra"), its former Chief Executive Officer, and David Manigault ("Manigault"), its former Chief Information Officer and Senior Vice President.  The fraud included recording fictitious revenue, improper capitalization of expenses, improper reduction of reserves, and premature recognition of revenue.  The purpose of the fraud was to portray COHR as a growing and successful company when in fact it was a struggling company that by 1998 was losing money. 
+ 
+The Complaint charges all three defendants with violations of Section 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2.  The Complaint also charges all three defendants with aiding and abetting COHR's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13. 
+ 
+Simultaneously with the filing of the Commission's Complaint, without admitting or denying the Commission's allegations, all of the defendants consented to the entry of a final judgment permanently enjoining them from violating the federal securities laws.  In addition, Malhotra agreed to pay a civil penalty of $32,500, to be permanently barred from serving as an officer or director of any public company, and to an order suspending him from the privilege of appearing or practicing before the Commission as an accountant.  Manigault also agreed to pay a civil penalty of $25,000.  Based upon his sworn representations in his Statement of Financial Condition, no penalties or disgorgement will be obtained from Chopra. 
+ 
+    SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1719.txt b/raw/aaer/2003/AAER-1719.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1efdc4f882e683cc6201a08ab216106ff6589d64
--- /dev/null
+++ b/raw/aaer/2003/AAER-1719.txt
@@ -0,0 +1,1370 @@
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+        G. Matthias Heinzelmann, III
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+Litigation Release No. 17984 / February 13, 2003 
+Accounting And Auditing Enforcement Release No. 1719
+  
+ Securities and Exchange Commission v. G. Matthias Heinzelmann, III , Civil Action No. 4:02-CV-403-A (United States District Court for the Northern District of Texas, Fort Worth Division)
+  
+The Commission announced today the entry of a final judgment of permanent injunction against former Texas banker G. Matthias Heinzelmann, III.  On February 6, 2003, The Honorable John H. McByrde, of the United States District for the Northern District of Texas, Fort Worth Division, entered a judgment against Heinzelmann, for what the Commission alleged was his role in hiding bank loan losses of $1,827,392 at Surety Bank in Fort Worth, Texas.  Heinzelmann, who consented to the judgment, without admitting or denying the Commission's allegations, was the president and a director of Surety Bank's parent, Surety Capital Corporation of Fort Worth.  As part of the judgment, he was ordered to pay a civil penalty of $40,000 and barred from serving as an officer or director of a public company.
+  
+ The Commission alleged in its complaint that the hidden loan losses had a material impact on the parent company -- Surety Capital's financial statements that were included in its Forms 10-K and Forms10-Q from 1996 through 1999. Further, the Commission alleged that, because of the misstatements, Surety Capital failed to make and keep books, records and accounts that accurately reflected its transactions and dispositions of assets, and also failed to maintain an adequate system of internal financial controls.
+  
+The Court's judgment permanently enjoins Heinzelmann 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 thereunder, and aiding or 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.  
+  
+See also, Litigation Releases No.  17491  (April 25, 2002), No.  17788  (October 16, 2002),  and No.  17589  (June 27, 2002).
+  
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+ 
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+    SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1721.txt b/raw/aaer/2003/AAER-1721.txt
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1721.txt
@@ -0,0 +1,1610 @@
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+               Home 
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+               Enforcement and Litigation 
+           
+       
+               Administrative Proceedings 
+           
+       
+              Glen Andrew Folck
+           
+     
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+        Glen Andrew Folck
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+ Securities Act Of 1933 
+Release No.  8196 / February 26, 2003 
+
+ Securities Exchange Act of 1934 
+Release No. 47404 / February 26, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1721 / February 26, 2003 
+
+ Administrative Proceeding 
+File No. 3-11046 
+
+     In the Matter of 
+
+ GLEN ANDREW FOLCK, 
+
+ Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER    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 Glen Andrew Folck ("Folck" 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, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order"), as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds  1   that:  
+
+ Respondent 
+
+ 1.  Glen Andrew Folck  was at all relevant times Chief Financial Officer of SmarTalk TeleServices, Inc. ("SmarTalk") and assistant secretary to SmarTalk's board of directors.  During the relevant period, Folck helped prepare and signed the company's filings with the Commission.  Folck's job responsibilities also included preparation of the company's financial statements and supervising the accounting department.  Folck attended board meetings, had frequent contacts with other upper management at SmarTalk and was the primary liaison with SmarTalk's auditors.  Folck is licensed as a CPA in the state of Ohio, but was on inactive status during his employment with SmarTalk.  Folck, currently age 38, is a resident of North Carolina.  
+
+ Other Relevant Entity 
+
+ 2. SmarTalk was a provider of pre-paid telephone cards and wireless services and went public in October 1996.  During the relevant period, SmarTalk's stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was listed on the NASDAQ National Market.  In November 1998, as a result of the accounting issues discussed in this Order, as well as other issues, SmarTalk restated its financial statements for its year ended December 31, 1997 and its first two quarters of 1998.  When all of the restated items are taken into consideration, net income of $478,000 for the third quarter of 1997 changed to a net loss of $2.3 million, net losses at year-end 1997 decreased from $61.9 million to $25.7 million, net losses for the first quarter of 1998 increased from $3.4 million to $15.2 million, and net income of $2.2 million for the second quarter of 1998 changed to a net loss of $29.2 million.   
+
+ 3. On January 19, 1999, SmarTalk filed for Chapter 11 bankruptcy and trading in SmarTalk stock was halted.  In March 1999, SmarTalk sold substantially all of its assets to AT&T.  Since that time, SmarTalk has been liquidating its remaining assets in the bankruptcy proceeding.    
+
+ Facts 
+
+ Summary
+
+  4. These proceedings arise from materially false and misleading financial statements that SmarTalk filed with the Commission from the third quarter of 1997 through the second quarter of 1998.  Some of SmarTalk's false and misleading financial statements were also incorporated in registration statements for offerings of stock filed with the Commission in September and December 1997, and May 1998. 
+
+ 5. SmarTalk falsely reported net income of $478,000 in its quarterly report for the third quarter of 1997.  In fact, SmarTalk had losses that period.  As Folck knew or should have known, SmarTalk hid the losses by improperly capitalizing ordinary operating expenses.  The expenses were improperly treated as an asset. 
+
+ 6. Additionally, in SmarTalk's year-end 1997 annual report, which included audited financial statements, SmarTalk reported a one-time charge, a $25 million restructuring reserve, purportedly for anticipated 1998 costs, after its purchase of several other prepaid telephone card businesses.  As Folck knew or should have known, the entire restructuring reserve did not conform to Generally Accepted Accounting Principles ("GAAP") because the anticipated costs were not proper restructuring costs and the company had failed to properly establish a plan of restructuring in conformity with Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) ("EITF 94-3").   
+
+ 7. Also, as Folck knew or should have known, SmarTalk improperly understated current period operating expenses by charging 1997 operating expenses (including most of the above described expenses improperly capitalized as of the third quarter of 1997) and 1998 operating expenses against the non-GAAP restructuring reserve.  This enabled SmarTalk to falsely inflate earnings (or earnings before one-time charges) at year-end 1997 and the first two quarters of 1998. 
+
+ 8. On August 10, 1998, SmarTalk announced that its auditors had informed management about potentially significant issues with SmarTalk's accounting treatment for acquisitions that occurred during 1997 and certain other items relating to fiscal year 1997.  On August 19, 1998, SmarTalk filed its Form 10-Q for the second quarter of 1998.  The Form 10-Q noted that the company's auditors had informed management of significant issues with some of SmarTalk's accounting, and as a result, its 1997 and 1998 financial statements would require adjustment, but the amounts of the adjustments had not yet been determined.  On August 11, after the press release, SmarTalk's stock price fell 57%, from $16 5/8 to $7 5/32.  Folck had sold some stock in January 1998, prior to the time that the stock price fell in August 1998. 
+
+ 9. In November 1998, SmarTalk restated its audited financial statements for year-end 1997 and its first two quarters of 1998.  In the restatement, SmarTalk reversed the entire $25 million restructuring reserve that had been recorded at year-end 1997.  In addition, SmarTalk expensed most of the operating costs that had previously been charged against the restructuring reserve in 1997 and 1998.      
+
+ Third Quarter 1997:  Folck Causes SmarTalk to Falsely Report Net Income of $478,000 Instead of Losses 
+
+ 10. For the third quarter 1997, SmarTalk falsely reported net income of $478,000 in a November 12, 1997 press release and Form 10-Q, filed November 14, 1997.  In fact, SmarTalk had losses that period.  SmarTalk incorporated its third quarter financial statements in a registration statement on Form S-4 filed December 2, 1997, which Folck signed.  Folck knew or should have known that the overstated net income was accomplished by the improper capitalization of ordinary operating expenses.   
+
+ 11. Beginning in August 1997, Folck began directing that operating expenses be reclassified to a so-called "restructuring reserve" account when the company had not yet established a restructuring reserve.  As of the end of the third quarter 1997, there were about 41 such expense items totaling $1.1 million, including executive travel and entertainment costs, employee relocation expenses (associated with moving the finance department from California to Florida in 1997), various consulting and legal fees, telephone expenses, costs associated with employee terminations in mid-1997, and costs of preparing SmarTalk's annual report. 
+
+ 12. In connection with preparing the third quarter 1997 Form 10-Q, Folck directed the $1.1 million of expenses to be added to prepaid expenses, an asset on the balance sheet.  A prepaid expense is an expense with benefits that extend into the future, but which is paid for in advance.  In contrast, the third quarter expenses were payments for services that had already been rendered.  The addition of operating expenses to prepaid expenses created a fictitious asset.  If the expenses had been properly classified as operating expenses, SmarTalk would have reported losses for the third quarter of up to $622,000.   
+
+ Year-End 1997:  Folck Causes SmarTalk To Establish a Non-GAAP Restructuring Reserve and To Overstate Net Income Before One-Time Charges 
+
+ 13. In its year-end 1997 financial statements, which were audited, SmarTalk recorded a one-time charge, a $25 million restructuring reserve.  In 1997, Folck had compiled an initial list of potential restructuring reserve costs.  Folck further prepared draft and final restructuring reserve schedules in early 1998, made presentations to the board regarding the restructuring reserve, was responsible for calculating the amounts to be included in the restructuring reserve and provided the rationale for including certain costs in the restructuring reserve.   
+
+ 14. The $25 million restructuring reserve consisted of five types of costs purportedly to be incurred in 1998 in order to exit certain activities:  contract termination fees; write-down of prepaid card inventory that would be recalled in 1998; certain asset write-downs; severance benefits associated with personnel reductions in 1998; and various general reserves.  As described in detail below, the entire restructuring reserve did not comply with GAAP.  Folck knew or should have known that SmarTalk's management had failed to execute a properly detailed and approved plan of restructuring prior to year-end 1997.  Folck also knew or should have known that a number of costs were not estimable by year-end and that the anticipated costs were not proper restructuring costs.  In SmarTalk's restated financial statements, the entire $25 million restructuring reserve was reversed.   
+
+ 15. As set forth below, Folck knew or should have known that SmarTalk improperly understated 1997 operating expenses by charging them against the non-GAAP restructuring reserve.  This enabled SmarTalk, in a February 26, 1998 press release to falsely announce that its 1997 year-end earnings, before one-time charges, were $2.3 million.   
+
+ 16. SmarTalk's year-end 1997 materially false and misleading financial statements, which were audited, were included in SmarTalk's annual report on Form 10-K filed March 31, 1998, that Folck reviewed and signed.  The materially false and misleading financial statements were also incorporated in a registration statement on Form S-8 filed in September 1997  2   and May 7, 1998, which Folck signed.   
+
+ Folck Knew or Should Have Known that Management Failed to Commit to a Detailed Exit Plan Prior to Year-end 1997 
+
+ 17. To establish a restructuring reserve, EITF 94-3 required SmarTalk management to approve and commit the enterprise to an exit plan by the date of the financial statements (in this case, December 31, 1997).  An exit plan must specifically identify all significant actions to be taken to complete the exit plan, activities that will not be continued, including the method of disposition and location of those activities, and the expected date of completion.  EITF 94-3 also provides that a liability should be recognized at the commitment date (by December 31, 1997) for only those exit costs that can be reasonably estimated.  In late-1997, Folck was provided a copy of EITF 94-3.  Folck read it and made notes on it.  
+
+ 18. As Folck knew or should have known, SmarTalk had no detailed plan or proper approval in 1997.  At the end of October 1997, some elements of a plan, but not the details or the amounts, were discussed at a board of directors meeting.  By late December 1997, Folck developed a list of potential restructuring reserve costs.  Nevertheless, that list was not finalized and the amounts and other details, including the timing of activities to be discontinued, were not determined in 1997.  Rather, in January 1998, Folck began getting input from SmarTalk employees to prepare a more detailed schedule of restructuring reserve items and to derive amounts.  In January 1998, Folck compiled a first draft schedule of restructuring reserve amounts and presented the draft schedule to SmarTalk's auditors. 
+
+ 19. Even in 1998, Folck's schedule of restructuring items went through subsequent revisions, when the exit plan should have been completed and amounts estimated by December 31, 1997.  There were material changes in the nature, amounts and timing of many items in the several versions of the restructuring reserve schedules in 1998.  The changes to the plan in 1998 reflect SmarTalk's failure to commit to a restructuring plan in conformity with EITF 94-3 and inability to make reliable estimates by year-end 1997.  In view of the failure to commit to a detailed exit plan prior to year-end, any approval in 1997 would have been too limited and any approval in 1998 would have been too late. 
+
+ Folck Knew or Should Have Known that SmarTalk Improperly Reserved for Contract Termination Fees 
+
+ 20. The largest component of the reserve was $13.5 million for commitments and penalties pertaining to contracts that were ostensibly to be terminated in 1998.  Most of this component was for amounts due upon termination of SmarTalk's carrier services with WorldCom and MCI.  3    SmarTalk intended to switch its carrier traffic to Frontier Communications at some point in 1998, due to more favorable rates on the Frontier contract.  However, only some traffic was ever switched to Frontier, in part, because of technical difficulties in 1998 and it occurred later in 1998 than had been reflected in SmarTalk's restructuring schedules.  SmarTalk continued to use the MCI contract through its bankruptcy in 1999 and assigned its interest in the WorldCom contract to another company in mid-1998.   
+
+ 21. As Folck knew or should have known, the contract termination costs were not exit costs under EITF 94-3 because SmarTalk was switching one contract for another and thus, the termination costs were associated with activities that would be continued.   
+
+ 22. In addition, as Folck knew or should have known, SmarTalk had no reasonable basis for accrual of these costs under Statement of Financial Accounting Standards ("SFAS") No. 5, Accounting for Contingencies.  SFAS No. 5 requires that losses associated with contingencies be accrued only if it is probable that a liability had been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.  Folck knew or should have known that no events had occurred that would have obligated SmarTalk as of year-end 1997 to pay termination costs.  Moreover, by year-end, SmarTalk management had not determined the timing of the contract terminations and the timing of those events would and did affect the amount reserved for the WorldCom contract.  Accordingly, at year-end, Folck knew or should have known that management was unable to reasonably estimate how much the penalties under that contract would be.  
+
+ Folck Knew or Should Have Known that SmarTalk Improperly Reserved for Inventory Write-Downs 
+
+ 23. Another component of the reserve was $4.5 million for inventory of prepaid telephone cards that were to be replaced some time in 1998 with cards containing a new SmarTalk logo.  SmarTalk was working on developing a new logo during 1998.  The prepaid card inventory, however, was not recalled or destroyed and SmarTalk continued selling some of it.   
+
+ 24. Inventory write-downs are specifically addressed in Emerging Issues Task Force Issue 
+No. 96-9, Classification of Inventory Markdowns and Other Costs Associated with a Restructuring, which contains the Commission's view that write-downs of inventory should be reflected as costs of goods sold.  Folck knew or should have known that the inventory write-down for prepaid telephone cards should not have been shown as a restructuring cost.  Folck also knew or should have known that SmarTalk had no reasonable basis for accruing these costs as a loss at year-end under SFAS No. 5.  SmarTalk continued to sell its inventory on hand throughout 1998.  SmarTalk was unable to replace its existing inventory until it had developed a new logo and that did not occur until mid-1998.  Indeed, some of the inventory that was ultimately to be discarded had not even been manufactured by year-end.  Thus, the assets had not been impaired by the end of 1997.  In addition, the amount of anticipated losses from the eventual destruction of inventory was not reasonably estimable by December 31.   
+
+ Folck Knew or Should Have Known that SmarTalk Improperly Reserved for Asset Write-Downs Associated with Offices Purportedly to be Closed in 1998 
+
+ 25. The reserve also improperly included $3.5 million for write-downs of assets to be disposed of when SmarTalk closed certain offices in 1998.  For such losses on asset impairments, EITF 94-3 defers to SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121").  Folck knew or should have known that SmarTalk's reserve was improper because under SFAS No. 121, losses for asset write-downs are to be reported as a component of income from continuing operations, not as a reserve, and furthermore, these assets did not meet the criteria for asset impairments or asset disposals. 
+
+ Folck Knew or Should Have Known that SmarTalk Improperly Reserved for Severance Benefits 
+
+ 26. The fourth component of the reserve included $1.1 million for severance benefits for employees, at offices to be closed and at SmarTalk's new headquarters, whose employments were to be terminated in 1998.  For involuntary severance benefits to be included in the reserves as of December 31, 1997, EITF 94-3 requires management, prior to year-end, to identify the number of employees to be terminated, their job classifications and locations, establish the benefits employees will receive upon termination and communicate the benefit arrangement to employees.  Folck knew or should have known that SmarTalk did not comply with these requirements.  The severance benefit arrangement for most employees was not decided upon until 1998 and employees did not learn the amount of their severance benefits until they were actually terminated (which for most employees was in 1998).  In addition, there was no determination in 1997 of the total number of employees to be terminated. 
+
+ Folck Knew or Should Have Known that SmarTalk Improperly Included General Reserves 
+
+ 27. The restructuring reserve also improperly included $1.8 million of general reserves.  The general reserves consisted of:  $575,000 for computer conformity, utilities and taxes; $625,000 for travel and telephone expenses related to employee terminations; an overstatement by $180,000 of the MCI contract termination amount; an overstatement by $180,000 of the amount set aside for inventory write-downs; and $250,000 for "various employee severances," for which SmarTalk management failed to identify the number of employees, their job classifications and their locations, as is required under EITF 94-3.  As Folck knew or should have known, SFAS No. 5, paragraph 14, prohibits the accrual of general reserves.  Accordingly, these items were operating expenses that should not have been recorded until they were incurred.    
+
+ Folck Causes SmarTalk to Overstate Year-End 1997 Net Income Before One-time Charges by Directing 1997 Operating Expenses to be Charged Against the 1998 Restructuring Reserve 
+
+ 28. SmarTalk's restructuring plan contemplated that SmarTalk would incur the previously described categories of costs in 1998.  Nevertheless, beginning in about December 1997, Folck approved charging against the restructuring reserve most of the operating expenses that had been improperly added to prepaid expenses in the third quarter of 1997, and additional fourth quarter 1997 operating expenses.  A total of $1.06 million of 1997 operating expenses were improperly charged to the restructuring reserve as of year-end.  The expenses, which were not contemplated by the restructuring reserve, included executive travel and entertainment costs, telephone and moving expenses, and consulting fees.  Some of the operating expenses charged in the fourth quarter were incurred in the third quarter of 1997 or even earlier.  If the total operating expenses charged as of December 31, 1997 had been properly reflected on SmarTalk's financial statements, earnings before one-time charges would have been reduced by as much as 52% from $2.3 million to $1.2 million.  In SmarTalk's restated financial statements, most 1997 charges against the restructuring reserve were reversed. 
+
+ Folck Causes SmarTalk to Fail to Disclose the Types and Amounts of 1997 Costs Charged Against the 1998 Restructuring Reserve in its 1997 Form 10-K 
+
+ 29. Folck knew or should have known that SmarTalk's 1997 Form 10-K, which Folck signed, failed to describe the types and amounts of exit costs charged against the liability in 1997, as required by EITF 94-3.  Instead, SmarTalk reflected the usage on its balance sheet by reducing the total restructuring reserves ($25 million) by the total amount charged as of year-end 1997 ($1.06 million).  The reduced restructuring reserve amount on the balance sheet was not explained anywhere in the Form 10-K.  Had the exit costs been described, as was required, the misuse of the restructuring reserve in 1997 would have been apparent. 
+
+ Folck Sold Stock in January 1998 
+
+ 30. On January 5, 1998, Folck sold some shares of SmarTalk stock.  Folck avoided losses of $16,250 by selling the shares prior to SmarTalk's August 10, 1998 public announcement of significant issues with SmarTalk's accounting treatment for acquisitions that occurred during 1997 and certain other items relating to 1997. 
+
+ First and Second Quarters of 1998:  Folck Knew or Should Have Known of the Continued Misuse of the Restructuring Reserve to Understate Losses and Overstate Earnings 
+
+ 31. SmarTalk failed to follow through on most of its restructuring plan and therefore incurred few of the costs for which it had reserved.  Nevertheless, beginning in about March 1998 and continuing into the second quarter, the accounting staff, with Folck's knowledge, charged current period operating expenses against the restructuring reserve.  In 1998, Folck received documents listing some of the expenses charged against the reserve and authorized accounting personnel to charge certain of the expenses against the reserve.   
+
+ 32. In the first quarter 1998, SmarTalk charged a total of $1.2 million of operating expenses against the restructuring reserve.  The expenses included office rent and utilities, employee salaries and consultant fees.  If the operating expenses had been properly reflected in SmarTalk's Form 10-Q, filed May 15, 1998, for its quarter ended March 31, 1998, losses would have increased from SmarTalk's reported $3.4 million to $4.6 million.  Folck signed the first quarter Form 10-Q. 
+
+ 33. In its Form 10-Q for the second quarter of 1998, which ended June 30, SmarTalk reported net income of $2.2 million.  Folck signed the second quarter Form 10-Q, which was filed on August 19, 1998.  As of the second quarter, an additional $0.7 million of operating expenses were improperly charged against the restructuring reserve.  The expenses included office rent and utilities, employee salaries, consulting fees and travel (including airfare for an officer's wife and minor child), Folck's travel expenses dating as far back as November 1996 and certain acquisition related expenses.  Without these charges, net income would have decreased from SmarTalk's reported $2.2 million to $1.5 million.   
+
+ 34. For a company showing only marginal profits, at best, the effect of the improper charges to the reserves in the first two quarters of 1998 was material.  In SmarTalk's restated financial statements, most 1998 charges against the restructuring reserve were reversed and charged against revenues as general and administrative expense, cost of sales, and sales and marketing expense.   
+
+ Folck Knew or Should Have Known that SmarTalk's Disclosures in 1998 of Charges Against the Restructuring Reserve were Materially False and Misleading 
+
+ 35. In its Forms 10-Q for the first two quarters of 1998, which Folck reviewed and signed, SmarTalk described the types and amounts of costs charged against the restructuring reserve in 1997 and 1998.  SmarTalk grouped the costs into the following three categories:  "personnel reductions," "facilities and equipment realignment," and "product conformity and sole branding."  In view of the fact that the costs actually consisted of office rent and utilities, employee salaries, consultant fees, travel expenses and other non-restructuring operating expenses, Folck knew or should have known that the descriptions in the filings were materially false and misleading. 
+
+ Legal Analysis 
+
+ Applicable Law 
+
+ 36. Section 17(a)(2) of the Securities Act prohibits obtaining money or property by means of untrue statements of material fact or omissions to state material facts in the offer or sale of securities.  Section 17(a)(3) of the Securities Act prohibits engaging in transactions, practices, or courses of business which operate as a fraud or deceit upon the purchaser in the offer or sale of securities. 
+
+ 37. Section 13(a) of the Exchange Act requires all issuers with securities registered under Section 12 of the Exchange Act to file such periodic reports as the Commission shall prescribe by its rules and regulations.  Exchange Act Rules 13a-1 and 13a-13, respectively, require issuers to file annual reports and quarterly reports.  Exchange Act Rule 12b-20 requires that periodic reports contain such further information as is necessary to make the required statements, in light of the circumstances under which they are made, not misleading. 
+
+ 38. Section 13(b)(2)(A) of the Exchange Act requires that reporting companies 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.   
+
+Exchange Act Rule 13b2-1 states 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.     
+
+ 39. 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 transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP. 
+
+ Folck's Violations 
+
+ 40. As a result of the conduct described above, SmarTalk violated Sections 17(a)(2) and 17(a)(3) of the Securities Act by filing registration statements on Form S-4 in December 1997, and Form S-8 in September 1997 and May 1998, for offerings of securities that incorporated materially false and misleading financial statements for the third quarter of 1997 and year-end 1998.  SmarTalk also violated Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1, 13a-13 and 12b-20 by filing a materially false and misleading annual report on Form 10-K for year-end 1997 and by filing materially false quarterly reports on Form 10-Q for the third quarter of 1997 and the first two quarters of 1998.  Finally, SmarTalk violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. 
+
+ 41. As discussed above, Folck, as SmarTalk's Chief Financial Officer, was responsible for the preparation of SmarTalk's financial statements and signed all relevant annual and quarterly reports and registration statements and supervised the accounting department.  Folck directed that third quarter operating expenses be improperly capitalized as of the third quarter of 1997.  Folck compiled an initial list of potential restructuring costs, prepared the restructuring reserve schedules, made presentations to the board regarding the restructuring reserve and provided the rationale for including certain costs in the restructuring reserve.  Folck approved charging against the $25 million restructuring reserve at year-end 1997, the previously capitalized third quarter 1997 operating expenses and additional fourth quarter 1997 operating expenses, when the restructuring reserve had been established purportedly for costs to be incurred in 1998.  Folck also was aware that SmarTalk improperly charged current period operating expenses against the restructuring reserve as of the first two quarters of 1998. 
+
+ 42. As a result of the conduct described above, Folck, therefore, knew or should have known that SmarTalk's Form 10-Q for the third quarter of 1997 was materially false and misleading because it falsely reported net income by improperly capitalizing the $1.1 million of operating expenses.  Folck, therefore, also knew or should have known that SmarTalk's Form 10-K for year-end 1997 was materially false and misleading in that SmarTalk:  improperly established a $25 million non-GAAP restructuring reserve; improperly charged third and fourth quarter 1997 operating expenses against the restructuring reserve that was purportedly established for anticipated 1998 costs; and improperly failed to disclose the types and amounts of the charges against the restructuring reserve.  Furthermore, Folck, therefore, knew or should have known that SmarTalk's Forms 10-Q for the first and second quarters of 1998 were materially false and misleading because they inflated net income and/or understated losses when SmarTalk continued to improperly charge operating expenses against the restructuring reserve and included descriptions of the improper charges that were false and misleading.  As a result, Folck was a cause of SmarTalk's violations of Section 13(a) of the Exchange Act, and Rules 13a-1, 13a-13 and 12b-20 of the Exchange Act.  As a result, Folck also was a cause of SmarTalk's violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act in connection with SmarTalk's materially false and misleading financial statements for the third quarter 1997 and year-end 1997 that were incorporated in registration statements on Form S-4 filed in December 1997, and Form S-8 filed in September 1997 and May 1998. 
+
+ 43. As a result of the conduct described above, Folck was a cause of SmarTalk's violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  In 1997 and the first two quarters of 1998, Folck failed to maintain true and accurate books and records and adequate internal controls to assure that SmarTalk accounted for its expenses and assets correctly. 
+
+ 44. As discussed above, Folck caused SmarTalk's books and records to be falsified when, as of the third quarter of 1997, he directed operating expenses to be reclassified as restructuring reserve expenses, but SmarTalk had not yet established a restructuring reserve, and then he directed those expenses to be capitalized by adding them to prepaid expenses, thereby creating a fictitious asset.  As discussed above, Folck further caused SmarTalk's books and records to be falsified by approving charging against the $25 million restructuring reserve at year-end 1997 the previously capitalized third quarter 1997 operating expenses and additional fourth quarter 1997 operating expenses, when the restructuring reserve had been established for costs purportedly to be incurred in 1998.  As a result of this conduct, Folck also violated Exchange Act Rule 13b2-1. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Folck's Offer. 
+
+  ACCORDINGLY, IT IS HEREBY ORDERED:  
+
+ A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Respondent Folck shall cease and desist from committing or causing any violations, and any future violations, of Section 17(a)(2) and (3) of the Securities Act and Rule 13b2-1 under the Exchange Act and Respondent Folck shall further cease and desist from causing any violations, and any future violations, of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder. 
+
+ B. IT IS FURTHERED ORDERED that Respondent shall, within 10 days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $22,844.68 to the United States Treasury.  Such payment shall be:  (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Stop 0-3, VA 22312; and (D) submitted under cover letter that identifies Glen Andrew Folck 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 Antonia Chion, Division of Enforcement, Securities and Exchange Commission, 450 5th Street N.W., Washington, D.C. 20549-0801.  
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   1    The findings herein are made pursuant to Respondent's Offer and are not binding on any other person or entity in this or any other proceeding.  
+
+   2    The registration statement on Form S-8 filed in September 1997 expressly incorporated all subsequently filed periodic reports. 
+
+   3    A small portion of this component ($800,000) also related to SmarTalk's intention to terminate a contract with Polaroid in 1998, which was to produce holographic images on prepaid cards.  The analysis of why the Polaroid contract termination fees were improper restructuring costs is similar to the analysis of the carrier contract termination costs. 
+
+ 
+ 
+ 
+  
+ 
+      
+                                   
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+     
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+       
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+   
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+   
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+      
+ 
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diff --git a/raw/aaer/2003/AAER-1722.txt b/raw/aaer/2003/AAER-1722.txt
new file mode 100644
index 0000000000000000000000000000000000000000..be25551a6bc4955404d13e8cb731d140ba4aa472
--- /dev/null
+++ b/raw/aaer/2003/AAER-1722.txt
@@ -0,0 +1,1540 @@
+
+
+ 
+ 
+   
+     
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+ 
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+     SEC.gov | Enterasys Networks, Inc. and Aprisma Management Technologies, Inc. 
+     
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+              Enterasys Networks, Inc. and Aprisma Management Technologies, Inc.
+           
+     
+ 
+
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+     
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+      
+             
+        Enterasys Networks, Inc. and Aprisma Management Technologies, Inc.
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 47405 / February 26, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1722 / February 26, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11047  
+            
+
+  
+       In the Matter of  
+
+ Enterasys Networks, Inc. and Aprisma Management Technologies, Inc. 
+
+ Respondents. 
+  
+ : : : : : : : : : : : 
+ 
+  ORDER INSTITUTING PUBLIC
+	PROCEEDINGS  PURSUANT TO SECTION
+	21C OF THE SECURITIES EXCHANGE
+	IMPOSING A CEASE-AND-DESIST ORDER 
+		AGAINST ENTERASYS NETWORKS, INC.
+		AND APRISMA MANAGEMENT
+	TECHNOLOGIES, INC.
+     
+ I.   
+  
+The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Enterasys Networks, Inc. (together with its predecessor, Cabletron Systems, Inc., "Enterasys") and Aprisma Management Technologies, Inc. ("Aprisma") (collectively "Respondents").  
+  
+ II.   
+  
+In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings  herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, which are admitted, 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 against Enterasys and Aprisma ("Order"), as set forth below.  
+  
+ III.   
+  
+On the basis of this Order and Respondents' Offer, the Commission finds  1   that:   
+  
+1.  Enterasys is a Delaware corporation based in Rochester, New Hampshire, whose stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act.  Enterasys designs and develops networks communications hardware and software products and provides related support services.  At all times relevant hereto, Enterasys filed periodic reports with the Commission containing consolidated financial statements that included the financial performance of Aprisma.                        
+  
+2. Aprisma, a software design and development company, is a Delaware corporation based in Portsmouth, New Hampshire.  At all times relevant hereto, Aprisma was a majority owned subsidiary of Enterasys.  On November 20, 2001, Aprisma filed a Form 10 registration statement with the Commission to register its stock pursuant to Section 12(g) of the Exchange Act.  Although Aprisma's registration statement became effective on January 19, 2002, Aprisma filed a Form 15 with the Commission on July 19, 2002 to terminate its registration.                      
+  
+3.  From March 2000 through December 2001 (the "relevant period"), Enterasys and Aprisma engaged in improper accounting practices, including entering into a number of transactions for which they knowingly, or recklessly, recognized revenue under circumstances where revenue should not have been recognized under Generally Accepted Accounting Principles ("GAAP").  2    
+4.   During the relevant period, Enterasys and Aprisma entered into sales transactions in which their customers were given the right to return or exchange the products being sold, or their customers were given the right to cancel the underlying transaction.  In many of the transactions involving return rights, the purchasing party was not required to pay Enterasys or Aprisma until it resold the products to end-users, and could return the products in the event it was unable to locate end-user purchasers.  Although it was improper under GAAP to recognize revenue for sales that were subject to return, exchange, or cancellation rights, Enterasys and Aprisma recognized revenue for these transactions during the relevant period.     
+  
+5.   During the relevant period, Enterasys and Aprisma entered into several transactions in which they invested cash in, and/or gave credits for their products to, other companies in return for an equity or debt interest and the other company's agreement to purchase their products either directly or indirectly through a third party reseller.  Although several of these investment transactions lacked economic substance, Enterasys and Aprisma improperly recognized revenue for these investment related sales during the relevant period.  Moreover, Enterasys and Aprisma improperly overstated the value of their investment interests with respect to some of these transactions during the relevant period.    
+  
+ 
+
+6.  During the relevant period, Enterasys and Aprisma entered into transactions in which they purchased products or services from other companies in return for the other company's agreement to purchase a comparable dollar value of their products at or about the same time.  In these "swapping" arrangements, Enterasys and Aprisma essentially exchanged products or services with other companies without having a legitimate business purpose for the exchange.  Although improper under GAAP, Enterasys and Aprisma recognized revenue for these sales during the relevant period.
+  
+7.  On the final day of various quarters during the relevant period, Enterasys utilized intermediate shippers to hold products until final shipping arrangements with Enterasys's regular shippers could be made on the next business day.  In these transactions, the risk of loss for, and title of ownership to, the products remained with Enterasys while the products were held by the intermediary shippers.  Although improper under GAAP, Enterasys prematurely recognized revenue for these transactions during the relevant period.   
+  
+       
+  
+8.  At the end of various quarters during the relevant period, Enterasys increased its cash account and accounts payable by the total value of its outstanding checks that had not yet been cashed by others.  It was improper under GAAP for Enterasys to adjust the foregoing accounts under these circumstances.  At the end of various quarters, Enterasys also improperly increased its cash account and decreased its accounts receivable by recording payments that it had not received until shortly after the end of the quarter.
+    
+  
+9. As a result of the improper accounting practices described above, Enterasys knew, or was reckless in not knowing, that its annual report filed with the Commission for the fiscal year ended March 3, 2001, and its quarterly reports filed with the Commission for the quarters ended June 3, 2000, September 2, 2000, December 2, 2000, June 2, 2001,  September 1, 2001, and September 29, 2001 contained false and misleading financial statements.  Accordingly, Enterasys committed violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  As a result of the improper accounting practices described above, Enterasys also committed violations of Section 13(a) of the Exchange Act, Rules 13a-1 and 13a-13 thereunder, and Exchange Act Rule 12b-20.
+  
+   10. As a result of the improper accounting practices described above, Aprisma knew, or was reckless in not knowing, that its registration statement filed with the Commission on November 20, 2001 contained false and misleading financial statements.   In addition, Aprisma knew, or was reckless in not knowing, that Enterasys's annual report filed with the Commission for the fiscal year ended March 3, 2001, and its quarterly reports filed with the Commission for the quarters ended September 2, 2000, December 2, 2000, June 2, 2001, September 1, 2001, and September 29, 2001 contained false and misleading consolidated financial statements.  Accordingly, Aprisma committed violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  As a result of the improper accounting practices described above, Aprisma also committed violations of Section 12(g)(1) of the Exchange Act and Rule 12b-20 thereunder.  In addition, Aprisma was a cause of Enterasys' violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13.
+      
+  
+11. By engaging in the foregoing accounting practices, Enterasys knew, or was reckless in not knowing, that it was falsifying books, records or accounts subject to Section 13(b)(2)(A) of the Exchange Act, failing 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, and failing to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected the company's transactions and dispositions of assets.  Accordingly, Enterasys violated, and Aprisma was a cause of Enterasys' violation of, Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder.  By engaging in the foregoing accounting practices, Enterasys also violated, and Aprisma was a cause of Enterasys' violation of, Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  
+  
+  Respondents' Remedial Efforts  
+  
+In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondents and cooperation afforded the Commission staff.
+  
+  Undertakings    
+  
+A.  Respondents have undertaken to cooperate fully with the Commission in any and all investigations, litigations or other proceedings brought by the Commission relating to or arising from the matters described in the Order, and undertake:    
+  
+1. To comply with any and all reasonable requests by the Commission's staff for company documents or other information;    
+  
+2. To be interviewed, and to make their officers, directors, employees, agents and other representatives available to be interviewed, by the Commission's staff at such times as the Commission's staff reasonably may direct;    
+  
+3. To appear and testify, and to make their 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;    
+  
+4. That in connection with any (i) testimony of Respondents or their officers, directors, employees, agents and other representatives to be conducted by testimony session, deposition, hearing or trial, or (ii) requests for documents or other information, that any notice or subpoena for such may be addressed to their counsel, and be served by mail or facsimile.  
+  
+B.   Respondent Enterasys has also undertaken to appoint an internal auditor who reports directly to the Audit Committee of Enterasys's Board of Directors.
+  
+In determining whether to accept the Offer, the Commission has considered these undertakings.
+  
+ IV.   
+  
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondents' Offer.  
+  
+ Accordingly, it is ORDERED that:   
+  
+A. Pursuant to Section 21C of the Exchange Act, Respondent Enterasys shall cease and desist from committing or causing any violations and any future violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-1, 13a-13 and 13b2-1 thereunder, and Exchange Act Rule 12b-20.  
+  
+B. Pursuant to Section 21C of the Exchange Act, Respondent Aprisma shall cease and desist from committing or causing any violations and any future violations of Sections 10(b), 12(g)(1), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-1, 13a-13 and 13b2-1thereunder, and Exchange Act Rule 12b-20.  
+  
+C. Respondent Enterasys shall comply with the undertakings enumerated in Section III.B. above.   
+  
+By the Commission.              
+  
+Jonathan G. Katz  
+Secretary
+
+  
+  Footnotes 
+
+  1    The findings herein are made pursuant to Respondents' Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
+ 
+  2     In  April 2002, Enterasys appointed William K. O'Brien as its new chief executive officer.
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diff --git a/raw/aaer/2003/AAER-1723.txt b/raw/aaer/2003/AAER-1723.txt
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+++ b/raw/aaer/2003/AAER-1723.txt
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+ Litigation Release No. 18002 / February 27, 2003 
+
+ Accounting and Auditing Enforcement  
+Release No. 1723 / February 27, 2003 
+
+  Securities and Exchange Commission v. Glen Andrew Folck , Civil Action No. 1:03CV00386 (D.D.C.) (February 26, 2003) 
+
+ Glen Andrew Folck Consents to Pay a $50,000 Civil Penalty Relating to Improper Accounting at Smartalk Teleservices, Inc. 
+
+ The Securities and Exchange Commission announced the filing of a civil action in federal court against Glen Andrew Folck, the former Chief Financial Officer of SmarTalk TeleServices, Inc., a now-bankrupt provider of pre-paid telephone cards and wireless services.  The civil action arises from SmarTalk's filing with the Commission materially false and misleading financial statements, which were also incorporated in registration statements for offerings of stock.  According to the Commission's Complaint, Folck, as CFO, was responsible for the preparation of the financial statements that were included in SmarTalk's periodic reports and registration statements.  Folck consented, without admitting or denying the allegations in the Commission's complaint, to pay a civil penalty of $50,000.   
+
+ On February 26, 2003, the Commission also issued a cease-and-desist order ("Order") against Folck in a related administrative proceeding.  ( In the Matter of Glen Andrew Folck , Administrative Proceeding File No. 3-11046)  The Order finds that Folck violated or caused violations of certain antifraud, reporting, and books and records provisions of the federal securities laws.  Folck also agreed to settle the cease-and-desist proceeding, without admitting or denying the findings in the Order. 
+
+ In its Complaint the Commission alleges the following: 
+
+ As of the third quarter of 1997 and year-end 1998, SmarTalk filed with the Commission materially false and misleading financial statements, which were also incorporated in registration statements for offerings of stock filed with the Commission in September and December 1997, and May 1998.  Folck, as CFO, was responsible for the preparation of SmarTalk's financial statements and signed all relevant annual and quarterly reports and registration statements and supervised the accounting department. 
+
+ SmarTalk falsely reported net income of $478,000 in its quarterly report for the third quarter of 1997.  In fact, SmarTalk had losses that period.  As Folck knew or should have known, SmarTalk hid the losses by improperly capitalizing ordinary operating expenses.  The expenses were improperly treated as an asset. 
+
+ Additionally, in SmarTalk's annual report for its fiscal year ended December 31, 1997, which included audited financial statements, SmarTalk reported a one-time charge, a $25 million restructuring reserve, purportedly for anticipated 1998 costs, after its purchase of several other prepaid telephone card businesses.  As Folck knew or should have known, the entire restructuring reserve did not conform to Generally Accepted Accounting Principles ("GAAP") because the anticipated costs were not proper restructuring costs and the company had failed to properly establish a plan of restructuring.  Also, as Folck knew or should have known, SmarTalk improperly understated current period operating expenses by charging 1997 operating expenses (including most of the above described expenses improperly capitalized as of the third quarter of 1997) against the non-GAAP restructuring reserve.  This enabled SmarTalk to falsely inflate earnings before one-time charges at year-end 1997.  In November 1998, SmarTalk restated its financial statements for year-end 1997 and its first two quarters of 1998.   
+
+ By engaging in the above conduct, Folck caused SmarTalk's books and records to be falsified as of the third quarter of 1997 and year-end 1997 and thus, violated Exchange Act Rule 13b2-1. 
+
+ In addition to payment of a civil penalty, Folck agreed to the following sanctions ordered by the Commission in the administrative proceeding:  Folck was ordered to cease and desist from committing or causing violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Exchange Act Rule 13b2-1; Folck was ordered to cease and desist from causing violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 13a-1, 13a-13 and 12b-20; and Folck was ordered to pay disgorgement and prejudgment interest totaling $22,844.68 relating to his stock sales in January 1998. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1725.txt b/raw/aaer/2003/AAER-1725.txt
new file mode 100644
index 0000000000000000000000000000000000000000..12db8e2974d701e099316eaad62c77be6c0105aa
--- /dev/null
+++ b/raw/aaer/2003/AAER-1725.txt
@@ -0,0 +1,1491 @@
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+              Jeffrey M. Kalina, CPA
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+  SECURITIES EXCHANGE ACT OF 1934 
+Release No.  47427 / February 28, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  1725 / February 28, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+File No.   3-11052     
+           
+
+
+  
+       JEFFREY M. KALINA, 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 in the public interest that public administrative proceedings be, and hereby are, instituted against Jeffrey M. Kalina ("Respondent" or "Kalina") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.  1    
+ II.   
+  
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the 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. Kalina was the Senior Manager of Mergers and Acquisitions Transactions of Homestore, Inc. ("Homestore") from February 2001 through December 2001 at which time he was promoted to Director of Operations Planning.  He was terminated in November 2002.  During 2001, he was responsible for performing due diligence in connection with acquisition transactions, valuation analysis, and making recommendations on potential accounting issues.  He is a Certified Public Accountant in the State of Illinois, but does not hold a license.  He is 31 years old and lives in Woodland Hills, California.    
+  
+2. Homestore is, and at all relevant times was, a Delaware corporation with its principal place of business in Westlake Village, California.  Homestore is an Internet provider of residential real estate listings and related content.  Homestore's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and trades on the National SmallCap Market System.    
+  
+3. On January 8, 2003, the Commission filed a complaint against Kalina in  SEC v. Jeffrey M. Kalina , in the United States District Court for the Central District of California (the "Court") (Civil Action No. 03-0147  WMB(RZx)).  On February 18, 2003, the Court entered a Final Judgment of Permanent Injunction and Other Relief Against Defendant Jeffrey M. Kalina ("Judgment") which (a) permanently enjoins Kalina from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; and (b) orders Kalina to pay $69,802 in disgorgement plus $4,546 in prejudgment interest.  Kalina consented to the entry of the Judgment without admitting or denying any of the allegations in the complaint. 
+  
+     
+  
+4. The Commission alleged that Kalina participated in a fraudulent scheme to inflate Homestore's revenue throughout the first three quarters of 2001.  The complaint alleged that Homestore engaged in round-trip sales transactions that were improperly recognized as revenue.   Specifically, Homestore, through Kalina and others, overstated revenue in the first quarter by $15,000,000, or 16%, by $22,445,000, or 21%, in the second quarter, and by $8,965,000, or 8%, in the third quarter.  The complaint further alleged that Kalina helped implement the scheme and took steps to hide the true nature of these round-trip transactions from Homestore's auditors.  
+  
+ IV.   
+  
+In view of the foregoing, the Commission deems it in the public interest to impose the sanction agreed to in Respondent Kalina's Offer.
+  
+Accordingly, IT IS HEREBY ORDERED,   effective immediately, that:  
+  
+Kalina is suspended from appearing or practicing before the Commission as an accountant.  
+  
+By the Commission.              
+  
+Jonathan G. Katz 
+Secretary
+  
+  Footnotes 
+  1    Rule 102(e)(3) 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.
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diff --git a/raw/aaer/2003/AAER-1726.txt b/raw/aaer/2003/AAER-1726.txt
new file mode 100644
index 0000000000000000000000000000000000000000..59a6195249bb423ca340424b5a5ee1e898cb0586
--- /dev/null
+++ b/raw/aaer/2003/AAER-1726.txt
@@ -0,0 +1,1394 @@
+
+
+ 
+ 
+   
+     
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+     SEC.gov | Joel M. Arnold, William L. Eveleth, Grant Graham, Thomas W. Hall, Douglas K. Hutchins, Bryan K. Treadway, John M. Walker, and Richard L. Weston 
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+              Joel M. Arnold, William L. Eveleth, Grant Graham, Thomas W. Hall, Douglas K. Hutchins, Bryan K. Treadway, John M. Walker, and Richard L. Weston
+           
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+ 
+
+   
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+     
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+        Joel M. Arnold, William L. Eveleth, Grant Graham, Thomas W. Hall, Douglas K. Hutchins, Bryan K. Treadway, John M. Walker, and Richard L. Weston
+       
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+ Litigation Release No.  17996 / February 25, 2003  
+
+
+Accounting and Auditing  Release No. 1726 / February 25, 2003
+
+
+
+
+
+   Securities and Exchange v. Joel M. Arnold, William L. Eveleth, Grant Graham, Thomas W. Hall, Douglas K. Hutchins, Bryan K. Treadway, John M. Walker, and Richard L. Weston , No. (D. Co.) CV 03-Z-0328 (OES) 
+
+ The Commission today filed civil fraud charges against eight current and former officers and employees of Qwest Communications International Inc. ("Qwest"), alleging that they inflated the company's revenues by approximately $144 million in 2000 and 2001 in order to meet earnings projections and revenue expectations.  The Commission's lawsuit, which was brought in federal court in the District of Colorado, seeks anti-fraud injunctions, civil money penalties, disgorgement of ill-gotten gains (including compensation, bonuses and stock trading profits during the relevant period) and, as to certain defendants, permanent bars from service as an officer or director of a public company.   
+
+ The Commission's complaint alleges that the defendants artificially accelerated Qwest's recognition of revenue in two equipment sale transactions for its Global Business Markets unit ("Global Business").  When Qwest and Global Business determined that Qwest was falling short of its quarterly revenue targets and would not achieve the projected growth for the quarters ending June 30, 2001, and September 30, 2000, the defendants bridged the revenue gap by fraudulently mischaracterizing these transactions.   
+
+ The Commission's complaint alleges the following: 
+
+ ASFB Transaction 
+
+   Joel Arnold, the former senior vice president of Global Business; Grant Graham, the former chief financial officer ("CFO") of Global Business; Thomas W. Hall, the former senior vice president of a division of Global Business; Bryan K. Treadway, the former assistant controller of Qwest; John M. Walker, the former vice president of sales for a division of Global Business; and Douglas K. Hutchins, a former director of Global Business planned and carried out an elaborate scheme to inflate revenues in connection with the sale of Internet equipment and service to the Arizona School Facilities Board ("ASFB").   
+
+ The scheme involved artificially separating the equipment sale from the installation services and wrongfully characterizing the sale as a bill-and-hold transaction under generally accepted accounting principles.  It also included accelerated delivery of equipment necessary for the two-year project and delivery of equipment that was not approved for the ASFB project.  To support immediate recognition of revenue for sale of the equipment, the defendants prepared false letter agreements for ASFB and a fraudulent internal memorandum.   
+
+ As a result of the fraudulent transaction, Qwest recognized approximately $33.6 million in revenue in the quarter ended June 30, 2001.   Without the fictitious revenue from the ASFB transaction, Qwest would have fallen short of its projected 12 to 13 percent revenue growth for the quarter.   Genuity Transaction 
+
+   Richard L. Weston, the former senior vice president in Product Development for Qwest's Internet Solutions unit, and William L. Eveleth, the current CFO of Qwest's Corporate Planning and Operational Finance unit and senior vice president of Finance, Arnold, and Graham participated in a scheme in which Qwest artificially characterized one transaction with Genuity, Inc., an Internet service provider, as two separate contracts.   
+
+ In the first contract Qwest purported to sell equipment to Genuity at an improperly inflated price.  In a second contract, Qwest agreed to provide services to Genuity at a loss to Qwest, and reassumed all risk of loss and obsolescence on the equipment purportedly sold pursuant to the first contract.   
+
+ As a result of the fraudulent transaction, Qwest improperly recognized $100 million in revenue and claimed $80 million in earnings before interest, taxes, depreciation, and amortization ("EBITDA") in the quarter ended September 30, 2000.  Without the fictitious revenue from the Genuity transaction, Qwest would not have achieved the projected double-digit growth for the quarter, and would have recognized growth of 9.8 percent above the same quarter of the prior year rather than the announced 12.4 percent.   
+
+ Through the fiscal year ended December 31, 2000, Qwest improperly recognized revenue of approximately $10.6 million under the service agreement despite the fact that Qwest had not begun providing any services.   The Commission's complaint seeks an order against all defendants enjoining them from further 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 for their aiding and abetting violations of Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13; imposing civil money penalties; and ordering disgorgement of all ill-gotten gains, including any compensation, bonuses, or stock trading profits made during their fraudulent activities.  The Commission further seeks orders against Arnold, Graham, Hall, Treadway, and Weston permanently barring them from acting as a director or officer of a publicly held company. 
+
+ The Commission filed its action at the same time that the United States Attorney's Office announced indictments against certain individuals for conduct in the ASFB transaction that is the subject of the Commission's complaint. 
+
+ The Commission's investigation into the conduct of others is continuing. 
+
+
+   SEC Complaint in this matter  
+
+ 
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diff --git a/raw/aaer/2003/AAER-1727.txt b/raw/aaer/2003/AAER-1727.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9868319c72dc3a2ac94b9f55ca0925f5c8f8a64b
--- /dev/null
+++ b/raw/aaer/2003/AAER-1727.txt
@@ -0,0 +1,1583 @@
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+  SECURITIES EXCHANGE ACT OF 1934 
+RELEASE NO.   47439 / March 4, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+RELEASE NO.   1727 / March 4, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+FILE NO.   3-11050  
+
+
+
+  
+       
+   
+   Truserv Corporation, 
+   Respondent. 
+  
+   
+   
+ : : : : : : : : : : : : :  
+ 
+  
+ORDER INSTITUTING
+CEASE-AND-DESIST
+PROCEEDINGS, MAKING
+FINDINGS AND IMPOSING     
+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 public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act") against TruServ Corporation ("TruServ" or "Respondent"). 
+  
+ II. 
+  
+In anticipation of the institution of these proceedings, TruServ 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 contained herein, except as to the Commission's jurisdiction over it and over the subject matter of these proceedings, TruServ consents to entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings and Imposing 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 the Respondent's Offer of Settlement, the Commission finds that:
+  
+  Respondent    
+  
+1. TruServ, a Delaware corporation, is a hardware store buying cooperative headquartered in Chicago, Illinois.  TruServ was created in July 1997 by the merger of two competing hardware buying cooperatives.  TruServ currently has approximately 7,600 shareholders.  Most of the shareholders are members of the cooperative.  Members of the cooperative principally operate hardware stores, principally under the True Value name.  TruServ is required to file periodic reports to the Commission pursuant to the Exchange Act, but its shares do not trade on any public market.
+  
+  Overview  
+  
+2. This matter involves financial misstatements by TruServ as a result of its inadequate internal controls.  From approximately July 1997 through the end of 1999, TruServ's accounting systems and internal controls related to inventory management were inadequate.  In particular, these deficiencies caused TruServ to understate expenses such as cost of goods sold, resulting in overstatement of net income.
+  
+3. On March 31, 2000, TruServ reported a loss of more than $131 million for fiscal year 1999, which included expenses it failed to report during fiscal years 1997 and 1998.  As a result, from 1997 through the end of 1999, TruServ filed with the Commission annual and quarterly reports that were false and failed to keep books, records and accounts that fairly and accurately reflected TruServ's assets and financial results.
+  
+4. As early as 1997, senior TruServ managers, who are now no longer employed with the company, were aware of internal control problems.  In 1997, TruServ's predecessor company's internal audit department provided senior management with a report that accurately described many deficiencies in internal controls that led to the company's failure to report losses.  Despite receiving notice of significant problems with inventory management and accounting, TruServ management failed to take any actions to address internal control deficiencies.
+  
+  The Discovery and Size of Misstatements    
+  
+5. TruServ's financial misstatements surfaced when TruServ's accounting staff attempted to close its books for fiscal year 1999.  After reviewing these errors, TruServ reported a loss of more than $131 million for fiscal year 1999.  The year-end adjustments resulted primarily from deficiencies and weaknesses in the accounting practice and internal controls at TruServ.  The largest component of the previously unreported loss, $74.5 million, represented adjustments to inventory and merchandise payable.  1    
+6. Even though TruServ assigned the entire $131 million loss in the fourth quarter of 1999, the expenses actually had occurred over the past several quarters.  Accordingly, TruServ filed erroneous Forms 10Q for the first, second and third quarters of 1999 and 1998, and an erroneous Form 10K in 1998.  Because the problem was caused by systemic flaws in inventory management, computer data input and accounting systems for a period of at least two years, TruServ is not able to restate any of its previous filings with the Commission.
+  
+  Accounts Misstated as a Result of Internal Control Problems  
+  
+7.  Unbilled Merchandise.   As TruServ closed its accounting records for 1999, TruServ's accounting staff reviewed the accruals for unbilled merchandise made in 1997 and 1998, and determined that the accruals had been understated by $5.7 million in 1997 and by $19.8 million in 1998.  These errors in turn caused TruServ's income to be misstated in 1997, 1998 and 1999.
+  
+8. TruServ routinely made an accrual for expected merchandise payable, that is, for merchandise it had received but for which it had not yet been billed.  TruServ estimated the amount of the accrual for merchandise payable by using a report it called the Open Receiver File.  The Open Receiver File reflects merchandise that TruServ had ordered and received but for which it had not yet received a bill.  When TruServ received a bill from a vendor for merchandise, the amount owed for the merchandise was removed from the Open Receiver File and included in TruServ's merchandise payable account.  
+  
+9. TruServ should have been able to estimate the amount of the merchandise payable accrual simply by looking at the amount in the Open Receiver File.  However, the Open Receiver File was not accurate, because TruServ's distribution center and warehouse employees were not keeping accurate records of the merchandise that it received, nor was the accounting staff using procedures to investigate and resolve inaccuracies.
+  
+10. Starting in 1997, TruServ's accounting staff realized that the accruals for unbilled merchandise were too large, in that the amount TruServ accrued was always more than what it ultimately had to pay its vendors.  Rather than recommending that TruServ improve its internal controls and establish accountability for the Open Receiver File, the accounting staff began a practice of adjusting the accrual for unbilled merchandise by a multiplier they called a "factor."  The factor purportedly represented the historical relationship between each month's payments and accruals, and was intended to refine the amount that TruServ could expect to have to pay.  However, this adjustment method was imprecise and as a result, reduced the accrual to the point that the accruals for merchandise payable in 1997 and 1998 were understated.  This resulted in an overstatement of income.
+  
+11. Although TruServ's books were in error because the accounting staff underestimated the accrual for merchandise payable, the underlying problem was that TruServ failed to correct the errors in its Open Receiver File.  Therefore, although TruServ's accounting staff was aware that procedures were flawed, they did not fix the errors or notify anyone that procedures needed to be improved.
+  
+12.  Claims for Returned Merchandise.   Approximately $20 million of the 1999 merchandise payable adjustment related to claims for returned merchandise and allowances.  If merchandise returned by the member could not be resold due to damage or some other reason, the accounting entry should have been made to remove the merchandise from inventory and charge the cost of the merchandise to costs of goods sold.  TruServ failed to make these entries.  Instead, TruServ removed the merchandise from inventory and reduced the amount of its merchandise payable by the same amount.
+  
+  13.  Additional Stock Adjustments.   In 1999, TruServ wrote off approximately $16.6 million concerning stock adjustments TruServ made to account for lost and found merchandise, damaged goods, and the closing of two RDCs.  TruServ should have written off these stock adjustments to cost of goods sold as necessary throughout the year, but it did not do so.  Instead, TruServ removed the merchandise from inventory, and reduced the amount of its merchandise payable by the same amount.
+  
+14. The claims for returned merchandise and allowances and the other stock adjustments involved TruServ's complicated computer system for merchandise tracking, which required warehouse and RDC employees to enter one of many stock adjustment codes that were to reflect the reason for the returned merchandise and movement of inventory in its warehouses and RDCs.  This system was meant to provide TruServ personnel with a comprehensive picture of the status of its inventory.  However, from at least   1997 forward, RDC and warehouse personnel did not consistently or correctly use stock adjustment codes, which caused major errors in TruServ's inventory records.  As a result, the monthly reports which summarized the stock adjustments made by the distribution centers and warehouses were highly inaccurate.
+  
+15. In addition to the stock adjustments described above, TruServ did not perform monthly reconciliations between its perpetual inventory records and its general ledger.  Instead of making accurate entries to resolve discrepancies between the perpetual record and general ledger, TruServ forced its inventory records to agree by recording the discrepancies to its merchandise payable account.
+  
+16. TruServ's accounting staff was aware that the stock adjustment reports were inaccurate.  However, TruServ had no internal controls in place that required accounting staff to investigate large stock adjustments such as claims for returned merchandise as identified in Section III.12., or for other stock adjustments identified in Section III.13., and charge them to cost of goods sold on a timely basis.  Instead, the accounting staff incorrectly recorded stock adjustments into the wrong account, merchandise payable, throughout the year.  Historically, the accounting staff corrected the error by writing off the adjustments to cost of goods sold only at year-end.  As a result, due to mistakes related to member claims and other stock adjustment codes, TruServ understated its merchandise payable by $36.6 million, which resulted in a corresponding overstatement of net income.
+  
+  The February 1997 Internal Audit Report  
+  
+17. TruServ's predecessor company's senior management had notice of the company's internal control problems as early as February 1997, through a report prepared by the internal audit department (the "1997 Report").  Virtually all of the company's senior management, including TruServ's chief financial officer, received the 1997 Report.  The 1997 Report noted several specific, recurring problems in data entry concerning use of receiving codes, prices, and stock codes that caused significant discrepancies between the perpetual inventory records and the general ledger.  These deficiencies were the same ones that later caused the 1999 adjustments.  No one acted on the 1997 Report, even though the report concluded that the stock adjustments were seriously flawed and that the company did not have adequate internal controls over its inventory systems.
+  
+  TruServ's Action in 2000  
+  
+18. In Spring 2000, after it closed the 1999 books, TruServ began to investigate the causes of the $74.5 million adjustment, and to correct the accounting weaknesses that caused the problems.  TruServ adopted several changes in procedure, including:            TruServ began to reconcile the inventory records maintained by the distribution centers and warehouses each month and to investigate all reconciling items so that inventory and accounts payable are properly stated.     
+       TruServ streamlined and synchronized procedures to manage inventory among the distribution centers and warehouses.    
+       TruServ reduced the number of stock adjustment codes, and redefined and standardized their use.    
+       TruServ instituted procedures to review stock adjustments made by the distribution centers and warehouses, and established staff accountability for these adjustments.    
+       TruServ instituted procedures to manage the Open Receiver File and merchandise returned by members.    
+       TruServ stopped entering expenses and inventory-related write-offs into merchandise payable and began to recognize those write-offs in each month's operating results.    
+       TruServ improved its internal audit function by making internal audit report directly to the Audit Committee and by establishing that TruServ managers are accountable for recommended changes.   
+ TruServ Violated Section 15(d) of the Exchange Act and  
+   Rules 12b-20, 15d-1 and 15d-13 Thereunder     
+ 
+19. Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 require issuers that have filed registration statements for securities under the Securities Act with the Commission to file annual and quarterly reports.  The obligation to file such reports embodies the requirement that they be true and correct.   SEC v. Savoy Industries , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  Rule 12b-20 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.    
+  
+20. As a result of the conduct described above, TruServ violated Section 15(d) of the Exchange Act and Rules 12b-20, 15d-1 and 15d-13 thereunder by filing false and misleading annual and quarterly reports with the Commission that misrepresented TruServ's financial results.
+  
+  TruServ Violated Section 13(b)(2)(A) of the Exchange Act    
+  
+21. Section 13(b)(2)(A) of the Exchange Act requires every issuer who must file reports pursuant to Section 15(d) of the Exchange Act to "make and keep books, records, and accounts, which, in reasonable detail, accurately reflect the transactions and dispositions of the assets of the issuer . . ."    
+  
+22. As a result of the conduct described above, TruServ violated Section 13(b)(2)(A) of the Exchange Act by failing to keep books, records and accounts that accurately and fairly reflected TruServ's assets and financial results.
+  
+  TruServ Violated Section 13(b)(2)(B) of the Exchange Act    
+  
+23. Section 13(b)(2)(B) of the Exchange Act requires every issuer which must file reports pursuant to Section 15(d) of the Exchange Act to both devise and maintain a system of internal accounting controls to provide reasonable assurances that preparation of financial statements is in conformity with generally accepted accounting principles ("GAAP").  As set forth above, TruServ's internal accounting controls were inadequate, and TruServ therefore violated this section.  
+  
+24. As a result of the conduct described above, TruServ violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain adequate internal accounting controls.  
+  
+  TruServ's Remedial Efforts    
+  
+25. In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff.
+  
+  Undertakings  
+  
+TruServ undertakes to:  
+  
+26. Continue to maintain the procedures that it has adopted since Spring 2000 as enumerated in paragraph III.18. above, in order to comply with, and take steps to effect further compliance with, Sections 15(d), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.    
+  
+27. Continue to employ as a member of its management, during fiscal years ending December 31, 2002, 2003 and 2004, a Director of Internal Audit who will be responsible for executing TruServ's internal audit plan.  TruServ also will engage a public accounting firm with appropriate qualifications and expertise to assist the Director of Internal Audit in performing certain internal audit procedures.  
+  
+28. In the event that TruServ's current Director of Internal Audit is no longer employed by TruServ, any successor shall be an individual with appropriate qualifications and experience for the position, and shall be hired after consultation with and approval by the Audit Committee.  The Director of Internal Audit shall report to the Audit Committee as well as management.    
+  
+29. TruServ shall require its Director of Internal Audit to prepare a confidential business report, and deliver the report within 90 days after the close of each of the aforementioned fiscal years, to the Audit Committee, with copies to the Commission, TruServ's independent auditors, and TruServ's public accounting firm engaged to assist the Director of Internal Audit in performing certain internal audit procedures.  The report shall include (a) a description of the scope of the Audit Plan during the preceding year, (b) confirmation that the Audit Plan was carried out, (c) an overview of the significant control weaknesses identified which require improvement, and (d) a review of the steps taken to improve the system of internal controls.
+  
+ IV.     
+  
+In view of the foregoing, the Commission deems it appropriate to accept the offer of settlement submitted by TruServ and to impose the sanctions specified therein. 
+  
+ V.     
+  
+ Accordingly, IT IS ORDERED that :    
+  
+A. Pursuant to Section 21C of the Exchange Act, TruServ shall cease and desist from committing or causing any violations and any future violations of Sections 15(d), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 15d-1 and 15d-13 promulgated thereunder; and    
+  
+B. TruServ shall comply with the undertakings enumerated in Section III paragraphs 26-29 above.    
+  
+By the Commission.                   
+  
+Jonathan G. Katz 
+Secretary
+
+  
+  Footnotes 
+ 
+  1     TruServ's inadequate internal controls also caused two other material year-end 1999 adjustments.  First, in 1998 and 1999, TruServ failed to perform timely bank account reconciliations. Once these reconciliations were completed in the fourth quarter 1999, it became apparent that TruServ had to write off approximately $4.3 million to balance its cash and other accounts.  Second, TruServ also wrote off $8.2 million in vendor rebates.  This adjustment related to an accrual made at year-end 1998 which, according to TruServ's accounting staff, proved to be overly optimistic.
+  
+TruServ also made other material accounting adjustments in the fourth quarter of 1999 to write off items including, among others, losses on sales, severance and vacation pay, costs of closing certain regional distribution centers ("RDCs") and costs improperly capitalized in inventory, and the write-off of a deferred tax asset.  Finally, TruServ experienced operating losses as well, which contributed to the $131 million total loss in 1999.
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diff --git a/raw/aaer/2003/AAER-1728.txt b/raw/aaer/2003/AAER-1728.txt
new file mode 100644
index 0000000000000000000000000000000000000000..16f906d3dfe370fd93ad0cd0a732bd87bb41c257
--- /dev/null
+++ b/raw/aaer/2003/AAER-1728.txt
@@ -0,0 +1,1563 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Kerry Kirby 
+     
+     
+     
+     
+     
+     
+     
+         !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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+        Kerry Kirby
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+
+  SECURITIES EXCHANGE ACT OF 1934 
+RELEASE NO.  47440 / March 4, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+RELEASE NO.   1728 / March 4, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+FILE NO.   3-11053
+
+
+  
+       
+   
+   KERRY KIRBY, 
+   Respondent. 
+  
+   
+   
+ : : : : : : : : : : : : :  
+ 
+  
+ORDER INSTITUTING
+CEASE-AND-DESIST
+PROCEEDINGS, MAKING
+FINDINGS AND IMPOSING     
+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 public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act") against Kerry Kirby ("Kirby" or "Respondent"). 
+  
+ II. 
+  
+In anticipation of the institution of these proceedings, Kirby 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 contained herein, except as to the Commission's jurisdiction over him and over the subject matter of these proceedings, Kirby consents to entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings and Imposing 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 the Respondent's Offer of Settlement, the Commission finds that:
+  
+  Respondent    
+  
+1. Kirby is 56 years old, and served as TruServ's chief financial officer from July 1, 1997 to May 1999.  Kirby is not and has never been a certified public accountant.  He resigned as CFO in approximately May 1999, and served as a consultant pursuant to a severance agreement until April 2000.  Kirby is not currently employed.  He has not held a job with a public company since his departure from TruServ.
+  
+  Other Relevant Entity  
+  
+2. TruServ, a Delaware corporation, is a hardware store buying cooperative headquartered in Chicago, Illinois.  TruServ was created in July 1997 by the merger of two competing hardware buying cooperatives.  TruServ currently has approximately 7,600 shareholders.  Most of the shareholders are members of the cooperative.  Members of the cooperative principally operate hardware stores, principally under the True Value name.  TruServ is required to file periodic reports to the Commission pursuant to the Exchange Act, but its shares do not trade on any public market.
+  
+  Overview  
+  
+3. This matter involves financial misstatements by TruServ as a result of its inadequate internal controls.  From approximately July 1997 through the end of 1999, TruServ's accounting systems and internal controls related to inventory management were inadequate.  In particular, these deficiencies caused TruServ to understate expenses such as cost of goods sold, resulting in overstatement of net income.
+  
+4. On March 31, 2000, TruServ reported a loss of more than $131 million for fiscal year 1999, which included expenses it failed to report during fiscal years 1997 and 1998.  As a result, from 1997 through the end of 1999, TruServ filed with the Commission annual and quarterly reports that were false and failed to keep books, records and accounts that fairly and accurately reflected TruServ's assets and financial results.
+  
+5. As early as 1997, Kirby was aware of internal control problems.  In 1997, TruServ's predecessor company's internal audit department provided senior management, including Kirby, with a report that described many deficiencies in internal controls that led to the company's failure to report losses.  Despite receiving notice of significant problems with inventory management and accounting, Kirby failed to take any actions to address internal control deficiencies.
+  
+  The Discovery and Size of Misstatements    
+  
+6. TruServ's financial misstatements surfaced when TruServ's accounting staff attempted to close its books for fiscal year 1999.  After reviewing these errors, TruServ reported a loss of more than $131 million for fiscal year 1999.  The year-end adjustments resulted primarily from deficiencies and weaknesses in the accounting practice and internal controls at TruServ.  The largest component of the previously unreported loss, $74.5 million, represented adjustments to inventory and merchandise payable.  1    
+7. Even though TruServ assigned the entire $131 million loss in the fourth quarter of 1999, the expenses actually had occurred over the past several quarters.  Accordingly, TruServ filed erroneous Forms 10Q for the first, second and third quarters of 1999 and 1998, and an erroneous Form 10K in 1998.  Because the problem was caused by systemic flaws in inventory management, computer data input and accounting systems for a period of at least two years, TruServ is not able to restate any of its previous filings with the Commission.
+  
+  Accounts Misstated as a Result of Internal Control Problems  
+  
+8.  Unbilled Merchandise.   As TruServ closed its accounting records for 1999, TruServ's accounting staff reviewed the accruals for unbilled merchandise made in 1997 and 1998, and determined that the accruals had been understated by $5.7 million in 1997 and by $19.8 million in 1998.  These errors in turn caused TruServ's income to be misstated in 1997, 1998 and 1999.
+  
+9. TruServ routinely made an accrual for expected merchandise payable, that is, for merchandise it had received but for which it had not yet been billed.  TruServ estimated the amount of the accrual for merchandise payable by using a report it called the Open Receiver File.  The Open Receiver File reflects merchandise that TruServ had ordered and received but for which it had not yet received a bill.  When TruServ received a bill from a vendor for merchandise, the amount owed for the merchandise was removed from the Open Receiver File and included in TruServ's merchandise payable account.  
+  
+10. TruServ should have been able to estimate the amount of the merchandise payable accrual simply by looking at the amount in the Open Receiver File.  However, the Open Receiver File was not accurate, because TruServ's distribution center and warehouse employees were not keeping accurate records of the merchandise that it received, nor was the accounting staff using procedures to investigate and resolve inaccuracies.
+  
+11. Starting in 1997, TruServ's accounting staff realized that the accruals for unbilled merchandise were too large, in that the amount TruServ accrued was always more than what it ultimately had to pay its vendors.  Rather than recommending that TruServ improve its internal controls and establish accountability for the Open Receiver File, the accounting staff began a practice of adjusting the accrual for unbilled merchandise by a multiplier they called a "factor."  The factor purportedly represented the historical relationship between each month's payments and accruals, and was intended to refine the amount that TruServ could expect to have to pay.  However, this adjustment method was imprecise and as a result, reduced the accrual to the point that the accruals for merchandise payable in 1997 and 1998 were understated.  This resulted in an overstatement of income.
+  
+12. Although TruServ's books were in error because the accounting staff underestimated the accrual for merchandise payable, the underlying problem was that TruServ failed to correct the errors in its Open Receiver File.  Therefore, although TruServ's accounting staff was aware that procedures were flawed, they did not fix the errors or notify anyone that procedures needed to be improved.
+  
+13.  Claims for Returned Merchandise.   Approximately $20 million of the 1999 merchandise payable adjustment related to claims for returned merchandise and allowances.  If merchandise returned by the member could not be resold due to damage or some other reason, the accounting entry should have been made to remove the merchandise from inventory and charge the cost of the merchandise to costs of goods sold.  TruServ failed to make these entries.  Instead, TruServ removed the merchandise from inventory and reduced the amount of its merchandise payable by the same amount.
+  
+  14.  Additional Stock Adjustments:   In 1999, TruServ wrote off approximately $16.6 million concerning stock adjustments TruServ made to account for lost and found merchandise, damaged goods, and the closing of two RDCs.  TruServ should have written off these stock adjustments to cost of goods sold as necessary throughout the year, but it did not do so.  Instead, TruServ removed the merchandise from inventory, and reduced the amount of its merchandise payable by the same amount.
+  
+15. The claims for returned merchandise and allowances and the other stock adjustments involved TruServ's complicated computer system for merchandise tracking, which required warehouse and RDC employees to enter one of many stock adjustment codes that were to reflect the reason for the returned merchandise and movement of inventory in its warehouses and RDCs.  This system was meant to provide TruServ personnel with a comprehensive picture of the status of its inventory.  However, from at least   1997 forward, RDC and warehouse personnel did not consistently or correctly use stock adjustment codes, which caused major errors in TruServ's inventory records.  As a result, the monthly reports which summarized the stock adjustments made by the distribution centers and warehouses were highly inaccurate.
+  
+16. In addition to the stock adjustments described above, TruServ did not perform monthly reconciliations between its perpetual inventory records and its general ledger.  Instead of making accurate entries to resolve discrepancies between the perpetual record and general ledger, TruServ forced its inventory records to agree by recording the discrepancies to its merchandise payable account.
+  
+17. TruServ's accounting staff was aware that the stock adjustment reports were inaccurate.  However, TruServ had no internal controls in place that required accounting staff to investigate large stock adjustments such as claims for returned merchandise as identified in Section III.12., or for other stock adjustments identified in Section III.13., and charge them to cost of goods sold on a timely basis.  Instead, the accounting staff incorrectly recorded stock adjustments into the wrong account, merchandise payable, throughout the year.  Historically, the accounting staff corrected the error by writing off the adjustments to cost of goods sold only at year-end.  As a result, due to mistakes related to member claims and other stock adjustment codes, TruServ understated its merchandise payable by $36.6 million, which resulted in a corresponding overstatement of net income.
+  
+  The February 1997 Internal Audit Report  
+  
+18. TruServ's predecessor company's senior management had notice of the company's internal control problems as early as February 1997, through a report prepared by the internal audit department (the "1997 Report").  Virtually all of the company's senior management, including Kirby, received the 1997 Report.  The 1997 Report noted several specific, recurring problems in data entry concerning use of receiving codes, prices, and stock codes that caused significant discrepancies between the perpetual inventory records and the general ledger.  These deficiencies were the same ones that later caused the 1999 adjustments.  Kirby failed to act on the 1997 Report, even though the report concluded that the stock adjustments were seriously flawed and that the company did not have adequate internal controls over its inventory systems.
+  
+ Kirby Caused TruServ's Violations of Section 15(d) of the  
+   Exchange Act and Rules 12b-20, 15d-1 and 15d-13 Thereunder       
+ 
+19. Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 require issuers that have filed registration statements for securities under the Securities Act with the Commission to file annual and quarterly reports.  The obligation to file such reports embodies the requirement that they be true and correct.   SEC v. Savoy Industries , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  Rule 12b-20 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.      
+  
+20. By engaging in the conduct described above, Kirby caused TruServ's books and records to inaccurately reflect the assets of the company in violation of Sections 15(d) of the Exchange Act and Rules 12b-20, 15d-1 and 15d-13 thereunder.  Kirby knew or should have known that his failure to implement adequate internal controls at TruServ would cause or contribute to TruServ's violations or these provisions.  His role as CFO placed him in the position to remedy TruServ's problems, and he failed to do so.
+  
+ Kirby Caused TruServ's Violations of  
+   Section 13(b)(2)(A) of the Exchange Act     
+ 
+21. Section 13(b)(2)(A) of the Exchange Act requires every issuer who must file reports pursuant to Section 15(d) of the Exchange Act to "make and keep books, records, and accounts, which, in reasonable detail, accurately reflect the transactions and dispositions of the assets of the issuer . . ."    
+  
+22. By engaging in the conduct described above, Kirby caused TruServ's books and records to inaccurately reflect the assets of the company in violation TruServ violated Section 13(b)(2)(A) by failing to keep books, records and accounts that accurately and fairly reflected TruServ's assets and financial results.  
+  
+ Kirby Caused TruServ's Violations of 
+   Sections 13(b)(2)(B) of the Exchange Act     
+ 
+23. Section 13(b)(2)(B) of the Exchange Act requires every issuer which must file reports pursuant to Section 15(d) of the Exchange Act to both devise and maintain a system of internal accounting controls to provide reasonable assurances that preparation of financial statements is in conformity with generally accepted accounting principles ("GAAP").
+  
+24. By engaging in the conduct described above, Kirby, through his role as CFO, caused TruServ's violations of Section 13(b)(2)(B) of the Exchange Act.  
+  
+ IV. 
+  
+In view of the foregoing, the Commission deems it appropriate to accept the offer of settlement submitted by Kirby and to impose the sanctions specified therein.
+  
+ V. 
+  
+ Accordingly, IT IS ORDERED that :
+  
+Pursuant to Section 21C of the Exchange Act, Kirby shall cease and desist from causing any violations and any future violations of Sections 15(d), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 15d-1 and 15d-13 promulgated thereunder.    
+  
+By the Commission.                   
+  
+Jonathan G. Katz                      
+Secretary
+
+    Footnotes 
+ 
+  1     TruServ's inadequate internal controls also caused two other material year-end 1999 adjustments.  First, in 1998 and 1999, TruServ failed to perform timely bank account reconciliations. Once these reconciliations were completed in the fourth quarter 1999, it became apparent that TruServ had to write off approximately $4.3 million to balance its cash and other accounts.  Second, TruServ also wrote off $8.2 million in vendor rebates.  This adjustment related to an accrual made at year-end 1998 which, according to TruServ's accounting staff, proved to be overly optimistic.
+  
+TruServ also made other material accounting adjustments in the fourth quarter of 1999 to write off items including, among others, losses on sales, severance and vacation pay, costs of closing certain regional distribution centers ("RDCs") and costs improperly capitalized in inventory, and the write-off of a deferred tax asset.  Finally, TruServ experienced operating losses as well, which contributed to the $131 million total loss in 1999.
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diff --git a/raw/aaer/2003/AAER-1729.txt b/raw/aaer/2003/AAER-1729.txt
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+              Lernout & Hauspie Speech Products, N.V.
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+        Lernout & Hauspie Speech Products, N.V.
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+
+  Litigation Release No.   18014 / March 4, 2003
+  
+Accounting and Auditing Enforcement Release No.  1729 / March 4, 2003
+  
+ District Court enters Permanent Injunction in Fraud Action Against Lernout & Hauspie Speech Products 
+  
+  Securities and Exchange Commission v. Lernout & Hauspie Speech Products, N.V.  Civ. No. 1:02CV01992 (D.D.C.) 
+  
+(Securities Exchange Act of 1934 Release No. 47442 / March 4, 2003)
+  
+ SEC Deregisters Lernout & Hauspie's Common Stock   
+
+
+  
+On February 28, 2003, Judge Paul Friedman of the United States District Court for the District of Columbia entered a permanent injunction against Lernout & Hauspie Speech Products, N.V. (Lernout & Hauspie), a developer, licensor, and provider of speech and language technologies, headquartered in Ieper, Belgium and Burlington, Massachusetts.  According to the Commission's complaint, from 1996 through the second quarter of 2000, while its common stock was listed on the Nasdaq National Market System and Nasdaq Europe, Lernout & Hauspie engaged in a variety of fraudulent schemes to inflate its reported revenue and income.  The result of this conduct was an international financial scandal and a loss of at least $8.6 billion dollars in market capitalization, borne by investors in Belgium, the United States and elsewhere.  
+  
+The court's Order permanently enjoins Lernout & Hauspie from violating the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws: Section 17(a) of the Securities Act of 1933 [15 U.S.C. §77q(a)]; Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder (17 C.F.R. §240.10b-5); and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 [15 U.S.C. §78m(a), 15 U.S.C. §78m(b)(2)(A), and 15 U.S.C. §78m(b)(2)(B)] and Rules 12b-20, 13a-1, 13a-13 and 13a-16 (17 C.F.R. §§240.12b-20, 240.13a-1, and 240.13a-13 or 240.13a-16).  Lernout & Hauspie consented to the entry of the order without admitting or denying the allegations in the Commission's complaint
+  
+In a related matter, on March 4, 2003, without admitting or denying the findings in the Commission's Order, Lernout & Hauspie consented to the entry of an order, pursuant to Section 12(j) of the Exchange Act, revoking the registration of its common stock.  In its Order, the Commission found that Lernout & Hauspie included materially false and misleading information in its financial statements and its Annual Reports on Form 20F and Form 10-K for the calendar years ended December 31, 1996, 1997, 1998 and 1999, and in its Quarterly Reports on Form 6-K or Form 10-Q for the first two quarters of 2000.  The Commission also found that Lernout & Hauspie failed to file annual or quarterly reports for any fiscal period subsequent to its fiscal quarter ending June 30, 2000. 
+  
+The Commission's investigation is continuing with respect to other persons and entities.  See also Litigation Release No.  17782 .
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diff --git a/raw/aaer/2003/AAER-1730.txt b/raw/aaer/2003/AAER-1730.txt
new file mode 100644
index 0000000000000000000000000000000000000000..438026a2bfaff1d5b53a7ad9701c48a91927204c
--- /dev/null
+++ b/raw/aaer/2003/AAER-1730.txt
@@ -0,0 +1,1497 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Lernout & Hauspie Speech Products, N.V. 
+     
+     
+     
+     
+     
+     
+     
+         !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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+              Lernout & Hauspie Speech Products, N.V.
+           
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+        Lernout & Hauspie Speech Products, N.V.
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+  SECURITIES EXCHANGE ACT OF 1934 
+Release No.  47442 / March 4, 2003  
+
+ADMINISTRATIVE PROCEEDING  
+File No.   3-11054  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  1730 / March 4, 2003          
+
+
+  
+       
+   
+   LERNOUT & HAUSPIE	 
+SPEECH PRODUCTS, N.V.,
+ 
+   Respondent. 
+  
+   
+   
+ : : : : : : : : : : : : : :  
+ 
+  
+ORDER INSTITUTING PUBLIC
+ADMINISTRATIVE PROCEEDINGS,
+MAKING FINDINGS AND REVOKING 
+REGISTRATION PURSUANT TO
+SECTION 12(j) OF THE SECURITIES
+EXCHANGE ACT OF 1934
+     
+ I. 
+  
+The Securities and Exchange Commission ("Commission") deems it necessary and appropriate for the protection of investors that public administrative proceedings be, and hereby are, instituted with respect to Lernout & Hauspie Speech Products, N.V. ("Lernout & Hauspie" or "Respondent"), pursuant to Section 12(j) of the Securities Exchange Act of 1934 (15 U.S.C. §78 l (j))("Exchange Act").
+  
+ II. 
+  
+In anticipation of the institution of these administrative proceedings, Respondent 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 ,  and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. §201.100 et seq., without admitting or denying the findings set forth below, except as to the Commission's finding of jurisdiction over Respondent and the subject matter of these proceedings, and the findings contained in Part III under the heading "Respondent" which Respondent admits, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings, Making Findings and Revoking Registration Pursuant to Section 12(j) of the Securities Exchange Act of 1934 ("Order") set forth below. 
+  
+ III.   
+  
+On the basis of this Order and the Offer of Settlement submitted by Respondent, the Commission finds that:
+  
+  RESPONDENT  
+  
+Lernout & Hauspie is a Belgian company with headquarters formerly in both Ieper, Belgium and Burlington, Massachusetts.  At all relevant times, Respondent's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act (15 U.S.C. §78 l (g)) and was listed on Nasdaq National Market and Nasdaq Europe (formerly Easdaq).  It is currently quoted on the "Pink Sheets" disseminated by Pink Sheets LLC. 
+  
+ FACTS  
+  
+On November 29, 2000, Lernout & Hauspie filed a voluntary petition in the United States Bankruptcy Court for the District of Delaware for relief under Chapter 11 of Title 11 of the United States Code, 11 USC §§ 101-1330 (as amended) (Case No. 00-4398-JHW).  Thereafter, on December 27, 2000, Lernout & Hauspie voluntarily filed an equivalent application under Belgium insolvency statutes and on October 24, 2001, the Belgian court declared Lernout & Hauspie bankrupt.
+  
+Lernout & Hauspie has failed to comply with Section 10(b) of the Exchange Act (15 U.S.C. §§ 78j(b)) and Exchange Act Rules 10b-5 and 12b-20 (17 C.F.R. §§ 240.10b-5 and 240.12b-20) by including materially false and misleading information in its filings, including financial statements that failed to conform with Generally Accepted Accounting Principles, as required by Commission Regulation S-X, in its Annual Reports on Form 20F and Form 10-K for the calendar years ended December 31, 1996, 1997, 1998 and 1999, and in its Quarterly Reports on Form 6-K or Form 10-Q for the first two quarters of 2000.
+  
+Lernout & Hauspie has failed to comply with Section 13(a) of the Exchange Act (15 U.S.C. § 78m(a)) and Exchange Act Rules 13a-1, 13a-13 and 13a-16 (17 C.F.R. §§240.13a-1, 240.13a-13 and 240.13a-16) while its common stock was registered with the Commission in that it has not filed an Annual Report (on either Form 20F or Form 10-K) or periodic or quarterly reports (on Form 6-K or Form 10-Q) for any fiscal period subsequent to its fiscal quarter ending June 30, 2000.  This failure resulted from internal controls so defective that it was unable to generate auditable financial statements. 
+  
+Lernout & Hauspie has failed to comply with Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act (15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B)) by failing to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected the transactions and disposition of its assets, and by failing to maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles. 
+  
+ FINDINGS 
+  
+In view of the foregoing, the Commission finds that it is necessary and appropriate for the protection of investors that the registration of Respondent's common stock be revoked pursuant to Section 12(j) of the Exchange Act (15 U.S.C. §78 l (j)).
+  
+ ORDER 
+  
+Accordingly, IT IS HEREBY ORDERED, pursuant to Section 12(j) of the Securities Exchange Act of 1934 (15 U.S.C. §78 l (j)) that the registration pursuant to Section 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. § 78 l (g)) of Respondent's common stock be, and hereby is, revoked.
+  
+By the Commission.             
+  
+Jonathan G. Katz              
+ 
+Secretary
+
+
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+ 
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diff --git a/raw/aaer/2003/AAER-1731.txt b/raw/aaer/2003/AAER-1731.txt
new file mode 100644
index 0000000000000000000000000000000000000000..dd48338672ce6b013a3584c259cf1b82010ba91f
--- /dev/null
+++ b/raw/aaer/2003/AAER-1731.txt
@@ -0,0 +1,1505 @@
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+              Acrodyne Communications, Inc.
+           
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+        Acrodyne Communications, Inc.
+       
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+  
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  47454 / March 6, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  1731 / March 6, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+File No.   3-11055
+
+
+
+  
+  
+       
+   
+   ACRODYNE COMMUNICATIONS, INC., 
+ 
+   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 public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Acrodyne Communications, Inc. ("Respondent" or "Acrodyne").  
+
+   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, Respondent 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") as set forth below.  
+
+   III.   
+
+  
+On the basis of this Order and Respondent's Offer, the Commission finds that: 
+  
+1. Acrodyne, a Delaware corporation based in Cockeysville, Maryland, designs, manufactures and markets television broadcast equipment.  Prior to July 2000, Acrodyne was based in Blue Bell, Pennsylvania.  Acrodyne stock is registered under Section 12(g) of the Exchange Act.  Until August 14, 2000, Acrodyne stock traded on the Nasdaq Small Cap Market System.  It was delisted in September 2000.
+  
+2. Acrodyne materially misstated figures reported for its inventory, cost of sales, revenue, gross profit, and net loss in its financial statements for the year ended December 31, 1998; the first three quarters of 1999; the year ended December 31, 1999; and the first quarter of 2000.  Acrodyne included its misleading financial results in press releases and its filings with the Commission relating to these periods.
+  
+3. Acrodyne misstated these line items in its financial statements as a result of its faulty cost accounting and improper revenue recognition.  With respect to cost accounting, Acrodyne significantly understated the cost of manufacturing its products when it closed its books for a period.  As a result, Acrodyne consistently overstated its inventory and understated its cost of sales in its published financial statements.  Acrodyne was unable to properly value its products because of the incomplete and outdated cost data it maintained.  In addition, starting in the second quarter of 1999, Acrodyne made unsupported adjustments to its cost of sales and inventory accounts to bring Acrodyne's financial statements in line with the gross margin percentage it had budgeted for the period.  Acrodyne knew or acted recklessly with respect to its faulty cost accounting.
+  
+4. With respect to Acrodyne's improper revenue recognition, Acrodyne failed to verify that it had delivered its product to its customer before it recognized revenue from a transaction.  As a result, Acrodyne prematurely recognized revenue from numerous transactions, including almost half of the transactions for which it recorded revenue in 1999.  Acrodyne also improperly recognized revenue on two transactions in 1999 because the price Acrodyne charged its customer was not reasonably collectible or the revenue was not yet earned.  Acrodyne knew or acted recklessly with respect to the improper revenue recognition. 
+  
+5. As a result of the conduct described above, Acrodyne, through certain of its officers and personnel, 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.
+  
+6. Also as a result of the conduct described above, Acrodyne, through certain of its officers and personnel, violated Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder.
+  
+7. Because Acrodyne improperly recorded its inventory, cost of sales, and revenue, its books, records and accounts did not, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets.
+  
+8. In addition, Acrodyne failed to implement internal accounting controls relating to its inventory, cost of sales, and revenue accounts which were sufficient to provide reasonable assurances that these accounts were accurately stated in accordance with generally accepted accounting principles.      
+  
+9. As a result of the conduct described above, Acrodyne, through certain of its officers and personnel, violated Section 13(b)(2)(A) of the Exchange Act, which requires all 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. 
+  
+10. Lastly, as a result of the conduct described above, Acrodyne, through certain of its officers and personnel, violated Sections 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, which require all reporting companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; and prohibit persons from knowingly circumventing or knowingly failing to implement a system of internal accounting controls, knowingly falsifying any book, record or account, and directly or indirectly falsifying or causing to be falsified any book, record, or account. 
+
+   IV.   
+
+  
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent's Offer.
+  
+ ACCORDINGLY, IT IS HEREBY ORDERED: 
+  
+A. Pursuant to Section 21C of the Exchange Act, that Respondent Acrodyne Communications, Inc., cease and desist from committing or causing any violations and any future violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.   
+
+     
+  
+By the Commission.              
+  
+Jonathan G. Katz  
+Secretary
+
+
+
+
+
+ 
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diff --git a/raw/aaer/2003/AAER-1733.txt b/raw/aaer/2003/AAER-1733.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0399cce99406d4b29dc43df6201013f5c3906150
--- /dev/null
+++ b/raw/aaer/2003/AAER-1733.txt
@@ -0,0 +1,1564 @@
+
+
+ 
+ 
+   
+     
+ 
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+     SEC.gov | W. Dale McGhie, CPA 
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+              W. Dale McGhie, CPA
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No.  47473 / March 7, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1733 / March 7, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+File No.  3-11057
+
+  
+       
+   
+   W. DALE McGHIE, CPA, 
+ 
+   Respondent. 
+  
+   
+   
+ : : : : : : : : : : :  
+ 
+  
+ORDER INSTITUTING PUBLIC	
+ADMINISTRATIVE AND CEASE-
+AND-DESIST PROCEEDINGS,
+PURSUANT TO SECTION 21C OF 
+THE SECURITIES EXCHANGE ACT
+OF 1934 AND RULE 102(e) OF THE 						
+COMMISSION'S RULES OF 
+PRACTICE, MAKING FINDINGS, 	 
+AND IMPOSING REMEDIAL
+SANCTIONS AND A CEASE-AND-
+DESIST ORDER
+
+      I .  
+  
+The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted against W. Dale McGhie, CPA ("Respondent" or "McGhie") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 102(e)(1)(ii) and (e)(1)(iii) of the Commission's Rules of Practice.  1     II.   
+  
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings.  Respondent consents to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order  ("Order"), as set forth below.
+   III.   
+  
+On the basis of this Order and Respondent's Offer, the Commission finds  2   that:
+  
+  Respondent  
+  
+ 
+  
+1. W. Dale McGhie was for all relevant periods herein and currently is a certified public accountant licensed in Nevada.  McGhie served as the auditor of Hexagon Consolidated Companies of America, Inc. ("HCCA") from approximately September 13, 1996, until he was discharged on September 1, 2001.  McGhie, 64 years old, is a resident of Reno, Nevada, and is a member of the Nevada Society of certified public accountants.
+  
+  Other Relevant Entity  
+  
+2. HCCA is a Nevada corporation located in Reno, Nevada.  HCCA's common stock is registered pursuant to Section 12(g) of the Exchange Act.  Its common stock was quoted on the OTC Bulletin Board until it was designated ineligible to be quoted on February 24, 2000, for failing to comply with the NASD's "eligible securities" criteria (Rule 6530).
+  
+3. The U.S. District Court for the Middle District of Tennessee enjoined HCCA's predecessor from violating Sections 5 and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) and Rule 10b-5 of the Exchange Act in January 1989.  In March 1994, the Commissioner of Commerce and Insurance for Tennessee ordered two predecessors of HCCA to cease and desist violating various state securities laws, including its anti-fraud provisions.  In December 1994, the State of South Carolina ordered two of HCCA's predecessors to cease and desist violating various state securities laws, including its anti-fraud provisions.
+  
+  Improper Accounting: Recognition of Arizona Ore Inventory  
+  
+4. On or about August 24, 1995, HCCA issued 100 million shares of stock to acquire a company whose only significant asset was a sublease.  HCCA claimed that the sublease provided ownership to 500,000 tons of ore inventory located in Arizona.  HCCA recorded the ore as an asset on its books and valued it at $200 million.  This valuation was a departure from generally accepted accounting principles ("GAAP").  HCCA never owned the ore.  Moreover, the ore consisted of waste tailings and there was no reasonable basis to believe that minerals could be economically extracted from such ore.  HCCA should have recorded and valued this asset at zero in order to conform with GAAP.
+  
+5. Recording this asset as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's December 1997 Form 10-KSB, December 1998 Form 10-KSB and December 1999 amendment thereto, March 1997 report on Form 10-QSB, and the August 1997 and December 1999 amendments to HCCA's December 1996 Form 10-SB.  McGhie issued unqualified audit opinions that were included in the Forms 10-KSB and amendment thereto and in the two amended Forms 10-SB, and his unqualified review report was included in the March 1997 Form 10-QSB.
+  
+  Improper Accounting: Recognition of California Mining Claims  
+  
+6. On or about February 6, 1997, HCCA acquired 17 mining claims, located in California, in exchange for 375 million shares of HCCA stock.  HCCA acquired the claims from a company managed by HCCA's chief executive officer.  This related company acquired the claims in 1996 in exchange for HCCA stock worth approximately $275,000.  HCCA recorded the claims it acquired from the related company at $69,375,000.  This valuation was a departure from GAAP.  There was no reasonable basis to believe that any economically recoverable mineral reserves existed at the site.  Indeed, evidence existed showing that there were no economically recoverable reserves located on this property.  HCCA should have recorded and valued this asset at zero in order to conform with GAAP.
+  
+7. Recording this asset as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's March 1997 Form 10-QSB, December 1997 and December 1998 Forms 10-KSB, and the December 1999 amendment to HCCA's December 1996 Form 10-SB.  McGhie issued audit opinions that were included in the Forms 10-SB and 10-KSB, and his unqualified review report was included in the March 1997 Form 10-QSB.
+  
+  Improper Accounting: Recognition of Advertising Credits  
+  
+8. On or about June 26, 1996, HCCA purportedly acquired $100 million of television advertising credits in exchange for 40 million shares of HCCA stock.  HCCA recorded and valued these credits at $50 million, or 50% of their face value.  However, the credits were of no use to HCCA and had no apparent market for resale or trade purposes.  Recording these credits in excess of the seller's historical cost basis of zero was a departure from GAAP.
+  
+9. Recording this asset as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's December 1996 Form 10-SB and December 1996 Form 10-KSB. McGhie issued unqualified audit opinions that were included in these filings.
+  
+  Improper Accounting: Recognition of Real Estate  
+  
+10. From August 1997 through December 1999, HCCA reported in various filings that it owned certain real estate.  HCCA recorded and valued these assets at approximately $49 million.  Reporting these assets with any value was a departure from GAAP because the acquisitions were never consummated.  
+  
+11. Recording this asset as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's December 1997 and December 1998 Forms 10-KSB, March 1997 report on Form 10-QSB, and the August 1997 and December 1999 amendments to the December 1996 Form 10-SB.  McGhie issued unqualified audit opinions that were included in the Forms 10-SB and 10-KSB, and his unqualified review report was included in the March 1997 Form 10-QSB.
+  
+  Improper Accounting: Recognition of Notes Receivable  
+  
+12. From 1996 through 1999, HCCA reported that it held two note receivables.  The first note obligated a Mexican corporation to pay HCCA $215,000 plus interest, and the second note obligated two individuals to pay HCCA $45,000 plus interest. HCCA recorded and valued these notes at $260,000.  Recording these notes as such was a departure from GAAP because HCCA lacked a reasonable basis for believing that the notes were collectible; in fact, HCCA never collected a single payment on the notes.  Although both notes were in default at the time HCCA filed its Form 10-SB in December 1996, HCCA continued to report these notes at their full value in subsequent reports rather than assigning a value of zero.
+  
+13. Recording these assets as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's December 1996 Form 10-SB and both amendments thereto, December 1996 and December 1997 Form 10-KSB, December 1998 Form 10-KSB and the amendment thereto, and March 1997 report on Form 10-QSB.  McGhie issued unqualified audit opinions that were included in the Forms 10-SB and 10-KSB, and his unqualified review report was included in the March 1997 Form 10-QSB.
+  
+  Audit and Review Deficiencies  
+  
+14. McGhie violated generally accepted auditing standards ("GAAS") by failing to: (1) exercise due professional care in the performance of his audits and in the preparation of his audit opinions ( see  AU §230,  Due Professional Care in the Performance of Work ); (2) properly plan his audits ( see  AU §311,  Planning and Supervision ); (3) maintain a healthy degree of skepticism during his audits ( see  AU §316,  Consideration of Fraud in a Financial Statement Audit ); (4) obtain sufficient competent evidential matter ( see  AU §326,  Evidential Matter ); and (5) issue audit opinions that complied with the reporting standards of GAAS ( see  AU §§410,  Adherence to GAAP , §411,  The Meaning of "Present Fairly in Conformity With GAAP" ).
+  
+15. McGhie audited and/or reviewed HCCA's false and misleading financial statements that misstated the value of certain assets.  The reporting of the Arizona and California mineral properties, advertising credits, real estate, and notes receivable assets, either individually or combined, caused HCCA's financial statements to be overstated in various filings made with the Commission.  McGhie failed to conduct any meaningful audit or review procedures when examining these transactions.  McGhie failed to create and use audit programs to properly plan his audits as required by GAAS.  McGhie also violated GAAS when he failed to obtain competent evidence to verify the existence and legitimacy of these assets.  Instead, he relied upon oral representations from HCCA's management and/or outside parties who lacked the expertise to make such representations.  During his audits and review, there were ample "red flags" which should have alerted McGhie that none of these assets should have been recognized.  On other occasions, he failed to obtain any valid support to justify the recording of the assets, including verifying whether HCCA had legal title to the real estate.
+  
+16. McGhie issued independent audit reports that were included in HCCA's 1996 Form 10-SB and two amendments thereto, 1996, 1997 and 1998 Forms 10-KSB, and an amendment to the 1998 Form 10-KSB.  McGhie's unqualified audit opinions falsely stated that he had conducted his audit in accordance with GAAS and that HCCA's financial statements had been prepared in conformity with GAAP.
+  
+17. Similarly, HCCA's March 1997 Form 10-QSB included McGhie's review report.  This report falsely represented that McGhie's review was done "in accordance with standards established by the American Institute of Certified Public Accountants" and that McGhie was "not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles."  McGhie failed to make adequate inquiries and to conduct adequate analytical reviews, as required by standards established by the American Institute of Certified Public Accountants ("AICPA") ( see  AR §100.23-31,  Compilation and Review of Financial Statements, Review of Financial Statements ).  Moreover, McGhie was aware of HCCA's departures from GAAP regarding its recording of the mineral properties, real estate and notes receivable, as required by GAAS ( see  AU §722.32,  Interim Financial Information, Modification of the Accountant's Review Report ) and the AICPA ( see  AR §100.32-41,  Compilation and Review of Financial Statements ).
+  
+  Violations  
+  
+18. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit a person, in connection with the purchase or sale of a security, from making an untrue statement of a material fact or from omitting to state a material fact necessary to make statements made, in light of the circumstances under which they were made, not misleading.  To violate Section 10(b) or Rule 10b-5, a defendant must act with scienter,  Aaron v. SEC , 446 U.S. 680, 695, 701-02 (1980), which the Supreme Court has defined as "a mental state embracing intent to deceive, manipulate, or defraud,"  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976).
+  
+19. McGhie willfully violated Section 10(b) and Rule 10b-5 thereunder by issuing audit reports that were included in HCCA's Forms 10-SB and 10-KSB that falsely represented that his audits were performed in accordance with GAAS and that HCCA's financial statements conformed with GAAP.  McGhie also issued a review report that was included in HCCA's March 1997 Form 10-QSB.  The review report falsely represented that the review was done in accordance with AICPA standards and that McGhie was unaware of any material modifications that needed to be made to the accompanying financial statements in order for them to conform with GAAP.  An auditor can be held to have violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by preparing and certifying false financial statements,  Anixter v. Home-Stake Production , 77 F.3d 1215, 1225-27 (10 th  Cir. 1996), or by issuing a false audit report,  McGann v. Ernst & Young , 102 F.3d 390, 397 (9 th  Cir. 1996).
+  
+20. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file quarterly and annual reports with the Commission and to keep this information current. The obligation to file such reports embodies the requirement that they be true and correct.  See, e.g. ,  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).
+  
+21. McGhie willfully aided and abetted and caused HCCA's violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder through his issuance of false and misleading audit reports and a review report that were included in the quarterly and annual reports filed by HCCA with the Commission.  The quarterly and annual reports overstated HCCA's assets from 119% to 95,920%.
+  
+22. Based on the foregoing, the Commission finds that McGhie engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.
+  
+23. Based on the foregoing, the Commission finds that McGhie (a) willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder; and (b) willfully aided and abetted and caused HCCA's violations of Section 13(a) of the Exchange Act, and Rules 13a-1 and 13a-13 promulgated thereunder.
+  
+ IV.   
+  
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent McGhie's Offer.      
+  
+Accordingly, IT IS HERBY ORDERED effective immediately, that:  
+  
+A. McGhie shall cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder; and from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 promulgated thereunder.
+  
+B. McGhie is denied the privilege of appearing or practicing before the Commission as an accountant.  
+  
+By the Commission.                
+  
+Jonathan G. Katz  
+Secretary 
+
+  
+  Footnotes 
+ 
+
+  1    Rule 102(e)(1)(ii) provides, in relevant part, that:  
+  
+The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it any person who is found to have engaged in improper professional conduct.
+  
+Rule 102(e)(1)(iii) provides, in relevant part, that:
+  
+The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it 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 or regulations thereunder.
+  
+  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.
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diff --git a/raw/aaer/2003/AAER-1734.txt b/raw/aaer/2003/AAER-1734.txt
new file mode 100644
index 0000000000000000000000000000000000000000..62e10f85271ea501d10f031378ea94fd28a38cb2
--- /dev/null
+++ b/raw/aaer/2003/AAER-1734.txt
@@ -0,0 +1,1556 @@
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+     SEC.gov | Barbara L. Berry, CPA 
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+              Barbara L. Berry, CPA
+           
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+        Barbara L. Berry, CPA
+       
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 47474 / March 7, 2003  
+
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  1734 / March 7, 2003  
+
+ADMINISTRATIVE PROCEEDING 
+File No.  3-11058
+
+
+
+  
+       
+   
+   	BARBARA L. BERRY, CPA,
+ 
+   Respondent. 
+  
+   
+   
+ : : : : : : : : : : :  
+ 
+  
+ORDER INSTITUTING PUBLIC	
+ADMINISTRATIVE AND CEASE-
+AND-DESIST PROCEEDINGS,
+PURSUANT TO SECTION 21C OF 
+	THE SECURITIES EXCHANGE ACT
+	OF 1934 AND RULE 102(e) OF THE 							
+	COMMISSION'S RULES OF 
+	PRACTICE, MAKING FINDINGS, 	 
+	AND IMPOSING REMEDIAL
+	SANCTIONS AND A CEASE-AND-
+	DESIST ORDER
+     
+ I.   
+  
+The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Barbara L. Berry, CPA ("Respondent" or "Berry") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(iii) of the Commission's Rules of Practice.  1    
+ II.   
+  
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over her and the subject matter of these proceedings.  Respondent consents to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order  ("Order"), as set forth below.
+  
+ 
+  
+ III.   
+  
+On the basis of this Order and Respondent's Offer, the Commission finds  2   that:
+  
+  Respondent  
+  
+ 
+  
+1. Barbara L. Berry was for all relevant periods herein and currently is a certified public accountant licensed in Arizona.   On November 1, 1996, Berry was appointed as a director, the chief financial officer and treasurer of Hexagon Consolidated Companies of America, Inc. ("HCCA").  On May 5, 1997, Berry resigned as a director, and on May 20, 1997, Berry tendered her resignation as HCCA's CFO and treasurer; however, at the request of HCCA's chief executive officer, she continued in these capacities until late-August 1997.  Berry continued as an outside accounting consultant to HCCA until January 7, 1998.  Berry, 42 years old, is a resident of Scottsdale, Arizona.
+  
+  Other Relevant Entity  
+  
+2. HCCA is a Nevada corporation located in Reno, Nevada.  HCCA's common stock is registered pursuant to Section 12(g) of the Exchange Act.  Its common stock was quoted on the OTC Bulletin Board until it was designated ineligible to be quoted on February 24, 2000, for failing to comply with the NASD's "eligible securities" criteria (Rule 6530).
+  
+3. The U.S. District Court for the Middle District of Tennessee enjoined HCCA's predecessor from violating Sections 5 and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) and Rule 10b-5 of the Exchange Act in January 1989.  In March 1994, the Commissioner of Commerce and Insurance for Tennessee ordered two predecessors of HCCA to cease and desist violating various state securities laws, including its anti-fraud provisions.  In December 1994, the State of South Carolina ordered two of HCCA's predecessors to cease and desist violating various state securities laws, including its anti-fraud provisions.
+  
+  Improper Accounting: Recognition of Arizona Ore Inventory  
+  
+4. On or about August 24, 1995, HCCA issued 100 million shares of stock to acquire a company whose only significant asset was a sublease.  HCCA claimed that the sublease provided ownership to 500,000 tons of ore inventory located in Arizona.  HCCA recorded the ore as an asset on its books and valued it at $200 million.  This valuation was a departure from generally accepted accounting principles ("GAAP").  HCCA never owned the ore.  Moreover, the ore consisted of waste tailings and there was no reasonable basis to believe that minerals could be economically extracted from such ore.  HCCA should have recorded and valued this asset at zero in order to conform with GAAP.
+  
+5. Berry participated in recording this transaction as an asset on HCCA's books.  Recording this asset as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's March 1997 and June 1997 reports on Form 10-QSB, and in the August 1997 amendment to HCCA's Form 10-SB.
+  
+  Improper Accounting: Recognition of California Mining Claims  
+  
+6. On or about February 6, 1997, HCCA acquired 17 mining claims, located in California, in exchange for 375 million shares of HCCA stock.  HCCA acquired the claims from a company managed by HCCA's chief executive officer.  This related company acquired the claims in 1996 in exchange for HCCA stock worth approximately $275,000.  HCCA recorded the claims it acquired from the related company at $69,375,000.  This valuation was a departure from GAAP.  There was no reasonable basis to believe that any economically recoverable mineral reserves existed at the site.  Indeed, evidence existed showing that there were no economically recoverable reserves located on this property.  HCCA should have recorded and valued this asset at zero in order to conform with GAAP.
+  
+7. Berry participated in recording this transaction as an asset on HCCA's books.  Recording this asset as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's March 1997 and June 1997 reports on Form 10-QSB.
+  
+  Improper Accounting: Recognition of Advertising Credits  
+  
+8. On or about June 26, 1996, HCCA purportedly acquired $100 million of television advertising credits in exchange for 40 million shares of HCCA stock.  HCCA recorded and valued these credits at $50 million, or 50% of their face value.  However, the credits were of no use to HCCA and had no apparent market for resale or trade purposes.  Recording these credits in excess of the seller's historical cost basis of zero was a departure from GAAP.
+  
+9. Berry participated in recording the advertising credits as an asset on HCCA's books.  Recording this asset as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's December 1996 Form 10-SB and December 1996 Form 10-KSB.  Berry signed the December 1996 Form 10-KSB.
+  
+  Improper Accounting: Recognition of Real Estate  
+  
+10. From August 1997 through December 1999, HCCA reported in various filings that it owned certain real estate.  HCCA recorded and valued these assets at approximately $49 million.  Reporting these assets with any value was a departure from GAAP because the acquisitions were never consummated.  
+  
+11. Berry participated in recording the real estate as an asset on HCCA's books.  Recording this asset as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's March 1997 and June 1997 reports on Form 10-QSB, and in the August 1997 amendment to HCCA's Form 10-SB.
+  
+  Improper Accounting: Recognition of Notes Receivable  
+  
+12. From 1996 through 1999, HCCA reported that it held two note receivables.  The first note obligated a Mexican corporation to pay HCCA $215,000 plus interest, and the second note obligated two individuals to pay HCCA $45,000 plus interest. HCCA recorded and valued these notes at $260,000.  Recording these notes as such was a departure from GAAP because HCCA lacked a reasonable basis for believing that the notes were collectible; in fact, HCCA never collected a single payment on the notes and HCCA lacked any system to evaluate the collectibility of the notes.  Although both notes were in default at the time HCCA filed its Form 10-SB in December 1996, HCCA continued to report these notes at their full value in subsequent reports rather than assigning a value of zero.
+  
+ 13.  Berry participated in recording these assets on HCCA's books, notwithstanding their default status.  Recording these note receivables as set forth above materially misstated the financial statements that appeared in,  inter   alia , HCCA's December 1996 Form 10-SB and December 1997 amendment thereto, December 1996 Form 10-KSB, and in the March 1997 and June 1997 reports on Form 10-QSB.
+  
+  Violations  
+  
+14. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit a person, in connection with the purchase or sale of a security, from making an untrue statement of a material fact or from omitting to state a material fact necessary to make statements made, in light of the circumstances under which they were made, not misleading.  To violate Section 10(b) or Rule 10b-5, a defendant must act with scienter,  Aaron v. SEC , 446 U.S. 680, 695, 701-02 (1980), which the Supreme Court has defined as "a mental state embracing intent to deceive, manipulate, or defraud,"  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976).
+  
+15. Berry willfully violated Section 10(b) and Rule 10b-5 when she participated in the preparation of numerous false and misleading annual and quarterly reports and registration statements filed with the Commission because she knew, or was reckless not knowing, that the asset values on HCCA's financial statements contained in these filings were materially overstated and not in conformity with GAAP.  In addition, Berry signed the 1996 Form 10-KSB as HCCA's chief financial officer and as a director.  Thus, Berry willfully violated violations of Section 10(b) and Rule 10b-5.
+  
+16. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file quarterly and annual reports with the Commission and to keep this information current.  Rule 12b-20 under the Exchange Act requires that such reports contain, in addition to disclosures expressly required by statute and rules, such other information as is necessary to ensure that the statements made in those reports are not, under the circumstances, materially misleading.  The obligation to file such reports embodies the requirement that they be true and correct.  See, e.g. ,  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).
+  
+17. Berry willfully aided and abetted and caused HCCA's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder through her participation in preparing false and misleading quarterly and annual reports which she caused HCCA to file with the Commission.  The quarterly and annual reports, which were filed with the Commission from December 1996 through November 1997, overstated HCCA's assets from 119% to 95,920%.
+  
+18. Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions of their assets.  Section 13(b)(2)(B) of the Exchange Act requires Section 12 registrants to devise and maintain internal accounting controls sufficient to allow the preparation of financial statements in conformity with GAAP.  Section 13(b)(5) of the Exchange Act provides that no person shall knowingly falsify any such book, record, or account or circumvent internal accounting controls. Rule 13b2-1 also prohibits the falsification of any book, record, or account subject to Section 13(b)(2)(A).
+  
+19. Berry willfully violated Section 13(b)(5) and Rule 13b2-1 and willfully aided and abetted and caused HCCA's violations of Sections 13(b)(2)(A) and 13(b)(2)(B) when she participated in overstating the value of the mining, real estate, advertising credit, and notes receivable assets on HCCA's books and in its records, and when she failed to implement internal accounting controls to allow HCCA to prepare its financial statements in conformity with GAAP.
+  
+ 20.  Based on the foregoing, the Commission finds that Berry (a) willfully violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder; and (b) willfully aided and abetted and caused HCCA'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.
+  
+ IV.   
+  
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Berry's Offer.      
+  
+Accordingly, IT IS HERBY ORDERED effective immediately, that:  
+  
+A. Berry 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), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder.
+  
+B. Berry is denied the privilege of appearing or practicing before the Commission as an accountant.  
+  
+By the Commission.                
+  
+Jonathan G. Katz 
+Secretary 
+  
+  Footnotes 
+ 
+  1    Rule 102(e)(1)(iii) provides, in relevant part, that:
+  
+The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it 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 or regulations thereunder.
+  
+  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.
+
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diff --git a/raw/aaer/2003/AAER-1735.txt b/raw/aaer/2003/AAER-1735.txt
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@@ -0,0 +1,1383 @@
+
+
+ 
+ 
+   
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+     SEC.gov | American Tissue, Inc., Medhi Gabayzadeh, Edward Stein and John Lorenz 
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+              American Tissue, Inc., Medhi Gabayzadeh, Edward Stein and John Lorenz
+           
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+        American Tissue, Inc., Medhi Gabayzadeh, Edward Stein and John Lorenz
+       
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+ Litigation Release No. 18022 / March 10, 2003   
+Accounting and Auditing Enforcement  
+Release No.	 1735 / March 10, 2003  
+SEC Charges American Tissue and Three Former American Tissue Officers With Accounting Fraud  
+
+Securities and Exchange Commission v. American Tissue, Inc., Medhi Gabayzadeh, Edward Stein and John Lorenz, Civil Action No. 03-1162 (Seybert & Orenstein, M. J.) (E.D. New York, filed March 10, 2003)
+
+  
+The Securities and Exchange Commission ("SEC") today filed a civil action against American Tissue, Inc. and three of its former officers: former president and chief executive officer Medhi Gabayzadeh, former chief financial officer Edward Stein and former vice president of finance John Lorenz.  The SEC's complaint, filed in the United States District Court for the Eastern District of New York, alleges that:
+    In 2000 and 2001, a period during which American Tissue offered and sold $165 million of securities to investors, defendants Gabayzadeh, Stein and Lorenz fraudulently and materially inflated American Tissue's revenues and earnings in periodic reports filed with the Commission by improperly capitalizing expenses as assets, overvaluing the Company's inventories and creating millions of dollars in phony revenue and accounts receivable through bogus "bill and hold" sales.  By fraudulently overstating its assets, American Tissue induced its lenders to continue to extend commercial credit when the Company was no longer creditworthy. 
+
+    As a consequence of the accounting scheme, American Tissue's annual report on Form 10-K for the fiscal year ending September 30, 2000 reported net income for that year of $24.5 million.  In fact, American Tissue had suffered a loss for the period of at least $3.6 million.  Similarly, the quarterly report filed by American Tissue for the third fiscal quarter of 2001, ending June 30, 2001, overstated the Company's reported net income of $15.5 million for the first nine months of fiscal 2001 by at least $21.8 million, thereby hiding a loss of at least $6.3 million. 
+    
+The SEC charges American Tissue with violations of the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws: Sections 10(b), 13(b)(2)(A) and (B) and 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 15d-1, and 15d-13 thereunder. Gabayzadeh, Stein and Lorenz are charged with violating or aiding and abetting violations of Sections 10(b), 13(b)(2(A) and (B), 13(b)(5), and 15(d) of the Exchange Act and Rules 10b-5, 12b-20, 13b2-1, 13b2-2, 15d-1 (except Gabayzadeh) and 15d-13 thereunder.  The SEC seeks as relief permanent injunctions against all defendants, and civil money penalties and officer and director bars against Gabayzadeh, Stein and Lorenz and disgorgement of ill-gotten gains with prejudgment interest against Gabayzadeh and Stein.
+  
+The SEC's investigation is continuing.
+  
+The Commission acknowledges the assistance to its investigation of the United States Attorney for the Eastern District of New York.  In a separate action, the United States Attorney today unsealed criminal charges against five individuals in connection with the American Tissue matter, including Gabayzadeh, Stein and Lorenz.
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diff --git a/raw/aaer/2003/AAER-1737.txt b/raw/aaer/2003/AAER-1737.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a353d5aa93679a44bf4c0564269a29e9791907ad
--- /dev/null
+++ b/raw/aaer/2003/AAER-1737.txt
@@ -0,0 +1,1373 @@
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+              Spiegel, Inc.
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+On March 7, 2003, the U.S. Securities and Exchange Commission ("Commission") filed a civil injunctive action alleging that Spiegel, Inc. ("Spiegel") violated the federal securities laws by withholding material information from the public.  Spiegel consented to the entry of a partial final judgment and permanent injunction without admitting or denying the allegations in the Commission's complaint.  The complaint alleges that Spiegel withheld the fact that in or about the beginning of 2002, its independent auditor had notified Spiegel that it may not be able to continue as a "going concern."  The complaint further alleges that Spiegel's independent auditor later provided a proposed auditor report in or about January or February 2002 which stated that the audit firm had "substantial doubts" about Spiegel's ability to continue as a going concern absent the company addressing certain financial issues.    
+  
+The complaint alleges that Spiegel decided not to make its required 10-K and 10-Q filings to conceal the "going concern" issue from the public.  Instead, the company filed a series of Forms NT (notices of late filing) indicating that Spiegel was not in a position to file because various lending agreements were not in place.  According to the complaint, statements made by Spiegel executives confirm that Spiegel chose not to make its required filings to avoid disclosing the "going concern" notice and to avoid the negative "disruptions" that the disclosure of this information would cause.  The complaint further alleges that Spiegel failed to disclose its auditor's "going concern" notice in various press releases and public statements that discussed the company's financial condition.    
+  
+Spiegel consented to the entry of a partial final judgment and order of permanent injunction for violations of Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 10b-5, 13a-1 and 13a-13 promulgated thereunder.  In addition, Spiegel consented to the entry of an Order appointing an Independent Examiner to protect the interests of Spiegel's minority shareholders.  The Independent Examiner will review Spiegel's financial records and provide the Court with a written report within 120 days of the entry of the order.  The report will discuss Spiegel's financial condition and identify any material accounting irregularities.  The Independent Examiner may also recommend to the Court interim steps for the protection of Spiegel's minority shareholders.  The Court will determine at a later date whether disgorgement, prejudgment interest, civil penalties and other equitable relief are appropriate.  
+  
+The Commission's investigation in this matter continues.
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diff --git a/raw/aaer/2003/AAER-1738.txt b/raw/aaer/2003/AAER-1738.txt
new file mode 100644
index 0000000000000000000000000000000000000000..68a65d9eee33fdb6db15644fa3b3ef4d08854343
--- /dev/null
+++ b/raw/aaer/2003/AAER-1738.txt
@@ -0,0 +1,1381 @@
+
+
+ 
+ 
+   
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+ 
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+     SEC.gov | A. Howard and Michael W. Krautz 
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+              A. Howard and Michael W. Krautz
+           
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+        A. Howard and Michael W. Krautz
+       
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+ Kevin A. Howard, former chief financial officer, and 
+Michael W. Krautz, former senior director of accounting, 
+charged with violating federal securities laws. 
+
+  Securities and Exchange Commission v. Kevin A. Howard and Michael W. Krautz , Civil Action No. H-03-0905 (Harmon) (SDTX) (March 12, 2003) 
+ 
+The Securities and Exchange Commission ("Commission") today charged Kevin A. Howard, the former chief financial officer, and Michael W. Krautz, a former senior director of accounting, of Enron Broadband Services, Inc. ("EBS"), a wholly-owned subsidiary of Enron Corp., with violating the antifraud, periodic reporting, books and records, and internal controls provisions of the federal securities laws. 
+ 
+The Complaint, which was filed in the United States District Court for the Southern District of Texas, alleges that defendants Howard and Krautz engaged in a scheme to overstate the reported earnings of Enron, and its EBS subsidiary, by $111 million during the fourth quarter of 2000 and the first quarter of 2001.  The scheme, known as "Project Braveheart," involved a sham sale of certain assets to accelerate recognition of income from a long-term agreement to develop and provide video-on-demand services.  Conceptually, defendants sought to sell an interest in the future revenues associated with this agreement for purposes of immediate income recognition.  As alleged in the Complaint, Project Braveheart was a sham from its inception:  the transaction had no economic substance and was created solely for the purpose of generating income. 
+ 
+The Commission's Complaint alleges that defendants Howard and Krautz carried out the scheme by forming a purported joint venture, assigning the agreement to the joint venture, and selling an interest in the joint venture to a third party financial institution.  The entity enlisted by defendants Howard and Krautz to form the joint venture was a partner in name only and was never intended to participate in the joint venture.  The equity stake of this joint venture partner was not at risk because Enron guaranteed the entity a short-term take-out at a specified rate of return.  The financial institution to which Enron sold a portion of its interest in the joint venture also did not have equity at risk as required, having been guaranteed against loss by Enron.  As a result of Project Braveheart, Enron overstated its reported net income for the year 2000 by $53 million and for first quarter 2001 by $58 million. 
+ 
+In its Complaint, the Commission charges Howard and Krautz with: violating the antifraud provisions of the federal securities laws, 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 Rule 10b-5 thereunder; falsifying Enron's book and records, Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1; aiding and abetting Enron's filing of false and misleading quarterly reports, Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; and aiding and abetting Enron's  books and records and internal accounting control violations, Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  The Commission is seeking disgorgement of ill-gotten gains, civil money penalties, a permanent bar from acting as a director or officer of a publicly held company, and an injunction against future violations of the federal securities laws. 
+ 
+The Commission brought this action in coordination with the Justice Department's Enron Task Force, which today filed related criminal charges against Howard and Krautz.  
+ 
+The Commission's investigation is continuing. For additional information see 
+
+   SEC v. Andrew S. Fastow   - Litigation Release 17762 (Oct. 2, 2002)   
+  SEC v.
+Michael J. Kopper  - Litigation Release 17692 (Aug. 21, 2002)   
+  SEC v. Andrew S. Fastow  - Litigation Release 17270 (Dec. 13, 2001)   
+-->
+  
+  SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1740.txt b/raw/aaer/2003/AAER-1740.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5a9d6357aa0d902eef042c96f6a74b192412d20b
--- /dev/null
+++ b/raw/aaer/2003/AAER-1740.txt
@@ -0,0 +1,1439 @@
+
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+ Securities Exchange Act of 1934 
+Release No.   47490 / March 12, 2003
+
+  Accounting and Auditing Enforcement
+ Release No.  1740 / March 12, 2003
+
+  Administrative Proceeding  
+File No. 3-11063
+
+  ADMINISTRATIVE PROCEEDINGS INSTITUTED AGAINST PATTINSON HAYTON
+
+  The United States Securities and Exchange Commission (Commission) announced today that it has issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b)(6) of the Securities Exchange Act of 1934 (Exchange Act) against Pattinson Hayton (Hayton). The proceedings are based on the entry of a default judgment against Hayton on December 18, 2002 permanently enjoining him from violating, or aiding, abetting or causing violations of, 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), 13(d), and 16(a) of the Exchange Act and Rules 10b-5, 12b-20, 12b-25, 13a-1, 13a-11, 13a-13, 13d-1, 16a-2, and 16a-3 thereunder. (Securities and Exchange Commission v. Tradamax Group, Inc., Hayton, et al., Civil Action No. SA CV 01-589 GLT (C.D. Cal.). 
+
+  The Commission's complaint alleged, among other things, that Hayton secretly controlled Tradamax Group, Inc., which formerly was a public company. Hayton disseminated false information to the public regarding the company's product (a purported online coffee bean trading system), Hayton's control of the company, the identity of the company's chief executive officer, the company's financial projections, and other material matters.  The false statements and omissions were made in press releases, on Internet websites, in unsolicited e-mail messages, and in other promotional materials provided directly to investors, and in reports filed with the Commission. 
+
+  A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Hayton an opportunity to dispute these allegations, and to determine whether a penny stock bar against him is appropriate and in the public interest.
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diff --git a/raw/aaer/2003/AAER-1741.txt b/raw/aaer/2003/AAER-1741.txt
new file mode 100644
index 0000000000000000000000000000000000000000..05f4c7a76e9876c7b9adf40b40229901aecb649e
--- /dev/null
+++ b/raw/aaer/2003/AAER-1741.txt
@@ -0,0 +1,1375 @@
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+ Litigation Release No. 18037 / March 17, 2003 
+Accounting and Auditing Enforcement Release No. 1741 / March 17, 2003
+   
+Six Indicted For Perpetrating Massive Financial Fraud at Anicom, Inc.
+  
+United States v. Carl E. Putnam, et al., No. 03CR 268 (N.D. Ill.) (Hon. Robert W. Gettleman).
+  
+Securities and Exchange Commission v. Carl E. Putnam, et al., No. 02C 3235 (N.D. Ill.) (Hon. George M. Marovich).
+
+  
+On March 13, 2003, the Securities and Exchange Commission announced that the United States Attorney for the Northern District of Illinois indicted six former executives and other employees of Anicom, Inc. for thirty counts of securities fraud, books and records violations, and bank fraud in connection with a massive financial fraud at the now-bankrupt company.  The indictment charges that from at least January 1, 1998 through at least May 31, 2000, the six defendants caused Anicom to falsely report millions of dollars of non-existent sales, including sales to a fictitious customer, and used other fraudulent techniques that overstated Anicom's reported revenues and net income.  The indictment also charges that Anicom's former Chief Financial Officer, Donald C. Welchko, age 48, of Willow Springs, Illinois, obstructed justice by providing the Commission with false documents during its investigation of Anicom.  The United States Attorney filed the indictment in federal district court in the Northern District of Illinois.  
+  
+	The fraud had two distinct aspects.  First, the indictment charges that the defendants, President and Chief Executive Officer Carl E. Putnam, age 54, of Naperville, Illinois, Welchko, Chief Operating Officer John P. Figurelli, age 56, of Libertyville, Illinois, Vice President of Sales Daryl T. Spinell, age 38, of Naperville, Illinois, Vice President of Accounting Ronald M. Bandyk, age 37, of LaGrange, Illinois, and Billing Manager Renee L. LeVault, age 34, of Huntley, Illinois, improperly recognized numerous fictitious sales that overstated reported revenues and net profits. Additionally, the defendants caused Anicom in 1999 to improperly recognize more than $10.454 million in sales to a fictitious customer called SCL Integration.  The defendants used SCL Integration to minimize the effect on income of writing off earlier improper sales.  Second, the indictment charges that the defendants entered journal entries that improperly reduced expenses and accelerated the recognition of sales between reporting periods.  The indictment also charges that Putnam and Welchko defrauded Anicom's lenders by falsely representing that Anicom's financial statements accurately represented the company's financial position.
+   
+Just ten months ago, on May 6, 2002, the Commission filed a civil lawsuit in United States District Court in the Northern District of Illinois against the same six defendants.  Grounded in the same financial fraud as charged in the indictment, the Commission's lawsuit alleges that all six defendants engaged in multiple violations of the antifraud and books and records provisions of the federal securities laws. 
+  
+Additional information regarding the Commission's lawsuit can be found in Litigation Release No.  17504 , May 6, 2002.
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diff --git a/raw/aaer/2003/AAER-1744.txt b/raw/aaer/2003/AAER-1744.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3b2cb6ddb9c3e55774cb9d9c3a0b3ca0c4567c07
--- /dev/null
+++ b/raw/aaer/2003/AAER-1744.txt
@@ -0,0 +1,1387 @@
+
+
+ 
+ 
+   
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+     SEC.gov | HealthSouth Corporation and Richard M. Scrushy 
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+              HealthSouth Corporation and Richard M. Scrushy
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+ Commission Action Seeks Injunction, Money Penalties, Officer and Director Bar 
+ Commission Obtains Emergency Relief 
+  Securities and Exchange Commission v. HealthSouth Corporation and Richard M. Scrushy , CV-03-J-0615-S (N.D. Ala.) 
+ 
+The Securities and Exchange Commission announced that on March 19, 2003, it filed accounting fraud charges in federal district court in the Northern District of Alabama against HealthSouth Corporation ("HRC"), the nation's largest provider of outpatient surgery, diagnostic and rehabilitative healthcare services, and its Chief Executive Officer and Chairman Richard M. Scrushy. 
+ 
+The  Commission's complaint  alleges that since 1999, at the insistence of Scrushy, HRC systematically overstated its earnings by at least $1.4 billion in order to meet or exceed Wall Street earnings expectations.  The false increases in earnings were matched by false increases in HRC's assets.  By the third quarter of 2002, HRC's assets were overstated by at least $800 million, or approximately 10 percent.  The complaint further alleges that, following the Commission's order last year requiring executive officers of major public companies to certify the accuracy and completeness of their companies' financial statements, Scrushy certified HRC's financial statements when he knew or was reckless in not knowing they were materially false and misleading. 
+ 
+According to the complaint: 
+  Shortly after HRC became publicly traded in 1986, and at Scrushy's instruction, the company began to artificially inflate its earnings to match Wall Street analysts' expectations and maintain the market price for HRC's stock.  Between 1999 and the second quarter of 2002, HRC intentionally overstated its earnings, identified as "Income Before Income Taxes And Minority Interests," by at least $1.4 billion in reports filed with the Commission.  HRC also overstated earnings, identified as "Income Before Income Taxes And Minority Interests," in the quarterly reports on Form 10-Q filed with the Commission during these years.   
+
+ Pursuant to the scheme, on a quarterly basis, HRC's senior officers would present Scrushy with an analysis of HRC's actual, but as yet unreported, earnings for the quarter as compared to Wall Street's expected earnings for the company.  If HRC's actual results fell short of expectations, Scrushy would tell HRC's management to "fix it" by recording false earnings on HRC's accounting records to make up the shortfall.   
+
+ HRC's senior accounting personnel then convened a meeting to "fix" the earnings shortfall. At these meetings, HRC's senior accounting personnel discussed what false accounting entries could be made and recorded to inflate reported earnings to match Wall Street analysts' expectations. These entries primarily consisted of reducing a contra revenue account, called "contractual adjustment," and/or decreasing expenses, (either of which increased earnings), and correspondingly increasing assets or decreasing liabilities.   
+
+ Scrushy has personally profited from the scheme to artificially inflate earnings. He has sold at least 7,782,130 shares of HRC stock since 1999, when HRC's share price was affected by HRC's artificially inflated earnings.  Moreover, Scrushy received salary and bonus payments based on HRC's artificially inflated earnings.   
+
+ In mid-2002, certain HRC senior officers and Scrushy discussed the impact of the scheme to inflate earnings because they were concerned about the consequences of the August 14, 2002 financial statement certification required under  Commission Order No. 4-460 ,  Order Requiring the Filing of Sworn Statements Pursuant to Section 21(a)(1) of the Securities Exchange Act of 1934  (June 27, 2002). ("Order 4-460").   
+
+ Scrushy knew or was reckless in not knowing that HRC's financial statements materially overstated its operating results.  Nevertheless, on August 14, 2002, he and HRC's Chief Financial Officer certified under oath that HRC's 2001 Form 10-K contained no "untrue statement of material fact."  In truth, the financial statements filed with this report overstated HRC's earnings, identified as "Income Before Income Taxes And Minority Interests" on HRC's income statement, by at least 4,700 %. 
+  
+The Commission alleges that HRC's and Scrushy's actions violated and/or aided and abetted violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws.  Specifically, the Commission has charged HRC with 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 Exchange Act, and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-13.  The Commission has charged Scrushy with violating Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act, and Exchange Act Rules 10b-5 and 13b2-1.  The Commission also has charged Scrushy with aiding and abetting HRC's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13. 
+ 
+For these violations, the Commission is seeking a permanent injunction against HRC and Scrushy, civil money penalties from both defendants, disgorgement of all ill-gotten gains and losses avoided by both defendants as a result of the conduct alleged plus prejudgment interest thereon.  The Commission also is seeking an order (i) prohibiting Scrushy from serving as an officer or director of a public company, (ii) freezing the assets of Scrushy, (iii) requiring HRC to escrow in an interest-bearing account, all extraordinary payments (including compensation) to any director, officer, partner, controlling person, agent, or employee, and (iv) preserving HRC's documents. 
+ 
+The Commission also obtained emergency relief on March 19, 2003 against HRC and Scrushy in the District Court.  HealthSouth consented to the entry of an order by the Court (1) requiring that the company place in escrow, under the Court's supervision, all extraordinary payments (whether compensation or otherwise) to its directors, officers, partners, controlling persons, agents, or employees, pursuant to the provisions of the Sarbanes-Oxley Act of 2002, (2) prohibiting the company and its employees from destroying documents relating to the company's financial activities and/or the allegations in the Commission's case against HealthSouth in Scrushy, and (3) providing for expedited discovery in the Commission's case.  The Court also entered a temporary order freezing substantially all of Scrushy's assets.  
+ 
+Pursuant to a separate Commission order issued on March 19, 2003, trading in the securities of HRC was suspended for two business days due to the materially misleading information in the marketplace. 
+ 
+The Commission wishes to thank the U.S. Attorney's Office for the Northern District of Alabama, the U.S. Department of Justice, and the Federal Bureau of Investigation for their cooperation in this matter. 
+ 
+The Commission's investigation is continuing. 
+ 
+  SEC Complaint in this matter  
+ 
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diff --git a/raw/aaer/2003/AAER-1745.txt b/raw/aaer/2003/AAER-1745.txt
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index 0000000000000000000000000000000000000000..d7049a319c8d346eac32ebebd45876b5c309ce9a
--- /dev/null
+++ b/raw/aaer/2003/AAER-1745.txt
@@ -0,0 +1,1376 @@
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+ Litigation Release No. 18050 / March 25, 2003 
+
+ Accounting and Auditing Enforcement  Release No. 1745 
+
+  Securities and Exchange Commission v. Robert Asti , Civ. 03 1417 (LDW) (E.D.N.Y.) 
+ 
+The Securities and Exchange Commission announced today that it filed a civil injunctive action in federal court in Brooklyn, New York charging  Robert Asti  (" Asti "), a former executive at Symbol Technologies, Inc. ("Symbol"), with engaging in a vast fraudulent scheme to manipulate Symbol's reported financial results.  Based in Holtsville, New York, Symbol is a leading manufacturer of bar code scanners and related information technology whose stock is publicly traded on the New York Stock Exchange.  The complaint alleges that  Asti  played a key role in fabricating millions of dollars in sales revenue while heading Symbol's "sales finance" department from 1999 until he left the company in March 2001.   Asti , age 44, was Vice President of Sales Finance for The Americas Sales and Services ("TASS") at Symbol, which included Symbol's sales operations in North and South America. 
+ 
+The Commission's complaint alleges that: 
+ 
+Among other fraudulent accounting practices,  Asti  and others "stuffed" Symbol's distribution channel at the end of each quarter to help meet revenue and earnings targets imposed by Symbol's president at that time.  Together with others,  Asti  engineered phony sales in which resellers placed large "purchase" orders but were given the right not to pay for the products, either orally or in "side letters."   Asti  also arranged for Symbol to make payments to certain resellers to induce them to place orders and accept shipments in excess of their financial means.   Asti  also employed other fraudulent devices to accelerate revenue on sales to end users when the product the end user wanted was unavailable or could not be shipped before the end of the quarter for other reasons.   Asti  and his "sales finance" staff improperly controlled critical aspects of Symbol's revenue recognition process such as the booking of orders and the issuance of invoices and credits. 
+ 
+As a result of these and other fraudulent practices, Symbol falsely reported record revenue and dramatic increases in net income in press releases and periodic reports filed with the Commission and disseminated to the public.  Symbol is in the process of restating these and other previously reported financial results.  According to Symbol's recent public disclosures, the restatement will cover the years 1999 through 2002, and will include reductions in revenue and net income during the time that  Asti  engaged in fraudulent accounting practices at Symbol.  Based on the estimates in its public disclosures, Symbol may need to reverse or otherwise adjust as much as ten percent of the annual revenue it previously reported in 1999 and 2000, or $114 million and $140 million, respectively.   
+ 
+Symbol's disclosures about the need for a restatement arise from an internal investigation into the company's financial reporting practices that began in the spring of 2002 at the request of the Commission's staff. 
+ 
+In the complaint, the Commission seeks a permanent injunction enjoining  Asti  from (i) committing, and aiding and abetting, securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5; (ii) falsifying corporate books and records, circumventing internal controls and engaging in other conduct in violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1; and (iii) aiding and abetting violations of corporate reporting, recordkeeping and internal control provisions of the Exchange Act (Sections 13(a) and 13(b)(2) and Rules 12b-20, 13a-1 and 13a-13).  The Commission also seeks an order:  (i) requiring  Asti  to disgorge, and pay prejudgment interest on, his ill-gotten gains; (ii) imposing civil money penalties; and (iii) barring  Asti  from acting as an officer or director of a publicly traded company. 
+ 
+The Commission's investigation is continuing.  The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Eastern District of New York and the U.S. Postal Inspection Service in this matter.  The United States Attorney's Office for the Eastern District of New York announced that  Asti  is scheduled to plead guilty later today to criminal charges based on conduct alleged in the Commission's complaint. 
+
+ 
+  SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1746.txt b/raw/aaer/2003/AAER-1746.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f6891557af745448e0869825fa4a3d86ff733776
--- /dev/null
+++ b/raw/aaer/2003/AAER-1746.txt
@@ -0,0 +1,1504 @@
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.   47597 / March 28, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1746 / March 28, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-9793
+
+         In the Matter of  
+   J.P. Bolduc, Brian J. Smith, C.P.A.,    
+  Richard N. Sukenik, C.P.A., Philip J.  
+  Ryan III, Constantine L. Hampers,   
+  A. Miles Nogelo, and Robert W.          
+  Armstrong III, C.P.A.,   
+                   Respondents.    
+     
+    : : : : : :   
+   ORDER MAKING FINDINGS AND  
+ IMPOSING CEASE-AND-DESIST 
+ ORDER AGAINST RICHARD N.   SUKENIK, C.P.A.       I. 
+
+      The Securities and Exchange Commission ("Commission") deems it appropriate to accept the Offer of Settlement ("Offer") submitted by Richard N. Sukenik, C.P.A. ("Sukenik"), pursuant to Rule 240(a) of the Rules of Practice of the Commission, 17 C.F.R. § 201.240(a), for the purpose of settlement of this public administrative and cease-and-desist proceedings instituted by the Commission against him on December 22, 1998, pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice.
+
+   II. 
+
+      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 any of the findings contained herein, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which is admitted, Sukenik consents to the entry by the Commission of this Order.
+
+   III. 
+
+      On the basis of this Order and Sukenik's Offer, the Commission finds that:  1      BACKGROUND  
+
+  1. Sukenik was a vice president and the controller and principal accounting officer of W.R. Grace & Co. ("Grace") from December 1991 until his retirement on April 1, 1996.  
+
+  2. Grace was a New York corporation with its principal executive offices in Boca Raton, Florida from at least 1991 through 1996.  Grace's primary businesses were packaging, specialty chemicals and health care services.  During the relevant time period, Grace had a December 31 fiscal year end.
+
+  3. Between at least 1991 and 1995 (the "relevant period"), National Medical Care Inc. ("NMC") was Grace's main health care subsidiary, with its headquarters in Waltham, Massachusetts.  NMC provided kidney dialysis and home health services and manufactured specialized medical products.  During the relevant period, NMC comprised the bulk of Grace's Health Care Group, which was, until the first quarter of 1995, one of Grace's core businesses and was reported as a segment in Grace's consolidated financial statements.  The Health Care Group contributed a significant portion of the consolidated pretax earnings of Grace during the majority of the relevant period.
+
+    EXCESS RESERVES AT NMC  
+
+  4. As described in greater detail below, during the relevant period, Grace engaged in fraudulent conduct by deferring income earned by NMC primarily to smooth the earnings of the Health Care Group.  Grace deferred reporting income by increasing or establishing "excess reserves" that were not in conformity with generally accepted accounting principles ("GAAP").  Grace used the reserves to manipulate the reported quarterly and annual earnings of the Health Care Group and Grace.  2      Creation of the Excess Reserves  
+
+  5. Beginning in 1990 or 1991, NMC experienced a significant and unanticipated increase in revenues and earnings, in excess of Grace's internal forecasts, due to changes in Medicare reimbursement procedures.  During the first half of 1991, members of NMC senior management deferred some of the unanticipated income by increasing or establishing reserves (an expense), often referred to as "excess reserves."  Thus, rather than report its actual earnings, NMC, at the direction of certain former members of Grace senior management, underreported its earnings for 1991 and 1992.
+
+  6. At some point in mid-1991, as the reserves reached a level of between $10 and $20 million, certain members of NMC senior management realized that the reserves were going to be significant by year end and contacted Grace management to determine how Grace wanted NMC to account for the excess reserves.  Grace's management directed that NMC keep the excess reserves and report Health Care Group earnings consistent with Grace's targeted levels (specifically a 24% growth rate for 1991) because Grace would not be credited by the investing public for growth rates beyond the targeted levels.  
+
+  7. The final reported 1991 growth rate for the Health Care Group was 24%.  Grace directed NMC to report a 27-28% growth rate for the Health Care Group's net income for 1992.  The final reported 1992 growth rate was 27.5%.
+
+            Use of the Excess Reserves  
+
+  8. During the relevant period, the excess reserves were primarily used for profit planning purposes, i.e., to bring the Health Care Group's quarterly reported results of operations in line with Grace's targets for the Health Care Group.  In general, from 1991 through the first quarter of 1995, the reported Health Care Group growth rates remained relatively steady - from about 23% to 37% -- whereas the actual growth rates fluctuated from about an 8% decline in growth to a 61% increase.  
+
+  9. However, at various times, Grace, with the knowledge of Sukenik, also directed NMC to release some of the excess reserves, which had the effect of increasing Grace's earnings per share.  For example, Grace requested NMC to report an additional $1.5 million in income for the fourth quarter of 1994 because Grace needed the additional income for its consolidated results of operations.
+
+  10. During the relevant period, Grace also discussed the creation and use of the excess reserves with Price Waterhouse LLP ("PW"), Grace's independent auditors.  (PW merged with Coopers & Lybrand L.L.P. on July 1, 1998 to form PricewaterhouseCoopers LLP).  Also during the relevant period, PW performed audits of Grace's consolidated financial statements and issued audit reports containing unqualified opinions thereon.  3    11. Sukenik, who became controller in late 1991, learned of the excess reserves in late 1991 or early 1992 in connection with the preparation of Grace's 1991 Form 10-K.  He subsequently learned of the purpose of the excess reserves.  As principal accounting officer, he signed Grace's periodic reports filed with the Commission beginning with the 1991 Form 10-K through the third quarter of fiscal year 1995.  Sukenik's actions and omissions were a cause of Grace filing periodic reports that contained material misstatements and omissions.  Sukenik's actions and omissions also were a cause of Grace failing to make and keep books and records which accurately reflected its transactions and failing to maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit the preparation of financial statements in conformity with GAAP.  
+
+
+
+    VIOLATIONS  
+
+  12. Based upon the aforesaid conduct, Sukenik was a cause of Grace's violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder.
+
+   IV. 
+
+      Sukenik 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; and (2) orders Sukenik to cease and desist from committing or causing any violations, or future violations, of certain provisions of the federal securities laws, as set forth below.  As set forth in Sukenik's Offer of Settlement, Sukenik undertakes to cooperate with the Commission staff in preparing for and presenting any civil litigation or administrative proceedings concerning any transaction that is the subject of the Order.  
+
+     V. 
+
+      On the basis of the foregoing, the Commission deems it appropriate to accept Sukenik's Offer.
+
+   Accordingly, IT IS ORDERED  that:
+      Sukenik cease and desist from committing or causing any violation and any future violation of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from causing any violation and any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 thereunder; and
+
+         The proceedings against Sukenik pursuant to Rule 102(e) of the Commission's Rules of Practice are hereby dismissed.
+   By the Commission. 
+
+                      Jonathan G. Katz
+                     Secretary
+  _____________________
+      1      The findings herein are made pursuant to Sukenik's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
+
+      2      On June 30, 1999, Grace consented to the entry of an Order by the Commission (the "Grace Order") requiring Grace to cease-and-desist from committing or causing any violation and any future violation of Sections 10(b), 13(a) and 13(b) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.   See   In the Matter of W. R. Grace & Co. , Securities Exchange Act Release No. 41578; Accounting and Auditing Enforcement Release No. 1140 (June 30, 1999).  Pursuant to the Grace Order, Grace also undertook to establish a fund of $1 million for program(s) to further awareness and education relating to financial statements and generally accepted accounting principles.
+
+      3      On June 30, 1999, the Commission, on consent, ordered two PW partners who were involved in the audits of Grace's consolidated financial statements during the relevant period to cease and desist from causing any violation and any future violation of Sections 13(a) and 13(b) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.   See   In the Matter of Eugene Gaughan, C.P.A. , Securities Exchange Act Release No. 41580; Accounting and Auditing Enforcement Release No. 1141 (June 30, 1999);  In the Matter of Thomas Scanlon, C.P.A. , Securities Exchange Act Release No. 41581; Accounting and Auditing Enforcement Release No. 1142 (June 30, 1999).  
+    
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diff --git a/raw/aaer/2003/AAER-1749.txt b/raw/aaer/2003/AAER-1749.txt
new file mode 100644
index 0000000000000000000000000000000000000000..90db725e6fb0d0c15d70593ee2dcffa1cd4735e0
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@@ -0,0 +1,1375 @@
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+ Litigation Release No. 18060 / April 1, 2003 
+Accounting and Auditing Enforcement Release No.  1749 / April 1, 2003 
+
+  Securities and Exchange Commission v. Emery Harris , Civil Action No. CV-03-AR-0715-S 
+
+ SEC Sues Emery Harris in Connection with the Healthsouth Corp. Accounting Fraud 
+
+ Commission Action Seeks Injunctions, Money Penalties, Officer and Director Bar 
+
+ The Securities and Exchange Commission today filed a complaint charging Emery Harris with violating and/or aiding and abetting violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws. Harris held various positions in HealthSouth's accounting department from 1992 through 2003. He was a Group Vice President, Accounting and Assistant Controller from March 2000 to March 2003.   
+
+ This complaint follows on the heels of the complaint that the Commission filed on March 19, 2003, against HealthSouth Corp., the nation's largest provider of outpatient surgery, diagnostic and rehabilitative healthcare services, and Richard M. Scrushy, HealthSouth's Chief Executive Officer and Chairman.  SEC v. HealthSouth Corp. and Richard M. Scrushy , Civil Action No. CV-03-J-0615-S (N.D. AL).  That complaint, filed in federal district court in Birmingham, Ala., alleges that since 1999, at the insistence of Scrushy, HealthSouth systematically overstated its earnings by at least $1.4 billion in order to meet or exceed Wall Street earnings expectations. The false increases in earnings were matched by false increases in HealthSouth's assets. By the third quarter of 2002, HealthSouth's net assets were overstated by at least $800 million, or approximately 10 percent.  
+
+ The Commission's complaint against Harris, charges that, acting at the direction of Scrushy and in furtherance of the above scheme, he violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder, aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The complaint charges that Harris made or directed other HealthSouth employees to make false accounting entries to inflate reported operating results in order to meet or exceed Wall Street earnings expectations.  For these violations, the Commission is seeking permanent injunctions, civil money penalties and disgorgement of all ill-gotten gains or losses avoided by the defendants, and an order prohibiting Harris from ever serving as an officer or director of a public company. 
+
+ The Commission thanks the U.S. Attorney's Office for the Northern District of Alabama, the U.S. Department of Justice, and the Federal Bureau of Investigation for their cooperation in this matter. 
+
+ The Commission's investigation is continuing. 
+
+ See  Litigation Release 18044  (March 20, 2003) 
+
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diff --git a/raw/aaer/2003/AAER-1750.txt b/raw/aaer/2003/AAER-1750.txt
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+              William T. Owens and Weston L. Smith
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+ Litigation Release No.  18059 / April 1, 2003 
+Accounting and Auditing Enforcement Release No.  1750 / April 1, 2003 
+
+  Securities and Exchange Commission v. William T. Owens and Weston L. Smith , Civil Action No. CV-03-C-0720-S 
+
+ SEC Charges William T. Owens and Weston L. Smith in Connection with the Healthsouth Corp. Accounting Fraud 
+
+ Commission Action Seeks Injunctions, Money Penalties, Officer and Director Bars 
+
+ The Securities and Exchange Commission today filed a complaint charging William T. Owens and Weston L. Smith with violating and/or aiding and abetting violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws and Owens with violating the management certification provisions. Since February 2000, Owens has, at different times, served as HealthSouth's Chief Financial Officer, Executive Vice President, President, and Chief Operating Officer. He is a certified public accountant. Smith, who is also a certified public accountant, was HealthSouth's Controller from March 2000 to August 2001 and its Chief Financial Officer from August 2001 to August 2002.    
+
+ This complaint follows on the heels of the complaint that the Commission filed on March 19, 2003, against HealthSouth Corp., the nation's largest provider of outpatient surgery, diagnostic and rehabilitative healthcare services, and Richard M. Scrushy, HealthSouth's Chief Executive Officer and Chairman.  SEC v. HealthSouth Corp. and Richard M. Scrushy , Civil Action No. CV-03-J-0615-S (N.D. AL).  That complaint, filed in federal district court in Birmingham, Ala., alleges that since 1999, at the insistence of Scrushy, HealthSouth systematically overstated its earnings by at least $1.4 billion in order to meet or exceed Wall Street earnings expectations. The false increases in earnings were matched by false increases in HealthSouth's assets. By the third quarter of 2002, HealthSouth's net assets were overstated by at least $800 million, or approximately 10 percent.  
+
+ The Commission's complaint against Owens and Smith charges that, acting at the direction of Scrushy and in furtherance of the above scheme, they violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder, aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. The complaint charges that Owens and Smith made or directed other HealthSouth employees to make false accounting entries to inflate reported operating results in order to meet or exceed Wall Street earnings expectations. The complaint also alleges that Owens and Smith engaged in insider trading by selling substantial amounts of HealthSouth stock while they knew that HealthSouth's financial statements grossly misstated the company's earnings and assets. Owens signed a management certification  when he knew that the financial statements in the reports he certified were misleading. For these violations, the Commission is seeking permanent injunctions, civil money penalties and disgorgement of all ill-gotten gains or losses avoided by the defendants, and an order prohibiting Owens and Smith from ever serving as an officer or director of a public company. 
+
+ The Commission thanks the U.S. Attorney's Office for the Northern District of Alabama, the U.S. Department of Justice, and the Federal Bureau of Investigation for their cooperation in this matter. 
+
+ The Commission's investigation is continuing. 
+
+ See  Litigation Release 18044  (March 20, 2003) 
+
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diff --git a/raw/aaer/2003/AAER-1751.txt b/raw/aaer/2003/AAER-1751.txt
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+              Christopher F. Crawford, CPA
+           
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+
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+        Christopher F. Crawford, CPA
+       
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+ Securities Exchange Act of 1934 
+Release No. 47633 / April 4, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1751 / April 4, 2003 
+
+ Administrative Proceeding 
+File No. 11081 
+
+     In the Matter of 
+
+ CHRISTOPHER F. CRAWFORD, CPA 
+
+ Respondent. 
+  
+ : : : : : : : : : : 
+ 
+ ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE  CHRISTOPHER F. CRAWFORD, CPA, : 102(e)(3) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it in the public interest that public administrative proceedings be, and hereby are, instituted against Christopher F. Crawford ("Respondent" or "Crawford") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.3   below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e)(3) 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. Crawford, age 45, is a certified public accountant licensed in the State of Oregon.  He served as Chief Financial Officer of The North Face, Inc. ("The North Face") from August 1997 until March 1999, and was General Manager of California Operations until July 1999.  Crawford is a resident of Pleasanton, California. 
+
+ 2. The North Face was, at all relevant times, a Delaware corporation with its principal place of business in San Leandro, California and Carbondale, Colorado.  The North Face was a manufacturer and retailer of outdoor apparel and equipment.  At all relevant times, The North Face's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the NASDAQ National Market System. 
+
+ 3. On February 10, 2003, the Commission filed a complaint against Crawford in  Securities and Exchange Commission v. Christopher F. Crawford, et al. , Civil Action Number 03-00561, in the United States District Court for the Northern District of California.  On March 21, 2003, the court entered an order permanently enjoining Crawford, by consent, from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.  Crawford was also ordered to pay $28,981.77 in disgorgement of ill-gotten gains from performance-based compensation, and $11,077.48 in prejudgment interest, and a $30,000 civil money penalty.  Crawford further was barred from serving as an officer or director of a public company for a period of five years. 
+
+ 4. The Commission's complaint alleged, among other things, that Crawford engaged in fraudulent conduct which resulted in The North Face filing materially false and misleading financial statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 1997, and in the company's quarterly reports on Form 10-Q for the first and third quarters of fiscal year 1998.  The complaint alleged that Crawford engaged in a number of improper accounting practices that increased The North Face's annual and quarterly revenue and net income in a departure from generally accepted accounting principles ("GAAP").  These practices included improperly recognizing revenue from a consignment sale and improperly recognizing revenue in barter transactions.  In addition, the complaint alleged that Crawford failed to disclose material information to The North Face's independent auditors, and provided misleading information in response to questions by the independent auditors, about certain barter transactions. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it in the public interest to impose the sanction agreed to in Respondent Crawford's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that :  
+
+ A. Crawford is suspended from appearing or practicing before the Commission as an accountant. 
+
+ B. After five (5) years from the date of this Order, Respondent may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as: 
+
+ 1. a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Respondent's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or 
+
+ 2. an independent accountant.  Such an application must satisfy the Commission that: 
+
+ (a)   Respondent, or the 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+ (b)   Respondent, 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 or equivalent organization; and  
+
+ (c)   As long as Respondent 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+ 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. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   1    Rule 102(e)(3)(i) provides, in relevant part, that: 
+
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diff --git a/raw/aaer/2003/AAER-1752.txt b/raw/aaer/2003/AAER-1752.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0feb83c3b81d4585854b7baad8e29ee32a6db152
--- /dev/null
+++ b/raw/aaer/2003/AAER-1752.txt
@@ -0,0 +1,1373 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+     SEC.gov | Kenneth K. Livesay, Angela C. Ayers, Kay Morgan, Cathy C. Edwards and Virginia B. Valentine 
+     
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+           
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+ 
+
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+             
+        Kenneth K. Livesay, Angela C. Ayers, Kay Morgan, Cathy C. Edwards and Virginia B. Valentine
+       
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+
+ Litigation Release No. 18070 / April 4, 2003 
+Accounting and Auditing Enforcement Release No. 1752 / April 4, 2003 
+
+  Securities and Exchange Commission v. Kenneth K. Livesay, Angela C. Ayers, Kay Morgan, Cathy C. Edwards and Virginia B. Valentine , Civil Action No. CV-03-S-0758-S 
+
+ The Commission announced that on April 3, 2003, it filed a complaint charging Kenneth K. Livesay, Angela C. Ayers, Kay Morgan, Cathy C. Edwards and Virginia B. Valentine with violating and/or aiding and abetting violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws. These defendants served in HealthSouth's accounting and/or Finance department in different capacities.  The complaint alleges that since at least as early as 1999, HealthSouth has been systematically overstating its earnings by at least $1.4 billion in order to meet or exceed Wall Street earnings expectations. The false increases in earnings were matched by false increases in HealthSouth's assets. By the third quarter of 2002, HealthSouth's assets were overstated by at least $1.3 billion, or approximately 20 percent. 
+
+ The complaint charged that, Livesay, Ayers, Morgan, Edwards and Valentine, in furtherance of the above scheme, made or directed other HealthSouth employees to make false accounting entries to inflate reported operating results. The Commission also charged that Morgan engaged in insider trading by selling at least 20,000 shares of HealthSouth stock while knowing that HealthSouth's financial statements grossly misstated the company's earnings and assets.   
+
+ The Commission's complaint against Livesay, Ayers, Morgan, Edwards and Valentine charges that they each violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted HealthSouth's violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.  The complaint also charges Edwards with violating Rule 13b2-2 for providing a falsified invoice to HealthSouth's auditors.  The Commission is seeking permanent injunctions, civil money penalties and disgorgement of all ill-gotten gains or losses avoided by the defendants, and an order an order prohibiting Livesay,  Ayers, Morgan and Edwards from ever serving as an officer or director of a public company. 
+
+ The Commission also amended its complaint in  SEC v. HealthSouth and Richard M. Scrushy ,  CV-03-J-0615-S (N.D. AL) to allege that, since 1991, Scrushy sold at least 13,823,000 shares of HealthSouth common stock for proceeds in excess of $170 million, based upon his knowledge of HealthSouth's actual financial results and the impact that disclosure of those results would have on the price of HealthSouth's shares.  The Commission filed the original complaint in that matter on March 19, 2003. (Lit. Rel. 18,044)  
+
+ The Commission thanks the U.S. Attorney's Office for the Northern District of Alabama, the U.S. Department of Justice, and the Federal Bureau of Investigation for their cooperation in this matter. 
+
+ See Litigation Release  18044  (March 20, 2003),  18059 ,  18060  (April 1, 2003) 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1754.txt b/raw/aaer/2003/AAER-1754.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7870d888e50286f27ff474813cbffe03be44b4c6
--- /dev/null
+++ b/raw/aaer/2003/AAER-1754.txt
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+
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+ 
+ 
+   
+     
+ 
+ 
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+ 
+ 
+ 
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+     SEC.gov | Harrison Securities, Inc., Frederick C. Blumer, and Nebrissa Song James T. Kelly, Administrative Law Judge 
+     
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+             
+
+ Securities Exchange Act of 1934  
+Release No. 47641 / April 7, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No.  1754 / April 7, 2003 
+
+ Administrative Proceeding 
+File No.  3-11084 
+
+ ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDING INSTITUTED AGAINST HARRISON SECURITIES, INC., FREDERICK C. BLUMER AND NEBRISSA SONG ALLEGING BROKER-DEALER NET CAPITAL, RECORD-KEEPING AND FINANCIAL REPORTING VIOLATIONS 
+
+ The Securities and Exchange Commission announced that it instituted public administrative and cease-and-desist proceedings against a broker-dealer, the principal of the broker-dealer, and a FINOP for repeated violations of the net capital, books-and-records, and financial reporting provisions of the Securities Exchange Act.  Named as respondents in the proceeding are: 
+
+  Harrison Securities, Inc., a Port Washington, New York based broker-dealer;   
+
+ Frederick C. Blumer, Harrison's CEO, compliance officer and sole shareholder;   
+
+ Nebrissa Song, Harrison's FINOP (Financial and Operations Principal) from December 3, 2001 through April 30, 2002; and   A hearing will be held before an administrative law judge to determine whether the allegations against Harrison, Blumer and Song are true, and, if so, what remedial action, if any, is appropriate. 
+
+ The Proceeding Against Harrison, Blumer, and Song 
+
+ The Division of Enforcement alleges in the Order Instituting Proceedings that on at least 22 occasions from April 2001 through April 2002, Harrison conducted a securities business while not maintaining sufficient net capital, and that on at least three occasions Harrison filed false FOCUS reports.  The Division alleges that Blumer, a CPA, willfully aided and abetted and caused the firm's violations, and that Song, for the period in which she served as Harrison's FINOP, caused certain of the firm's violations. 
+
+ More specifically, the Division alleges that Blumer aided and abetted and caused Harrison's violations by:  
+
+  Transferring funds into Harrison from HSI, Inc. -  an unregulated entity owned and controlled by Blumer -  for the purpose of creating the impression that Harrison had excess net capital for a given month or quarter, and then shortly after reporting those figures, transferring funds out again to HSI, thereby putting Harrison out of net capital compliance;   
+
+ Improperly recording deposits in Harrison's cash receipts blotter prior to the actual receipt of funds into Harrison's bank account;   
+
+ Improperly accruing Harrison's expenses either by not accruing an expense when it was incurred, as required under generally accepted accounting principles ("GAAP"), or by improperly removing liabilities from the firm's books and records before they were paid, also in violation of GAAP.  In some instances, Blumer improperly removed liabilities by purporting to transfer them to HSI.  For example, Harrison owed approximately $500,000 in various federal and state taxes on December 31, 2001.  In January 2002, Blumer transferred approximately the same amount from the firm to HSI and removed the tax liability from Harrison's books.  However, HSI did not pay Harrison's overdue taxes until April, more than three months later and Harrison remained liable for the taxes in the interim.  By removing the tax liability from Harrison's books and records while it remained liable for their payment, Blumer substantially reduced Harrison's liabilities, which made it appear as if Harrison was in compliance with its net capital requirements when it was not;   
+
+ Improperly delaying the recording of cash disbursements on Harrison's cash disbursements blotter;   
+
+ Improperly using the lower of two possible minimum net capital amounts when computing its net capital; and   
+
+ Failing to deduct haircut and, when appropriate, undue concentration charges in calculating Harrison's monthly net capital.   According to the Order Instituting Proceedings, Blumer aided and abetted and caused Harrison's violations, in that he prepared Harrison's financial records and FOCUS reports, maintained its books and records, calculated Harrison's monthly net capital and failed to file notice with the Commission regarding Harrison's net capital deficiencies and books-and-records inaccuracies.  With respect to Song, the Order alleges that, as Harrison's registered FINOP from December 3, 2001 through April 30, 2002, she was responsible for the firm's net capital computations, the preparation of its financial reports and supervision of those that assisted in the preparation of such reports, and the maintenance of the firm's books and records.  Song allegedly failed to fulfil her responsibilities as FINOP because she failed to review adequately the documentation supporting the assets reflected in Harrison's books and records, net capital computations and FOCUS report, or the source documentation for Harrison's liabilities. 
+
+ By operating without sufficient net capital, Harrison allegedly violated Section 15(c)(3) of the Exchange Act and Rule 15c3-1(a) thereunder.  In addition, Harrison allegedly violated Section 17(a)(1) of the Exchange Act and Rules 17a-3(a), 17a-4(a) and (f), and 17a-5(a) thereunder, by filing inaccurate FOCUS reports and failing to create and preserve current accurate books and records, and violated Section 17(a)(1) of the Exchange Act and Rule 17a-11(b) and (d) thereunder by failing to file notice with the Commission of its net capital deficiencies and its failure to keep current books and records. 
+
+ The Division alleges that Blumer willfully aided and abetted, and caused the foregoing violations by Harrison, and that Song caused Harrison's violations of Sections 15(c)(3) and 17(a)(1) of the Exchange Act and Rules 15c3-1(a), 17a-3(a), 17a-5(a), 17a-11(b) and 17a-11(d) thereunder that occurred during the period December 3, 2001 through April 30, 2002. Proceedings under Rule 102(e) of the Commission's Rules of Practice were also instituted against Blumer. 
+
+ According to the Order instituting proceedings, Harrison acts as an introducing broker, services approximately 4,000 retail accounts, and employs approximately 125 registered representatives.  According to the Order, Song served as Harrison's FINOP pursuant to a consulting agreement; in addition to Harrison and the four other broker-dealers for whom she now serves as FINOP, Song also served as FINOP for at least six other broker-dealers over the past ten years. 
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diff --git a/raw/aaer/2003/AAER-1755.txt b/raw/aaer/2003/AAER-1755.txt
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+++ b/raw/aaer/2003/AAER-1755.txt
@@ -0,0 +1,1368 @@
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+ SEC also Names Rogatinsky's Father as a Relief Defendant 
+and Freezes Assets To Recover Misappropriated Funds 
+  Securities and Exchange Commission v. Benjamin Rogatinsky and Reuven Rogatinsky , , Case No. 03-60648 (S.D. Fla., filed April 3, 2003) 
+ 
+On April 3, 2003, the Securities and Exchange Commission ("Commission") filed a complaint alleging securities fraud against Hollywood, Florida resident Benjamin Rogatinsky, the former CEO of PrintontheNet.com ("PrintontheNet").  The Complaint charges Rogatinsky with orchestrating a fraudulent offering of PrintontheNet securities and engaging in various improper accounting practices.  The complaint also names Rogatinsky's father, Reuven Rogatinsky of Hollywood, Florida, as a relief defendant for allegedly receiving at least $115,000 in proceeds from PrintontheNet's securities offering into his foreign bank accounts.  On April 4, 2003, the Commission obtained an emergency order from the District Court temporarily freezing the assets of Rogatinsky and his father. 
+ 
+The Commission's complaint alleges that in early 2000, PrintontheNet raised approximately $3 million from investors in a private placement of stock.  The Complaint alleges that Rogatinsky violated the federal securities laws in connection with the securities offering by: 1) failing to disclose that PrintontheNet was a guarantor on approximately $7.3 million in loans received by related parties; 2) failing to disclose that the largest loan underlying these guarantees (in the amount of approximately $7 million) was in default; and 3) causing PrintontheNet to file financial reports with the Commission that misstated the financial performance of PrintontheNet and one of its subsidiaries, PrintAmerica Interactive, Inc. ("PrintAmerica").  In particular, the Complaint alleges that Rogatinsky falsified PrintAmerica's books and records to conceal approximately $582,000 in loans owed by PrintAmerica.  These false entries resulted in PrintAmerica's financial statements for the nine-month period ended September 30, 1999 reflecting a net income of $96,371 when in fact, PrintAmerica suffered a net loss of approximately $430,000 during the same period. 
+ 
+The complaint also alleges that after receiving the $3 million in proceeds from the stock offering, Rogatinsky illegally transferred at least $115,000 of those funds to bank accounts controlled by his father in Israel and the Cayman Islands. 
+ 
+The Commission's complaint seeks a permanent injunction against Rogatinsky based on his violations of the antifraud and issuer reporting and books and records provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-11, 13b2-1 and 13b2-2 thereunder).   The complaint also seeks an order barring Rogatinsky from serving as an officer and director of a public company, accountings and disgorgement from Rogatinsky and his father of their ill-gotten gains, an order that they repatriate assets located outside the United States, and civil penalties from Rogatinsky. 
+ 
+The Commission wishes to thank the Israel Securities Authority for its assistance in this matter. 
+ 
+  SEC Complaint in this matter  
+ 
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diff --git a/raw/aaer/2003/AAER-1756.txt b/raw/aaer/2003/AAER-1756.txt
new file mode 100644
index 0000000000000000000000000000000000000000..064d472a39c4364010e0be93d27873a5b6977323
--- /dev/null
+++ b/raw/aaer/2003/AAER-1756.txt
@@ -0,0 +1,1372 @@
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+ Litigation Release No.  18078 / April 9, 2003
+
+  Accounting and Auditing Enforcement Release No.  1756 / April 9, 2003
+
+   SECURITIES AND EXCHANGE COMMISSION v. PATRICK O. WHEELER, et al. , Case No. 02-60131-CIV-GRAHAM (S.D. Fla.) 
+
+  SEC OBTAINS FINAL JUDGMENT AGAINST PATRICK O. WHEELER 
+ IN CYBERGUARD ACCOUNTING CASE 
+
+  On April 4, 2003, the United States District Court for the Southern District of Florida entered a final judgment against Patrick O. Wheeler, who was the last remaining defendant in the Commission's accounting case against current and former executives of CyberGuard Corporation, a network security company based in Fort Lauderdale, Florida.  Wheeler is CyberGuard's former chief financial officer and vice president of North American sales, and its current vice president of business development.  Without admitting or denying the Commission's allegations, Wheeler consented to the entry of the final judgment, which permanently enjoins him from violating the books-and-records, internal controls, and misleading auditors provisions of Section 13(b)(5) of the Securities Exchange Act of 1934 and Rules 13b2-1 and 13b2-2 thereunder, and requires him to pay a $20,000 penalty.  
+
+  The Commission's complaint, which was filed on January 30, 2002 and amended on November 15, 2002, charged Wheeler and two former CyberGuard executives with, among other things, engaging in improper revenue recognition practices that caused CyberGuard to materially overstate its reported revenues during the company's 1997 fiscal year and certain quarters of its 1998 fiscal year.  Both of the other defendants previously settled with the Commission.  In addition, CyberGuard and two other former officers of the company settled in a related administrative proceeding.  For further information, see Litigation Rel. Nos.  17346  (Jan. 30, 2002) and  17561  (June 12, 2002), and Exchange Act Release No. 45362 (January 30, 2002).
+     
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diff --git a/raw/aaer/2003/AAER-1757.txt b/raw/aaer/2003/AAER-1757.txt
new file mode 100644
index 0000000000000000000000000000000000000000..90911ebfec0ce0f3f475338c74b3b186578a745a
--- /dev/null
+++ b/raw/aaer/2003/AAER-1757.txt
@@ -0,0 +1,1395 @@
+
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+ LITIGATION RELEASE NO. 18081 / April 10, 2003
+
+  ACCOUNTING AUDITING ENFORCEMENT RELEASE NO. 1757 / April 10, 2003
+
+  SEC v. JOSHUA C. CANTOR, Civil Action No. 03 CV 2488 (LMM) (S.D.N.Y.  April 10, 2003)
+
+  SEC FILES SETTLED FINANCIAL FRAUD 
+ AND FOREIGN CORRUPT PRACTICES ACT ACTION AGAINST 
+ JOSHUA C. CANTOR, FORMER OFFICER OF AMERICAN BANKNOTE CORPORATION AND AMERICAN BANK NOTE HOLOGRAPHICS, INC.
+
+  The Securities and Exchange Commission today filed a settled civil injunctive action in the United States District Court for the Southern District of New York against Joshua C. Cantor, a former president and director of American Bank Note Holographics, Inc. ("ABNH"), and a former executive vice president of ABNH's parent, American Banknote Corporation ("ABN").  
+
+  The Complaint against Cantor alleges that, from fiscal year 1996 through fiscal year 1998, Cantor participated in a systematic fraudulent scheme to inflate the revenues and net income of ABN and ABNH, in order to meet earnings forecasts and to condition the market for an initial public offering of stock by ABNH.  During the period of the alleged fraud, ABN was a publicly held holding company located in New York, New York, which, through its subsidiaries, provided, among other things, stored-value telephone cards, magnetic-strip transaction cards, printed business forms, and checks.   ABNH, located in Elmsford, New York, was, during the same period, engaged in the origination, production, and marketing of mass-produced secure holograms.  ABNH was a wholly owned subsidiary of ABN until its initial public offering in July 1998.
+
+  The Complaint alleges that:
+     During the third and fourth quarters of fiscal year 1996, Cantor caused ABNH improperly to recognize revenue totaling approximately $645,000 on consignment sales.   In addition, on or about January 30, 1997, Cantor caused ABNH to accrue approximately $635,000 in revenue for fiscal year 1996 on two fraudulent "bill and hold" sales and caused ABNH to accrue $800,000 in fraudulent revenue for research and development ("R&D") work. 
+
+    To convince ABN's auditors that the 1996 fiscal year end "bill and hold" and R&D transactions were proper, Cantor secured false audit confirmations from the customers.
+
+
+
+    In fiscal year 1997, Cantor 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. 
+
+    In addition, in December 1997, Cantor caused ABNH to fraudulently recognize approximately $6 million in revenue on a "bill and hold" sale when the holograms sold had not actually been completed by the subcontractor by December 31, 1997.  Thereafter, in connection with ABN's fiscal year 1997 audit, Cantor misled ABN's auditors into believing that the holograms produced by the subcontractor were completed, and delivered to ABNH's facility, by December 31, 1997.  
+
+    Cantor also obtained false audit confirmations from other customers which were given to ABN's auditors to conceal fraudulent fiscal year 1997 sales.  Also, during the audit, Cantor provided to ABN's auditors a management representation letter that was false and misleading.
+
+    In fiscal year 1998, Cantor 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, 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.  
+   Cantor, without admitting or denying the allegations in the Commission's Complaint, consented to an order permanently enjoining him from violating and/or aiding and abetting violations of the antifraud, reporting, record keeping, internal controls, and lying to auditors provisions of the federal securities laws, as well as from violating the Foreign Corrupt Practices Act -- Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A) and (B), 13(b)(5), and Section 30A of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2.  In addition, Cantor consented to a ten year prohibition from acting as an officer or director of a public company.
+
+  This is a refiling of earlier charges against Cantor.  The Commission had earlier named Cantor as a defendant in a civil injunctive action, (see  Litigation Release No. 17068A , July 18, 2001), that was voluntarily dismissed without prejudice on November 15, 2001.  
+
+  ***
+
+  The Commission's investigation that led to this action 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/2003/AAER-1758.txt b/raw/aaer/2003/AAER-1758.txt
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@@ -0,0 +1,1373 @@
+
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+ Litigation Release No. 18085 / April 14, 2003
+  Accounting and Auditing Enforcement 
+ Release No. 1758 / April 14, 2003
+
+   SECURITIES AND EXCHANGE COMMISSION v. ED JOHNSON AND MERL HOLDINGS, INC.COM , Civil Action No. 02-5490 (D.N.J.)(GEB)
+
+  COURT ENTERS FINAL JUDGMENT AGAINST MERL HOLDINGS INC.COM
+
+  On April 3, 2003, the Honorable Garrett E. Brown, Jr. of the U.S. District Court for the District of New Jersey entered a final judgment of permanent injunction ("Final Judgment") against New Jersey-based MERL Holdings Inc.com ("MERL").  The Final Judgment permanently enjoins MERL from violating the anti-fraud provisions of the federal securities laws.  MERL, without admitting or denying the allegations against it contained in the Commission's complaint, consented to the entry of the Final Judgment.  According to the complaint, which was filed on November 18, 2002, MERL and its chairman, president and CEO, Ed Johnson, orchestrated a fraudulent scheme in which: (1) MERL artificially inflated the value of certain assets recorded in its financial statements; (2) MERL improperly consolidated a purported subsidiary in its 1997 and 1998 financial statements; (3) MERL filed two registration statements which contained Management's Discussion and Analysis sections that materially mischaracterized the financial health of the company; (4) MERL compounded its financial irregularities by issuing false press releases, which materially misrepresented the financial condition of the company; and (5) Johnson benefited from his fraudulent scheme by avoiding losses or becoming unjustly enriched by selling MERL stock while in possession of material nonpublic information concerning these accounting irregularities.  
+
+  The Court's Final Judgment permanently enjoins MERL from violating the anti-fraud provisions of the federal securities laws pursuant to Section 17(a) of the Securities Act of 1933 [15 U.S.C. §77q(a)]; Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder (17 C.F.R. §240.10b-5). 
+
+  The Commission's case against Johnson is pending.   See   Litigation Release No. 17846  (November 18, 2002). 
+     
+
+
+  
+    SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1759.txt b/raw/aaer/2003/AAER-1759.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e5c608ac69b5e8652103c79705c5a975d637a777
--- /dev/null
+++ b/raw/aaer/2003/AAER-1759.txt
@@ -0,0 +1,1384 @@
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+ Litigation Release No. 18093 / April 16, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1759  /April 16, 2003 
+
+  Securities and Exchange Commission v. Matthew C. Gless , Civil Action No. 03 CV 0747 W (LAB) (S.D. Cal.) (April 16, 2003) 
+
+ SEC Charges Former Peregrine CFO with Financial Fraud  
+
+ The Securities and Exchange Commission today filed civil fraud charges against Matthew C. Gless, the former Chief Financial Officer at San Diego-based software company Peregrine Systems, Inc., for his participation in an eleven-quarter financial fraud at the company.  The complaint alleges that Gless and other Peregrine senior officers engaged in deceptive practices to artificially inflate Peregrine's revenue and stock price, and that Gless then took fraudulent action to conceal the scheme.   
+
+ According to the complaint, the heart of the fraud was the recording of millions of dollars of revenue despite non-binding arrangements with customers, in violation of Generally Accepted Accounting Principles (GAAP).  At the ends of fiscal quarters, Gless schemed with other Peregrine senior officers about ways to arrange non-binding transactions with resellers (known as channel partners) and record them as revenue, so that Peregrine could meet or exceed quarterly revenue projections.  Peregrine senior officers then purported to sell Peregrine's software to channel partners, even though the channel partners' obligations to Peregrine were frequently contingent or subject to other terms that made revenue recognition improper.  Gless knew that senior officers were secretly adding material sale contingencies-by oral or written side agreement-to what appeared on their face to be binding contracts.  Gless also knew that senior officers were using other gimmickry to inflate the company's revenue.     
+
+ The complaint further alleges that, to conceal the revenue recognition scheme, Gless  abused the receivable financing process.  When Peregrine booked the non-binding contracts, and the customers predictably did not pay, the receivables ballooned on Peregrine's balance sheet.  To make it appear that Peregrine was collecting its receivables more quickly than it was, Gless directed Peregrine's senior treasury manager to sell receivables to banks and then remove them from the company's balance sheet.   There were several problems with this.  First, Gless knew, or was reckless in not knowing, that because Peregrine had given the banks recourse and frequently paid or repurchased unpaid receivables from them, Peregrine should have accounted for the bank transactions as loans and left the receivables on its balance sheet.  Second, Gless knew that some of the "sold" receivables were not valid because the customers were not obligated to pay.  Third, Gless knew that several of the "sold" invoices were fake, including one that purported to reflect a $19.58 million sale. 
+
+ According to the complaint, Gless also concealed the fraud by improperly writing off unpaid receivables that he knew, or was reckless in not knowing, should not have been recorded as revenue in the first place.  To make it appear to investors that the write-offs related to a non-recurring event, Gless wrote off several million dollars in uncollectible receivables to acquisition-related accounts, even though he knew the write-offs had nothing to do with acquisitions. 
+
+ The complaint further alleges that Gless signed false SEC filings and false management representation letters to Peregrine's outside auditors, and that he responded falsely to an  SEC Division of Corporation Finance Comment Letter that inquired about Peregrine's revenue recognition practice.   
+
+ According to the complaint, while Gless was aware of the ongoing fraud, he illegally sold 68,625 shares of Peregrine stock for approximately $4 million, based on material nonpublic information he possessed about Peregrine's true financial condition. 
+
+ The Commission's complaint seeks to permanently enjoin Gless from violating certain antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5), and from violating, or aiding and abetting violations of, certain reporting, books and records, internal controls, and representations to accountants provisions (Exchange Act Sections 13(a), 13(b)(5), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2).  The complaint also seeks an accounting, disgorgement of ill-gotten gains, prejudgment interest, civil money penalties, and an order prohibiting Gless from acting as an officer or a director of any reporting company. 
+
+ In November 2002, the Commission filed a civil injunctive action against Ilse Cappel, the former senior treasury manager at Peregrine ( Litigation Release No. 17859A ).   
+
+ The Commission's investigation of the financial fraud at Peregrine is continuing. 
+
+ The Commission thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation in this matter. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1760.txt b/raw/aaer/2003/AAER-1760.txt
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+              MaxWorldwide, Inc., f.k.a. L90, Inc.
+           
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+        MaxWorldwide, Inc., f.k.a. L90, Inc.
+       
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+ Securities Exchange Act of 1934 
+Release No. 47727 / April 23, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1760 / April 23, 2003 
+
+ Administrative Proceeding 
+File No. 3-11090 
+
+     In the Matter of 
+
+ MaxWorldwide, Inc., 
+f.k.a. L90, Inc., 
+
+ Respondent. 
+  
+ : : : : : : : : : 
+ 
+ ORDER INSTITUTING PROCEEDING 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 a cease-and-desist proceeding be, and hereby is, instituted against MaxWorldwide, Inc., f.k.a. L90, Inc., ("Respondent" or "L90") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"). 
+
+ II. 
+
+ In anticipation of the institution of this proceeding, Respondent has submitted an Offer of Settlement (the "Offer") 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 herein, except as to the Commission's jurisdiction over it and the subject matter of this proceeding, Respondent consents to the entry of this Order Instituting Proceeding Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Cease-And-Desist Order ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds  1   that: 
+
+ Respondent 
+
+ 1. L90, during the relevant period, was a Delaware corporation headquartered in Marina Del Rey, California.  In July 2002, as part of a reorganization and merger, L90 changed its name to MaxWorldwide, Inc., a Delaware corporation, and relocated to New York, New York.  L90 has a calendar fiscal year.  L90's stock is registered with the Commission under Section 12(g) of the Exchange Act and previously traded on the Nasdaq National Market System.  L90's shares were delisted from Nasdaq in August 2002.  L90 is an advertising firm that provides Internet-based marketing services for both advertising clients and web publisher clients. 
+
+ Summary 
+
+ 2. L90 materially overstated its revenues in 2000 and 2001.  The principal method to generate these revenues involved barter transactions in which L90 either recognized its own cash as revenue or overstated its revenue by "check-swapping" or "round-tripping" cash with one or more third parties.  In these transactions, L90 swapped advertising on its proprietary website, webMillion.com, with advertising on another company's website and, to generate revenue from the barter transactions, exchanged cash with the other company.  In the second revenue-generating method, L90 booked revenue for a large advertising campaign despite the fact that certain top L90 managers knew from the outset of the campaign that L90 would never receive payment from the client.  Through these transactions, from Q3 2000 through Q3 2001, L90 overstated its revenue by a total of $4.9 million, or 9.2%, and as much as 29% in one quarter, and was thereby able to meet analysts' revenue estimates in all but one quarter. 
+
+ 3. L90 also misclassified its 2000 and 2001 research and development expenses.  Specifically, L90 improperly recorded as research and development expenses approximately $26 million of operating expenses related to L90's proprietary computer system. 
+
+ The Improper Barter Transactions 
+
+ 4. L90 acquired webMillion in July 2000.  Soon after acquiring webMillion, L90 began entering into barter transactions with other Internet-related companies.  In these transactions, L90 exchanged advertising on webMillion (e.g., banners, pop-ups, email newsletters) for similar advertising on other companies' websites.  Also as part of these transactions, however, L90 "swapped" checks with these companies or "round-tripped" money through them.   
+
+ 5. From Q3 2000 through Q3 2001, L90 engaged in ten barter transactions to overstate its revenue.  In five of these transactions, L90 agreed to exchange Internet advertising on webMillion with one other company, swapped checks of identical or similar amounts with the same company, and recognized revenue on the money received in the exchange.  In five other transactions, L90 agreed to exchange advertising on webMillion with at least one other company, engaged in the round-tripping of money through at least two other companies, and recognized revenue on money received from the round-tripping.  As a result of the barter transactions, L90 improperly recognized $4.3 million of revenue.  Described below are a representative check-swap transaction (a $320,000 swap), a representative round-trip transaction (a $1.098 million round-trip), and two round-trip transactions involving a major online real estate company (the "Real Estate Co."). 
+
+ 6. From Q4 2000 through Q2 2001, L90 recognized $320,000 in total revenue from a barter transaction between webMillion and an online game company (the "Online Game Co.").  In late October 2000, webMillion and the Online Game Co. entered into a barter transaction in which each agreed to advertise the other in 80 million banner and button advertisements on each other's websites.  These advertisements subsequently ran on the respective websites.  Then in April 2001, L90 and the Online Game Co. engaged in the check-swap.  Specifically, as set forth in the diagram below, the check-swap occurred on April 12, 2001 when L90 issued a check for $320,000 to the Online Game Co. and the Online Game Co. issued a check for $320,000 to L90. 
+
+   
+
+ 7. In Q1 2001, L90 recognized a total of $1.098 million in revenue from barter transactions between webMillion and three Internet-related companies.  Beginning in March 2001, webMillion entered into barter transactions with the three Internet-related companies.  Subsequently, webMillion exchanged roughly similar amounts of Internet advertising via email with each of these companies.    Then, as set forth in the diagram below, in March to June 2001, L90 engaged in the round-tripping of cash and recognized $1.098 million in revenue. 
+
+   
+
+ 8. The first part of the round-tripping involved L90 transferring funds to a company that L90 paid $5,000 per quarter and which served as an intermediary (the "Intermediary") in the round-trip transactions.  Specifically, on April 2, 2001, L90 wire transferred $1.603 million to the Intermediary.   
+
+ 9. The second part of the round-tripping involved the Intermediary transferring a total of $1.598 million to the three Internet-related companies.  Specifically, the Intermediary wired $800,000 to the First Internet Company (the "First Internet Co.") on April 3, 2001, and sent to L90 a $298,000 check made payable to the Second Internet Company (the "Second Internet Co.") on April 3, 2001, and a $500,000 check made payable to the Third Internet Company (the "Third Internet Co.") on May 22, 2001.  L90 caused these checks to be provided to the respective Internet companies.   
+
+ 10. The third part of the round-trip transaction involved the three Internet-related companies transferring the $1.598 million back to L90.  Specifically, on March 29, 2001, the First Internet Co. sent an $800,000 check to L90.  On April 12, 2001, the Second Internet Co. issued a $298,000 check to L90.  L90 then recognized $1.098 million as revenue in Q1 2001.  Finally, on June 7, 2001, the Third Internet Co. issued a $500,000 check to L90.  L90, however, placed the $500,000 in a deferred revenue account and did not recognize any revenue from this portion of the transaction.       
+
+ 11. L90 engaged in two round-trip transactions involving the Real Estate Co.  These two transactions were different from the type of round-trip transaction discussed above, however, because the cash circulated in these transactions originated not from L90, but primarily from the Real Estate Co.  These transactions were also different from the type of round-trip transaction discussed above because L90 recognized only the net cash gain on them as advertising revenue rather than the amount of money that was circulated in the transaction.  Specifically, in the first round-trip transaction involving the Real Estate Co., L90 received a wire transfer of $4.25 million from a company participating in the transaction on July 20, 2001, and then wired $4 million to the Real Estate Co. on the same date.  L90 recognized revenue of $250,000 on this transaction in Q2 2001.  Further, in the second round-trip transaction involving the Real Estate Co., L90 received a wire transfer of $5.9 million from a participating company on November 19, 2001, and then wired $5.65 million to the Real Estate Co. on the same date.  L90 recognized revenue of $250,000 on this transaction in Q3 2001.   
+
+ 12. The result of the barter transactions was the improper recognition of revenue.  Even if the barter transactions were legitimate business deals, revenue recognition on the barter transactions was not in conformity with Generally Accepted Accounting Principles ("GAAP").  By recognizing revenue on these transactions, L90 overstated its revenues and departed from GAAP.  To recognize barter revenue from the transactions under GAAP, L90 would have had to record the transactions at fair value and disclose the circular nature of the transactions in its financial statements.  2    L90 engaged in the check-swap and round-trip transactions to circumvent GAAP and made no disclosure to investors that it derived advertising revenue from barter, check-swaps, or round-trip transactions. 
+
+ The Improper Advertising Campaign Revenue 
+
+ 13. In Q4 2000 and Q1 2001, L90 recognized a total of $567,421 from an advertising campaign it ran for another Internet company.  L90 ran the campaign on webMillion in late December 2000 and early January 2001, but it never received any payment for the campaign.  At the time that L90 recorded the revenue from this campaign, certain top L90 management knew that the Internet company would never pay for the advertising and that L90 would later have to write off the revenue as uncollectible.  The recordation of this revenue was not in conformity with GAAP because the collection of money from this campaign was not reasonably assured.  3    Indeed, in late Q2 2001, L90 wrote off the $567,421 receivable as uncollectible. 
+
+ L90 Reported Overstated Revenue 
+
+ 14. L90 reported certain payments received in the barter transactions and advertising campaign discussed above as revenue in Commission filings and in press releases.  As discussed above, however, L90 should not have recognized any revenue from these transactions under GAAP.  As a result, as shown in the chart below, L90 materially overstated its system revenue  4   and GAAP revenue.  As a result of this improperly recognized revenue, L90 met or exceeded analysts' revenue estimates in each quarter set forth below with the exception of Q2 2001. 
+
+
+     
+ Q3 2000 
+ Q4 2000 
+ FY 2000 
+ Q1 2001 
+ Q2 2001 
+ Q3 2001    Analysts' Estimates For System Revenue ($ in Millions) 
+ 15 to 16.2    
+ 18.2 to 18.3    
+ 58.8 to 58.9    
+ 10.5    
+ 14.2    
+ 14.5       Reported  System Revenue ($ in Millions) 
+ 16.2    
+ 18.3    
+ 58.9    
+ 10.6    
+ 12.7    
+ 14.9       Reported GAAP Revenue ($ in Millions) 
+ 14.7    
+ 16.5    
+ 52.0    
+ 9.8    
+ 9.0    
+ 8.4       GAAP Revenue Adjusted For Improper Revenue-Generating Transactions 
+ 14.3    
+ 15.2    
+ 50.3    
+ 7.6    
+ 8.3    
+ 8.1       Overstated Revenue From Improper Revenue-Generating Transactions 
+($ in Millions) 
+ 0.4    
+ 1.3    
+ 1.7    
+ 2.2    
+ 0.7    
+ 0.3       Percentage of Overstatement of GAAP Revenue 
+ 2.8% 
+ 8.6% 
+ 3.4% 
+ 29.0% 
+ 8.4% 
+ 3.7%    15. L90 reported the overstated financial results as shown in the chart above in its 2000 Form 10-K and its Q3 2000, Q1, Q2, and Q3 2001 Forms 10-Q.  Further, none of the filings disclosed that L90 engaged in barter transactions, check-swaps, or round-trip transactions or that L90 recognized revenue from these types of transactions.   
+
+ The Restatements 
+
+ 16. In May and June 2002, L90 restated its financial statements in its amended Q3 2000 through Q3 2001 Forms 10-Q and in its 2001 Form 10-K.  Specifically, the company reduced reported revenue for the first three quarters of 2001 from $27.2 million to $22.2 million, and reduced reported revenue for fiscal 2000 from $52 million to $48.7 million.  Further, the company disclosed that these restatements were due to groups of cash transactions that substantially offset one another and appeared to represent barter arrangements, as well as other revenue transactions that were subsequently written off as bad debts or generated other concerns about the services provided.  The restatements included the $4.9 million of overstated revenue from the improper barter transactions and advertising campaign discussed above. 
+
+ The Misclassification of Research and Development Expenses 
+
+ 17. L90 also misclassified certain operating expenses as research and development expenses.  In 2000 and 2001, L90 used in its advertising business a proprietary computer system called "adMonitor."  adMonitor, which was fully operational in 1999, was the vehicle by which L90 targeted, delivered, and tracked advertising campaigns.  During 2000 and 2001, L90 spent approximately $26 million to run adMonitor, correct its operational problems, and increase its operating capacity. Specifically, in 2000 and 2001, L90 recorded approximately $12 million and $14 million, respectively, in expenses relating to adMonitor as research and development.  L90's periodic filings reported that its "research and development expenses consist[ed] primarily of compensation, consulting expenses and expenses for hardware, software and materials associated with the development and improvement of our adMonitor technology."   
+
+ 18. L90's recording of the adMonitor expenses as research and development was improper and not in conformity with GAAP.  The vast majority of L90's adMonitor expenses in 2000 and 2001 were for running and correcting problems with the existing system and increasing its capacity, but not for developing and implementing new programs.  Such expenses therefore were directly related to operating adMonitor and did not constitute research and development.  5    L90 reported research and development expenses as a separate line item in its 2000 and 2001 financial statements included in its Commission filings.  These line items represented 16% of total expenses in both years.  If L90 had included all of its research and development expenses in the cost of revenue for 2000 and 2001, it would have increased cost of revenue by 38% and 106%, respectively.   
+
+ 19. L90 is currently in the process of restating its financial statements concerning research and development expenses for 2000 and 2001. 
+
+ Legal Analysis 
+
+ 20. As a result of the conduct described above, L90 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 periodic reports on Forms   10-K and 10-Q.  These reports must contain any material information necessary to make the required statements in the reports not misleading.  As previously discussed, from Q3 2000 through Q3 2001, L90 filed periodic reports with the Commission that overstated L90's revenue and therefore misstated its financial results.  Indeed, the financial statements contained in L90's 2000 Form 10-K and Q3 2000, Q1, Q2, and Q3 2001 Forms 10-Q were restated.  In addition, L90's 2000 and 2001 periodic filings misclassified research and development expenses. 
+
+ 21. As a result of the conduct described above, L90 also 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.  From Q3 2000 through Q3 2001, L90's books and records reflecting certain revenue transactions were misstated.  Further, L90's restatement demonstrates that L90's books and records were not accurate during this time period.  In addition, L90's books and records reflecting research and development expenses were inaccurate in 2000 and 2001. 
+
+ 22. As a result of the conduct described above, L90 also 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.  L90 had insufficient internal controls to prevent the recording of revenue generated from the improper barter transactions and advertising campaign.  As a result, from Q3 2000 through Q3 2001, L90's financial statements were not prepared in conformity with GAAP.  L90 also violated Section 13(b)(2)(B) by failing to have adequate internal controls regarding proper recording of expenses related to adMonitor. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent's Offer.  In determining to accept the Offer, the Commission considered the Respondent's remedial actions and cooperation in the staff's investigation. 
+
+ ACCORDINGLY, IT IS HEREBY ORDERED: 
+
+ Pursuant to Section 21C of the Exchange Act, Respondent shall cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+   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     Barter transactions should be accounted for based on the fair value of the assets or services involved.   See  AICPA Accounting Principles Board Opinion No. 29, "Accounting for Nonmonetary Transactions," ("APB 29") ¶¶ 1, 3 & 4.  In the case of barter transactions involving advertising, the guidance under Emerging Issues Task Force No. 99-17, "Accounting for Advertising Barter Transactions" ("EITF 99-17") applies.  In fact, EITF 99-17 specifically addresses advertising barter transactions that involve check swaps.  EITF 99-17 ¶ 4 states that an exchange between the parties to a barter transaction of offsetting monetary consideration, such as a swap of checks for equal amounts, does not evidence the fair value of the transaction.  EITF 99-17 also provides that revenue and expense should be recognized at fair value from an advertising barter transaction only if the fair value of the advertising surrendered in the transaction is determinable based on the entity's own historical practices.  If the fair value of the advertising surrendered in the barter transaction is not determinable within the limits of this Issue, the barter transaction should be recorded based on the carrying value of the advertising surrendered, which likely will be zero.  EITF 99-17 ¶ 4.  For the reasons discussed above, L90 did not meet the revenue recognition conditions required by EITF 99-17.  Both APB 29 ¶ 28 and EITF 99-17 ¶ 8 require the reporting entity to disclose that it recognized revenue from barter transactions in its financial statements.     
+
+   3     GAAP generally requires that for recognition of revenue, collection of that revenue should be reasonably assured.  Accounting Research Bulletin No. 43 Chapter 1 §A ¶ 1 states that profit is deemed to be realized when a sale in the ordinary course of business is effected, unless the circumstances are such that the collection of the sale price is not reasonably assured.  AICPA Accounting Principles Board Opinion No. 10, "Omnibus Opinion-1966," ¶ 12, Financial Accounting Statement of Concepts No. 5, "Recognition and Measurement in Financial Statements of Business Enterprises" ("CON 5") ¶ 84g, and AICPA Statement of Position No. 97-2, "Software Revenue Recognition," ¶ .08 reaffirm that position.  When collection is not reasonably assured, revenue may be recognized on the basis of cash received.  CON 5 ¶ 84g. 
+
+   4     In reporting its financial results, L90 reported both purported GAAP revenue and system revenue.  L90 disclosed in its periodic filings with the Commission that system revenue represents the full value of gross billings for ads sold under either commission-based contracts or service fee-based contracts and is not affected by the mix of such contracts.  L90 also disclosed in its periodic filings that although system revenue is not recognized under GAAP, L90 believes that system revenue is a standard measure of advertising volume for the Internet advertising industry that enables a meaningful comparison of activity from period to period and from one company to another. 
+
+   5    See  Statement of Financial Accounting Standards No. 2, "Accounting for Research and Development Costs," ¶¶ 8b & 10. 
+
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+
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+     SEC.gov | David Decker, CPA and Theodore Fricke, CPA 
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+              David Decker, CPA and Theodore Fricke, CPA
+           
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+        David Decker, CPA and Theodore Fricke, CPA
+       
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+                        
+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 47731 / April 24, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1762 / April 24, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11091 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			  In the Matter of   
+
+			  DAVID DECKER, CPA and  
+
+			  THEODORE FRICKE, CPA   
+
+			  Respondents.   
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER INSTITUTING PUBLIC   
+			 ADMINISTRATIVE AND   
+			 CEASE-AND-DESIST  
+			 PROCEEDINGS PURSUANT TO SECTION  
+			 21C OF THE SECURITIES EXCHANGE ACT   
+			 OF 1934 AND RULE 102(e) OF THE   
+			 COMMISSION'S RULES OF PRACTICE,   
+			 MAKING FINDINGS, AND IMPOSING  
+			 REMEDIAL SANCTIONS AND A   
+			 CEASE-AND-DESIST ORDER   
+		 
+	 
+ 
+
+  I.  
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted against David Decker, CPA ("Decker") and Theodore Fricke, CPA ("Fricke") (together referred to as "Respondents") 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. 1  
+
+  II.  
+
+ In anticipation of the institution of these proceedings, Respondents Decker and Fricke 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, 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 Respondents' Offers, the Commission finds 2  that: 
+
+  A. RESPONDENTS AND RELATED PARTIES  
+
+   Respondents   
+
+ 1.   Decker  , age 62, a resident of Dunwoody, Georgia, is licensed as a certified public accountant ("CPA") in Georgia. In November 1996, he joined BKR Metcalf Davis ("Metcalf Davis") as a senior manager. He became a non-equity partner of the firm in 2000. In Metcalf Davis' audit of Chancellor Corporation's ("Chancellor") 1998 financial statements, he was responsible for conducting a review of the audit workpapers as part of the firm's quality control function. He also performed audit steps to determine the appropriate date of consolidation of Chancellor's results with that of a subsidiary it acquired during 1998. 
+
+ 2.   Fricke ,    age 53, a resident of Lawrenceville, Georgia, is a CPA licensed in Georgia. He was a partner of Metcalf Davis from 1989 until August 1999. He is currently self-employed as the sole partner in Fricke & Associates, P.C., a certified public accounting firm. Fricke served as the concurring partner in Metcalf Davis's audit of Chancellor's 1998 financial statements.    
+
+   Related Parties   
+
+ 3   Chancellor Corporation   is a Massachusetts corporation with headquarters in Boston, Massachusetts, which was principally engaged in buying, selling and leasing new and used transportation equipment such as trailers and trucks. From 1983 to 2001, Chancellor's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act. On March 9, 2001, Chancellor filed a Form 15 terminating its Commission registration because it had fewer than 300 shareholders. In August 2001, one of the firm's creditors filed an involuntary bankruptcy action against Chancellor in U.S. Bankruptcy Court in the District of New Jersey and the court appointed a receiver to liquidate the company's assets. 
+
+ 4.    BKR Metcalf Davis   (formerly known as Metcalf, Rice, Fricke and Davis), located in Atlanta, Georgia, is an accounting firm that provides professional services including auditing and tax work. It is a member of BKR International Association, a network of affiliated accounting firms. Metcalf Davis was Chancellor's independent auditor from February 1999 to October 2001. 
+
+ 5 .  Gregory Davis  , age 50, is a certified public accountant and resides in Lilburn, Georgia. He has been a partner of Metcalf Davis since 1990. Davis served as the engagement partner in the firm's audits of Chancellor's 1998 and 1999 financial statements as well as the restatements in 2000 of its previously filed 1998 and 1999 financial reports. 
+
+  B. FACTS  
+
+   Summary   
+
+ 6. Respondents Decker and Fricke engaged in improper professional conduct as auditors and caused Chancellor, the company they audited, materially to overstate its revenue, income and assets for 1998 in its Form 10-KSB filed with the Commission. Decker, the audit manager, and Fricke, the concurring audit partner, allowed improper accounting in two significant areas in connection with Chancellor's acquisition of a subsidiary. 
+
+ 7. First, along with Chancellor's management and the audit engagement partner, Decker and Fricke caused Chancellor improperly to account for the acquisition of the subsidiary as a business combination in its 1998 year-end financial statements, although the acquisition agreement was not consummated until 1999. This premature consolidation of the subsidiary's financial results caused Chancellor to overstate its 1998 revenue by $19 million or 177%. Decker and Fricke did not object to the 1998 consolidation although it did not conform with generally accepted accounting principles ("GAAP"). Their position was based on a document which was produced in circumstances indicating that it might have been fabricated by Chancellor's management. Respondents failed to inform Chancellor's audit committee of the possibility of management fraud. 
+
+ 8. Second, in connection with Chancellor's acquisition of its subsidiary, Decker and Fricke, along with Chancellor's management and the engagement partner, caused Chancellor to record a fee of $3.3 million to an entity controlled by the CEO of Chancellor, for purported acquisition consulting services which were never rendered. The baseless payment was improperly capitalized rather than being reported as an expense. As a result, Chancellor reported assets of $29.5 million rather than $26.2 million. 
+
+ 9. By their conduct, Decker and Fricke willfully violated Section 10A of the Exchange Act and caused Chancellor's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder; and engaged in improper professional conduct under Rule 102(e)(1) of the Commission's Rules of Practice. 
+
+   Chancellor's Premature MRB Consolidation and    
+  Improper Fee Payment to Related Party   
+
+ 10. In August 1998, Chancellor entered into a letter of intent to acquire a subsidiary, MRB. The acquisition closed on January 29, 1999. Chancellor included MRB's financial results in Chancellor's 1998 reported results. 
+
+ 11. Under GAAP, in order to make the MRB acquisition effective and consolidation proper as of August 1998, it was necessary that there be a written agreement giving Chancellor control over MRB as of that date. In early February 1999, Chancellor gave the company's auditors at the time (the firm which Metcalf Davis later replaced ("predecessor auditors")) a purported management agreement, backdated to August 1, 1998, which Chancellor's management claimed gave Chancellor control over MRB's affairs. The predecessor auditors, however, found the terms of this agreement insufficient to support the conclusion that Chancellor controlled MRB as of August 1998. 
+
+ 12. The predecessor auditors informed Chancellor's CEO, Brian Adley, in a memorandum dated February 8, 1999 and again at a board meeting on February 12, 1999, that consolidation of MRB's 1998 financial results with Chancellor's did not comport with GAAP. They provided accounting literature that outlined the criteria to be satisfied in order for Chancellor properly to consolidate MRB's 1998 financial with its own. 
+
+ 13. Upon receiving this information, Adley directed Chancellor's acting CFO to create another document, the "First Amendment" to Chancellor's management agreement with MRB, which was falsely dated August 17, 1998, in order to meet the criteria for consolidation. The First Amendment provided that Chancellor would assume control of MRB's daily operations in August 1998 and that from then on MRB was required to submit significant decisions to Chancellor for approval. 
+
+ 14. The two controlling shareholders of MRB never saw or approved the First Amendment. Its terms were inconsistent with the actual relations between the two companies before the January 1999 acquisition. Control did not in fact pass to Chancellor until after the January 1999 closing. 
+
+ 15. The substance of the First Amendment to the Management Agreement did not cause the predecessor auditors to change their position that Chancellor could only properly account for the MRB acquisition as of January 1999. On February 25, 1999, Chancellor dismissed the predecessor auditors. 
+
+ 16. After dismissing the predecessor auditors, Chancellor engaged Metcalf Davis to conduct the independent audit of its 1998 financial statements. Chancellor provided the backdated Management Agreement and the fabricated First Amendment to Metcalf Davis. 
+
+ 17. During March 1999, Chancellor gave Metcalf Davis additional documents purportedly demonstrating Chancellor's control of MRB during 1998. These documents included letters and memoranda fabricated in March 1999 but bearing dates during 1998, which purportedly instructed MRB's officers to act on various business matters. 
+
+ 18. In connection with its acquisition of MRB, Chancellor improperly recorded $3.3 million in consulting fees payable to Vestex Capital Corporation ("Vestex"), a firm wholly owned by Chancellor's CEO Adley. The fees were purportedly for work by Vestex in finding, introducing and negotiating the MRB acquisition and securing financing for it. In fact, however, there was no basis for the consulting fees because Vestex did not find or negotiate the MRB acquisition or provide any other significant services to Chancellor in connection with the MRB acquisition. 
+
+ 19. In April 1999, Adley directed fabrication of documents to support the $3.3 million Vestex fee. The fabricated documents included a Chancellor board resolution dated September 11, 1998 directing Chancellor to pay Vestex $3.25 million at the closing of the MRB acquisition for its services in connection with the acquisition; a promissory note from Chancellor payable to Vestex in the amount of $3.475 million; and a consulting agreement between Chancellor and Vestex. The fabricated documents were given to Metcalf Davis. 
+
+ 20. Davis, the firm's engagement partner, requested documents showing that consulting services had actually been rendered, including bills and time records. Chancellor never provided any such documents to anyone at Metcalf Davis. 
+
+ 21. Chancellor recorded the $3.3 million Vestex fee as a capitalized asset of Chancellor, rather than as an expense. Under GAAP, "incremental costs" payable to an outside consultant in a business combination may be capitalized, but fees payable to employees or entities controlled or owned by employees, such as Vestex, are internal costs that must beexpensed. If Chancellor had recorded the fee as an expense, it would have reported a net loss of $2.45 million for 1998. By capitalizing the fee, Chancellor was able to report a net gain of $850,000. 
+
+   Respondents' Conduct in the Chancellor Audit   
+
+ 22. In Metcalf Davis' independent audit of Chancellor's 1998 financial results, Decker conducted audit tests and accounting research to substantiate the MRB acquisition date. He also served as Metcalf Davis' "impartial review manager" for the audit. In his role as impartial review manager, Decker had operational responsibility for ensuring that the way in which the audit was conducted complied with Metcalf Davis' quality control policies and generally accepted auditing standards (GAAS). 
+
+ 23. Decker determined that recording the MRB acquisition as of August 1, 1998 was appropriate under GAAP because Chancellor had the necessary control of MRB on that date. He relied on the Management Agreements as the evidence of Chancellor's control. Decker knew that the predecessor auditors had been dismissed. He also knew that in the predecessor auditors' view, 1998 consolidation of MRB's financial results was contrary to GAAP. In addition, Decker knew that the First Amendment to the Management Agreement was not referred to in the papers he received from the predecessor auditors. He telephoned the engagement partner of the predecessor auditors, who expressed skepticism about the date the First Amendment was created. 
+
+ 24. Decker never questioned Adley or any other Chancellor representative about the authenticity of the First Amendment. Decker never confirmed the existence, date or terms of the First Amendment with the shareholders of the acquired company, MRB. He never communicated any doubt about the authenticity of the document to Chancellor's audit committee. 
+
+ 25. During his quality control review of the audit workpapers, Decker questioned the $3.3 million fee to Vestex. Decker knew that Chancellor in its Form 10-KSB for 1997 had disclosed that $1.14 million in recorded fees to Vestex had been reversed that year. He had reviewed the prior auditors' draft management letter, which addressed a lack of contemporaneous documentation for related-party transactions with Vestex. He knew that heightened scrutiny of 1998 related-party transactions such as the $3.3 million Vestex fee was therefore warranted. 
+
+ 26. Decker noted that the workpapers he reviewed for the 1998 audit contained no documentation to support the nature or value of the supposed services for which the fee was being charged. Decker raised the issue with Davis, the engagement partner, but took no further action when Davis did nothing. Decker also questioned whether the fee should be capitalized rather than expensed, but took no action to determine the correct accounting treatment. Decker signed off as impartial review manager, indicating that the audit comported with GAAS. 
+
+ 27. Fricke served as the concurring partner for the Chancellor audit. He did not conduct any research on the auditing requirements or accounting rules relevant to the issues noted in the audit workpapers. With respect to the MRB acquisition date, prior to the release of the audit report, Fricke reviewed workpapers documenting the audit work performed by Decker on the acquisition date. These workpapers included a memo from Decker to Davis discussing the issue concerning authenticity of the First Amendment. Fricke was also aware of the disagreement between Chancellor and the prior auditors about the correct date. Nevertheless, Fricke relied on the conclusions of Davis and Decker, although he either knew or was reckless in not knowing that audit procedures had not been extended to resolve the significant audit issues documented in the workpapers. 
+
+ 28. Before the audit report was released, Fricke was made aware of issues relating to the Vestex fee, including the lack of documentation to support it. From his review of Chancellor's Form 10-KSB for 1997, Fricke knew that fees to Vestex had been reversed that year. Despite his knowledge that heightened scrutiny of 1998 related-party transactions was therefore warranted, Fricke did not examine the audit workpapers concerning 1998 related-party transactions including the $3.3 million Vestex fee. Instead, he simply asked Davis if there were any significant related-party issues that he needed to address and accepted the assurance that there were none. Fricke reviewed the draft Form 10-KSB for 1998, but did not suggest any additions or changes to the related-party disclosure. 
+
+ 29. Fricke raised no questions about Davis' decision to capitalize the Vestex fee, although he reviewed the financial statements which reflected the material impact capitalization would have on Chancellor's reported financial results. He did not do any research to determine whether capitalization was consistent with GAAP. 
+
+   Decker and Fricke Caused Chancellor's Filing of Materially    
+  Misleading Financial Results for 1998   
+
+ 30. On April 16, 1999, Chancellor filed a Form 10-KSB for the year ended December 31, 1998. In the financial statements included, Chancellor accounted for its acquisition of MRB as of August 1, 1998, and consolidated its financial results with those of MRB. As a result, Chancellor reported annual revenues of $29,639,000, 177% higher than the $10,708,000 revenue figure for Chancellor without the MRB consolidation; annual net income of $850,000, rather than $524,000 (62% higher); and assets of $29,569,000, rather than $8,186,000 (261% higher). 
+
+ 31. This accounting treatment did not comport with GAAP because during 1998 Chancellor did not have the effective control of MRB needed to justify accounting for MRB's acquisition as of 1998. 
+
+ 32. Chancellor's Form 10-KSB falsely represented that Adley's Vestex entity hadhandled the acquisition of MRB and provided consulting, financing and other services in connection with the acquisition. It falsely stated that as part of those services Vestex had obtained $3.5 million in financing for Chancellor. 
+
+ 33. GAAP requires that financial statements include disclosure of material related-party transactions, including information deemed necessary to gain an understanding of the effects of the transactions on the financial statements. The transaction between Chancellor and Vestex was a related-party transaction and GAAP required disclosure of the specific facts relating to the $3.3 million fee. 
+
+ 34. The Form 10-KSB did not comport with GAAP because, although it disclosed that Chancellor incurred costs of $3.405 million in acquiring MRB, it did not disclose that these costs consisted entirely of consulting fees charged by Vestex. It did not disclose the lack of any basis for the fees. 
+
+ 35. Although not separately identified, the $3.3 million Vestex fee from Chancellor was included in Chancellor's reported financial results. The fee should not have been included in any form as it had no basis. Even if it had been a legitimate fee, it should have been recorded as an expense as required by GAAP. The fee was improperly capitalized. As a result, Chancellor overstated its assets at year-end 1998 by 11%. 
+
+ 36. On April 14, 1999, Davis signed and authorized issuance of the Metcalf Davis auditors' report for Chancellor's 1998 year-end financial results. The report falsely stated that Chancellor's financial statements were fairly presented in accordance with GAAP and that Metcalf Davis' audit had been performed in accordance with GAAS. As independent review manager, Decker approved these representations. 
+
+ 37. Fricke signed the supervisory approval document authorizing issuance of the Metcalf Davis auditors' report on April 30, 1999, more than two weeks after Metcalf Davis had issued its unqualified opinion with respect to Chancellor's 1998 financial results and two weeks after Chancellor had filed its Form 10-KSB in which the opinion was included. After completing his review, he made no objections to the unqualified opinion. 
+
+   Decker and Fricke Engaged in Improper Professional Conduct   
+
+ 38. Decker and Fricke violated applicable professional standards in connection with the audit of Chancellor's 1998 financial results, which did not comport with GAAS. They did so knowingly or recklessly, or acting highly unreasonably in circumstances where they knew or should have known that heightened scrutiny was warranted. 
+
+ 39. GAAS requires that auditors conducting an audit exercise due professional care and maintain a proper level of professional skepticism. Auditing standards also require auditors to obtain sufficient competent evidential matter to afford a reasonable basis for an opinionregarding the financial statements under audit. 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. When an auditor becomes aware of information concerning a possible illegal act, the auditor should obtain an understanding of the nature of the act, the circumstances in which it occurred, and sufficient other information to evaluate the effect on the financial statements. An auditor has a responsibility to perform an audit to obtain reasonable assurance that material misstatements in financial statements due to fraud are detected. If management does not provide satisfactory information that there has been no illegal act, GAAS requires additional audit steps to be performed. These include confirming a significant transaction with other parties to the transaction. 
+
+ 40. With respect to related-party transactions, GAAS requires that auditors must obtain sufficient evidence to understand the purpose, nature, extent and financial statement effect of the transactions. They must plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatements. If the auditor is unable to obtain sufficient competent evidential matter or determines that the financial statements do not comport with GAAP, GAAS provide that the auditor should express a qualified or an adverse opinion and should provide the information in his reports. 
+
+ 41. Decker failed to exercise due professional care or obtain sufficient competent evidential matter to verify that the MRB acquisition date was properly recorded. He knew that management's insistence on a 1998 acquisition date resulted in a significant increase in reported revenues, so that heightened scrutiny of the date was needed. However, he failed to extend the audit procedures to confirm with the MRB shareholders the existence of control in 1998. 
+
+ 42. Decker failed to critically assess documents he suspected might have been fabricated by Chancellor's management. He did not even question anyone at Chancellor about the authenticity of the documents. In spite of his concern that the documents might have been fabricated by Chancellor's management, he relied on the documents as support for the 1998 acquisition date. He failed to maintain a proper level of professional skepticism, as required by GAAS. 
+
+ 43. Decker further failed to comply with GAAS when he failed to report to Chancellor's audit committee the possibility that the company's senior management had fraudulently created the First Amendment. 
+
+ 44. Decker further failed to comply with GAAS in connection with his review of the accounting for Chancellor's fee to Vestex. He failed to obtain sufficient evidential matter to support recording the Vestex fee, particularly evidence sufficient to understand the purpose, nature, extent and financial statement effect of this related-party transaction, as required by GAAS. He also failed to exercise the required professional skepticism. 
+
+ 45. Decker knew from Chancellor's 1997 Form 10-KSB and his review of the prior auditors' management letter that fees to Vestex had been reversed in the prior year because they were not verifiable. He ignored indications that the 1998 Vestex fees were similarly unsupportable. He knew that Chancellor's management had not responded to Davis' requests for documents evidencing the services for which the fees were charged. He improperly approved reliance on management's unsupported oral representations that the services had been rendered rather than following GAAS by extending audit procedures to Vestex. 
+
+ 46. Decker knew that capitalizing the Vestex fee resulted in Chancellor materially increasing its reported assets. He recklessly disregarded specific GAAP requirements stating that these costs should be expensed. He thereby failed to exercise due professional care. 
+
+ 47. As concurring reviewer, Fricke failed to perform his duty to make an objective independent review of material accounting, auditing or reporting issues to ensure conformance with GAAP and GAAS. He failed to follow up on noted or obvious deficiencies, which if, properly pursued, would have resulted in a conclusion that the audit had not been conducted in accordance with GAAS and that the financial statements were not fairly presented in conformity with GAAP. 
+
+ 48. Fricke knew or was reckless in not knowing from his review of the workpapers regarding the MRB acquisition date that audit procedures had not been extended as required to resolve the acquisition date issues, including whether key documents were authentic. 
+
+ 49. Although Fricke knew that related-party transactions had been identified as a high risk audit area, he did not review any related-party workpapers. He never questioned or independently ascertained whether sufficient competent evidence had been obtained to support the Vestex fee and whether its disclosure in Chancellor's Form 10-KSB was complete and adequate. He never considered whether the Vestex fee should be capitalized rather than expensed under GAAP. 
+
+ 50. By his conduct, Fricke failed to exercise due professional care. He failed to observe the standards of reporting. As concurring reviewer, Fricke knew or was reckless in not knowing that insufficient audit evidence had been obtained to support an unqualified opinion. He failed to maintain a proper level of professional skepticism; failed to 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; and failed to obtain sufficient evidence to understand the purpose, nature, extent and financial statement effect of related-party transactions. 
+
+   Decker and Fricke Willfully Violated Section 10A of the Exchange Act   
+
+ 51. Decker and Fricke had information indicating that Chancellor's senior management might have fraudulently created the First Amendment to the Management Agreement in order to support Chancellor's accounting position regarding the appropriate consolidation date for MRB. They took no steps to confirm the existence of the First Amendment with the MRB shareholders in accordance with GAAS. Accordingly, they willfully violated Section 10A(a)(1) by failing to design appropriate audit procedures to determine whether or not senior management had committed fraud. 
+
+ 52. Decker and Fricke willfully violated Section 10A(b)(1) when they failed to inform Chancellor's audit committee of the suspected senior management fraud. 
+
+   Decker and Fricke Caused Chancellor's Reporting Violations   
+
+ 53. By filing a materially misleading Form 10-KSB for 1998, Chancellor violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+ 54. Decker and Fricke each caused Chancellor's violations of these provisions. Decker determined that a 1998 date for the MRB acquisition was proper. He approved the improper recording of the $3.3 million Vestex fee. Fricke approved issuance of an unqualified opinion falsely representing that Chancellor's financial statements comported with GAAP and that the audit had been conducted in accordance with GAAS. 
+
+  IV.  
+
+ In view of the allegations made by the Division of Enforcement, the Commission deems it appropriate to impose the sanctions agreed to in Respondents' Offers. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+
+  
+
+ 
+	 Decker and Fricke shall cease and desist from committing or causing any violations and any future violations of Section 10A of the Exchange Act; and from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 promulgated thereunder.
+	  
+	 
+	 Decker is denied the privilege of appearing or practicing before the Commission as an accountant.
+	  
+	 
+	 Fricke is denied the privilege of appearing or practicing before the Commission as an accountant.
+	  
+	 
+	 After three (3) years from the date of this order Decker may request that the Commission consider his reinstatement. After two (2) years from the date of this order Fricke may request that the Commission consider his reinstatement. Each Respondent shall make any such request 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) Respondent, 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+		 (b) Respondent, 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 or equivalent organization; and 
+
+		 (c) As long as Respondent 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+		 
+	 
+
+	  
+	 
+	 The Commission will consider an application by each 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. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ ______________________ 
+
+ 
+	 
+		 
+			   1   
+			 Rule 102(e)(1)(ii) provides, in relevant part, that:
+			 
+			 The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it by any person who is found to have engaged in improper professional conduct. 
+			 
+
+			 Rule 102(3)(1)(iii) provides, in relevant part, that: 
+
+			 
+			 The Commission may deny, temporarily or permanently, the privilege ofappearing 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 or regulations thereunder. 
+			 
+			 
+		 
+		 
+			   2   
+			 The findings herein are made pursuant to Respondents' Offers of Settlement and are not binding on any other person or entity. 
+		 
+	 
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diff --git a/raw/aaer/2003/AAER-1764.txt b/raw/aaer/2003/AAER-1764.txt
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  47732 / April 24, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1764 / April 24, 2003
+  ADMINISTRATIVE PROCEEDING 
+ File No.   3-11092
+
+         In the Matter of     
+      Michael Marchese,         
+       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 Michael Marchese ("Marchese")("Respondent").
+
+   II. 
+
+    In anticipation of the institution of these 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 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 Respondent admits, the Respondent by his Offer of Settlement 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, as set forth below. 
+
+          III. 
+
+    On the basis of this Order and the Respondent's Offer of Settlement, the Commission finds 1  that:
+
+   A.   Respondent and Related Party  
+
+     1.  Respondent  
+
+        Michael Marchese ,  52, of Trumbull, Connecticut, was a director of Chancellor Corporation ("Chancellor") from December 1996 to June 1999.  He has had no affiliation with Chancellor since 1999 and currently works as a bank loan officer.
+
+     2.  Related Party  
+
+        Chancellor Corp  . (File No. 0-11663), incorporated in Massachusetts, maintained its principal place of business in Boston, Massachusetts.  From 1983 to 2001, Chancellor's common stock was registered with the Commission pursuant to Section 12(b) of the Exchange Act.  On March 9, 2001, Chancellor filed a Form 15 terminating its Commission registration because it had fewer than 300 shareholders.
+
+   B.  Facts  
+
+        Summary of Respondent's Conduct  
+
+    Respondent Marchese served as an outside director of Chancellor at a time when Chancellor's CEO was orchestrating a fraudulent financial reporting scheme.  Marchese failed to perform his duties as a director.  He recklessly ignored signs pointing to improper accounting treatment, thereby allowing management's fraud to continue.  He acted recklessly in signing Chancellor's Form 10-KSB for 1998, which contained materially misleading statements. 
+
+    Due to its management's fraud, Chancellor materially overstated its assets, revenue and income in its 1998 and 1999 periodic filings.  Its CEO, Brian Adley, caused Chancellor's 1998 revenue to be overstated by improperly consolidating revenue from a subsidiary over which Chancellor did not acquire actual control until 1999 and directing fabrication of documents to support his claim of control during 1998.  After Chancellor's independent auditors advised Adley that the premature consolidation did not comport with generally accepted accounting principles ("GAAP"), he fired them.  Marchese approved the firing although he knew that it was at least partly due to the auditors' disagreement with Adley.  In addition, in connection with Chancellor's acquisition of this subsidiary, Adley caused Chancellor improperly to record payables totaling several million dollars to entities he controlled.  The payment obligations were purportedly for acquisition consulting services but in fact minimal, if any, services were rendered.  Adley directed an employee to fabricate documents in order to make it appear that Chancellor had approved payment of the fee to Adley's entities.  Compounding the fraud, Adley capitalized thefee payables rather than reporting them as expenses.  Marchese knew that in the previous year Chancellor had written off $1.14 million in related-party payments, but he did nothing to check whether there was adequate support for the millions of dollars in payments to Adley's entities recorded in 1998.
+
+    Marchese recklessly signed Chancellor's Form 10-KSB for 1998 without taking any steps to ensure that it did not contain materially misleading statements.  He knew that Chancellor's original auditors would not approve the 1998 consolidation date, but  took no steps to determine whether Chancellor's insistence on a 1998 date was correct.  When successor auditors approved the 1998 date, he made no inquiry into the reasons why the new auditors came to a different conclusion than the former auditors or whether there was a factual basis for it.  Further, he took no steps to determine whether Chancellor had in fact authorized payments to Adley's entities, whether the purported services for these payments had in fact been rendered, or whether the payments were adequately disclosed in the Form 10-KSB which he signed.
+
+    Marchese's dereliction of his duty as an outside director is more broadly reflected in his complete failure ever to review Chancellor's accounting procedures or internal controls, or even to become aware that he was an audit committee member, and his total deference to CEO Adley. Marchese completely failed to exercise any oversight over Chancellor's financial reporting, exercising no care to ensure that the company had appropriate internal controls and that its financial records were accurate.  He acquiesced in Adley's complete control of accounting decisions, including those relating to payments to Adley's own companies.
+
+    By signing Chancellor's 1998 Form 10-KSB with reckless disregard for its truth or falsity, Respondent Marchese violated and caused Chancellor to violate Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit untrue statements or omissions of material fact.  Marchese's failure to perform his duty to oversee Chancellor's accounting processes and internal controls caused Chancellor's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, which require accurate filings, and its violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, which require issuers to maintain accurate books and records and to maintain adequate internal controls. 
+
+      Background   
+
+    Respondent Marchese became an outside director of Chancellor in December 1996.  He was an acquaintance of Brian Adley, who was Chancellor's controlling shareholder, chairman and chief executive officer.  Chancellor reported in public filings that Marchese was a member of the company's audit committee from 1996 to May 1999.  Marchese never reviewed Chancellor's accounting procedures or internal controls.  He generally deferred to Adley when board action was required.  
+
+     1.  Chancellor Prematurely Consolidated an Acquired Subsidiary's Revenue  
+
+    On August 10, 1998, Chancellor entered into a letter of intent to acquire MRB, a seller of used trucks.  A final closing took place on January 29, 1999.  When preparing its financial reports for 1998, Chancellor improperly designated August 1, 1998, as the MRB acquisition datefor accounting purposes.  Chancellor designated that date based on its claim that a preexisting written agreement between Chancellor and MRB gave Chancellor effective control of MRB's operations as of August 1, 1998.  When Chancellor's auditors began the audit of Chancellor's year-end 1998 financial statements, they reviewed the agreement and informed Chancellor's management that it did not give Chancellor sufficient control of MRB during 1998 to justify consolidating the two companies' financial statements for accounting purposes.  The auditors sent a memorandum to Adley and Marchese in February 1999 setting forth their position that GAAP required a 1999 consolidation date.
+
+    During February 1999, Adley directed Chancellor's acting CFO to create and backdate to August 1998 a purported amended management agreement with MRB to provide additional support to justify an August 1, 1998 acquisition date for accounting purposes.  This document, however, did not cause the auditors to change their position with respect to the correct acquisition date.
+
+    On February 25, 1999, Adley dismissed Chancellor's auditors.  Adley did not identify the difference of opinion about the accounting date for the MRB acquisition as a reason for the dismissal.  As a director, Respondent Marchese approved the decision to dismiss Chancellor's auditors.  He was aware of the disagreement between Chancellor's management and the auditors regarding the appropriate MRB acquisition date for accounting purposes.  He knew that the disagreement formed part of the reason for the auditors' dismissal.
+
+    After dismissing its prior auditors, Chancellor engaged Metcalf, Rice, Fricke and Davis (now BKR Metcalf Davis)("Metcalf Davis") to conduct the independent audit of its 1998 financial statements.  Respondent Marchese approved the engagement.  During spring 1999, in connection with the Metcalf Davis audit, Chancellor's CEO Adley caused Chancellor's president and acting CFO to fabricate documents in order to support the 1998 acquisition date.  The fabricated documents included letters and memoranda designed to demonstrate Chancellor's control of MRB during 1998.  These documents were provided to Metcalf Davis.
+
+    In April 1999, after conducting its audit, Metcalf Davis personnel met with Marchese, another outside director, and Chancellor's top management.  In the meeting, Metcalf Davis indicated that it would provide an unqualified audit report for Chancellor's 1998 year-end financial statements.  For accounting purposes, Metcalf Davis approved an August 1998 acquisition date for MRB.
+
+    Marchese knew that Chancellor's prior auditors had disagreed with Chancellor's management and had stated that a 1998 acquisition date did not comport with GAAP.  Marchese, however, made no inquiry into the reasons for Metcalf Davis's contrary view.  Nor did he determine whether there was any factual support for the 1998 acquisition date. 
+
+     2.  Chancellor Improperly Recorded a $3.3 Million Fee  
+
+    In connection with Chancellor's acquisition of MRB, Adley caused Chancellor to record $3.3 million in fees to Vestex Capital Corporation ("Vestex"), a private entity he owned.  The fees were purportedly for consulting services including identifying, negotiating and closing theMRB acquisition.  In fact, no significant consulting services were rendered to Chancellor by Vestex in connection with the acquisition.  In order to substantiate the fees to Vestex, Adley directed Chancellor personnel to fabricate numerous documents and provide them to Metcalf Davis while the firm was conducting its audit of Chancellor's 1998 financial results.  In addition, at Adley's direction, Chancellor recorded as an asset on its balance sheet the $3.3 million in unsupported Vestex fees rather than recording them as an expense on its income statement.  This was inconsistent with GAAP, which provides that costs payable to an outside consultant in business combinations may be capitalized only if the consultant has no affiliation with the companies involved in the acquisition.     
+
+    The year before, in connection with the preparation of Chancellor's year-end results for 1997, Chancellor's auditors had required the company to write off $1.14 million in related party payments to Adley-controlled entities because there was no substantiation for the payments. Although Marchese knew of the 1997 write-off of payments to Adley's entities, he took no steps to determine whether the $3.3 million MRB acquisition fee to Vestex  recorded in 1998 was substantiated.  He did not ask Metcalf Davis or Adley any questions about related party transactions.
+
+     3.  Marchese Signed a  Misleading Form 10-KSB  
+       Filed By Chancellor   
+
+    On April 16, 1999, Chancellor filed a Form 10-KSB for the year ended December 31, 1998.  Adley, Chancellor's president, Chancellor's controller, Marchese and another outside director signed the Form 10-KSB.  The Form 10-KSB was materially misleading in several respects.  
+
+    First, in the financial statements included in its 1998 Form10-KSB, Chancellor accounted for its acquisition of MRB as of August 1, 1998, and consolidated its financial results with those of MRB.  As a result, Chancellor reported annual revenues of $29,639,000, 177% higher than the $10,708,000 revenue figure for Chancellor without the MRB consolidation.  It also reported assets of $29,569,000 rather than $8,186,000 (261% higher).  The accounting treatment did not comply with GAAP because during 1998 Chancellor did not have the effective control of MRB needed to justify accounting for MRB's acquisition.  
+
+    Chancellor's Form 10-KSB also falsely represented that Adley's Vestex entity had handled the acquisition of MRB and provided consulting, financing and other services in connection with the acquisition, earning a fee payable of $3.3 million.  The fee, for which no significant services in fact had been rendered, was improperly capitalized rather than reported as an expense.  As a result, Chancellor reported net income of $850,000 rather than the $2.45 million loss which would have been reported had the fee been expensed, and its assets were overstated by 12%.
+
+    Marchese did not seek re-election as a director in 1999.  He ceased to be a director of Chancellor on June 25, 1999.  In August 1999, Marchese wrote a letter to the Commission staff expressing concern about Chancellor's financial reporting.
+
+   D.  Violations  
+
+       1.  Marchese Violated and Caused Chancellor's Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder  
+
+    Marchese violated and caused Chancellor's violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder when he signed Chancellor's 1998 Form 10-KSB.  He was reckless in not knowing that it contained materially misleading statements.  Marchese knew that the Form 10-KSB reflected a 1998 MRB acquisition date.  He also knew that Chancellor's original audit firm had been fired, with his approval, due in part to its disagreement with the 1998 date.  Nevertheless, he recklessly failed to make any inquiry into the circumstances leading to the new audit firm's approval of a 1998 MRB acquisition date, or whether it was correct.  In addition, Marchese knew that in the previous year Chancellor had written off $1.14 million in related-party fees to Adley entities.  However, he recklessly failed to make any inquiry into the basis for the reported $3.3 million in fees payable to an entity owned by Chancellor's CEO which were included in Chancellor's 1998 Firm 10-KSB.   Marchese failed to make any inquiry into the existence of documents substantiating the services for which the fees were purportedly due. 
+
+       2.  Marchese Caused Chancellor's Violations of  
+       Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act   
+       and Rules 12b-20 and 13a-1 Thereunder  
+
+
+
+    Marchese caused Chancellor's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.  Section 13(a) of the Exchange Act and Rule 13a-1 require issuers of registered securities to file annual reports with the Commission.  The information provided in those reports must be accurate.   See   United States v. Bilzerian , 926 F.2d 1285, 1298 (2d Cir.),  cert.   denied , 502 U.S. 813 (1991);  SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975).  Regulation S-X requires that financial statements filed with the Commission pursuant to Section 13(a) of the Exchange Act be prepared in accordance with GAAP or such statements will be presumed to be misleading or inaccurate.  In addition, Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that statements made in them are not materially misleading.  These issuer reporting provisions are violated when false and misleading reports are filed.  SEC v. Falstaff Brewing Corp. , 629 F.2d 62, 67 (D.C. Cir. 1980).  No showing of scienter is necessary to establish a violation of Section 13(a) or Rules 12b-20 or 13a-1.  See   SEC v. McNulty , 137 F.3d 732, 740-41 (2d Cir. 1998);  SEC v. Savoy Industries, Inc. , 587 F.2d 1149, 1167 (D.C. Cir. 1978);  SEC v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978).  
+
+    Section 13(b)(2)(A) of the Exchange Act requires every reporting company to make and keep books, records and accounts that accurately and fairly reflect the issuer's transactions. Section 13(b)(2)(B) requires a company to devise and maintain a system of internal controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP.  These provisions require an issuer to employ and supervise reliable personnel, to maintain reasonable assurances thattransactions are executed as authorized and to properly record transactions on an issuer's books.  SEC v. World-Wide Coin Investments, Ltd. , 567 F. Supp. 724, 750 (N.D.Ga. 1983).  A violation of Section 13(b)(2)(A) or 13(b)(2)(B) does not require a showing of scienter.  Id . at 751.
+
+
+
+    Marchese's conduct caused Chancellor's violations of Sections 13(a) and 13(b)(2)(A) and Rules 12b-20 and 13a-1.  He was reckless in not knowing that Chancellor's Form 10-KSB for 1998 contained materially misleading statements.  Further, he signed Chancellor's Form 10-KSB for 1998 without making any inquiry into the basis for the reported fees payable to Adley's company or the basis for the new audit firm's approval of a 1998 MRB acquisition date. 
+
+    Marchese also caused Chancellor's violations of Section 13(b)(2)(B) of the Exchange Act.  He never attempted to determine the reason for Chancellor's varying accounting treatments of the MRB acquisition and related fees to Vestex, and whether these demonstrated a lack of internal controls to ensure accurate financial reporting and prevent improper transfers to related parties.  Marchese never reviewed Chancellor's accounting procedures or determined whether in fact there were any internal controls.
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in the Offer submitted by Respondent Marchese.
+
+     ACCORDINGLY, IT IS ORDERED: 
+
+    Pursuant to Section 21C of the Exchange Act, that Respondent Marchese shall cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(B)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 promulgated thereunder.
+
+    By the Commission.
+
+                  Jonathan G. Katz
+                 Secretary
+  __________________________
+      1       The findings herein are not binding on anyone other than Respondent. 
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diff --git a/raw/aaer/2003/AAER-1766.txt b/raw/aaer/2003/AAER-1766.txt
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1766.txt
@@ -0,0 +1,1422 @@
+
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+ LITIGATION RELEASE NO. 18120  / April 30, 2003
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO.  1766 / April 30, 2003 
+
+  SEC v. Lawrence O'Shaughnessy, Gary H. Klein, Gary K. Levi and Mark Tucker, Civil Action No. 03 CV 3022 (RMB)
+
+  SEC v. Neil R. Cole, Civil Action No. 03 CV 3021 (RMB)
+
+  SEC FILES ACTIONS AGAINST CANDIE'S, INC., CANDIE'S CEO, AND 
+ SEVERAL FORMER OFFICERS AND DIRECTORS ALLEGING FINANCIAL FRAUD
+
+  Today, the Commission filed a complaint in the United States District Court of the Southern District of New York, and instituted administrative cease-and-desist proceedings, alleging that Candie's Inc., Neil R. Cole, Candie's Chief Executive Officer, and other former directors and members of Candie's senior management were involved in financial fraud.  The complaint and orders instituting cease-and-desist proceedings allege that from August 1997 until the spring of 1999, Candie's senior management employed various fraudulent accounting practices designed to improve Candie's publicly reported financial condition.  Candie's, Cole, and other former officers and directors of the company have consented to the entry of injunctions and cease-and-desist orders, without admitting or denying the allegations.   
+
+  The cease-and-desist orders name the following respondents:
+      Candie's  Inc., a corporation based in Valhalla, NY, which designs, manufactures, and distributes women's footwear, handbags and other accessories.
+
+         Neil R. Cole, age 46, who resides in New York, NY, and is Candie's Chief Executive Officer, President and Chairman of the Board.       
+
+         David Golden, age 49, who resides in Melville, NY, and was Candie's former Chief Financial Officer.
+
+         Maryann Brown, age 45, who resides in Little Falls, NJ, and was Candie's former manager of customer service.
+   The complaint in the injunctive action names the following defendants:
+      Lawrence O'Shaughnessy, age 53, who resides in Chester, NJ, and was Candie's former Chief Operating Officer and a former director.
+
+         Gary Klein, age 48, who resides in Harrison, NY, and was Candie's former Vice President of Finance.
+
+         Mark Tucker, age 56, who resides in New York, NY, and was a former director of Candie's, a member of Candie's audit committee, and Candie's principal contact at its buying agent.
+
+         Gary Levi, age 52, who resides in Port Washington, NY, and was a principal of a barter company that engaged in business with Candie's.
+   Specifically, the complaint and/or cease-and-desist orders allege the following.  Candie's senior management, including O'Shaughnessy, Klein and Golden primarily employed two fraudulent accounting practices.  First, O'Shaughnessy directed employees to engage in a practice known as "bill and hold" that allowed Candie's to prematurely record revenue from various purchase orders calling for future delivery of shoes, by recording these orders as final sales prior to shipping the shoes to customers.  Generally Accepted Accounting Principles (GAAP) do not permit revenue recognition for sales unless risk and title has passed to the customer, which typically occurred only when Candie's shipped shoes to customers.  In fact, Candie's own revenue recognition policy called for recognition of revenue upon shipment of goods with risk and title passing.  Despite the prohibitions of GAAP and its own policy, Candie's prematurely recognized over $4.4 million in revenue in fiscal years 1998 and 1999 through the improper use of bill and hold and other irregular shipping practices.  Brown, who was in charge of customer service, played a crucial role in carrying out the bill and hold practice.  Golden and Klein were aware that Candie's was engaged in the bill and hold practice and permitted Candie's to report the resulting revenue and income in its Forms 10-K and 10-Q.  Cole ignored red flags that Candie's was engaged in this practice and failed to prevent  the company from recognizing revenue from this improper practice.
+
+  Second, Candie's improperly recognized over $3.1 million in revenue from two illusory sales transactions with a barter company that Levi controlled.  In these transactions, which were purportedly entered into in August 1997 and October 1998, Candie's claimed to sell shoes to the barter company in exchange for a combination of cash and advertising credits.  The revenue and income that Candie's recorded in connection with these transactions was improper because Candie's either never shipped the shoes described by the contracts underlying these transactions, or Candie's shipped the shoes many months after recording the revenue.  O'Shaughnessy and Klein negotiated and/or signed the barter agreements with Levi.  Golden was aware of at least one of these agreements.  After Candie's auditors raised questions about these transactions, O'Shaughnessy, Golden and Levi provided the auditors with false information about Candie's purported sales of shoes to the barter company.
+
+  Finally, Candie's recorded several unsupported journal entries in the fourth quarter of fiscal year 1999 to recognize approximately $1.65 million in "sales credits" from one of its overseas buying agents.  Tucker agreed to permit Candie's to record the credits and assisted Candie's in obtaining falsified documentation of the credits.
+
+      As a result of these fraudulent accounting practices, Candie's falsely inflated its reported financial results for numerous fiscal quarters, including the quarter ended October 31, 1997, the fiscal year ended January 31, 1998, and for the quarters ended April 30, 1998, July 31, 1998, and October 31, 1998.  Additionally, Cole recklessly authorized a misleading press release that preannounced fiscal year 1999 earnings at a time when he and others at Candie's knew that the company's auditors were refusing to sign-off on Candie's financial statements because of a variety of questions they had about the barter transactions and sales credits.
+
+  The complaint and/or cease-and-desist orders charge Candie's, O'Shaughnessy, Golden, and Klein with primary violations of the antifraud provisions as well as with primary or aiding and abetting reporting violations, books and records violations and internal control violations.   The complaint and/or orders also charge Brown, Levi and Tucker with aiding or abetting or causing Candie's violations of the antifraud provisions as well as reporting violations.  Finally, a cease-and-desist order charges Cole with causing violations of Section 10(b) of the Exchange Act and Rule 10b-5, as well as causing certain violations of  the reporting provisions, and falsifying certain of Candie's books and records.
+
+  Specifically, the cease-and-desist orders charge:
+  
+ Candie's with violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(a), 13(b)(2)(A)&(B) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1;
+
+  Cole with causing violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-13, and with violating Rule 13b2-1;
+
+  Golden with violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1 and 13b2-2, and causing violations of Sections 13(a) and 13(b)(2)(A)&(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13;  and
+
+  Brown with causing violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13.
+  
+ The complaint charges:
+  
+ O'Shaughnessy with violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) & (B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13; 
+
+  Klein with violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1; and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) & (B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13; 
+
+   Tucker with violations of Section 13(b) of the Exchange Act and Rule 13b2-2, and aiding and abetting violations of Sections 10(b) and 13(a) of the Exchange Act, and Rules 10b-5, 12b-20, and 13a-1; and
+
+  Levi with aiding and abetting violations of Sections 10(b) and 13(a) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, and 13a-13. 
+  
+ Cole and Brown consented to the entry of cease-and- desist orders without admitting or denying the Commission's allegations.  Cole has also agreed to pay a civil penalty in the amount of $75,000.   O'Shaughnessy, Tucker and Levi consented to the entry of injunctions without admitting or denying the Commission's allegations.  O'Shaughnessy has agreed to pay a civil penalty of $100,000 and consent to an officer and director bar. Tucker has agreed to pay a civil penalty of $25,000, disgorgement of $10,000 in directors' fees he received from Candie's in fiscal year 1998 and 1999, interest, and consent to a five year officer and director bar. Levi has agreed to pay a $25,000 civil penalty.  
+
+  Candie's and Golden also have consented to the entry of cease-and-desist orders without admitting or denying the allegations.  In determining to accept settlement offers from Candie's and Golden, the Commission considered the cooperation Candie's and Golden afforded the Commission staff, and that Golden came forward to report the violation to authorities.
+  
+
+  SEC Complaint in this matter (O'Shaughnessy, Klein, Levi and Tucker)  
+
+  SEC Complaint in this matter (Cole) 
+
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diff --git a/raw/aaer/2003/AAER-1768.txt b/raw/aaer/2003/AAER-1768.txt
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+ Securities Act of 1933
+ Release No. 8226 / April 30, 2003
+  Securities Exchange Act of 1934
+ Release No. 47770 / April 30, 2003
+  Accounting and Auditing Enforcement
+ Release No. 1768 / April 30, 2003
+  Administrative Proceeding 
+ File No. 3-11097
+
+         In the Matter of    
+   Maryann Brown, 
+   Respondent.  
+     
+    : : : : :   
+    ORDER INSTITUTING 
+      PROCEEDINGS PURSUANT TO
+   SECTION 8A OF THE SECURITIES ACT
+ OF 1933 AND SECTION 21C OF THE
+   SECURITIES EXCHANGE ACT OF
+   1934, MAKING FINDINGS, AND IMPOSING
+  A CEASE-AND-DESIST ORDER       I. 
+
+
+
+      The Securities and Exchange Commission ("Commission") deems it appropriate that  cease-and-desist 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") be, and hereby are, instituted against Maryann Brown ("Brown" or "Respondent").
+
+   II. 
+
+              In anticipation of the institution of these proceedings, Brown 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 the Respondent and the subject matter of this proceeding, which Respondent admits, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order"), as set forth below.
+
+   III. 
+
+  On the basis of this Order and Brown's Offer, the Commission finds  1   that: 
+
+   Respondent and Relevant Entity 
+
+  1.  Candie's is a Delaware corporation with headquarters in Valhalla, NY.  Candie's primary business is designing, marketing, and distributing moderately priced women's shoes, handbags and other accessories.  During the period from 1997 to 1999, Candie's filed periodic reports with the Commission pursuant to Section 12(g) of the Exchange Act and its stock was traded on the Nasdaq National Market.
+
+  2.  Brown, age 45, resides in Little Falls, NJ.  Candie's hired Brown in 1997 as a sales analyst and later promoted her to manager of the customer service department.  Candie's terminated her employment in October 1999.
+
+   Background 
+
+  3.  This matter involves accounting fraud at Candie's.  From August 1997 until the Spring of 1999, Candie's senior management employed fraudulent accounting practices designed to improve Candie's publicly reported financial condition.  Among other practices, Candie's prematurely recognized revenue through the use of improper bill and holds.
+
+   Candie's Engaged in an Improper Bill and Hold Scheme 
+
+  4.  Candie's COO directed employees to engage in a practice known as bill and hold.  At the end of certain quarters, Candie's prematurely recorded revenue from various purchase orders calling for future delivery of shoes, by recording these orders as final sales prior to shipping the shoes to customers.  Generally Accepted Accounting Principles ("GAAP") do not permit revenue recognition for sales unless risk and title has passed to the customer, which was typically when Candie's shipped shoes to the customer.  Candie's revenue recognition policy, as disclosed in its Commission filings, calls for recognition of revenue upon shipment of goods with risk and title passing.  
+
+  5.  Despite the prohibitions of GAAP and its own policy, from at least January 1998 through July 1998, Candie's prematurely recognized over $4.4 million in revenue through the improper use of bill and hold.  Specifically, Candie's Form 10-K for fiscal year 1998 dated May 1, 1998 ,  contained financial statements that reflected $1.8 million in improper revenue, and $775,000 in improper income, from the bill and hold practice and other irregular shipping procedures that violated GAAP.  The improper income from bill and hold allowed Candie's to convert a fourth quarter loss to a gain.  Candie's Form 10-Q for the first quarter of fiscal year 1999 dated June 11, 1998, contained financial statements reflecting $991,000 in improper revenue solely from the bill and hold practice.  Candie's Form 10-Q for the second quarter of fiscal year 1999 dated September 14, 1998, contained financial statements reflecting $1.7 million in improper revenue solely from the bill and hold practice. These overstatements of revenue and income were material.   
+
+  6.  Candie's COO directed Brown to assist Candie's in carrying out the bill and hold practice during the fourth quarter of fiscal year 1998 and the first and second quarter of fiscal year 1999 by insuring that enough orders were improperly invoiced so that Candie's could meet its sales targets in those periods.  Specifically, Brown directed a subordinate to identify orders calling for shipment in future periods that could be invoiced in the current period.  Brown then helped track the invoices, directed that the invoices be reversed after they were booked, and insured that customer accounts were credited for the false sales.  Brown understood that the bill and hold practice was inappropriate and that her actions resulted in Candie's reporting false financial results in these periods.  
+
+   Brown Caused Candie's Violations of 
+  Section 17(a) of the Securities Act, 
+  Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder 
+
+  7.  Section 17(a) of the Securities Act prohibits fraud in the offer or sale of securities.  Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraud in connection with the purchase or sale of securities.  To establish a violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the evidence must show: 
+  
+ (1) misrepresentations or omissions of material fact or other fraudulent conduct; (2) "in" the offer or sale, or "in connection with" the purchase or sale, of securities; and (3) that the defendants acted with scienter.   See   SEC v. Chester Holdings, Ltd. , 41 F. Supp.2d 505, 519 (D.N.J. 1999).
+  
+ 8.  Candie's committed violations of Section 17(a) of the Securities Act and Section 10(b) of Exchange Act and Rule 10b-5 thereunder because the company knew, or was reckless in not knowing, that the Form 10-K and Forms 10-Q described above were materially misleading.
+
+      9.  Brown caused Candie's violations of Section 17(a) of the Securities Act and Section 10(b) of Exchange Act and Rule 10b-5 thereunder by knowingly and substantially assisting Candie's in  recording revenue improperly from the bill and hold practice, which permitted Candie's to issue a materially misleading Form 10-K and materially misleading Forms 10-Q, as described above.
+
+   Brown Caused Candie's Violations of 
+  Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder 
+
+  10.  Issuers of securities registered under Section 12 of the Exchange Act must file accurate annual and quarterly reports with the Commission pursuant to Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.  Rule 12b-20 requires that statements and reports contain all information necessary to ensure that statements made in them are not materially misleading.  Implicit in these provisions is the requirement that the information reported be true, correct, and complete.  No showing of scienter is necessary to establish an issuer's violation of the corporate reporting provisions.   See   SEC v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978).
+
+      11.  Candie's committed violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder by filing the materially misleading Form 10-K and materially misleading Forms 10-Q described above.
+
+      12.  Brown caused Candie's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder by knowingly and substantially assisting Candie's in improperly recognizing revenue from the bill and hold practice, which was reflected in the Form 10-K and Forms 10-Q described above.
+
+   IV. 
+
+      In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Brown's Offer.  
+
+     Accordingly, IT IS HEREBY ORDERED, that Brown, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 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, and from causing any violations or any future violations of Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+      By the Commission.
+
+       Jonathan G. Katz
+  Secretary
+
+
+  ___________________________
+      1        The findings herein are made pursuant to Brown'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/2003/AAER-1769.txt b/raw/aaer/2003/AAER-1769.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4e44a2d6862d4c42d78919d891982c2de01cc69c
--- /dev/null
+++ b/raw/aaer/2003/AAER-1769.txt
@@ -0,0 +1,1537 @@
+
+
+ 
+ 
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+              David M. Golden
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+ Securities Act of 1933
+ Release No.  8227 / April 30, 2003
+  Securities Exchange Act of 1934
+ Release No.  47771 / April 30, 2003
+  Accounting and Auditing Enforcement
+ Release No.  1769 / April 30, 2003
+  Administrative Proceeding 
+ File No.   3-11099
+
+
+
+         In the Matter of       
+   David M. Golden,  
+   Respondent.  
+     
+    : : : : :   
+     ORDER INSTITUTING 
+    PROCEEDINGS PURSUANT TO
+   SECTION 8A OF THE SECURITIES ACT
+ OF 1933 AND SECTION 21C OF THE
+      SECURITIES EXCHANGE ACT OF
+       1934, MAKING FINDINGS, AND IMPOSING
+          A CEASE-AND-DESIST ORDER       I. 
+
+
+
+      The Securities and Exchange Commission ("Commission") deems it appropriate that  cease-and-desist 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") be, and hereby are, instituted against David Golden ("Golden" or "Respondent").
+
+   II. 
+
+              In anticipation of the institution of these proceedings, Golden 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 the Respondent and the subject matter of this proceeding, which Respondent admits, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order"), as set forth below.
+
+   III. 
+
+  On the basis of this Order and Golden's Offer, the Commission finds  1   that: 
+
+   Respondent and Relevant Entity 
+
+  1.  Candie's is a Delaware corporation with headquarters in Valhalla, NY.  Candie's primary business is designing, marketing, and distributing moderately priced women's shoes, handbags and other accessories.  During the period from 1997 to 1999, Candie's filed periodic reports with the Commission pursuant to Section 12(g) of the Exchange Act and its stock was traded on the Nasdaq National Market.
+
+  2. Golden ,  age 49, resides in Melville, NY.  Golden was Candie's Chief Financial Officer ("CFO") from March 1998 until Candie's terminated his employment on June 10, 1999.  Golden is a certified public accountant licensed in New York.  
+
+   Background 
+
+  3.  This matter involves accounting fraud at Candie's.  From August 1997 until the Spring of 1999, Candie's senior management employed fraudulent accounting practices designed to improve Candie's publicly reported financial condition.  As will be discussed below, among other practices, Candie's prematurely recognized revenue through the use of improper bill and holds.  Candie's also artificially inflated revenue by entering into sham sales transactions with a barter company. During the course of the fraud, Candie's had inadequate internal accounting controls, and the company failed to maintain accurate books and records.  Candie's Chief Operating Officer ("COO"), and others, including Golden, provided false information to Candie's auditors.  
+
+   Candie's Engaged in an Improper Bill and Hold Scheme 
+
+  4. Candie's COO directed employees to engage in a practice known as bill and hold.  At the end of certain quarters, Candie's prematurely recorded revenue from various purchase orders calling for future delivery of shoes, by recording these orders as final sales prior to shipping the shoes to customers.  Generally Accepted Accounting Principles ("GAAP") do not permit revenue recognition for sales unless risk and title has passed to the customer, which was typically when Candie's shipped shoes to the customer.  Candie's revenue recognition policy, as disclosed in its Commission filings, calls for recognition of revenue upon shipment of goods with risk and title passing.  
+
+  Despite the prohibitions of GAAP and its own policy, from at least January 1998 through July 1998, Candie's prematurely recognized over $4.4 million in revenue through the improper use of bill and hold and other irregular shipping practices.  Specifically, Candie's Form 10-K for fiscal year 1998 dated May 1, 1998 ,  contained financial statements that reflected $1.8 million in improper revenue, and $775,000 in improper income, from the bill and hold practice and other irregular shipping procedures that violated GAAP.  The improper income from bill and hold allowed Candie's to convert a fourth quarter loss to a gain.  Candie's Form 10-Q for the first quarter of fiscal year 1999 dated June 11, 1998, contained financial statements reflecting $991,000 in improper revenue solely from the bill and hold practice.  Candie's Form 10-Q for the second quarter of fiscal year 1999 dated September 14, 1998, contained financial statements reflecting $1.7 million in improper revenue solely from the bill and hold practice. These overstatements of revenue and income were material.   
+
+    5.  Candie's began prematurely to recognize revenue through the bill and hold practice in January 1998, before Golden began working at Candie's.  Soon after Golden joined Candie's in March 1998, he became aware of  the improper bill and hold practice.  Golden then questioned senior management and others about the practice, and attempted to stop the practice, but did not prevent Candie's from continuing to utilize the practice during the second quarter of fiscal year 1999.  Despite his knowledge of the bill and hold practice, Golden permitted Candie's to record prematurely revenue in the first and second quarters of fiscal year 1999 on its books and records.  Moreover, Golden signed the Form 10-K for fiscal year 1998 and Forms 10-Q for the first and second quarters of fiscal year 1999 that contained the financial statements improperly recognizing revenue and income from the bill and hold practice. 
+
+   Candie's Entered Into Fraudulent Barter Transactions 
+
+  6.  Candie's improperly recognized revenue from two transactions with a barter company.  Specifically, in August 1997, Candie's vice president of finance negotiated and signed an agreement with the barter company that provided Candie's would sell 160,000 pairs of shoes to the barter company for $10 per pair to be paid in a combination of cash and advertising credits.  Candie's then purportedly shipped 133,000 pairs of the shoes to the barter company and recorded $1.3 million in revenue from the sale of these shoes on its books and records on October 31, 1997, the last day of the fiscal quarter.  Candie's, however, should not have recognized this revenue because, among other reasons, it did not ship the shoes to the barter company until July 1999, and it was only then that Candie's was permitted under GAAP to recognize any revenue generated by the transaction.  Candie's Form 10-Q for the third quarter of fiscal year 1998, dated November 24, 1997, contained financial statements that materially overstated revenue by $1.3 million (a six percent overstatement) and income by $335,000 (a forty-one percent overstatement) from this transaction.  
+
+    Similarly, in October 1998, Candie's COO negotiated and signed an agreement with the barter company that increased the value of shoes that Candie's had purportedly already sold to the barter company as part of the August 1997 agreement by $600,000.  The October 1998 agreement also described the purported sale of an additional 62,000 pairs of shoes to the barter company.  Candie's then recorded $1.8 million in revenue from this transaction on its books and records on October 31, 1998, the last day of the fiscal quarter.   Once again, Candie's should not have recognized this revenue because, among other reasons, the 62,000 pairs of shoes described in the agreement were not shipped to the barter company.  Candie's Form 10-Q for the third quarter of fiscal year 1999 dated December 15, 1998, contained financial statements that materially overstated revenue by $1.8 million from this transaction (a six percent overstatement)   and income by $1.2 million.  The improper revenue allowed Candie's to convert a loss for the third quarter to a gain.  The overstatements of revenue and income from the August 1997 and October 1998 agreements with the barter company were material.
+
+  7.  Golden knew that Candie's falsely inflated its revenue by $1.8 million in the third quarter of fiscal year 1999 through the October 1998 barter transaction and had recorded this false revenue on its books and records.  Despite this knowledge, Golden signed Candie's Form 10-Q for the third quarter of fiscal year 1999 which contained financial statements reflecting $1.8 million in improper revenue from this barter transaction.   
+
+    8.  During the course of its audit in April 1999, Candie's auditors questioned both the August 1997 and October 1998 transactions with the barter company.  Candie's COO, and other employees including Golden, knowingly provided Candie's auditors with false information indicating that Candie's had shipped shoes to the barter company in October 1997 and October 1998 when, in fact, Candie's had not shipped the shoes at those times.  
+
+   Candie's Improperly Recorded Revenue and Income Generated By These Schemes 
+
+  9.  As a result of these fraudulent accounting practices, and as discussed above, Candie's materially inflated its reported financial results for the quarter ended October 31, 1997, the fiscal year ended January 31, 1998, and for the quarters ended April 30, 1998, July 31, 1998, and October 31, 1998.  Candie's reported these false results in a Form 10-Q filed in connection with the third quarter of fiscal year 1998, and Forms 10-Q for the first three quarters of fiscal year 1999, and in its Form 10-K for fiscal year 1998, which Candie's officers and directors, including Golden, signed.  Candie's also reported these false results in press releases issued in connection with each of these reporting periods.  These press releases were dated November 24, 1997, April 21, 1998, May 28, 1998, August 25, 1998 and December 2, 1998.
+
+   Cooperation By Golden 
+
+  10.  In determining to accept Golden's Offer, the Commission considered his cooperation afforded the Commission staff, including that he came forward to report the violation.  
+
+   Golden Committed Violations of Section 17(a) of the 
+
+   Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder 
+
+  11.  Section 17(a) of the Securities Act prohibits fraud in the offer or sale of securities.  Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraud in connection with the purchase or sale of securities.  To establish a violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the evidence must show:
+  
+ (1) misrepresentations or omissions of material fact or other fraudulent conduct; (2) "in" the offer or sale, or "in connection with" the purchase or sale, of securities; and (3) that the defendants acted with scienter.   See   SEC v. Chester Holdings, Ltd. , 41 F. Supp. 2d 505, 519 (D.N.J. 1999).
+  
+     12.  Golden committed violations of Section 17(a) of the Securities Act and Section 10(b) of Exchange Act and Rule 10b-5 thereunder because he knew, or was reckless in not knowing, that the press releases and the Form 10-K and Forms 10-Q described above were materially misleading.
+
+   Golden Caused Violations of Section 13(a) of the 
+  Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder 
+
+  13.  Issuers of securities registered under Section 12 of the Exchange Act must file accurate annual and quarterly reports with the Commission pursuant to Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.  Rule 12b-20 requires that statements and reports contain all information necessary to ensure that statements made in them are not materially misleading.  Implicit in these provisions is the requirement that the information reported be true, correct, and complete.  No showing of scienter is necessary to establish an issuer's violation of the corporate reporting provisions.   See   SEC v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978).
+
+      14.  Candie's committed violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder by filing the materially false Form 10-K and Forms 10-Q described above.
+
+      15.  Golden caused Candie's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder by overseeing the preparation of and signing the Form 10-K and Forms 10-Q described above.
+
+   Golden Committed Violations of, and Caused Violations of, 
+  Section 13(b) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder 
+
+  16.  Section 13(b)(2)(A) of the Exchange Act requires companies whose securities are registered pursuant to Section 12 of the Exchange Act to make and keep books, records, and accounts that accurately reflect the transactions and dispositions of their assets.  Section 13(b)(2)(B) of the Exchange Act requires issuers to maintain a system of internal controls to record transactions, maintain accountability of its assets, and permit financial statements to be prepared in conformity with GAAP.  Section 13(b)(5) of the Exchange Act requires that no person knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record or account.  Rule 13b2-1 prohibits any person from falsifying or causing the falsification of any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act.  Rule 13b2-2 prohibits, among other things, any officer or director of an issuer from directly or indirectly making or causing to be made any false or misleading statement to an accountant in connection with any audit or the preparation of any public filing.
+
+  17.  Candie's committed violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act as a result of the actions described above.  Candie's failed to maintain books and records that accurately reflected its sales transactions.  For instance, Candie's prematurely recognized revenue from sales transactions subject to the bill and hold practice on its books and records.  Candie's improperly recognized revenue on its books and records from sales transactions with the barter company.  Candie's also failed to maintain a system of internal controls that permitted its financial statements to be prepared in conformity with GAAP.  
+
+  18. Golden committed violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, and caused violations of Sections 13(b)(2)(A) and (B) of the Exchange Act as a result of the actions described above.  For instance, Golden knowingly falsified Candie's books and records by permitting the company to prematurely recognize revenue through the bill and hold practice.  Golden was also aware that Candie's internal accounting controls were inadequate to ensure that the company's financial statements were prepared in conformity with GAAP. Golden also provided Candie's auditors with misleading information, including supplying the auditors with false information indicating that Candie's had shipped shoes to the barter company in October 1997 and October 1998.
+
+   IV. 
+
+      In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Golden's Offer.  
+
+    Accordingly, IT IS HEREBY ORDERED that Golden, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2, and from causing any violations or any future violations of Sections 13(a) and 13(b)(2)(A) & (B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+      By the Commission.
+
+
+
+   Jonathan G. Katz
+  Secretary
+  _________________________
+      1        The findings herein are made pursuant to Golden'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/2003/AAER-1770.txt b/raw/aaer/2003/AAER-1770.txt
new file mode 100644
index 0000000000000000000000000000000000000000..808a901d083b45b88905ac74e184061fccee420e
--- /dev/null
+++ b/raw/aaer/2003/AAER-1770.txt
@@ -0,0 +1,1535 @@
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+              Candie's, Inc.
+           
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+   
+
+     
+
+      
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+             
+        Candie's, Inc.
+       
+
+             
+   
+
+
+        
+                   
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+  
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+   
+
+             
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+
+ Securities Act of 1933
+ Release No. 8228 / April 30, 2003
+  Securities Exchange Act of 1934
+ Release No. 47772 / April 30, 2003
+  Accounting and Auditing Enforcement
+ Release No. 1770 / April 30, 2003
+  Administrative Proceeding 
+ File No. 3-11100
+
+         In the Matter of       
+   Candie's, Inc.,  
+   Respondent.   
+     
+    : : : : :   
+     ORDER INSTITUTING 
+ PROCEEDINGS PURSUANT TO
+ SECTION 8A OF THE SECURITIES ACT
+ OF 1933 AND SECTION 21C OF THE
+ SECURITIES EXCHANGE ACT OF
+ 1934, MAKING FINDINGS, AND IMPOSING
+ A CEASE-AND-DESIST ORDER       I. 
+
+
+
+      The Securities and Exchange Commission ("Commission") deems it appropriate that  cease-and-desist 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") be, and hereby are, instituted against Candie's Inc. ("Candie's" or the "Respondent").
+
+   II. 
+
+      In anticipation of the institution of these proceedings, Candie's 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 the Respondent and the subject matter of this proceeding, which Respondent admits, Respondent consents to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order"), as set forth below.
+
+   III. 
+
+  On the basis of this Order and Candie's Offer, the Commission finds  1   that: 
+
+   Respondent 
+
+  1.  Candie's is a Delaware corporation with headquarters in Valhalla, NY.  Candie's primary business is designing, marketing, and distributing moderately priced women's shoes, handbags and other accessories.  During the period from 1997 to 1999, Candie's filed periodic reports with the Commission pursuant to Section 12(g) of the Exchange Act and its stock was traded on the Nasdaq National Market.
+
+   Background 
+
+  2.  This matter involves accounting fraud at Candie's.  From August 1997 until the Spring of 1999, former members of Candie's senior management employed fraudulent accounting practices designed to improve Candie's publicly reported financial condition.  As will be discussed below, among other practices, Candie's prematurely recognized revenue through the use of improper bill and holds.  Candie's also artificially inflated revenue by entering into illusory sales transactions with a barter company.  During the course of the fraud, Candie's had inadequate internal accounting controls, and the company failed to maintain accurate books and records.  Moreover, to cover-up its fraudulent accounting practices, Candie's former Chief Operating Officer ("COO"), its former Chief Financial Officer ("CFO"), and others, provided false information to Candie's auditors.  2     Candie's Engaged in an Improper Bill and Hold Practice 
+
+  3.  Candie's former COO directed employees to engage in a practice known as bill and hold.  At the end of certain quarters, Candie's prematurely recorded revenue from various purchase orders calling for future delivery of shoes, by recording these orders as final sales prior to shipping the shoes to customers.  Generally Accepted Accounting Principles ("GAAP") do not permit revenue recognition for sales unless risk and title has passed to the customer, which was typically when Candie's shipped shoes to the customer.  Candie's revenue recognition policy, as disclosed in its Commission filings, calls for recognition of revenue upon shipment of goods with risk and title passing.  
+
+  4.  Despite the prohibitions of GAAP and its own policy, from at least January 1998 through July 1998, Candie's prematurely recognized over $4.4 million in revenue through the improper use of bill and hold and other irregular shipping practices.  Specifically, Candie's Form 10-K for fiscal year 1998 dated May 1, 1998 ,  contained financial statements that reflected $1.8 million in improper revenue, and $775,000 in improper income, from the bill and hold practice and other irregular shipping procedures that violated GAAP.  The improper income from bill and hold allowed Candie's to convert a fourth quarter loss to a gain.  Candie's Form 10-Q for the first quarter of fiscal year 1999 dated June 11, 1998, contained financial statements reflecting $991,000 in improper revenue solely from the bill and hold practice.  Candie's Form 10-Q for the second quarter of fiscal year 1999 dated September 14, 1998, contained financial statements reflecting $1.7 million in improper revenue solely from the bill and hold practice. These overstatements of revenue and income were material.   
+
+   Candie's Entered Into Fraudulent Barter Transactions 
+
+  5.   Candie's improperly recognized revenue from two transactions with a barter company.  Specifically, in August 1997, Candie's former vice president of finance negotiated and signed an agreement with the barter company that provided Candie's would sell 160,000 pairs of shoes to the barter company for $10 per pair to be paid in a combination of cash and advertising credits.  Candie's then purportedly shipped 133,000 pairs of the shoes to the barter company and recorded $1.3 million in revenue from the sale of these shoes on its books and records on October 31, 1997, the last day of the fiscal quarter.  Candie's, however, should not have recognized this revenue because, among other reasons, it did not ship the shoes to the barter company until July 1999, and it was only then that Candie's was permitted under GAAP to recognize any revenue generated by the transaction.  Candie's Form 10-Q for the third quarter of fiscal year 1998, dated November 24, 1997, contained financial statements that materially overstated revenue by $1.3 million (a six percent overstatement) and income by $335,000 (a forty-one percent overstatement) from this transaction.  
+
+  6.  Similarly, in October 1998, Candie's former COO negotiated and signed an agreement with the barter company that increased the value of shoes that Candie's had purportedly already sold to the barter company as part of the August 1997 agreement by $600,000.  The October 1998 agreement also described the purported sale of an additional 62,000 pairs of shoes to the barter company.  Candie's then recorded $1.8 million in revenue from this transaction on its books and records on October 31, 1998, the last day of the fiscal quarter.   Once again, Candie's should not have recognized this revenue because, among other reasons, the 62,000 pairs of shoes described in the agreement were not shipped to the barter company.  Candie's former CFO was aware that Candie's falsely inflated its revenue by $1.8 million in the third quarter of fiscal year 1999 through the October 1998 barter transaction.  Candie's Form 10-Q for the third quarter of fiscal year 1999 dated December 15, 1998, contained financial statements that materially overstated revenue by $1.8 million (a six percent overstatement)   and income by $1.2 million from this transaction.  The improper revenue allowed Candie's to convert a loss for the third quarter to a gain. The overstatements of revenue and income from the August 1997 and October 1998 agreements with the barter company were material.
+
+      7.  During the course of its audit in April 1999, Candie's auditors questioned both the August 1997 and October 1998 transactions with the barter company.  Candie's former COO, its former CFO, and other employees, knowingly provided Candie's auditors with false information, including false shipping documents, indicating that Candie's had shipped shoes to the barter company in October 1997 and October 1998 when, in fact, Candie's had not shipped the shoes at those times.
+
+   Documents Inaccurately Reflected Credits with Candie's Buying Agent 
+
+  8.  Candie's purchased a large quantity of shoes from a buying agent located in Taiwan.  On occasion, Candie's would negotiate credits with its buying agent that Candie's would then use to offset the amounts it owed the buying agent.  These credits took various forms, such as chargebacks when Candie's received defective shoes, as well as volume incentive and business interruption credits.  (These credits would offset Candie's amounts owed to the buying agent and have the effect of reducing Candie's expenses and increasing Candie's net income.)   In April 1999, at Candie's former CFO's request, Candie's Chief Executive Officer ("CEO") signed two memoranda reflecting a $650,000 volume incentive credit and a $1 million business interruption credit, and backdated the memoranda as of May 1998 and October 1998 respectively.  Candie's former CFO then used these memoranda to convince Candie's auditors that the two credits totaling $1.65 million from Candie's buying agent were valid, and that Candie's properly recorded these credits in its financial statements for the fourth quarter of fiscal year 1999.
+
+   Candie's Improperly Recorded Revenue and Income Generated By These Practices 
+
+  9.  As a result of these fraudulent accounting practices, Candie's materially inflated its reported financial results for the quarter ended October 31, 1997, the fiscal year ended January 31, 1998, and for the quarters ended April 30, 1998, July 31, 1998, and October 31, 1998.  Candie's reported these false results in a Form 10-Q filed in connection with the third quarter of fiscal year 1998, which Candie's CEO signed, and Forms 10-Q for the first three quarters of fiscal year 1999, which Candie's CEO and then CFO signed, and in its Form 10-K for fiscal year 1998, which Candie's CEO, then COO and then CFO signed.  Candie's also reported these false results in press releases issued in connection with each of these reporting periods.  These press releases were dated November 24, 1997, April 21, 1998, May 28, 1998, August 25, 1998 and December 2, 1998.
+
+   Candie's Issued a Materially Misleading Press Release on April 30, 1999 
+
+  10.  On April 30, 1999 Candie's CEO authorized, and Candie's issued, a press release that preannounced Candie's revenue and earnings for fiscal year 1999, and further announced Candie's intention to file for a 15-day extension for its Form 10-K filing.  Among other things, the release reported Candie's anticipated pre-tax income to be $750,000 and indicated that revenue for fiscal year 1999 would be up twenty-four percent over fiscal year 1998.  The press release was misleading because it omitted certain material information.  The press release omitted information about the need to reverse the recognition of revenue from the October 1998 barter transaction, and the need to adjust the quarters in which Candie's recognized revenue from the bill and hold practice.  By April 30, 1999, Candie's CEO had reversed the October 1998 agreement with the barter company, and he had reason to investigate the bill and hold practice.  Additionally, by April 30, 1999, Candie's auditors had raised questions with Candie's CEO and others  about the barter company agreement and the credits with Candie's buying agent.  Moreover, the auditors had indicated that because of these concerns and Candie's inability to resolve questions they had raised, they would be unable to complete their audit of the financial statements by the time Candie's Form 10-K had to be filed.  In the press release, however, Candie's simply disclosed that it intended to file for a 15-day extension for its Form 10-K filing, and omitted to disclose that Candie's auditors were unable to complete their audit because of pending issues.  On May 12, 1999, Candie's announced that it may have to restate results for fiscal years 1998 and the first three quarters of 1999.   
+
+   Candie's Conducted An Internal Investigation and Restated Prior Financial Results 
+
+  11.  As noted above, in April 1999, Candie's auditors began to question certain transactions while auditing Candie's January 31, 1999 financial statements.  Before the audit was completed, the auditors advised Candie's that prior results might need to be restated, and recommended that Candie's conduct an internal investigation.  Candie's formed a Special Committee of the Board of Directors, which then conducted an investigation.  On September 22, 1999, Candie's filed an amended Form 10-K with the Commission containing its January 31, 1999 financial statements, and reporting material restatements of results for fiscal year 1998 and the first three quarters of fiscal year 1999.
+
+   Cooperation By Candie's 
+
+  12.  In determining to accept Candie's Offer, the Commission considered remedial acts promptly undertaken by Candie's and cooperation afforded the Commission staff. 
+
+   Candie's Committed Violations of Section 17(a) of the 
+
+   Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder 
+
+  13.  Section 17(a) of the Securities Act prohibits fraud in the offer or sale of securities.  Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraud in connection with the purchase or sale of securities.  To establish a violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the evidence must show:
+
+  (1) misrepresentations or omissions of material fact or other fraudulent conduct; (2) "in" the offer or sale, or "in connection with" the purchase or sale, of securities; and (3) that the defendants acted with scienter.   See   SEC v. Chester Holdings, Ltd. , 41 F. Supp. 2d 505, 519 (D.N.J. 1999).
+
+  14. Candie's committed violations of Section 17(a) of the Securities Act and Section 10(b) of Exchange Act and Rule 10b-5 thereunder because the company knew, or was reckless in not knowing, that the press releases and the Form 10-K and Forms 10-Q described above were materially misleading.
+
+   Candie's Committed Violations of Section 13(a) of the 
+  Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder 
+
+  15.  Issuers of securities registered under Section 12 of the Exchange Act must file accurate annual and quarterly reports with the Commission pursuant to Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.  Rule 12b-20 requires that statements and reports contain all information necessary to ensure that statements made in them are not materially misleading.  Implicit in these provisions is the requirement that the information reported be true, correct, and complete.  No showing of scienter is necessary to establish an issuer's violation of the corporate reporting provisions.   See   SEC v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978).
+
+      16.  Candie's committed violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 by filing the materially false Form 10-K and Forms 10-Q described above.
+
+   Candie's Committed Violations of 
+  Section 13(b) of the Exchange Act and Rules 13b2-1 thereunder 
+
+  17.  Section 13(b)(2)(A) of the Exchange Act requires companies whose securities are registered pursuant to Section 12 of the Exchange Act to make and keep books, records, and accounts that accurately reflect the transactions and dispositions of their assets.  Section 13(b)(2)(B) of the Exchange Act requires issuers to maintain a system of internal controls to record transactions, maintain accountability of its assets, and permit financial statements to be prepared in conformity with GAAP.  Section 13(b)(5) of the Exchange Act requires that no person knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record or account.  Rule 13b2-1 prohibits any person from falsifying or causing the falsification of any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act.  
+
+  18.  Candie's committed violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder as a result of the actions described above.  Candie's failed to maintain books and records that accurately reflected its sales transactions.  For instance, Candie's prematurely recognized revenue from sales transactions subject to the bill and hold practice on its books and records.  Candie's improperly recognized revenue on its books and records from sales transactions with the barter company.  Candie's also failed to maintain a system of internal controls that permitted its financial statements to be prepared in conformity with GAAP.  Additionally, Candie's knowingly falsified its books and records by, among other things, prematurely recognizing revenue through the bill and hold practice, as well as generating documents to reflect falsely that Candie's had shipped shoes to the barter company.
+
+   IV. 
+
+      In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Candie's Offer.  
+
+    Accordingly, IT IS HEREBY ORDERED that Candie's, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 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) & (B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 thereunder.
+
+      By the Commission.
+
+        Jonathan G. Katz
+  Secretary
+  ____________________________
+      1        The findings herein are made pursuant to Candie's Offer and are not binding on any other person or entity in this or any other proceeding.
+
+      2       Candie's then CFO and COO left the company in 1999 and 2000, respectively.
+    
+ 
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diff --git a/raw/aaer/2003/AAER-1771.txt b/raw/aaer/2003/AAER-1771.txt
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+              Kevin A. Howard, Michael W. Krautz, Kenneth D. Rice, Joseph Hirko, Kevin P. Hannon, Rex T. Shelby, and F. Scott Yeager
+           
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+ Litigation Release No. 18122 / May 1, 2003
+
+  Accounting and Auditing Enforcement Release No. 1771 / May 1, 2003
+
+   Securities and Exchange Commission v. Kevin A. Howard, Michael W. Krautz, Kenneth D. Rice, Joseph Hirko, Kevin P. Hannon, Rex T. Shelby, and F. Scott Yeager,  Civil Action No. H-03-0905 (Harmon) (SDTX) (May 1, 2003) (Amended Complaint)
+
+   SEC Files Amended Complaint Charging Five Enron Executives With Fraud and Insider Trading Relating to Enron's Broadband Subsidiary 
+
+   Kenneth D. Rice, former CEO, Joseph Hirko, former CEO, Kevin P. Hannon, former COO, Rex T. Shelby, former Vice President, and F. Scott Yeager, former Vice President, of Enron Broadband Services, Inc. charged with violating federal securities laws. 
+
+  The Securities and Exchange Commission ("Commission") today filed an Amended Complaint charging Kenneth D. Rice, former chief executive officer, Joseph Hirko, former chief executive officer, Kevin P. Hannon, former chief operating officer, Rex T. Shelby, a former senior vice president, and F. Scott Yeager, a former senior vice president, of Enron Broadband Services, Inc. ("EBS"), a wholly-owned subsidiary of Enron Corp., with violating the antifraud provisions of the federal securities laws.
+
+  The Amended Complaint alleges that Rice, Hirko, Hannon, Shelby and Yeager engaged in a wide-ranging fraudulent scheme to, among other things, inflate the value of Enron stock through a series of false and misleading statements and the omission of material information in such public statements about the technology, financial condition, performance and value of EBS.  The false and misleading statements took the form of press releases over a two-year period as well as presentations and statements made at Enron's annual analyst conference in January 2000 and 2001.  The false statements sought to distinguish the capabilities of the Enron Intelligent Network ("EIN"), Enron's broadband network, from other networks by claiming that it contained built-in intelligence - a software control layer called the "Broadband Operating System" or the "BOS" - that allowed it to perform more sophisticated applications than other networks.  The BOS and its predecessor, InterAgent, however, did not work as Enron claimed and the EIN was unable to perform the applications that were represented it could perform.  In addition, Rice and Hannon made false statements and material omissions concerning the value of Enron's broadband business and its commercial success at the January 2001 analyst conference.    
+
+  As a result of the false statements Enron's stock was artificially inflated.  Rice, Hirko, Hannon, Shelby and Yeager then sold large amounts of Enron stock at the inflated levels, at a time when they knew that the statements were false and misleading and when they were in possession of material non-public information concerning the true status of the technology and EBS' commercial success.  The unlawful profits were substantial:  Hirko -- $53.0 million; Rice -- $40.3 million; Yeager -- $35.1 million; Shelby -- $17.5 million; and Hannon -- $9.0 million. 
+
+  The Amended Complaint charges Rice, Hirko, Hannon, Shelby and Yeager with 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 Commission is seeking disgorgement of their ill-gotten gains, civil money penalties, a permanent bar from acting as an officer or director of a publicly held company, and an injunction against future violations of the federal securities laws.
+
+  This action amends the Complaint filed against Kevin A. Howard and Michael W. Krautz, two former EBS executives, on March 12, 2003.  That Complaint as well as the Amended Complaint alleges that Howard and Krautz engaged in a sham transaction, known as "Project Braveheart," which caused Enron to overstate its reported net income for the year 2000 by $53 million and for first quarter 2001 by $58 million.  The Amended Complaint alleges that the fictitious net income generated through Project Braveheart was an integral part of a broader fraudulent scheme to deceive the public about EBS.  
+
+  The Commission brought this action in coordination with the Justice Department's Enron Task Force, which today filed related criminal charges against Rice, Hirko, Hannon, Shelby and Yeager.
+
+  The Commission's investigation is continuing. For additional information see
+      SEC v. Michael J. Kopper  - Litigation Release 17692 (Aug. 21, 2002)
+
+       SEC v. Andrew S. Fastow - Litigation Release 17762 (Oct. 2, 2002)  
+
+       SEC v. Kevin A. Howard and Michael W. Krautz  - Litigation Release 18030 (Mar. 12, 2003)
+
+        SEC v. Merrill Lynch & Co., Inc., Daniel H. Bayly, Thomas W. Davis, Robert S. Furst, Schuyler M. Tilney  - Litigation Release 18038 (Mar. 17, 2003)
+   
+
+  SEC Complaint in this matter    Insider Trading Appendix in this matter  
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diff --git a/raw/aaer/2003/AAER-1772.txt b/raw/aaer/2003/AAER-1772.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e8838b2fbaa457166f28772018d83a6fbeec2c3e
--- /dev/null
+++ b/raw/aaer/2003/AAER-1772.txt
@@ -0,0 +1,1539 @@
+
+
+ 
+ 
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+     SEC.gov | Timothy E. Nolan 
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+ Securities Exchange Act of 1934
+ Release No.  47802 / May 6, 2003
+  Accounting and Auditing Enforcement
+ Release No.  1772 / May 6, 2003
+  Administrative Proceeding
+ File No.   3-11106
+  
+       In the Matter of 
+   TIMOTHY E. NOLAN, 
+   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 against Timothy E. Nolan ("Nolan" or "Respondent") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") be, and hereby are, instituted.    
+
+   II. 
+
+  In anticipation of the institution of these proceedings, Nolan has submitted an Offer of Settlement ("Nolan's 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, 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 contained herein, except that Respondent admits that the Commission has jurisdiction over him and over the subject matter of this proceeding, the Respondent consents to the issuance 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").
+
+   III. 
+
+    On the basis of this Order and Nolan's Offer, the Commission finds the following:
+
+    INTRODUCTION  
+
+  1. During the first two quarters of 2000 (the "relevant time period"), Cybear, Inc. ("Cybear"), which at that time was more than 70% owned by Andrx, accounted for revenues derived from a joint venture between Andrx  1   and Cybear in a manner that did not conform with generally accepted accounting principles ("GAAP").  Pursuant to that joint venture, Cybearclub LC ("Cybearclub"), Cybear sought to sell products over its Internet website that were distributed by Andrx.  Cybear generated nearly all of its revenues during the relevant time period from the joint venture, and in its periodic filings with the Commission, described those revenues as "e-commerce revenues" or revenues derived from "orders placed through the Internet."  
+
+  2. During the relevant time period, however, Cybear employees routed telephone orders generated by Andrx's telemarketing department onto Cybear's Internet website.  These orders, which should have been recognized by Andrx, accounted for a majority of Cybear's reported revenues.  In July 2000, senior management of Cybear and Andrx, including Respondent Timothy E. Nolan, learned that telemarketing orders were being entered onto Cybear's website and investigated the matter.  However, Cybear continued to describe these sales as revenues derived from "orders placed through the Internet" in its Form 10-Q for the quarter ended June 30, 2000.  Cybear also did not include this information in a proxy solicitation sent to shareholders in connection with a corporate reorganization and tracking stock plan.  These actions resulted in Cybear's violations of the books and records, financial reporting and proxy solicitation provisions of the Exchange Act. 
+
+    RESPONDENT  
+
+  3. Timothy E. Nolan, age 46, resides in Newtown, Pennsylvania.  Nolan was Cybear's president and chief operating officer from March 2000 until November 2001, when he resigned from those positions.   
+
+    RELATED ENTITIES  
+
+  4. Andrx, based in Fort Lauderdale, Florida, owns multiple subsidiaries that distribute and manufacture generic and brand name pharmaceuticals.  On September 5, 2000, pursuant to a corporate reorganization ("Reorganization"), Andrx became a Delaware holding company and acquired all of the outstanding shares of Cybear.  Andrx's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act.  Between September 7, 2000 and May 17, 2002, Andrx maintained two classes of common stock, both of which were listed on the NASDAQ National Market System ("NASDAQ"):  Andrx Group Common Stock, which tracked the performance of all Andrx divisions except Cybear, and Cybear Group Common Stock, which tracked the performance of Cybear and several other related entities.  Effective May 17, 2002, Andrx converted all of the outstanding shares of Cybear Group Common Stock into shares of Andrx Group Common Stock, which currently is listed for trading on NASDAQ and is the only outstanding class of common stock of Andrx.
+
+  5. Cybear, located in Boca Raton, Florida, is an information technology company providing Internet products and services to the healthcare industry.  Before the Reorganization, Cybear was 73% owned by Andrx, and it filed periodic reports with the Commission pursuant to Section 13(a) of the Exchange Act.   In September 2000, Cybear became a wholly-owned subsidiary of Andrx and no longer files separate periodic reports with the Commission.  Andrx continues to file consolidated financial statements with the Commission that include Cybear's results.
+
+    FACTS  
+
+   The Cybearclub Joint Venture 
+
+  6. In August 1999, Andrx and Cybear formed Cybearclub for the purpose of selling vaccines and injectibles distributed by Andrx through Cybear's Internet website.  In September 1999, Cybearclub began using Andrx's in-house telemarketing staff, who solicit physicians and pharmacies by telephone to buy generic pharmaceuticals from Andrx, to solicit existing Cybear and Andrx physician customers, as well as new customers, to purchase injectibles and vaccines through Cybear's website.  The parties intended that, through the introductory efforts of telemarketers, and lower pricing of Internet-ordered products, physician customers would purchase goods over the Internet, rather than through telemarketers.
+
+  7. At the time the parties established the joint venture, Andrx and Cybear intended that Cybear would recognize the revenue from purchases made through Cybear's website, while Andrx would continue to recognize the revenue from orders that customers placed over the telephone.  2    8. Cybear disclosed the joint venture for the first time in its Form 10-Q for the quarter ended September 30, 1999, which described the joint venture as "an arrangement with Andrx for the sale of products to physician offices on orders placed through Cybear's Physician Practice Portal product."  The Form 10-Q separately classified the joint venture's revenue as "e-commerce revenues."   
+
+  9. During 1999 and early 2000, Andrx telemarketers encountered numerous problems in convincing potential customers to order products through Cybear's website.  Among other things, Cybear's website experienced frequent technical problems, the on-line registration process was lengthy and complicated, and many of the physician offices did not have the time, desire, or proper computer equipment to access Cybear's website.  As a result, Cybear recognized less than $81,000 in revenues from Cybearclub during all of 1999.   
+
+   Internally-Entered Cybearclub Orders 
+
+  10. In an effort to overcome the technical problems and to increase Cybearclub sales, in approximately March 2000, Cybear employees began a practice of entering onto Cybear's website all first-time physician customer orders for any Andrx-distributed product available through Cybearclub, even though the customer placed his or her order over the telephone instead of through the Internet.  The Andrx telemarketers accepted such orders from customers over the telephone and then handed the order tickets to a Cybear employee, who then entered the order onto Cybear's website.      
+
+  11. This practice, however, was not limited to first orders and evolved into telemarketers accepting subsequent orders over the telephone and routing those orders to Cybear employees for entry onto Cybear's website.  In some instances, Cybear employees input orders onto Cybear's website for customers who did not have Internet access or the required computer equipment to input the order themselves.  The internally-entered Internet orders occurred without the knowledge or approval of senior management of either Cybear or Andrx.
+
+  12. Cybear failed to implement internal controls to prevent it from recognizing revenues from the internally-placed orders, which should have been recognized by Andrx according to the joint venture agreement.      
+
+  13. At least partly because of Cybear employees inputting Internet orders for physicians, the revenues that Cybear recognized from Cybearclub increased to approximately $215,000 in the first quarter of 2000, and to more than $1.1 million in the second quarter of 2000.  Cybearclub revenues constituted more than 80% of Cybear's total revenues in each of these quarters.    
+
+  14. In late July 2000, senior management of Andrx and Cybear were informed for the first time that a majority of Cybearclub's sales resulted from orders that were entered internally through Cybear's website.  Upon learning this information, senior management of Cybear and Andrx engaged in internal discussions to determine whether Cybear could recognize the revenues from internally-entered Cybearclub orders.  In addition, Andrx and Cybear consulted with their outside auditor.  Based on these discussions, Andrx and Cybear determined that Cybear could record revenues from internally-entered Cybearclub orders in its Form 10-Q for the quarter ended June 30, 2000.  However, Andrx and Cybear agreed to evaluate whether Cybear could continue recognizing revenues from internally-entered Cybearclub sales in future quarters.  
+
+  15. Although telephone orders had been routed to Cybear's website and recorded by Cybear as revenue, Cybear's Form 10-Q for the period ended June 30, 2000, which was filed with the Commission on August 14, 2000, did not sufficiently disclose these facts.  Prior to the second quarter of 2000, the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") portion of Cybear's periodic filings categorized the revenues from the Cybearclub joint venture as "e-commerce transactions."  The notes to Cybear's financial statements further described the joint venture as "an arrangement with Andrx for the sale by Cybear of products to physicians offices on orders placed through Cybear's Physician Practice Portal."   After learning of the internal orders, and after further discussions with Nolan and other members of Cybear management, Andrx's general counsel made changes in Cybear's Form 10-Q for the quarter ended June 30, 2000, including changing the description of the joint venture's revenues from "e-commerce" revenues to "Cybearclub" revenues.  However, these changes did not sufficiently disclose the facts described in paragraphs 11 through 15, above.  Nolan reviewed and signed Cybear's Form 10-Q for the quarter ended June 30, 2000.
+
+  16. Cybear's financial statements included in its Forms 10-Q for the first and second quarters of 2000 were not in conformity with GAAP because they did not  properly recognize revenues from internally-entered orders.  Under GAAP, Andrx should have recognized these revenues.   See  Statements of Financial Accounting Concepts, Concept 6, par. 78 (stating a company can recognize revenues only from those activities that constitute its ongoing major or central operations);  see   also  Statements of Financial Accounting Concepts, Concept 2, par. 160 (noting that "the quality of reliability and, in particular, of representational faithfulness leaves no room for accounting representations that subordinate substance to form.").   
+
+  17. At the end of the third quarter of 2000, Andrx and Cybear decided that Cybearclub could no longer recognize revenues from internally-entered sales.  By that time, Andrx had acquired Cybear, and Cybear's financial results were included in Andrx's periodic filings with the Commission.   Andrx's Form 10-Q for the period ended September 30, 2000, disclosed that Cybearclub used Andrx telemarketers to solicit potential customers, and disclosed that a majority of Cybearclub revenues resulted from telephone orders entered internally over Cybear's website.  
+
+     Inadequate Proxy Statement Disclosures 
+
+  18. On July 31, 2000, Cybear and Andrx sent their shareholders a joint proxy statement in connection with the proposed Reorganization, pursuant to which Andrx would acquire all of Cybear's outstanding common stock and create a separate class of common stock, Cybear Group Common Stock, to track the performance of Cybear and several other related entities.       
+
+  19. The "risks" section of the proxy statement warned that the market and price for the newly trading Cybear Group Common Stock could be influenced by any quarterly changes in Cybear's results of operations or changes in financial estimates.  The proxy emphasized that Cybear's success would be dependent upon, among other things,  Cybear's ability to generate e-commerce revenues.  However, the proxy statement did not disclose that the majority of Cybear's "e-commerce" revenues resulted from internally-placed orders that should have been recognized by Andrx, and that Andrx and Cybear were evaluating whether Cybear could recognize those revenues in the future.  On September 5, 2000, shareholders for Andrx and Cybear voted to approve the Reorganization.
+
+    LEGAL DISCUSSION  
+
+     Violations of Section 13(a) of the Exchange Act  
+    and Rules 13a-13 and 12b-20 Thereunder 
+
+    20. Section 13(a) of the Exchange Act requires issuers that have securities registered pursuant to Section 12 of the Exchange Act to file periodic reports containing information prescribed by specific Commission rules.  Such reports must be complete and accurate.  Rule 13a-13 requires the filing of quarterly reports on Form 10-Q.  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.  An issuer violates these provisions if it files a periodic report that contains false or misleading information.   See   Laser Photonics, Inc. , Securities Act Release No. 7463 (Sept. 30, 1997);  Spectrum Information Technologies, Inc. , Securities Act Release No. 7426 (June 25, 1997).  No showing of scienter is required to establish a violation of Section 13(a) of the Exchange Act.   SEC v. Savoy , 587 F.2d 1149, 1167 (D.C. Cir. 1978).  
+
+    21. Moreover, Item 303 of Regulation S-K requires a MD&A disclosure as part of periodic reports filed pursuant to Section 13(a).  The MD&A is intended to give the investor an opportunity to look at the company through the eyes of management and better evaluate the quality of earnings and the likelihood that past performance is indicative of future performance.   See   In the Matter of Caterpillar Inc. , Admin. Proc. File No. 3-7692 (March 31, 1992).  Item 303 specifies that, for interim periods, the MD&A include a discussion and analysis of the results of operations "to enable the reader to assess material changes in financial condition and results of operations" that have occurred since the end of the preceding fiscal year.  The discussion should include a description of any known trends or uncertainties that have had or that the registrant reasonably expects will have a material impact on net sales, revenues or income from continuing operations.   See  Regulation S-K, Item 303(b).  
+
+    22. During the relevant time period, Cybear was subject to the reporting requirements of Section 13(a) of the Exchange Act and the rules thereunder.  Cybear violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 because the financial statements included in its quarterly reports filed with the Commission on Forms 10-Q for the quarters ended March 31, 2000 and June 30, 2000, did not accurately report Cybear's revenues.  
+
+    23. In addition, Cybear's MD&A disclosure for the period ended June 30, 2000, did not discuss known uncertainties relating to its future revenue stream and financial condition.  Specifically, the MD&A did not sufficiently disclose that a majority of Cybear's revenues for the quarter ended June 30, 2000 included orders entered onto the Internet by Cybear employees.  Moreover, Cybear did not sufficiently disclose that senior management of both Cybear and Andrx were evaluating whether Cybear would continue to recognize revenues from internally-placed orders in future quarters and the potential impact this could have on Cybear's financial statements.  
+
+    24. Nolan, who reviewed and signed Cybear's Form 10-Q for the second quarter of 2000, was a cause of Cybear's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.    
+
+    VIOLATIONS    
+
+    25. Based upon the foregoing, the Commission finds that Nolan was a cause of Cybear's violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to accept the Offers of Settlement submitted by Nolan.
+
+    Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Nolan cease and desist from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.
+
+    By the Commission.
+
+                Jonathan G. Katz
+               Secretary 
+  __________________________
+      1    The joint venture involved one of Andrx's subsidiaries, Anda, Inc., which distributes generic pharmaceuticals, vaccines, and injectibles manufactured by third parties.  Anda employs telemarketers to solicit pharmacies and physicians to purchase the products that it distributes.
+
+      2     Cybearclub was structured as a joint venture, and Cybear consolidated 100% of Cybearclub's operating results.
+    
+ 
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diff --git a/raw/aaer/2003/AAER-1774.txt b/raw/aaer/2003/AAER-1774.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a2df7e0b6cad6aff018dc61af8c867e38b8c9b0d
--- /dev/null
+++ b/raw/aaer/2003/AAER-1774.txt
@@ -0,0 +1,1585 @@
+
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+ 
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+     SEC.gov | Michael R. Drogin, CPA 
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+              Michael R. Drogin, CPA
+           
+     
+ 
+
+   
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+      
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+        Michael R. Drogin, CPA
+       
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+                        
+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 47804 / May 6, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1774 / May 6, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-10762 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			  In the Matter of   
+
+			  MICHAEL R. DROGIN, CPA,   
+
+			  Respondent.   
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS  
+		 
+	 
+ 
+
+  I.  
+
+ Michael R. Drogin, CPA ("Drogin") has submitted an Offer of Settlement for the purpose of disposing of the issues raised by this proceeding, which was instituted pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice on April 22, 2002.  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 herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, Drogin consents to the entry of this Order Making Findings and Imposing Remedial Sanctions ("Order"). The Commission has determined that it is appropriate to accept the Offer of Settlement from Drogin, and accordingly is issuing this Order. 
+
+  II.  
+
+ On the basis of this Order and Drogin's Offer, the Commission finds  2   that: 
+
+ A.  Respondent  
+
+ Drogin resides in Jericho, New York and is licensed as a Certified Public Accountant in New York. Drogin has been a partner in the accounting firm Liebman, Goldberg & Drogin, LLP since January 1998. Drogin, as lead engagement partner, audited the financial statements of Teltran International Group, Ltd. for the years 1997, 1998 and 1999. 
+
+ B.  Other Entities and Person  
+
+ Liebman Goldberg & Drogin, LLP ("LGD") is an accounting firm based in Garden City, New York. 
+
+ Teltran International Group, Ltd. ("Teltran"), a Manhattan based telecommunications company, provided Internet telephony, 1-900 services and traditional carrier services during the relevant time. Teltran was removed from the OTC Bulletin Board in July 2000. 
+
+ Byron Lerner ("Lerner") was Chairman, President and Chief Executive Officer of Teltran during the relevant time. 
+
+ C.  Summary  
+
+ Drogin failed to conduct his audit of Teltran's 1999 financial statements in accordance with generally accepted auditing standards ("GAAS") and issued an audit report which incorrectly stated that Teltran's financial statements were prepared in conformity with generally accepted accounting principles ("GAAP"). Teltran's financial statements and Drogin's audit report were included in Teltran's 1999 Form 10-K filed with the Commission on April 12, 2000. 
+
+ D.  Facts  
+
+ On May 7, 1999, Teltran publicly announced that it intended to acquire ChannelNet ("CNET"). At the time of the announcement, Lerner expected the acquisition to close on June 1, 1999. However, due to negotiations concerning certain terms of the deal, the parties did not execute a written contract until July 15, 1999, and did not close the transaction until August 16, 1999. 
+
+ For accounting purposes, Teltran recorded the CNET acquisition as of June 1, 1999. However, under Accounting Principles Board Opinion No. 16 "Business Combinations" ("APB 16"), Teltran could not record the CNET acquisition on June 1, 1999. APB 16 only permits a company to book an acquisition earlier than the closing date if the buyer had "effective control" of the target company by the earlier date. Teltran did not have effective control of CNET on June 1, 1999, and did not obtain control until the closing on August 16, 1999. 
+
+ By using the earlier effective date, Teltran improperly reported over $2 million in revenues generated by CNET before the acquisition ever took place. Specifically, on August 19, 1999, Teltran filed its Form 10-QSB for the quarter ended June 30, 1999. In this Form 10-QSB, Teltran reported revenues of $456,720 and $540,179 for the three-month and six-month periods ended June 30, 1999, respectively. If Teltran had used the correct date for the CNET acquisition, revenue for these periods would have been $99,881 and $183,340, or 78% and 64% lower, respectively. 
+
+ On November 8, 1999, Teltran filed its Form 10-Q for the quarter ended September 30, 1999. In this Form 10-Q, Teltran reported revenues of $2,267,570 and $2,807,749 for the three-month and nine-month periods ended September 30, 1999, respectively. If Teltran had used the correct date for the CNET acquisition, revenues for these periods would have been $366,277 and $549,617, or 83% and 80% lower, respectively. 
+
+ On April 12, 2000, Teltran filed its Form 10-K for the year ended December 31, 1999. In this Form 10-K, Teltran reported revenues of $2,453,189 for the year ended December 31, 1999. If Teltran had used the correct date for the CNET acquisition, revenues for the year would have been $1,041,815, or 58% lower. 
+
+ On March 10, 2000, LGD issued an audit report that Teltran included in its December 31, 1999 Form 10-K. This audit report contained an unqualified opinion on Teltran's December 31, 1999 financial statements. In this audit report, LGD represented that: (1) Teltran's financial statements were in conformity with GAAP; and (2) LGD conducted its audit of Teltran's financial statements in accordance with GAAS. 
+
+ E.  Drogin Failed to Obtain Sufficient Competent Evidence  
+
+ 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. American Institute of Certified Public Accountants Codification of Statements on Auditing Standards ("AU") § 326.01. 
+
+ As set forth above, under APB 16, a company may not book an acquisition earlier than the closing date unless the acquiring company had "effective control" of the target company by the earlier date. In addition, if an earlier date is used, the acquiring company must adjust its purchase price to reflect control on the earlier date. 
+
+ Drogin did not obtain sufficient competent evidential matter upon which to base his audit opinion and thus did not exercise due professional care   because   he did not: object to Teltran's recording the CNET acquisition as of June 1, 1999 for accounting purposes;   audit the issue of effective control; document any audit procedures relating to that issue in his workpapers;   or conduct any research regarding the specific requirements of APB 16 until after LGD issued its audit report on Teltran's 1999 financial statements. 
+
+ F.  Drogin Failed to Maintain an Attitude of Professional Skepticism  
+
+ Auditors are required to exercise professional skepticism when performing audit procedures. AU § 230.07. At the time of the Teltran audit, the contract for the CNET acquisition was signed on July 15, 1999 and Teltran closed the transaction on August 16, 1999. These dates should have raised red flags as to the propriety of consolidating CNET as of June 1, 1999. 
+
+ There were other red flags that should have prevented LGD from issuing an audit report containing an unqualified opinion on Teltran's financial statements for the year ended December 31, 1999, including: no purchase price adjustments were made to reflect a June 1, 1999 acquisition date; Teltran's second quarter, third quarter, and year end revenues would be increased by a material amount if the June 1, 1999 date was used; and a related agreement for the purchase of Atlantic Communications never closed.  3   
+
+ Drogin did not maintain an attitude of professional skepticism and thus did not exercise due professional care because he did not conduct sufficient audit procedures to test whether Teltran actually had effective control of CNET as of June 1, 1999, and instead relied upon representations from Lerner that Teltran had effective control of CNET as of June 1, 1999. 
+
+ G.  Drogin Failed to Render an Accurate Audit Report on Behalf of LGD  
+
+ The 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. 
+
+ Drogin did not render an accurate audit report and thus did not exercise due professional care because Teltran's financial statements were not in conformity with GAAP, and because Drogin failed to perform sufficient procedures to audit Teltran's effective control of CNET as of June 1, 1999, in accordance with GAAS. 
+
+ H.  Drogin Failed to Exercise Due Professional Care  
+
+ Auditors must exercise due professional care in performing the audit and preparing the audit report. AU § 230.01. Due professional care concerns what the auditor does and how well he does it. AU § 230.04. 
+
+ Drogin did not exercise due professional care because he failed to: obtain sufficient competent evidential matter to support the assertions in the financial statements; maintain an attitude of professional skepticism; and render an accurate audit report on behalf of LGD. 
+
+  III.  
+
+ Based on the foregoing, the Commission finds that Drogin 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 Drogin's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that :  
+
+  
+
+ 
+	 Drogin is denied the privilege of appearing or practicing before the Commission as an accountant.
+	  
+	 
+	 After two years from the date of this order, Drogin 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 Drogin'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) Drogin, 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+		 (b) Drogin, 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 or equivalent organization; and 
+
+		 (c) As long as Drogin 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+		 
+	 
+
+	  
+	 
+	 The Commission will consider an application by Drogin 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 Drogin's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+ 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ ____________________ 
+
+ 
+	 
+		 
+			   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 be lacking in character or integrity or to have engaged in unethical or improper professional conduct; . . . (iv) With respect to persons licensed to practice as accountants, "improper professional conduct" under § 201.102(e)(1)(ii) means: (A) Intentional or knowing conduct, including reckless conduct, that results in a violation of applicable professional standards; or (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   
+			 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   
+			 Atlantic Communications was another telecommunications company that was supposed to be sold to Teltran along with CNET. The contract for the purchase of Atlantic Communications was not signed until August 16, 1999, the date the CNET deal closed. The Atlantic Communications acquisition, however, never closed. Nonetheless, approximately 10% of the revenues reported by Teltran in its December 31, 1999 Form 10-K actually related to Atlantic Communications. 
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diff --git a/raw/aaer/2003/AAER-1775.txt b/raw/aaer/2003/AAER-1775.txt
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No. 47808 / May 7, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1775 / May 7, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-11109
+
+        In the Matter of    
+  Nesco 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 Nesco, Inc. ("Respondent," "Nesco," or "the company") be instituted 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 ("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 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 ("Order") as set forth below.
+
+    Accordingly, IT IS ORDERED that proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted.
+
+    II.
+
+    On the basis of this Order and the Offer submitted by Respondent, the Commission makes the following findings  1  :
+
+   RESPONDENT 
+
+    1.  Nesco, Inc . is an Oklahoma corporation based in Tulsa, Oklahoma.  Formerly known as National Environmental Services, Inc., Nesco employed a staff of over 300 in several states.   The company performed environmental remediation services for numerous state agencies and constructed and serviced fueling systems for convenience stores, grocery stores, and gas stations.    As of December 31, 2000, Nesco originally reported total assets of $43,054,000, with approximately 9.3 million shares outstanding.  In July 2001, Fortune Small Business Magazine named Nesco one of America's 100 fastest growing small companies.  At all relevant times, Nesco's common stock was quoted on the Nasdaq stock market and was registered with the Commission under Section 12(g) of the Exchange Act.  Nesco was required to file periodic reports with the Commission pursuant to Section 13(a) of the Exchange Act.  On November 26, 2001, Nesco filed a voluntary petition for reorganization pursuant to Chapter 11 of the United States Bankruptcy Code.  The company remains in bankruptcy reorganization.
+
+   SUMMARY 
+
+    2. This matter involves an egregious financial-fraud scheme perpetrated by Nesco's former senior officers and serious failures in its internal accounting controls uncovered in an investigation following discovery of the scheme.  Nesco's former chairman and CEO, Eddy L. Patterson, and its former controller and acting CFO (now deceased) (referred to herein as "controller"), grossly overstated the company's earnings by booking 28 false invoices totaling $2,153,986 in the fourth quarter of 2000 and one invoice totaling $183,385 in the first quarter of 2001.   The false entries caused overstatements of pretax income of 400% in fiscal year 2000 and 175% in the first quarter of 2001.  Nesco included these false receivables in its Form 10-KSB for the year ended December 31, 2000, and in its Form 10-QSB for the first quarter of 2001.  2    3. A Nesco internal investigation in the third quarter of 2001, sparked by discovery of the bogus-invoice scheme, uncovered other misstatements in Nesco's 2000 financial statements.  These misstatements materially affected Nesco's financial results for the period.  First, through the failure to communicate throughout the company a change in its accounting method for revenue accrual, Nesco overstated work-in-process ("WIP")  3   revenue by $923,244.  Second, through recording errors, Nesco overstated its lease-contracts receivable by $460,466 and its accounts receivable by $308,830.  Finally, through a failure to write off certain uncollectible accounts, Nesco overstated its accounts receivable by an additional $272,422.  These failures also caused Nesco's assets for the first quarter of fiscal year 2001 to be materially overstated in its Form 10-QSB for the quarter.  
+
+   FACTS 
+
+  Patterson Enlists Nesco's Controller in a Scheme
+  to Inflate its Income for Fiscal Year 2000 
+
+    4. On or about January 19, 2001, Patterson enlisted Nesco's controller in a scheme to inflate Nesco's income for fiscal year 2000.  Patterson concocted the scheme to conceal Nesco's poor financial performance from its shareholders, from its credit facility, and from a venture-capital firm from which Nesco was attempting to raise capital.
+
+  5. In furtherance of this scheme, Patterson directed the controller to create 28 false invoices totaling $2,153,986 and to enter them into Nesco's financial accounting system as valid accounts receivable for fiscal year 2000.  The controller then instructed a low-level employee in Nesco's accounting department to physically create the bogus invoices.  He further instructed the employee to backdate the invoices to dates ranging from December 19 to December 31, 2000, and not to mail them to the customers appearing on the invoices.  Instead, the controller told the employee that they were "bill and hold" invoices.  Further, in April 2001, the controller instructed the employee to create another false invoice in the amount of $183,385.  This invoice was backdated to March 2001 and included in accounts receivable in Nesco's financial statements for the first quarter of fiscal year 2001.
+
+    6. The fictitious invoices reflected false accounts receivable that had not accrued to Nesco and were completely unrelated to services actually performed by the company or billed to its customers.  The resulting phantom revenue and income, however, were recorded in financial statements appearing in Nesco's Form 10-KSB for the fiscal year ended December 31, 2000 and in Nesco's Form 10-QSB for the first quarter of 2001.  Accordingly, the scheme yielded for Patterson the intended effect of falsely inflating Nesco's income for the reporting periods.
+
+  Failed Internal Accounting Controls Further
+  Inflate Nesco's Income for Fiscal Year 2000 
+
+  7. Other financial recording problems were endemic to Nesco during the 2000 fiscal year.  These deficiencies, which were independent from Patterson's false-invoice scheme, resulted from significant control failures at the company.  Specifically, a series of failed internal accounting controls and recording errors caused Nesco to overstate its pretax income for fiscal year 2000 by an additional $1,958,962, an overstatement exceeding 400%.  This overstatement consisted of several elements.  First, Nesco overstated its WIP revenue by $923,244 due to a failure to establish, implement, and enforce internal accounting controls ensuring the validity of recorded revenue.  Second, Nesco overstated its accounts receivable by $575,252 as the result of a recording error in the amount of $302,830 and the failure to write off uncollectible accounts receivable in the amount of $272,422.  Finally, Nesco overstated its lease-contracts receivable account for fiscal year 2000 by $460,466 resulting from a separate recording error.
+
+   Nesco Failed to Maintain Internal Accounting Controls over WIP Revenue 
+
+      8. At all relevant times, a large part of Nesco's business involved environmental clean-up work and gas station construction for customers engaged in the retail fueling business.  These were long-term projects, usually requiring at least several months to complete.  On a number of these long-term projects, Nesco entered into "pay-for-performance" contracts with its customers.  Under its pay-for-performance contracts, Nesco invoiced its customers only after reaching certain performance "milestones" specified in the contracts.  Nesco invoiced its customers upon achieving four milestones-upon completion of 25%, 50%, 75%, and 100% of the job.
+
+  9. Before January 2000, Nesco's accounting policy allowed Nesco to recognize estimated revenue based on the actual percentage of performance achieved, regardless of whether the contractual milestones had been reached.  If, for example, Nesco completed 15% of a pay-for-performance contract in a given quarter, then it could recognize estimated revenue for the quarter based upon 15% completion.  Beginning in January 2000, however, Nesco adopted a new accounting method to recognize revenue on its pay-for-performance contracts.  Under the new accounting method, Nesco could recognize revenue only when a performance milestone had been achieved that permitted the company to invoice its customers.  Using the above example, Nesco could not recognize any revenue in the quarter under the new system because it would have completed only 15% of the job-below the minimum 25% milestone.
+
+    10. After Nesco adopted the new policy effective in fiscal year 2000, however, Nesco's environmental divisions in Oklahoma, South Carolina, and Kentucky recorded revenue on their environmental pay-for-performance contracts based on the old accounting method.  By contrast, Nesco's environmental divisions in four other states made the accounting change and recorded WIP properly.  Nesco's environmental divisions did not uniformly follow the new revenue-recognition policy because the company had not clearly communicated the accounting change to all of the divisions.  As a result, on its pay-for-performance contracts, Nesco prematurely recognized WIP revenue of $923,244 in fiscal year 2000.
+
+   Nesco Failed to Maintain Internal Accounting Controls over Receivables 
+
+    11. Nesco also overstated its fiscal year 2000 accounts receivable and lease-contracts receivable by a combined $1,035,718.  This overstatement resulted from numerous recording errors and the failure to write off impaired, uncollectible accounts in accordance with generally accepted accounting principles ("GAAP").  First, Nesco improperly booked $272,422 in delinquent accounts receivable that should have been written off due to age and poor payment history.  4    Second, Nesco erroneously booked a $308,830 account receivable twice in connection with a merger transaction in early 2000. Finally, Nesco committed a recording error on a multi-million dollar lease in 2000 that caused an overstatement of $460,466 in its lease-contracts receivable account for the period.
+
+   Discovery of the Scheme and Failed Internal Controls 
+
+    12. In May 2001, Nesco hired a new chief financial officer.  Shortly thereafter, the accounting-department employee enlisted by the controller revealed to the new CFO the false invoices she had created at Patterson and the controller's direction.  The CFO immediately began an investigation.  This internal investigation and subsequent audit exposed Patterson's false-invoice scheme and, further, uncovered Nesco's overstatements in revenue and receivables resulting from its failed internal accounting controls.
+
+  Nesco Restates its Financial Statements for Fiscal Year 2000 
+  and the First Quarter of Fiscal Year 2001 
+
+  13. Accordingly, in August 2001, Nesco filed an amended Form 10-KSB and an amended Form 10-QSB.  These filings restated Nesco's financial statements for fiscal year 2000 and the first quarter of fiscal year 2001.  At the time of the restatements, however, the company's internal investigation had not revealed the $460,466 lease-contract receivable recording error from fiscal year 2000 or the $183,385 bogus invoice from the first quarter of 2001.  These overstatements were discovered in September 2001 and disclosed in Nesco's third-quarter filing for that year.
+
+  14. The amended Forms 10-KSB and 10-QSB disclosed that Nesco had overstated its accounts receivable by $2,729,238 and WIP revenue by $923,244, resulting in an asset and revenue overstatement of $3,652,582 for fiscal year 2000.  The amended Form 10-KSB reduced Nesco's pretax income for fiscal year 2000 from $4,602,000 to $950,000, a reduction of almost 80%.  The amended Form 10-QSB cut Nesco's quarterly accounts receivable figures by $2,509,000, from $14,499,000 to $11,990,000, reversing an approximately 20% overstatement of assets for the quarter that carried over from fiscal year 2000.  Nesco's third-quarter Form 10-QSB, filed in November 2001, further disclosed that, in fiscal year 2000, Nesco's assets had been overstated by an additional $460,466 as a result of the recording error in lease-contracts receivable and that its assets had been overstated by $183,385 in the first quarter 2001 by an unsupported invoice.
+
+  15. In fiscal year 2000, the combined overstatements-resulting from Patterson's fraudulent-invoice scheme and Nesco's failed internal accounting controls-caused the company's pretax income to be overstated by $4,112,948, or over 840%.  Nesco originally reported fiscal year 2000 pretax income of $4,602,000, but should have reported $489,052.  In the first quarter of fiscal year 2001, the $183,385 false invoice overstated Nesco's quarterly pretax income by over 175%.  Following the restatements, Nesco's stock declined from over $3 per share to below a penny per share.  It was suspended from trading on the Nasdaq stock market for over six months and was ultimately delisted.  Currently in bankruptcy, Nesco's stock is quoted in the Pink Sheets at under a penny per share.
+
+   Nesco's Remedial Efforts and Cooperation 
+
+  16. In determining to accept Nesco's Offer, the Commission considered the substantial remedial efforts undertaken by the company, its cooperation with the Commission's investigation, and other mitigating factors.  Upon discovering the misstatements, Nesco took immediate corrective actions.  It immediately ousted Patterson, issued a press release disclosing the misstatements, issued restated financial statements, and launched an internal investigation to ensure that it had disclosed the whole scheme and any other financial mismanagement.  Under new management, Nesco also enhanced its internal control procedures to ensure that receivables and revenue are recorded properly in the future.  Moreover, Nesco fully cooperated with the Commission staff in its investigation of the company.
+
+   CONCLUSION 
+
+    17. As a result of the foregoing, the Commission finds that Nesco violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  Section 13(a) of the Exchange Act requires issuers to file periodic reports with the Commission containing such information as the Commission prescribes by rule.  Exchange Act Rule 13a-1 requires issuers to file annual reports, while Rule 13a-13 requires issuers to file quarterly reports.  Under Exchange Act Rule 12b-20, such reports must contain, in addition to disclosures expressly required by statute and rule, such other information as is necessary to ensure that the statements made are not materially misleading under the circumstances.  Section 13(b)(2) of the Exchange Act requires issuers to maintain an adequate system of internal controls and to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the issuer.
+
+  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 Securities Exchange Act of 1934, that Respondent, Nesco, Inc., cease and desist from committing or causing any violation and any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
+
+    By the Commission
+
+                Jonathan G. Katz
+               Secretary
+
+  ______________________________
+      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 matter, the Commission filed a civil action against Nesco's former chairman and CEO in federal district court in Tulsa, Oklahoma, resulting from his misconduct described herein.   SEC v. Eddy L. Patterson , Civil No. 03-CV-302, N.D. OK (Tulsa Division) (May 7, 2003).   See  Lit. Rel. 18125.
+
+      3      Nesco's accounting system treated WIP as an unbilled receivable on environmental and construction contracts that were producing revenue for the company but that had not yet been billed to customers.  Nesco's periodic filings with the Commission described WIP as "costs and estimated earnings in excess of billings on uncompleted contracts."  
+
+      4        GAAP requires accrual of a reserve and a corresponding charge to income for an estimated loss from a loss contingency if the following two conditions are met:  (a) information indicates that it is probable that an asset has been impaired; and (b) the amount of loss can be reasonably estimated.   Accounting for Contingencies , Statement of Financial Accounting Standards No. 5 (Fin. Accounting Standards Bd. 1975).
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diff --git a/raw/aaer/2003/AAER-1776.txt b/raw/aaer/2003/AAER-1776.txt
new file mode 100644
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@@ -0,0 +1,1380 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Eddy L. Patterson 
+     
+     
+     
+     
+     
+     
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+ LITIGATION RELEASE NO.  18125 / May 7, 2003
+
+  ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1776 / May 7, 2003
+
+   SECURITIES AND EXCHANGE COMMISSION V. EDDY L. PATTERSON, Defendant , Civil Action No. 03 cv-302 (U.S.D.C./N.D. OK)(Tulsa Division)
+
+   SEC CHARGES FORMER CHAIRMAN AND CEO OF NESCO, INC. WITH FINANCIAL FRAUD 
+
+  On May 7, 2003, the U.S. Securities and Exchange Commission filed a civil securities fraud case in the United States District Court for the Northern District of Oklahoma (Tulsa Division) against Eddy L. Patterson, the former chairman and chief executive officer of Tulsa-based Nesco, Inc., a former Nasdaq company once recognized by Fortune Small Business Magazine as one of America's 100 fastest growing small companies (OTC: NESCQ)("Nesco" or "the company").  The SEC charged Patterson with financial fraud and other securities law violations related to his orchestration of a false invoice scheme that inflated Nesco's assets and revenue for its fiscal year 2000 and first quarter 2001 by over $2 million.  This action was brought in close coordination with the U. S. Attorneys' Office in Tulsa, Oklahoma and the Internal Revenue Service-Criminal Investigation Division, which simultaneously announced Patterson's indictment and arrest on related criminal securities fraud charges and bank and tax fraud charges.  Patterson, age 59, resides in Bixby, Oklahoma.
+
+  According to the SEC's complaint, Patterson was Nesco's chairman and CEO at all relevant times until August 16, 2001, when the company's board of directors forced him to resign.  Assisted by Nesco's now deceased former controller, Patterson grossly overstated the company's earnings by booking 28 bogus customer invoices totaling $2,153,986 in the fourth quarter of 2000 and one invoice totaling $183,385 in the first quarter of 2001.  These false invoices resulted in overstatements to Nesco's pretax income for those periods of 400% and 175%, respectively.  Nesco included these false figures in its annual and quarterly reports filed with the SEC.  The complaint further alleges that Patterson, who had borrowed heavily to acquire large amounts of Nesco stock, devised the fraudulent scheme to conceal the company's dismal financial performance from investors, bolstering Nesco's share price and preventing his personal financial ruin.
+
+  The SEC alleges that Patterson created the majority of the false invoices in January 2001 and backdated them to December 2000 to permit their inclusion in Nesco's 2000 financial results.  The invoices reflected false accounts receivable that were not due to Nesco and were completely unrelated to services actually performed by the company or billed to its customers.  The resulting phantom revenue and assets, however, were included in Nesco's fiscal year 2000 financial statements.  The complaint further alleges that Patterson lied to Nesco's auditor to prevent discovery of the scheme during its audit of the company's 2000 fiscal year.  The complaint also alleges that Patterson included these fictitious invoices in the financial statements contained in Nesco's Form 10-KSB, which he signed and filed with the SEC on behalf of Nesco on April 2, 2001.
+
+  According to the complaint, Nesco's management became suspicious of the company's financial statements for the 2000 fiscal year and commenced an internal investigation in May 2001.  This investigation ultimately revealed Patterson's fraud and caused Nesco to compel his immediate resignation from the company on August 16, 2001.  Further, Nesco voluntarily issued a press release disclosing its financial overstatements, restated its financial results for its fiscal year 2000 and first quarter 2001, and continued its internal investigation to ensure that it had uncovered the whole scheme and any other financial mismanagement.  Nesco also fully cooperated with the SEC in its investigation of the matter.
+
+  Nesco's continuing internal investigation revealed a number of additional material misstatements in the company's financial statements as a result of inadequate internal controls. First, Nesco overstated revenue from work in process by $923,244.  Second, Nesco overstated lease-contracts receivable by $460,466, due to a recording error.  Finally, Nesco overstated other accounts receivable by an additional $575,252, as a result of a recording error and a failure to write off uncollectible accounts.  These misstatements, combined with the bogus-invoice scheme, overstated Nesco's 2000 pretax income by over 840%.
+
+  The specific charges brought by the SEC against Patterson include securities fraud, circumventing internal controls, falsifying books and records, lying to auditors, and violations of periodic reporting and books and records requirements, in violation of, or aiding and abetting violations of, Sections 10(b), 13(a), 13(b)(2), and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2.  In its complaint, the SEC requests that Patterson be permanently enjoined from future securities violations, that a civil monetary penalty be assessed against him, that he be ordered to disgorge the full amount of compensation he received from Nesco during the relevant period, including salary and bonuses, with prejudgment interest, and that he be barred from serving in the future as an officer or director of a public company.
+
+  On May 7, 2003, the SEC also announced the institution of cease-and-desist proceedings against Nesco based on the aforementioned misconduct.  The SEC simultaneously accepted Nesco's offer to consent to a cease-and-desist order.  The order, in charging violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, orders Nesco to cease and desist from committing or causing any future violations of the above books and records, reporting, and internal controls provisions.
+  
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+  SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1777.txt b/raw/aaer/2003/AAER-1777.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2160a00c45e884bd7d4bbaf6f2c9c0bfb8a08115
--- /dev/null
+++ b/raw/aaer/2003/AAER-1777.txt
@@ -0,0 +1,1380 @@
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+              Andrx Corp.
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+        Andrx Corp.
+       
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+
+ Litigation Release No. 18126 / May 7, 2003
+
+  Accounting and Auditing Enforcement
+ Release No.  1777 / May 7, 2003
+
+  Securities and Exchange Commission v. Andrx Corp., Civil Action No. 03-60838-CIV-Zlock (S.D. Fla., Filed May 6, 2003)
+
+  SEC Brings Settled Enforcement Actions against Andrx Corp.
+
+    The Securities and Exchange Commission (Commission) announced today that it filed settled enforcement actions against Andrx Corp. in connection with alleged accounting improprieties that occurred at Andrx and its Internet subsidiary, Cybear, Inc.  Andrx has consented, without admitting or denying the Commission's allegations against it, to pay a civil penalty of $100,000 in a civil action filed in federal district court, and to the entry of an order (Order) by the Commission that it cease and desist from certain violations of the issuer reporting, books and records and proxy provisions of the Securities Exchange Act of 1934 (Exchange Act).  
+
+    The Commission's case arises from accounting improprieties in connection with a joint venture between Andrx and Cybear to sell Andrx distributed products over Cybear's website, and books and records violations regarding Andrx's accounts receivable balances between 1999 and 2002.  More specifically, the complaint in the Commission's civil action (as well as Order in the related cease-and-desist proceedings) alleges that during the first two quarters of its fiscal year ended December 31, 2000, Cybear improperly recognized as Internet revenue telephone orders taken by Andrx telemarketers.  According to the Commission's complaint, telephone orders for Andrx distributed products that should have been recognized by Andrx were instead input onto Cybear's Internet website by Cybear employees and recognized by Cybear as revenue.  In some instances, Cybear employees input orders onto the Internet for customers who did not have Internet access or a computer.  The complaint alleges that these orders accounted for a majority of Cybear's reported revenues during the relevant time periods.  According to the Commission's complaint, Cybear's recognition of these revenues was not in conformity with generally accepted accounting principles.  
+
+  The Commission's complaint further alleges that the Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") section of Cybear's periodic filings with the Commission did not adequately disclose Cybear's revenues.  Specifically, the complaint alleges that in July 2000, after senior management of Cybear and Andrx learned that Andrx telemarketing orders were being entered onto Cybear's website, Cybear described these sales as revenues derived from "orders placed through the Internet" in its Form 10-Q for the quarter ended June 30, 2000.  Cybear also did not provide sufficient information regarding its revenues in a proxy solicitation sent to shareholders in connection with a corporate reorganization and tracking stock plan that created a separate tracking stock for Cybear. 
+
+  The Order in the related cease-and-desist proceedings against Andrx also finds that between 1999 and the quarter ended March 31, 2002, Andrx filed financial statements with the Commission that overstated Andrx's net accounts receivable, and understated the related provision for doubtful accounts, by an aggregate of approximately $5.4 million.  This conduct resulted from the unauthorized actions of an Andrx employee, but led to violations by Andrx of the books and records and internal controls provisions of the federal securities laws.  In August 2002, after learning of these improper entries, Andrx promptly reported them to the Commission staff and disclosed them in a press release and Commission filing.
+
+  Based upon the conduct alleged in the complaint, the civil action alleges that Cybear violated Sections 13(a), 13(b)(2) and 14(a) of the Exchange Act and Rules 12b-20, 13a-13 and 14a-9 thereunder.  The complaint also alleges that during the course of the Commission's investigation of Cybear's misconduct, Cybear's cooperation with the Commission's inquiry was at times less than complete.  Without admitting or denying the Commission's allegations, Andrx has agreed to pay a $100,000 penalty based on Cybear's violations in order to settle the civil action.  
+
+  In the related cease-and-desist proceedings, the Commission ordered Andrx to cease and desist from committing or causing any violation and any future violations of Sections 13(a), 13(b)(2) and 14(a) of the Exchange Act and Rules 12b-20, 13a-13 and 14a-9 thereunder, and ordered Scott Lodin, Andrx's general counsel, to cease and desist from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.  The Commission also issued a separate order against Timothy E. Nolan, the former president and chief operating officer of Cybear, which ordered him to cease and desist from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder.  
+  
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diff --git a/raw/aaer/2003/AAER-1778.txt b/raw/aaer/2003/AAER-1778.txt
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+++ b/raw/aaer/2003/AAER-1778.txt
@@ -0,0 +1,1367 @@
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+              Eagle Building Technologies, Inc. and Anthony Damato
+           
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+        Eagle Building Technologies, Inc. and Anthony Damato
+       
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+  Securities and Exchange Commission v. Eagle Building Technologies, Inc. and Anthony Damato , NO. (D.D.C. 1:02CV00397). 
+
+  United States v. Anthony M. Damato , (S.D. FLA. 02-20456CR). 
+ 
+The Securities and Exchange Commission announced today that on April 29, 2003 Anthony M. Damato, the former president and chief executive officer of Eagle Building Technologies, Inc., of Boca Raton, Florida, pleaded guilty in a criminal case to one count of securities fraud in the Southern District of Florida before United States District Judge Jose E. Martinez. 
+ 
+In pleading Damato admitted, among other things, that from June 2000 to February 2002 he falsified the company records and press releases of Eagle Building, the stock of which is publicly traded under the symbol "EGBT."  Specifically, Damato created fraudulent bank account statements and purchase orders and diverted privately invested funds to Eagle Building to create the false appearance of substantial revenue to Eagle Building from sales and operations in India.  He also caused false quarterly and annual reports to be filed with the Securities and Exchange Commission.  Damato also caused misleading press releases to be issued about testing and capabilities of a surveillance system by Biosterile Technologies, Inc., a company represented by Eagle Building. The sentencing hearing has been scheduled for July 11, 2003 with a maximum sentence of ten years imprisonment, a money penalty of up to $1,000,000 and mandatory restitution.   
+ 
+In a separate civil lawsuit previously brought by the Securities and Exchange Commission on March 1, 2002, Damato was enjoined by the United States District Court for the District of Columbia on October 22, 2002 from violating the federal securities laws in connection with the same false quarterly and annual reports misstating revenues earned by Eagle Building, and misleading press releases. Damato was enjoined from violating the anti-fraud, periodic reporting and internal record-keeping provisions of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13b2-1, and 13b2-2, and aiding and abetting Eagle Building's violations of Section 13(a) and 13(b)(2) of the Exchange Act and Rules 13a-1 and 13a-13.  The district court barred Damato from serving as an officer or director of a public company and ordered him to disgorge trading profits from sales of Eagle Building stock in the amount of $56,263 plus prejudgment interest of $5,637, and to cancel 367,742 shares of stock, part of which Damato received as compensation for acting as an officer and director of the company.  Damato consented to the civil injunction without admitting or denying the allegations in the Commission's complaint.  See Litigation Releases No. 17389, 17803, 18054. 
+ 
+The district court also enjoined Eagle Building on May 20, 2002, from violating the anti-fraud, periodic reporting and internal record keeping provisions of the federal securities laws based on the consent of the company in which it neither admitted nor denied the allegations of the complaint. See  Litigation Release No. 17803 . 
+ 
+    SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2003/AAER-1779.txt b/raw/aaer/2003/AAER-1779.txt
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+     SEC.gov | Keith Pietila et al. 
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+ Litigation Release No.  18131 / May 12, 2003 
+Accounting and Auditing Enforcement Release No. 1779 / May 12, 2003 
+
+ Former MCA CFO, Previously Sued by SEC for Involvement in MCA Financial and Offering Fraud, Sentenced to Prison Term and Restitution  
+
+ United States v. Keith Pietila et al., Case No. 01-80514 (E.D. Mich.) 
+
+ Securities and Exchange Commission v. Keith Pietila et al., Case No. 02-60082 (E.D. Mich.) 
+
+ The Securities and Exchange Commission (Commission) announced that on May 8, 2003, the Honorable Judge John Feikens of the United States District Court for the Eastern District of Michigan sentenced Keith Pietila, former Chief Financial Officer of MCA Financial Corporation (MCA), to four years in prison for his involvement in a fraudulent scheme perpetrated by MCA.  Judge Feikens also ordered Pietila to pay $256 million in restitution.  Previously, on January 23, 2002, Pietila pled guilty to one count of mail fraud and one count of making false statements to the Commission. 
+
+ Pietila and six other MCA executives and employees (defendants) are the subjects of a pending civil injunctive action filed by the Commission on April 23, 2002 in the United States District Court for the Eastern District of Michigan involving alleged violations of the antifraud, reporting and other provisions of the federal securities laws.  The Complaint alleges that MCA was a mortgage banking company headquartered in Southfield and Troy, Michigan that engaged in a financial and offering fraud in connection with two different types of securities.  First, the Complaint alleges that MCA sold $71 million of securitized interests in pools of mortgage loans from 1994 through 1999 while knowingly misrepresenting the risk, rate of return and historical performance of the interests in the offering materials.  The Complaint alleges that, as a result, investors lost at least $49 million.  Second, the Complaint alleges that MCA engaged in the fraudulent sale of $19 million in debentures between 1994 and 1999 by including financial statements that materially inflated its assets, income and equity in registration statements and annual and quarterly reports filed with the Commission.  The Complaint further alleges that MCA materially inflated its assets, income and equity by improperly: (1) recognizing gains on sale of real estate to related parties; (2) valuing certain mortgages held for resale; (3) failing to disclose related party mortgages held for resale; (4) failing to write down uncollectible related party receivables; and (5) failing to disclose MCA's potential liability in connection with the fraudulent sale of the securitized interests in pools of mortgage loans.  The Complaint alleges that as a result, investors in the debentures lost all $19 million invested.   
+
+ The Complaint alleges that all seven defendants violated, or aided and abetted violations of, the antifraud provisions of the federal securities laws as a result of their involvement in MCA's fraudulent sale of securities.  In addition, the Complaint alleges that Pietila and four other defendants violated, or aided and abetted violations of, the periodic reporting and corporate record-keeping provisions of the federal securities laws.  The Complaint seeks, among other things, injunctive relief and civil penalties against all seven defendants and seeks to bar Pietila and three other defendants from acting as an officer and director of a public company in the future.   
+
+ Criminal proceedings also have been instituted with respect to the other six defendants in the Commission's Complaint.  Four of those defendants have pled guilty to federal charges arising out of MCA's fraudulent scheme but have not been sentenced yet.  The remaining two defendants were indicted on federal charges of conspiracy, mail fraud, wire fraud, bank fraud and making false statements to the Commission on June 23, 2002.  In addition, the Michigan Attorney General's Office has filed state felony securities fraud charges against Pietila and three other defendants. 
+
+ The Commission wishes to thank the Office of the United States Attorney for the Eastern District of Michigan for its assistance and cooperation in this matter. 
+
+ For additional information, see  Litigation Release No. 17484  (April 23, 2002). 
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diff --git a/raw/aaer/2003/AAER-1780.txt b/raw/aaer/2003/AAER-1780.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6bed198cda35cf05780b14ed457d8550af0d95b2
--- /dev/null
+++ b/raw/aaer/2003/AAER-1780.txt
@@ -0,0 +1,1568 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Reliant Resources, Inc. and Reliant Energy, Inc. 
+     
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+     
+     
+     
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+     
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+           
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+              Reliant Resources, Inc. and Reliant Energy, Inc.
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Reliant Resources, Inc. and Reliant Energy, Inc.
+       
+
+             
+   
+
+
+        
+                   
+             
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+  
+    
+      
+
+   
+
+             
+                        
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+
+
+ Securities Act of 1933 
+Release No.  8232 / May 12, 2003 
+
+ Securities Exchange Act of 1934 
+Release No.  47828 / May 12, 2003 
+
+ Accounting & Auditing Enforcement 
+Release No. 1780 / May 12, 2003 
+
+ Administrative Proceeding 
+File No. 3-11110 
+
+     In the Matter of 
+
+ RELIANT RESOURCES, INC. and RELIANT ENERGY, INC. 
+
+ Respondents. 
+  
+ : : : : : : : : : : 
+ 
+ ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Reliant Resources, Inc. ("Reliant Resources") and Reliant Energy, Inc. ("Reliant Energy") (collectively "Respondents" or "Reliant").  
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondents have 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 them and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order"), as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondents' Offer, the Commission finds  1   that:  
+
+ Respondents 
+
+ Until August 31, 2002, Reliant Energy was an electric and gas public-utility holding company exempt from registration under Section 3(a)(2) of the Public Utility Holding Company Act of 1935 (the "1935 Act").  2    Reliant Energy's common stock was registered with the Commission under Section 12(b) of the Exchange Act, and traded on the New York Stock Exchange under the symbol REI until October 1, 2002.   
+
+ In December 2000, Reliant Energy transferred a significant portion of its unregulated businesses to Reliant Resources, then a wholly-owned subsidiary incorporated in Delaware and based in Houston, Texas.  In May 2001, Reliant Resources conducted an initial public offering of approximately twenty percent of its common stock.  The initial public offering was intended as the first step in the separation of Reliant Energy's regulated and unregulated businesses.   Reliant Resources' common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and trades on the New York Stock Exchange under the symbol RRI. 
+
+ Background 
+
+ During the period from at least January 1999 through May 2001, Reliant Energy was an electric and gas utility holding company that had several operations, including a Retail Group that provided retail energy services to residential and business customers, a Wholesale Group that acquired, developed, and operated unregulated electric power generation facilities, and a Delivery Group that operated regulated utilities, including the electric utility serving Houston, gas local distribution companies in six states, and two interstate natural gas pipelines.  3    The Wholesale Group also traded in and marketed power, natural gas, natural gas transportation capacity, and other energy-related commodities.  The Wholesale Group's trading and marketing activities included marketing power produced from power plants Respondents owned, as well as purchasing power from other generators and marketers and selling it primarily to electric utilities, municipalities, cooperatives, and other marketing companies.  The Wholesale Group also used derivative instruments to manage and hedge its fixed price purchase and sale commitments and to reduce exposure relative to the volatility of cash and forward market prices.  The Wholesale Group also offered "power origination products," which were packages of energy services custom designed to meet the long-term energy needs of certain customers.  Reliant Energy included the Wholesale Group's financial reporting in its quarterly and annual reports that it filed with the Commission in 1999 and 2000.  In December 2000, Reliant Resources took over the management of the Wholesale Group.  Upon completion of Reliant Resources' initial public offering and beginning with its quarterly report for the period ended March 31, 2001, Reliant Resources assumed the financial reporting obligations of the Wholesale Group.   
+
+ The Round Trip Trades 
+
+ In early May 2002, following the public announcement that another energy trading company had engaged in round trip trades, Reliant Resources made internal inquiries and subsequently announced that it had similarly engaged in significant same-day commodity trading transactions involving simultaneous, pre-arranged purchases and sales with the same counter party for the same volume at the same price ("round trip trades").  Reliant Resources promptly reported to the Commission the facts surrounding the round trip trades, and also publicly disclosed those facts in a press release dated May 12, 2002.  For the most part, the round trip trades resulted in neither profit nor loss to either transacting party.  Instead, the trades were designed for the sole purpose of increasing trading volumes to improve Respondents' standing in the gas and power trading rankings in industry publications.   
+
+ The idea of engaging in round trip trades grew out of a desire by certain employees in the Wholesale Group to increase Respondents' status in the industry as energy marketers and traders.  Various industry publications kept track of power trading volumes that energy companies reported quarterly to the Federal Energy Regulatory Commission ("FERC").  Other publications tracked energy companies' natural gas trading volumes by contacting the companies and compiling the information themselves.  The charts in these publications, which came to be called the industry rankings, or "league tables," were regularly published by several energy industry trade publications in the late 1990s.   
+
+ Beginning in 1999, Respondents' decided that it was advantageous to be in the top ten, and then the top five, and ultimately the top three in these industry league tables in terms of volumes traded because it would help Respondents market "power origination products" to large energy users.  To achieve this goal, Respondents decided to pre-arrange several large trades to increase trading volumes.  Each round trip trade was for a large volume in order to achieve with one transaction the increased volume that would only result from hundreds of smaller trades.  Because so much trading volume could be achieved with so few trades, the administrative and transactional cost was much lower than it would have been with smaller trades.  Moreover, each round trip trade was pre-arranged with a pre-selected counter party that had an agreement with Respondents which allowed for netting of transactions which involved like products.  These agreements typically provide that all pending deliveries of like products resulting from trades between the two contracting parties will be netted against each other prior to delivery.  As a result, since the round trip trades were for exactly -- or almost exactly - offsetting quantities and prices of the same commodity at the same delivery point, they offset each other, and no exchange of commodities or cash was required.  These arrangements eliminated a substantial portion of the transaction costs and reduced the risk of default that would have been associated with multiple trades.  
+
+ In seeking out round trip trades, Respondents made an effort to find counter parties that were lower in the rankings than Respondents so that any resulting increase in the counter party's standing in the league tables would not adversely affect Respondents' move upward in the rankings.  Respondents considered booking the round trip trades at a price of zero, but rejected the idea because it might skew the market prices reported to the FERC.  Instead, they booked all the round trip trades at market prices.  Based on Respondents' practice at the time of recording all trades on a gross basis, the revenues and offsetting expenses associated with the round trip trades were recorded in Respondents' books and records.   
+
+ The 1999, 2000, and 2001 Round Trip Trades 
+
+ In 1999, Respondents entered into five power round trip trades totaling 29.75 million megawatt hours with three counter parties: PanCanadian Energy Services, Inc., Merchant Energy Group of the Americas, Inc. ("MEGA"), and Public Service Company of Colorado.  MEGA requested and Respondents paid an accommodation fee of $50,000 to do the trade.  In 1999, Respondents also entered into one large gas round trip trade for 182 billion cubic feet with Cokinos Energy.  This trade was not entered into Respondents' trading records.  Respondents made a top-side adjustment to add the $364 million in revenue and the $364 million in offsetting cost of goods sold attributable to this trade.  The 1999 power and gas round trip trades added over $1.4 billion in offsetting gross revenue and expenses.   
+
+ In 2000, Respondents entered into four power round trip trades totaling 30.32 million megawatt hours with two counter parties: BP Energy Company ("BP Energy") and CMS Marketing, Services, and Trading Company ("CMS"), at the time a relatively small player that had not appeared in the top 50 of the league table rankings.  By early 2000, certain of Respondents' employees had left and gone to work for CMS.  The 2000 trades with BP Energy and CMS added over $1 billion in offsetting gross revenue and expenses.  Over 97 percent of this revenue and expense was attributable to the round trip trades with CMS. 
+
+ In 2001, Reliant Resources entered into eight power round trip trades totaling 74.36 million megawatt hours with CMS and one gas round trip trade for 46 billion cubic feet with EnCana Energy Services Inc. (formerly PanCanadian Energy Services, Inc.) ("PanCanadian").  One of the trades with CMS was not entered into Reliant Resources' trading records or accounting system until two months after the scheduled delivery on the contract.  The 2001 power trades with CMS accounted for about 20 percent of Reliant Resources' total trading volume for the year and added over $3.6 billion in revenue and expenses.  By June 2001, round trip trades between Reliant Resources and CMS reached the point that an industry publication noted that "CMS and Reliant traded about 20 [million megawatt hours], lifting CMS up from the rank of 56th a year ago to 18th for the first quarter 2001."  
+
+ To illustrate the magnitude of the round trip trades, what was considered a large trade at Reliant Resources was about 200,000 megawatt hours of power.  In 1999, the round trip power trades averaged about 5.95 million megawatt hours, or thirty times a normal large trade.  In 2000, the average round trip power trade entered into by Reliant Resources was 7.37 million megawatt hours, or thirty-seven times a normal large trade, and in 2001 it was 9.29 million megawatt hours, or forty-six times a normal large trade.    Assuming that other marketers accurately reported their volumes, the ultimate effect of the round trip trades was to increase Reliant Resources' power ranking from tenth to seventh in 1999, from seventh to fifth in 2000, and from fifth to third in 2001.  The ultimate effect on the gas ranking was to move Reliant Resources from eighth to seventh in 1999. 
+
+ On a few occasions, back office and accounting personnel asked questions about the round trip trades.  Respondents ignored those concerns. 
+
+ Reliant's Filings 
+
+ Because of Respondents' practice of recording all trades on a gross basis, the round trip trading transactions conveyed an inaccurate picture of Respondents' gross revenue and expenses.  4    For example, in its 2001 annual report (which it subsequently amended), Reliant Resources reported gross revenues of $36.5 billion for 2001.  Over $3.8 billion - or approximately ten percent - of this gross revenue resulted from the round trip trades.  On May 21, 2002, Respondents restated revenues for 1999, 2000, and 2001 to reflect the net value instead of the gross value of the round-trip trades.  The round trip trade revenue that was removed in the restatement accounted for 17.7 percent, 5.3 percent, and 10.6 percent, respectively, of previously reported revenues. 
+
+ Respondents also included the inaccurate volume numbers attributable to the round trip trades and mentioned their rankings in the league tables in their annual and quarterly reports filed with the Commission.  5     Respondents also reported the round trip trade volume numbers to various market publications, which then ranked Respondents in terms of trading volumes against other energy companies. 
+
+ Respondents also included the overstated trading volumes and gross revenue in prospectuses and registration statements that they filed with the Commission in anticipation of securities offerings.  The prospectus, dated April 30, 2001, for Reliant Resources' initial public offering noted that it was "the fifth largest power marketer in the United States for the year 2000 based on [megawatt hours] of electricity sold," and "the tenth largest marketer of natural gas for the year 2000 based on total [billion cubic feet] of natural gas sold."  In addition to this prospectus, Reliant Energy filed a registration statement with the Commission on Form S-3 in September 1999, and Reliant Resources filed a registration statement on Form S-1 in October 2000.  Those filings also included or incorporated the revenue and expense overstatements in previously filed annual and quarterly reports. 
+
+ Earnings Shifting Transactions 
+
+ Beginning in the Fall of 2000 and continuing through the Spring and Summer of 2001, energy prices were dramatically increasing in the regions Respondents served.  The volatile and rapidly increasing market made it apparent that actual earnings would come in above forecasts.  Respondents made two separate efforts to move earnings out of current periods and into future periods in which the high prices likely would not be sustained.  The first effort to move earnings was in the fourth quarter of 2000 and the second effort was in the second and third quarters of 2001. 
+
+ The Swing Swap Transaction  
+
+ In late 2000, the Wholesale Group determined that its 2000 earnings would greatly exceed forecasted earnings.  In the month of December alone earnings were about $70 million over forecast.  Not wanting actual earnings to come in over forecast, Respondents considered various ways to move about $77 million of 2000 earnings into 2001.  Among other things, Respondents considered increasing the size of reserves, entering into a peaking option, and entering into a swing-swap transaction.  Respondents ultimately abandoned the idea of increasing the reserves and failed to book the peaking option on time.  6    Respondents ultimately did enter into the swing-swap transaction purportedly with PanCanadian, one of the counter parties involved in the round trip trades, to move $20 million in pre-tax earnings from 2000 to 2001. 
+
+ The swing-swap consisted of four financially-settled natural gas swap transactions that had the effect of decreasing fourth quarter 2000 pre-tax earnings by $20 million and increasing first quarter 2001 pre-tax earnings by $20 million.  The "legs" of the two December swap transactions were a sale (or fixed cash inflow) of 1,500,000 million British thermal units ("mmbtu") at $26.50 per mmbtu and a purchase (or fixed cash outflow) of 1,500,000 mmbtu at $39.85 per mmbtu, with the counter party's legs perfectly offsetting, resulting in a $20 million pre-tax loss for Respondents in the last quarter of 2000.  The legs of the two January swap transactions were a purchase of 3,100,000 mmbtu at $13.215 per mmbtu and sale of 3,100,000 mmbtu at $19.6747 per mmbtu, again with the counter party's legs perfectly offsetting, resulting in a $20 million pre-tax gain to Respondents in the first quarter of 2001.  
+
+ In early December 2000, Respondents' employees decided to book the swing-swap, but they entered the separate legs into the trading records on different dates in an apparent effort to obscure the fact that they were all part of one related transaction whose net value was zero.  There were also no cash flows associated with these transactions. PanCanadian has no record of the transactions and never executed the contracts.  As a result of the swing-swap transaction, Respondents understated net income by $12.7 million after tax in 2000, or about six percent, and overstated net income by $12.7 million after tax in 2001, or about two percent.  On March 24, 2003, Reliant Resources filed a Form 8-K announcing its intention to restate its financial statements for 2000 and 2001, in part relating to the swing-swap transaction.  The effect of the restatement relating to the swing-swap transaction was to increase net income by $12.7 million for 2000 and decrease net income for $12.7 million for 2001. 
+
+ The Structured Transactions 
+
+ In 2001, the substantial increases in earnings over projections continued due to price volatility in the California power markets.  Reliant Resources attempted to enter into contracts with counter parties that were paying high prices for energy.  Reliant Resources offered those counter parties somewhat lower current prices in exchange for agreed-upon energy deliveries in a future year at a somewhat higher than market price.  Such contracts would have had the effect of leveling energy prices for both parties and creating a degree of certainty in an uncertain market.  However, Reliant Resources was unsuccessful in reaching an agreement with customers on such contracts, and instead decided to enter into derivative transactions with other power marketers to try to achieve a similar result. 
+
+ During the May through September 2001 time frame, Reliant Resources executed four structured transactions.  Each structured transaction consisted of a series of forward or swap contracts to buy and sell an energy commodity in 2001 and another series to buy and sell an energy commodity in 2002 or 2003.  Reliant Resources booked the structured transactions as derivative instruments that would qualify for hedge accounting in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133).  Reliant Resources ultimately concluded that the deals did not qualify for such accounting treatment, and issued a restatement.  In addition, Reliant Resources failed to appreciate that SFAS No. 133 cannot be used to shift a predetermined gain to a future period. 
+
+ The counter parties to the deals were Cinergy Corporation ("Cinergy"), Aquila, Inc. ("Aquila"), and PanCanadian (with whom Reliant Resources did two structured transactions).  The transactions were recorded in Reliant Resources' cash flow hedge accounting records and were, in effect, matched to and overlaid on existing contracts that Reliant Resources had designated as hedges (the "existing hedges") such that the existing hedge and structured transactions in combination continued to serve as a cash flow hedge.  Each series of contracts in a structured transaction was entered into contemporaneously with the same counter party and was for the same commodities, quantities, and delivery location.  Thus, the contracts were offsetting in terms of economic attributes.  However, the commodity prices for the 2001 buy and sell contracts were different, as were the buy and sell prices for the offsetting 2002 or 2003 contracts.  The contract prices in totality were structured to result in a net cash outflow to the counter parties in 2001 and a net cash inflow from the counter parties in 2002 or 2003.  These transactions were intended to shift about $134 million in earnings from 2001 into later periods.  
+
+ To complete certain of the transactions, Reliant Resources had to take several unusual steps.  In one case, Reliant Resources had to pay a total of $1 million in upfront "demand charges" to PanCanadian to induce it to enter into two of the deals.  In two of the four structured transactions, Reliant Resources also allowed certain counter parties to exceed credit limits to do the deals.  In those two structured transactions, Reliant Resources entered into additional off-setting mirror transactions in their mark-to-market books to mitigate the increased counter party credit risk.  These mirror transactions perfectly matched the cash flows and terms of the structured transaction, which had been recorded in the hedge book.  By recording the mirror trades in the mark-to-market books and the structured transaction in the hedge books, the trades did not cancel each other out in the financial statements.   
+
+ Finally, for one of the structured transactions, Reliant Resources discovered that it did not have adequate existing hedges against which to match and overlay the structured transaction.  For the purpose of creating an open hedge, Reliant Resources entered into a forward contract to buy a commodity from another counter party, separate from the structured transaction.  However, Reliant Resources realized that the counter party was not creditworthy, so it insisted on closing out the trade with an off-setting sell position.  In addition, in order to "assist with the accounting treatment" and maintain the image of an open hedge, Reliant Resources' employees postdated the offsetting sale position so that it appeared that the hedge was open until October, when in fact the offsetting sale position was arranged in August at the same time as the buy position.  In order to accomplish the postdating, Reliant Resources' employees created the sales confirmations to the counter party in August, but dated them in October.    
+
+ In mid-January 2002, Reliant Resources' senior management initiated a comprehensive review of the transactions which culminated in an announcement on February 5, 2002 that Reliant Resources would restate earnings for the second and third quarters of 2001 due to the incorrect application of SFAS 133 associated with the structured transactions.  Because commodity risk was offset in each set of contracts in a structured transaction when considered in combination, there was no substantive commodity price risk mitigation provided by the structured transaction, as required by SFAS No. 133 for cash flow hedging.  Reliant Resources therefore ultimately accounted for the transactions as derivatives with changes in fair value recognized through the income statement.  The effect of the restatement was for Reliant Resources to recognize approximately $134 million in 2001 earnings that it had previously expected to recognize in 2002 and 2003, raising 2001 reported earnings from approximately $218 million to $352 million.    
+
+ Calculation of Hedge Ineffectiveness 
+
+ Upon adoption of SFAS No. 133, Reliant Resources was required to measure the ineffectiveness of its hedge transactions.  Initially, Reliant Resources neglected to perform this calculation and record the results in its financial statements for the first three quarters of 2001.  Subsequently, when Reliant Resources began performing these calculations in the fourth quarter of 2001 and continuing through 2002, it calculated the ineffectiveness using the wrong date for hedging instruments entered into prior to the adoption of SFAS No. 133.  The amount of hedge ineffectiveness for these forward contracts was calculated using the trade date.  However, the proper date for the hedge ineffectiveness calculation is hedge inception, which for these contracts was deemed to be January 1, 2001, concurrent with the adoption of SFAS No. 133.  These errors in accounting for hedge ineffectiveness resulted in an understatement of revenues of $28.7 million in 2001 and an overstatement of revenues of $12.3 million in 2002.  On March 24, 2003, Reliant Resources filed a Form 8-K announcing its intention to restate its financial statements for 2001 and 2002, in part relating to errors in calculating hedge ineffectiveness.  The effect of the restatement relating to these errors was to increase net income by $18.6 million for 2001 and decrease net income for $8 million for 2002. 
+
+ IV. 
+
+ As a result of the conduct described above, Respondents violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer and sale of securities and in connection with the purchase or sale of securities.  As demonstrated in this Order's findings, Respondents engaged in round trip trades that dramatically overstated Respondents' trading volumes in their annual and periodic reports.  Respondents also overstated their revenue and expenses.  Because these amounts were offsetting, they did not affect net income.  Respondents also violated the anti-fraud provisions by booking one of the structured transactions as a cash flow hedge based on documents that certain employees had postdated, and by using the swing-swap transactions to move earnings from December 2000 to January 2001. 
+
+ As a result of the conduct described above, Respondents violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  Section 13(a) of the Exchange Act requires issuers to file periodic reports with the Commission containing such information as the Commission prescribes by rule.  Exchange Act Rule 13a-1 requires issuers to file annual reports, and Exchange Act Rule 13a-13 requires issuers to file quarterly reports.  Under Exchange Act Rule 12b-20, the reports must contain, in addition to disclosures expressly required by statutes and rules, such other information as is necessary to ensure that the statements made are not, under the circumstances, materially misleading.  The obligation to file reports includes the requirement that the reports be true and correct.  United States v. Bilzerian , 926 F.2d 1285, 1298 (2d Cir.),  cert .  denied , 502 U.S. 813 (1991).  The reporting provisions are violated if false and misleading reports are filed.  SEC v. Falstaff Brewing Corp. , 629 F.2d 62, 67 (D.C. Cir. 1980).  Respondents violated these provisions by filing inaccurate and misleading reports containing the round trip trades, structured transactions, and the swing swap transaction that moved earnings from one period to another. 
+
+ As a result of the conduct described above, Respondents violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  Section 13(b)(2)(A) of the Exchange Act requires all issuers to make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets.  Respondents, through the reporting of the round-trip energy trades, structured transactions, swing-swap transaction, and hedge ineffectiveness errors, violated Section 13(b)(2)(A) by failing to keep books, records and accounts that accurately and fairly reflected their assets and financial results.  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain an adequate system of internal accounting controls.  Respondents violated Section 13(b)(2)(B) by failing to ensure against the inclusion of results from round trip trades in Respondents' computation and public disclosure of their trading volume and trading revenue, and by allowing the swing-swap transactions to be included in their public reports.  Respondents' reporting of revenue derived from these transactions was inconsistent with Generally Accepted Accounting Principles ("GAAP") (Statement of Financial Accounting Concepts No. 5).  Respondents also violated Section 13(b)(2)(B) by failing to devise and maintain a system of internal controls sufficient to provide reasonable assurances that structured transactions and hedge ineffectiveness were recorded as necessary to permit preparation of financial statements in conformity with GAAP.   
+
+ V. 
+
+ The Commission finds that Respondents 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, and 13a-13 thereunder. 
+
+ VI. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept Respondents' Offer of Settlement and impose the sanctions specified therein. 
+
+ Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Respondents Reliant Resources and Reliant Energy 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, and 13a-13 thereunder. 
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   1     The findings herein are made pursuant to Respondents' Offer and are not binding on any other person or entity in this or any other proceeding.     
+
+   2     Section 3(a)(2) exempts a holding company that is "predominantly a public-utility company whose operations as such do not extend beyond the state in which it is organized and states contiguous thereto." 
+
+   3     The businesses that made up the Delivery Group, other than the retail electric sales function that was transferred to Reliant Resources, now comprise CenterPoint Energy.  On August 31, 2002, CenterPoint Energy, Inc. ("CenterPoint Energy") became the holding company for the Reliant Energy group of companies and each share of Reliant Energy common stock was converted into one share of CenterPoint Energy common stock.  On September 30, 2002, CenterPoint Energy distributed each of its shares of Reliant Resources common stock pro rata to its shareholders of record, thereby completing the separation of the regulated and unregulated businesses.  The trademarks and names associated with "Reliant Energy" were transferred to Reliant Resources at the time of the distribution.  Although CenterPoint Energy is the successor to Reliant Energy for financial reporting purposes under the Exchange Act, CenterPoint Energy and Reliant Resources do not have any common officers or directors.  
+
+   4     Because the revenues and expenses were offsetting, the round trip trades had no effect on Respondents' net earnings. 
+
+   5     For example, on April 12, 2002, in the text of its 2001 annual report (which it subsequently amended), Reliant Resources described its energy trading practices as follows:   
+
+ According to Platt's Power Markets Week and Natural Gas Intelligence Group, we were the third largest power trader and ninth largest natural gas trader in the United States in 2001. 
+
+ The company stated that it had traded approximately 112 million megawatt hours of total power volume in 1999, 202 million megawatt hours in 2000, and 380 million megawatt hours in 2001.  Approximately 26 percent, 14.5 percent and 19.5 percent of these volumes, respectively, were attributable to round trip trades.  Reliant Resources also stated that it had traded 1,746 billion cubic feet of gas in 1999 and 3,695 billion cubic feet in 2001.  Approximately 20 percent and 6 percent of these volumes, respectively, were attributable to round trip trades.  
+
+   6     In an apparent attempt to move $10 million from 2000 to 2001, Reliant Resources did enter into the peaking option with Cokinos Natural Gas Company ("Cokinos"), one of the counter parties to the round trip trades, whereby Reliant Resources would buy an out of the money call option in December and sell an out of the money call option in January.  Assuming each option expired worthless, Reliant Resources would recognize a $10 million loss in December and a $10 million gain in January.  Because Respondents recorded the transaction in the following month, this transaction failed to move this additional $10 million out of 2000 into 2001.  
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+     SEC.gov | Gary L. Monroe, William J. Rauwerkink, John R. Messinger and Robert T. Bassman 
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+              Gary L. Monroe, William J. Rauwerkink, John R. Messinger and Robert T. Bassman
+           
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+        Gary L. Monroe, William J. Rauwerkink, John R. Messinger and Robert T. Bassman
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+ Litigation Release No. 18136 / May 14, 2003
+
+  Accounting and Auditing Enforcement Release No. 1781 / May 14, 2003
+
+   SECURITIES AND EXCHANGE COMMISSION v. GARY L. MONROE, WILLIAM J. RAUWERDINK, JOHN R. MESSINGER and ROBERT T. BASSMAN , U.S. District Court for the Eastern District of Michigan, Civil Action No. 03-71840 (E.D. Mich. May 13, 2003)
+
+   SEC CHARGES FORMER OFFICERS OF LASON, INC. WITH FINANCIAL FRAUD 
+
+   Commission Action Seeks Injunction, Disgorgement, Money Penalties, Officer and Director Bars 
+
+    The Securities and Exchange Commission announced today that it filed accounting fraud charges in federal district court in the Eastern District of Michigan against Gary L. Monroe, William J. Rauwerdink, John R. Messinger, and Robert T. Bassman, the former CEO, CFO, COO and Controller, respectively, of Lason, Inc., a document management company based in Troy, Michigan.
+
+    The Commission's complaint alleges that during 1998 and 1999, Lason overstated its earnings in order to meet or exceed Wall Street expectations, culminating in the third quarter of 1999, when Lason's earnings were overstated by approximately 65%.  When Lason revealed in December 1999 that it would not meet its earnings expectations, Lason's market capitalization fell by 53% or $234 million.  Lason declared bankruptcy in December 2001 and is now owned by its creditors.
+
+  According to the complaint:
+      In a scheme called "tailwind," Monroe and Rauwerdink instructed companies that were acquired by Lason to delay recognizing revenue until after the acquisition was completed and to pre-pay certain expenses before the acquisition, thereby artificially increasing Lason's earnings during the first, third and fourth quarters of 1998.
+
+       Monroe, Rauwerdink and Bassman improperly booked a forgiven loan as revenue for Lason in the fourth quarter of 1998.
+
+       Lason improperly claimed an invalid invoice as a legitimate receivable in the fourth quarter of 1998.  When Lason's auditors questioned the legitimacy of the receivable, Monroe, Messinger and Bassman developed a scheme to obtain a check that improperly appeared to make payment on the receivable.
+
+       Lason made numerous fraudulent accounting entries in 1999, culminating in fraudulent Work in Process entries in the third quarter of 1999 that artificially boosted Lason's earnings by 65%.
+
+       The defendants profited from the scheme through their salaries as well as bonuses, stock options and executive loans that were affected by Lason's artificially inflated stock price.
+   The Commission alleges that the defendants violated or aided and abetted violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws.  Specifically, the Commission has charged Monroe, Rauwerdink Messinger and Bassman with violations of sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder.  The Commission has also charged Monroe, Rauwerdink, Messinger and Bassman with aiding and abetting violations of sections 13(a), 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  In addition, the Commission has charged Monroe, Rauwerdink and Bassman with violations of section 17(a) of the Securities Act of 1933, and with aiding and abetting violations of section 13(b)(2)(B) of the Exchange Act. 
+
+  For these violations, the Commission is seeking permanent injunctions against the defendants, civil money penalties, disgorgement of all ill-gotten gains and losses avoided by the defendants plus prejudgment interest thereon.  The Commission is also seeking an order prohibiting the defendants from acting as officers or directors of a public company.
+
+  In a related action today, a federal grand jury indicted Monroe, Rauwerdink and Messinger for conspiracy to commit mail and wire fraud and make false statements to the Commission.  Monroe and Rauwerdink were also charged with making false statements to the Commission.
+
+  The Commission wishes to thank the U.S. Attorney's Office for the Eastern District of Michigan and the Federal Bureau of Investigation for their assistance in this matter.
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diff --git a/raw/aaer/2003/AAER-1782.txt b/raw/aaer/2003/AAER-1782.txt
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+     SEC.gov | Zimmerman Sign Companyand Jeffrey P. Johnson, CPA 
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+              Zimmerman Sign Companyand Jeffrey P. Johnson, CPA
+           
+     
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+
+   
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+      
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+        Zimmerman Sign Companyand Jeffrey P. Johnson, CPA
+       
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+                        
+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 47860 / May 14, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1782 / May 14, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11123 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			  
+
+			  In the Matter of   
+
+			 Zimmerman Sign Company 
+			and Jeffrey P. Johnson, CPA 
+
+			 Respondents. 
+
+			  
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER INSTITUTING PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER  
+		 
+	 
+ 
+
+  I.  
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Zimmerman Sign Company, pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and against Jeffrey P. Johnson, pursuant to Section 21C of the Exchange Act and Rule 102(e)(1)(iii) of the Commission's Rules of Practice.   1    
+
+  II.  
+
+ In anticipation of the institution of these proceedings, the Respondents have 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, the Respondents, by their Offer, admit the jurisdiction of the Commission over them and over the subject matter of these proceedings, and consent to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 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"), without admitting or denying the Commission's findings contained in this Order. 
+
+  III.  
+
+ On the basis of this Order and Respondents' Offer, the Commission makes the following findings: 
+
+   Respondents    
+
+  A. Zimmerman Sign Company   ("Zimmerman" or the "Company") is a Texas corporation formerly based in Tyler, Texas, now in Jacksonville, Texas. The Company's shares of common stock have been registered with the Commission, pursuant to Section 12(g) of the Exchange Act, from December 1996 to the present, and are quoted on the Pink Sheets under the symbol "ZSCO." Zimmerman was founded in 1901, and became a public reporting company in December 1996. From its two manufacturing plants, Zimmerman produces and sells commercial signage. 
+
+  B. Jeffrey P. Johnson ,   age 41, of Tyler, Texas, was employed by Zimmerman from 1985 through October 2001, and was the Company's vice president and chief financial officer ("CFO") from at least 1990 through October 2001. Johnson has been a licensed certified public accountant in Texas since 1985.     
+
+   Facts   
+
+  C.  From December 1996 though June 2001 ("the relevant period"), Zimmerman materially understated its production costs, causing it to overstate assets and earnings. During the relevant period, Zimmerman deferred certain production costs related to long-term contracts to future reporting periods. Those deferred costs grew continually as inventory on the Company's balance sheet. Because Zimmerman failed to ultimately recognize these deferred costs, the Company materially understated by $5.5 million its costs-of-goods sold, and overstated by $5.5 million both its earnings and inventory, in its financial statements over the approximate five year period ended June 30, 2001. For each year-end computation between 1997 and 2000, the average understatement of the costs-of-goods sold in the Company's financial statements was $1.375 million, ranging in percentage each year between 3% and 4%. Likewise, for each year-end computation between 1997 and 2000, the average overstatement of earnings and inventory in the Company's financial statements was $1.375 million, ranging in percentage each year between 44% and 193% (earnings) and 8% and 10% (inventory). 
+
+  D.  The Company discovered the $5.5 million accounting discrepancy after conducting a complete physical count of its inventory as of June 30, 2001. Since then, the Company has been unable to apportion the cost-of-goods sold understatement and corresponding inventory and earnings overstatement to any particular reporting period, because it did not adequately maintain the books and records necessary to make that determination. As a result, Zimmerman has been unable to restate its prior financial statements. Furthermore, from May 15, 2001 to the present, Zimmerman has failed to file with the Commission required periodic reports on Forms 10-Q and 10-K. 
+
+  E.   Johnson, the Company's CFO during the relevant period, supervised Zimmerman's daily accounting functions, including the maintenance of its books and records. Johnson was also responsible for compiling financial data for Zimmerman's periodic reports, which Johnson signed. Johnson's failure to ensure the accuracy of Zimmerman's books and records through implementation of appropriate internal controls resulted in Zimmerman's inclusion of materially misstated financial statements in its filings with the Commission. 
+
+  F.   In determining to accept the Respondents' Offer, the Commission considered Zimmerman and Johnson's cooperation in the staff's investigation. 
+
+  IV.   
+
+   Legal Analysis    
+
+  A.   Section 13(a) of the Exchange Act requires issuers to file periodic reports with the Commission containing such information as the Commission prescribes by rule. Exchange Act Rule 13a-1 requires issuers to file annual reports; Exchange Act Rule 13a-13 requires issuers to file quarterly reports. The obligation to file reports embodies the requirement that such reports be true and correct.  United States v. Bilzerian  , 926 F.2d 1285, 1298 (2d Cir. 1991),  cert. denied  , 112 S. Ct. 63 (1991). Rule 12b-20 requires, in addition to information required in periodic reports by Commission rules, such further material information as may be necessary to make the required statements not misleading. The reporting provisions are violated if false and misleading reports are filed.  SEC v. Falstaff Brewing Corp.  , 629 F.2d 62, 67 (D.C. Cir. 1980).  Scienter  is not required to prove a violation of these provisions.  SEC v. Savoy Industries, Inc.,  587 F.2d 1149, 1167 (D.C. Cir. 1978). 
+
+  B.   Section 13(b)(2)(A) of the Exchange Act requires all 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.  Scienter  and materiality are not elements of primary violations of this provision.  SEC v. World-Wide Coin Inv.  ,  Ltd  ., 567 F. Supp. 724, 749-50 (N.D. Ga. 1983). 
+
+  C.   Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain an adequate system of internal accounting controls.  Scienter  and materiality are not elements of a violation of this provision.  World-Wide Coin  , 567 F. Supp. at 749-50. 
+
+  D.  Section 13(b)(5) of the Exchange Act and Rule 13b2-1 (promulgated under Section 13(b)(2)(A) of the Exchange Act) prohibit any person from knowingly failing to implement a system of internal accounting controls or causing to be falsified any accounting books and records of reporting public companies.  Scienter  is not an element of a violation of Rule 13b2-1.  SEC v. McNulty  , 137 F. 3d 732 (2d Cir. 1998). 
+
+  V.   
+
+   Violations    
+
+ Based on the foregoing, the Commission finds that: 
+
+  A.  Zimmerman 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; 
+
+  B.  Johnson caused and willfully aided and abetted Zimmerman'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; and 
+
+  C.  Johnson violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. 
+
+  VI.  
+
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions that are set forth in the Offer submitted by Zimmerman and Johnson. 
+
+ Accordingly, IT IS HEREBY ORDERED that: 
+
+  A.  Zimmerman 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. 
+
+  B.  Johnson cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 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 Rules12b-20, 13a-1 and 13a-13 thereunder. 
+
+  C.  Johnson is denied the privilege of appearing or practicing before the Commission as an accountant. 
+
+  D.  After two years from the date of this Order, 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 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). Johnson, 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+	 b). Johnson, 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 or equivalent organization; and 
+
+	 c). as long as Johnson 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+	 
+ 
+
+  E.  The Commission will consider an application by Johnson 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 Johnson's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary  
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diff --git a/raw/aaer/2003/AAER-1783.txt b/raw/aaer/2003/AAER-1783.txt
new file mode 100644
index 0000000000000000000000000000000000000000..33736a7d65b6cf4b7bfda257fe199260f35d8167
--- /dev/null
+++ b/raw/aaer/2003/AAER-1783.txt
@@ -0,0 +1,1375 @@
+
+
+ 
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+     SEC.gov | Adam Gilburne 
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+ Litigation Release No.  18139 / May 15, 2003 
+
+ Accounting and Auditing Enforcement Release No.  1783 / May 15, 2003 
+
+  Securities and Exchange Commission v. Adam Gilburne , Civil Action Number CV-03-AR-1087-S (N.D. Ala.) 
+
+ Commission Obtains Injunction, Civil Penalties and an Officer and Director Bar Against Former Just for Feet Officer 
+
+ The Securities and Exchange Commission ("Commission") announced that on May 12, 2003, it filed a complaint in federal district court in the Northern District of Alabama against Adam Gilburne, former Executive Vice President and Superstore Division President of Just for Feet, Inc. ("Just for Feet"), a Delaware corporation based, during the relevant period, in Birmingham, Alabama.  Just for Feet was a national retailer of athletic and outdoor footwear and apparel.  The Company filed for bankruptcy protection in 1999.  Gilburne consented to the entry of an injunction against him, civil penalties, and an officer and director bar. 
+
+ The Commission's complaint alleges that from at least 1997 through its 1999 demise, Just for Feet substantially overstated its assets and income through the use of bogus receivables from the Company's outside advertising agency.  One such receivable of $3 million comprised 8.7% of Just for Feet's $34.2 million in reported pre-tax income in its Form 10-K annual report for fiscal 1997.  A second bogus receivable of $5.3 million comprised 12.3% of Just for Feet's $43.3 million in reported pre-tax income in its Form 10-K annual report for fiscal 1998. 
+
+ According to the complaint, Gilburne made or directed fraudulent adjustments in Just for Feet's financial records necessary to artificially inflate Just for Feet's earnings. In or around January 1998, a senior management official, Gilburne and others caused a false credit memorandum for $3 million from the advertising agency to be entered into Just for Feet's books and records. On December 15, 1998, Gilburne agreed with the senior management official and the advertising agency president that the advertising agency would grant Just for Feet a rebate of $5.3 million for fiscal 1999.  In or around May 1999, Gilburne spoke with the advertising agency's president about overbilling Just for Feet by $250,000 to give the advertising agency enough money to make a partial repayment on the balance of the $5.3 million receivable it purportedly owed Just for Feet. 
+
+ The Commission alleges that Gilburne's actions violated and/or aided and abetted violations of the antifraud, reporting, books-and-records, and internal controls provisions of the federal securities laws.  Specifically, the Commission has charged Gilburne with violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and aiding and abetting Just for Feet'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.  To settle the Commission's lawsuit, Gilburne agreed, without admitting or denying the Commission's allegations, to a permanent injunction, payment of $75,000 in civil penalties and the entry of an officer and director bar. 
+
+ The Commission wishes to thank the staff of the Alabama Securities Commission for their cooperation and assistance in this matter. The Commission's investigation is continuing. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1784.txt b/raw/aaer/2003/AAER-1784.txt
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+
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+           
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+        Stephen L. Holden, Scott P. Skooglund, Kuldershan S. Padda, and Stephan C. Beal
+       
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+ Litigation Release No.  18142 / May 16, 2003 
+
+ Accounting and Auditing Enforcement Release No.  1784 / May 16, 2003 
+
+  S.E.C. v. Stephen L. Holden, Scott P. Skooglund, Kuldershan S. Padda, and Stephan C. Beal  (U.S.D.C. N.D. Illinois, Civil Action No. 01-C-7463) 
+
+ The United States Securities and Exchange Commission ("Commission") today announced that it had reached a settlement with Scott P. Skooglund in connection with his role in a multi-million dollar accounting fraud involving Sabratek Corp, a now-bankrupt Skokie, Illinois manufacturer that developed and sold remote healthcare equipment.  Skooglund had served as the company's Vice President of Finance and Chief Accounting Officer from November 1992 to January 2000.  The Commission's lawsuit charged Skooglund and three other executives with fraudulently inflating the company's earnings during 1998 and 1999 in order to meet their previously announced quarterly projections.  In the second half of 1999, when news of Sabratek's inflated operating results began to emerge, its market capitalization declined by approximately 98%. 
+
+ Skooglund, a resident of Woodridge, Illinois, agreed to pay a civil penalty of $35,000 and also to pay disgorgement plus interest totaling $15,923.97, reflecting bonuses that he received during the period in which the Commission claims that Sabratek was cooking its books.  Skooglund also agreed to the entry of a permanent injunction barring him from future violations of anti-fraud, record-keeping, and reporting provisions of the federal securities laws, contained in from violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b-2-2 thereunder.  The court order reflecting this settlement was entered on May 14, 2003. 
+
+ All of the other defendants named in the Commission's lawsuit  previously settled the Commission's claims against them.  Kuldershan S. Padda, the founder and former CEO of Sabratek, agreed to pay $125,000 in civil penalties. Stephen Holden, the company's Chief Financial Officer, Controller and Treasurer from August 1996 to July 1998 and its President and Treasurer from July 1998 to January 2000, agreed to disgorge bonuses (plus prejudgment interest) in the amount of $68,376 and a civil penalty of $90,000.  Stephan C. Beal, the company's Vice President of Sales, agreed to disgorge bonuses and commissions totaling $29,237 (plus prejudgment interest of $6,193) that he received during the 1998-1999 period, and to pay a civil penalty of $60,000.  Padda, Holden and Beal also agreed to the entry of permanent injunctions. 
+
+ In the lawsuit, the Commission alleged 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.  According to the Complaint, the scheme was carried out to enable Sabratek to meet inflated revenue expectations that Sabratek's senior management had created. 
+
+ The Complaint alleged that, 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 alleged that throughout 1998 and the first quarter of 1999, the 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 alleged 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 alleged that through the defendants' actions, Sabratek reported total operating income of $10.3 million, when in fact had experienced an operating loss of $8 million over the five quarters in question.  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. 
+
+     SEC Complaint in this matter   -->
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diff --git a/raw/aaer/2003/AAER-1785.txt b/raw/aaer/2003/AAER-1785.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3afdfa59e78545abccc57068d91a780548f5362a
--- /dev/null
+++ b/raw/aaer/2003/AAER-1785.txt
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+              WorldCom Inc.
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+       
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+  Securities and Exchange Commission v. WorldCom Inc. , Civil Action No. 02-CV-4963   (SDNY) (JSR)  
+
+ The Securities and Exchange Commission today filed a proposed settlement in its civil action against WorldCom Inc. in federal district court in the Southern District of New York.  The proposed settlement, which is subject to the approval of both the District Court hearing the Commission's action against WorldCom and the Bankruptcy Court handling WorldCom's bankruptcy case, provides for a judgment in the Commission's action requiring WorldCom to pay a civil penalty of $1,510,000,000.  As a result of the company's pending bankruptcy case, the proposed settlement provides for satisfaction of the Commission's judgment by WorldCom's payment, after review and approval of the terms of the settlement by the bankruptcy court, of  $500,000,000.  Under the terms of the proposed settlement, the funds paid by WorldCom in satisfaction of the Commission's judgment will be distributed to victims of the company's fraud, pursuant to Section 308 (Fair Funds For Investors) of the Sarbanes-Oxley Act of 2002. 
+
+ Today the District Court reserved decision on the settlement, and issued an order  requiring the parties to provide more information about a number of issues.  The order further invites any others with interest in the case to file written comments with the Clerk of the District Court by 5 p.m. on June 6, 2003.  The Court will convene a conference with the parties on June 11 at 4 p.m. to discuss where the case should go from there, and will not approve a settlement before that date.  The Court will not, however, accept oral presentations from non-parties. 
+
+ The Commission has alleged that WorldCom misled investors by overstating its income from at least as early as 1999 through the first quarter of 2002, as a result of undisclosed and improper accounting.  ( Litigation Release No. 17829 ).  The Commission filed its case against WorldCom on June 26, 2002, the day after WorldCom announced that it intended to restate its financial results for five quarters-all quarters in 2001 and the first quarter of 2002.  (Litigation Release No. 17588).  The Commission also sought the appointment of a corporate monitor for WorldCom, and on July 3, 2002, U.S. District Judge Jed S. Rakoff appointed former SEC Chairman Richard Breeden to that position.  Since the Commission filed its action against WorldCom, the company has made a series of announcements expanding its anticipated financial restatement due to the fraud, both in dollar amount and in time.   WorldCom has acknowledged that, as a result of undisclosed and improper accounting, it materially overstated the income it reported on its financial statements by approximately $9 billion. 
+
+ On November 26, 2002, the Commission obtained a judgment against WorldCom through which the Commission obtained the full injunctive relief it sought against WorldCom.  In addition, the judgment ordered WorldCom to undertake extensive reviews of its corporate governance and internal controls, as well as required WorldCom to establish a training and education program for WorldCom officers and employees to minimize the possibility of future violations of the federal securities laws.  The November 26, 2002 judgment explicitly left open the determination of monetary penalties to be imposed on WorldCom.  (Litigation Release No. 17866). 
+
+ In addition, the Commission has brought civil actions against four former employees of WorldCom.  The Commission filed civil actions against former WorldCom Controller David F. Myers on September 26, 2002; former WorldCom Director of General Accounting Buford "Buddy" Yates, Jr., on October 7, 2002; and Betty L. Vinson and Troy M. Normand, former accountants in the WorldCom's General Accounting Department, on October 10, 2002.  All four defendants consented to court orders enjoining them from future violations of the federal securities laws, and, in the case of Myers and Yates, prohibiting them from serving as an officer or director of any public company.  (Litigation Release Nos.  17753  (Myers),  17771  (Yates), and  17783  (Vinson and Normand)).  In addition, Myers, Yates and Vinson agreed to be suspended from appearing or practicing before the Commission as accountants.  (Exchange Act Release Nos.  34-46962 ,  34-46963  and  34-46964 ).  The civil actions against the four individuals are still pending as to monetary relief. 
+
+ In determining to enter into the settlement announced today, the Commission considered remedial acts promptly undertaken by WorldCom and cooperation afforded the Commission staff. 
+
+ The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation. 
+
+ The Commission's investigation into the fraud at WorldCom is continuing. 
+
+ 
+ 
+    SEC Complaint in this matter   -->
+  Judge's Order  of May 19, 2003, in this matter   WorldCom's Consent  in this matter  
+ 
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diff --git a/raw/aaer/2003/AAER-1787.txt b/raw/aaer/2003/AAER-1787.txt
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+              PricewaterhouseCoopers LLP
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+Securities Exchange Act of 1934 
+Release No.  47900 / May 22, 2003 
+ 
+Accounting and Auditing Enforcement 
+Release No.  1787 / May 22, 2003 
+ 
+Administrative Proceeding 
+File No.  3-11132 
+        
+In the Matter of 
+  
+PricewaterhouseCoopers LLP,  
+  
+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 PricewaterhouseCoopers LLP ("PwC" 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 ("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 herein, except as to the Commission's jurisdiction over Respondent 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: 
+
+ Respondent 
+ 
+ PricewaterhouseCoopers LLP  is a national public accounting firm with its headquarters in New York, New York.  Before the merger between Price Waterhouse LLP and Coopers & Lybrand LLP on July 1, 1998, Price Waterhouse LLP provided audit services to SmarTalk TeleServices Inc. ("SmarTalk"), including performing the annual audit of SmarTalk's 1997 financial statements.  After the merger, the combined entity of PwC continued to provide audit services to SmarTalk, including performing the audit of SmarTalk's restated financial statements.    3   
+
+ Other Relevant Person and Entity 
+ 
+ Philip G. Hirsch ("Hirsch") , age 50, was the engagement partner on the PwC audits of SmarTalk's financial statements from 1996 through March 1998.    4   During that period, he was also the managing partner of PwC's Century City office.  He is licensed as a CPA in the state of California.  Hirsch was employed by PwC from 1976 to 1978, from 1983 to about 1985 and from 1987 through March 31, 1998.  Hirsch left PwC in April 1998 after the audit of SmarTalk's 1997 financial statements was completed. 
+ 
+ SmarTalk  was a provider of prepaid telephone cards and wireless services that went public in October 1996.  During the relevant period, SmarTalk's stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was listed on the NASDAQ National Market.  In November 1998, as a result of some of the accounting issues discussed in this Order, as well as other issues, SmarTalk restated its financial statements for its year ended December 31, 1997 and its first two quarters of 1998.    5   When all of the restated items are taken into consideration, net losses at year-end 1997 decreased from $61.9 million to $25.7 million, net losses for the first quarter of 1998 increased from $3.4 million to $15.2 million, and net income of $2.2 million for the second quarter of 1998 changed to a net loss of $29.2 million. 
+ 
+On January 19, 1999, SmarTalk filed for Chapter 11 bankruptcy and trading in SmarTalk stock was halted.  In March 1999, SmarTalk sold substantially all of its assets to AT&T.  Since that time, SmarTalk has been liquidating its remaining assets in the bankruptcy proceeding. 
+
+ Summary 
+ 
+SmarTalk filed with the Commission an annual report on Form 10-K, which contained materially false and misleading financial statements for its year ended December 31, 1997.  In the 1997 annual report, SmarTalk reported a one-time charge, a $25 million restructuring reserve, purportedly for anticipated 1998 costs, after its purchase of six other prepaid telephone card businesses.  As a result of the acquisitions, SmarTalk obtained additional offices, employees and carrier service providers, as well as prepaid telephone cards with different logos.  The entire restructuring reserve did not conform to Generally Accepted Accounting Principles ("GAAP") because the anticipated costs were not proper restructuring costs and the company had failed to properly establish a plan of restructuring in conformity with Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) ("EITF 94-3").  SmarTalk also improperly understated current period operating expenses by charging 1997 operating expenses against the non-GAAP restructuring reserve.  This enabled SmarTalk to falsely inflate earnings before one-time charges at year-end 1997. 
+ 
+PwC and Hirsch, the engagement partner on the PwC audit team, audited the financial statements that were contained in SmarTalk's 1997 Form 10-K.  However, PwC and Hirsch failed to comply with Generally Accepted Auditing Standards ("GAAS") in the conduct of the audit. 
+ 
+In late-July and early-August 1998, after Hirsch left the firm, PwC reviewed the working papers for its audit of SmarTalk's 1997 financial statements in contemplation of resigning as SmarTalk's auditor.  During its review of the working papers, PwC identified potential issues with SmarTalk's 1997 financial statements and its audit.  As set forth more fully below, PwC made undocumented changes to its 1997 audit working papers and discarded other documents relevant to its audit.    6   
+ 
+On August 10, 1998, SmarTalk announced that its auditors had informed management about potentially significant issues with SmarTalk's accounting treatment for acquisitions that occurred during 1997 and certain other items relating to fiscal year 1997.  On August 11, after the press release, SmarTalk's stock price fell 57%, from $16 5/8 to $7 5/32. 
+ 
+In November 1998, SmarTalk restated its financial statements for year-end 1997, as well as its first two quarters of 1998.  In the restatement, SmarTalk reversed the entire $25 million restructuring reserve that had been recorded at year-end 1997.  In addition, SmarTalk expensed most of the operating costs that had previously been charged against the restructuring reserve. 
+ 
+PwC's and Hirsch's conduct constituted improper professional conduct for purposes of Commission Rule of Practice 102(e). 
+
+ Year-End 1997:  SmarTalk Establishes a Non-GAAP
+Restructuring Reserve and Overstates Net Income Before One-Time Charges 
+ 
+In its year-end 1997 financial statements, SmarTalk recorded a one-time charge, a $25 million restructuring reserve.  As reflected in SmarTalk's Form 10-K and restructuring reserve schedules given to PwC, the $25 million restructuring reserve consisted of five types of costs purportedly to be incurred in 1998 in order to exit certain activities:  contract termination fees; write-down of prepaid card inventory that would be recalled in 1998; certain asset write-downs; severance benefits associated with personnel reductions in 1998; and various general reserves.  SmarTalk failed to follow through on most of its restructuring plan and therefore incurred few of the costs for which it had reserved. 
+ 
+Glen Andrew Folck,    7   SmarTalk's Chief Financial Officer (the "CFO") consulted with Hirsch in the course of establishing the restructuring reserve.  Also, Hirsch arranged for the CFO to be given a copy of EITF 94-3, which applies to certain costs incurred in restructuring. 
+ 
+At the beginning of the audit of SmarTalk's 1997 financial statements, PwC assessed the risks of SmarTalk engaging in fraudulent accounting and reporting.  Specifically, in January 1998, Hirsch signed a risk assessment form in which a PwC audit staff member had identified certain risks potentially affecting the audit, including:  SmarTalk management had an excessive interest in maintaining or increasing SmarTalk's stock price or earnings trend through the use of unusually aggressive accounting practices; SmarTalk had an inability to generate cash flows from operations while reporting earnings and earnings growth; some of SmarTalk's estimates involved unusually subjective judgments or uncertainties or were subject to potential significant change in the near term; and SmarTalk's staff was weak in financial/SEC reporting.  In view of these known risks, Hirsch should have exercised more skepticism and obtained more evidence from management to support PwC's audit opinion on the financial statements.  Instead, as set  forth below, Hirsch did not ensure that sufficient audit procedures were conducted.  While management had provided a written representation to PwC that GAAP had been applied in the preparation of the financial statements for the year ended December 31, 1997, as described below, Hirsch was aware of other audit evidence from which he should have realized further audit work was required. 
+
+ PwC and Hirsch Failed to Adequately Test Management's
+Commitment to a Detailed Exit Plan Prior to Year-end 1997 
+ 
+To establish a restructuring reserve, EITF 94-3 required SmarTalk management to approve and commit the enterprise to an exit plan by the date of the financial statements (in this case December 31, 1997).  An exit plan must specifically identify all significant actions to be taken to complete the exit plan, activities that will not be continued, including the method of disposition and location of those activities, and the expected date of completion.  EITF 94-3 also provides that a liability should be recognized at the commitment date (by December 31, 1997) for only those exit costs that can be reasonably estimated. 
+ 
+SmarTalk had no detailed plan or proper approval in 1997.  At the end of October 1997, some elements of a plan, but not the details or the amounts, were discussed at a board of directors meeting.  By late December 1997, the CFO developed a list of potential restructuring reserve costs.  Nevertheless, that list was not finalized and the amounts and other details, including the timing of activities to be discontinued, were not determined in 1997.  Rather, in January 1998, the CFO began getting input from SmarTalk employees to prepare a more detailed schedule of restructuring reserve items and to derive amounts.  In January 1998, the CFO compiled a first draft schedule of restructuring reserve amounts and presented the draft schedule to PwC. 
+ 
+Later in 1998 the CFO's schedule of restructuring items went through several subsequent revisions, when the exit plan should have been completed and amounts estimated by December 31, 1997.  There were material changes in the nature, amounts and timing of many items in the several versions of the restructuring reserve schedules in 1998.  The changes to the plan in 1998 reflect SmarTalk's failure to commit to a restructuring plan in conformity with EITF 94-3 and inability to make reliable estimates by year-end 1997.  In view of the failure to commit to a detailed exit plan prior to year-end, any approval in 1997 was too limited and any approval in 1998 was too late. 
+ 
+Hirsch was aware of information which should have made him question whether SmarTalk had committed to a detailed plan and estimated amounts by December 31, 1997.  For example, in late November or early December 1997, the CFO told Hirsch that SmarTalk had not yet completed its plan or finalized the amounts.  It was not until January 1998 that Hirsch and other PwC staff were first given the CFO's draft schedule of restructuring reserve amounts. 
+ 
+Later in January 1998, a PwC audit staff member provided Hirsch with an analysis (the "January 1998 Memorandum") of the CFO's draft restructuring reserve schedule.  The January 1998 Memorandum, which was not made part of PwC's working papers, evaluated the propriety of the components of the proposed restructuring reserve based on information available at the time.  Among other things, the January 1998 Memorandum disclosed that the timing of the two carrier contract terminations had not yet been decided and the timing of these events would affect the amounts reserved.  The January 1998 Memorandum further stated that the following were issues with the prepaid card inventory:  the timing of the recall of prepaid card inventory would affect the amount reserved and the "cost of [the] recall [was] difficult to determine."  The amounts ultimately reserved for these items totaled more than $17 million of the $25 million restructuring reserve. 
+ 
+In February and March 1998, PwC was given two subsequent versions of the restructuring reserve schedules, which reflected material changes to the amounts to be reserved for various components.  For example, the amount estimated for one of the contract terminations increased from $5 million in January to $8.4 million in February and then to $9.7 million in March.  As noted above, the changes to the plan in 1998 reflect SmarTalk's failure to commit to a restructuring plan in conformity with EITF 94-3 and its inability to make reliable estimates by year-end 1997. 
+ 
+At the end of March 1998, SmarTalk management signed a letter to PwC which contained certain representations ("Management Representation Letter").  In the Management Representation Letter, SmarTalk's management represented that SmarTalk was "committed to its plan of restructure to be executed during the year ended December 31, 1998."  The Management Representation Letter does not state, however, that SmarTalk had committed to the plan in 1997. 
+ 
+In view of the foregoing information that PwC and Hirsch knew, they should have raised questions concerning management's commitment to a detailed plan by year-end 1997.  Therefore, PwC and Hirsch failed to adequately test management's commitment to a detailed plan in 1997.  PwC and Hirsch failed to obtain sufficient documentary support or a sufficient written representation indicating that management had committed to a detailed exit plan by year-end 1997.  
+
+ PwC and Hirsch Failed to Adequately Audit the Reserve for Contract Termination Fees 
+ 
+The largest component of the reserve was $13.5 million for commitments and penalties pertaining to contracts that were ostensibly to be terminated in 1998.  Most of this component was for amounts due upon termination of SmarTalk's carrier services with WorldCom and MCI.    8   In SmarTalk's 1997 Form 10-K, SmarTalk stated that its restructuring plan included consolidating its transport provider base from approximately seven to two carriers.  In addition, SmarTalk management represented that the company intended to switch its carrier traffic from WorldCom and MCI to Frontier Communications at some point in 1998, due to more favorable rates on the Frontier contract.  Moreover, the management representation letter stated that SmarTalk would not utilize traffic volume commitments (other than those estimated to be used through March 31, 1998) with MCI or WorldCom, and management did not believe that these commitments could be sold, transferred or otherwise assigned to a third party or that any of the costs to be incurred under existing agreements would be recouped.  However, only some traffic was ever switched to Frontier, in part, because of technical difficulties in 1998.  Also, the switch of traffic occurred later in 1998 than had been reflected in SmarTalk's restructuring schedules, which had been provided to PwC.  SmarTalk continued to use the MCI contract through its bankruptcy in 1999 and assigned its interest in the WorldCom contract to another company in mid-1998. 
+ 
+While Hirsch considered the contracts to be adverse purchase commitments, PwC and Hirsch should have known that the contract termination costs were not exit costs under EITF 94-3.  SmarTalk was switching one contract for another and thus, the termination costs were associated with activities that would be continued, which would not satisfy the requirements of EITF 94-3. 
+ 
+In addition, PwC and Hirsch should have known that SmarTalk had no reasonable basis for accrual of these costs under Statement of Financial Accounting Standards ("SFAS") No. 5, Accounting for Contingencies.  SFAS No. 5 requires that losses associated with contingencies be accrued only if it is probable that a liability had been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.  Hirsch knew that SmarTalk management intended to and did continue to use the carrier contracts in the early part of 1998.  Hirsch also knew that SmarTalk had not notified MCI or WorldCom prior to December 31, 1997 of its intention to terminate the contracts.  Accordingly, Hirsch should have known that no events had occurred that would have obligated SmarTalk as of year-end 1997 to pay termination costs.  Moreover, Hirsch was informed that, by year-end 1997, SmarTalk management had not determined the timing of the contract terminations and the timing of those events would and did affect the amount reserved for the WorldCom contract.  Accordingly, Hirsch should have known that at year-end management was unable to reasonably estimate how much the penalties under that contract would be. 
+
+ PwC and Hirsch Failed to Adequately Audit the Reserve for Inventory Write-Downs 
+ 
+Another component improperly included in the restructuring reserve was $4.5 million for inventory of prepaid telephone cards that were to be recalled from customers, discarded and replaced some time in 1998 with cards containing a new SmarTalk logo.  The Management Representation Letter stated that SmarTalk "will dispose of obsolete inventory as part of the restructure."  The prepaid card inventory, however, was not recalled or destroyed and SmarTalk continued selling some of the cards. 
+ 
+PwC and Hirsch were aware that inventory write-downs are specifically addressed in Emerging Issues Task Force Issue No. 96-9, Classification of Inventory Markdowns and Other Costs Associated with a Restructuring, which contains the Commission's view that write-downs of inventory should be reflected as costs of goods sold.  The January 1998 Memorandum that was provided to Hirsch noted the Commission's view. 
+ 
+PwC and Hirsch also should have known that SmarTalk had no reasonable basis for accruing these costs as a loss at year-end under SFAS No. 5.  Hirsch was aware that SmarTalk continued to sell its inventory on hand in 1998.  Hirsch also was aware that SmarTalk was unable to replace its existing inventory until it had developed a new logo and that had not occurred by year-end 1997 or even as of the end of the audit in 1998.  In addition, some of the inventory that was ultimately to be discarded had not even been manufactured by year-end.  Thus, PwC and Hirsch should have known that the assets had not been impaired by the end of 1997.  Additionally, as noted above, Hirsch was informed in the January 1998 Memorandum that the timing of the product recall would affect the amount reserved and the cost of the recall was difficult to determine.  Accordingly, while SmarTalk management estimated the value of the cards that would be discarded based on the amount of inventory on hand at year-end 1997, PwC and Hirsch should have known that the amount of anticipated losses from the eventual destruction of inventory was not reasonably estimable by December 31. 
+
+ PwC and Hirsch Failed to Adequately Audit the Reserve for Asset Write-Downs
+Associated with Offices Purportedly to be Closed in 1998 
+ 
+The restructuring reserve also improperly included $3.5 million for assets to be disposed of when SmarTalk closed certain offices in 1998.  The Management Representation Letter stated that SmarTalk's "closure of several offices and sites and the relocation of its corporate office will result in lease penalty payments and the possibility of impairment in value of specific assets exists and recovery of the cost thereof is uncertain."  However, SmarTalk did sublease its corporate office and the sublease was made effective as of April 1, 1998.  SmarTalk also subleased another office. 
+ 
+For the losses on asset impairments, EITF 94-3 defers to SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121").  The January 1998 Memorandum stated that under SFAS No. 121, losses on asset write-downs are to be reported as a component of income from continuing operations.  In addition, Hirsch should have known that these assets did not meet the criteria for asset impairments or asset disposals at December 31, 1997. Moreover, the possibility of impairment and uncertainty of recovery of costs would not, without additional information, support a reserve being established.  Accordingly, PwC and Hirsch should have known that the reserve for asset write-downs was improper. 
+
+ PwC and Hirsch Failed to Adequately Audit the Reserve for Severance Benefits 
+ 
+The fourth component of the restructuring reserve improperly included $1.1 million for severance benefits for employees, at offices to be closed and at SmarTalk's new headquarters, whose employments were to be terminated in 1998.  For involuntary severance benefits to be included in the reserves as of December 31, 1997, EITF 94-3 required management, prior to year-end, to identify the number of employees to be terminated, their job classifications and locations, establish the benefits employees will receive upon termination and communicate the benefit arrangement to employees.  SmarTalk did not comply with these requirements. 
+ 
+The Management Representation Letter stated, "[e]mployees to be terminated as a result of the restructure plan have been identified and notified of the restructure plan as of December 31, 1997, including benefits to be paid under termination agreements."  However, the severance benefit arrangement for most employees was not decided upon until 1998 and employees did not learn the amount of their severance benefits until they were actually terminated (which for most employees was in 1998).  In addition, there was no determination in 1997 of the total number of employees to be terminated.  Moreover, SmarTalk did not terminate a number of the employees identified on schedules provided to PwC nor pay the amount of severance benefits reflected on those schedules. 
+ 
+PwC and Hirsch should have known that SmarTalk did not comply with EITF 94-3 in reserving for severance benefits.  The January 1998 Memorandum informed Hirsch, "Although employees were aware of reductions to come, no specific identification of employees or communication of benefits was made until post [year-end] . . . and [s]ome employees are yet to be informed."  In view of this information, Hirsch did not obtain sufficient documentation or a sufficient written management representation showing that employees had been identified or that benefits had been communicated prior to December 31, 1997. 
+
+ PwC and Hirsch Failed to Adequately Audit SmarTalk's Establishment of General Reserves 
+ 
+The restructuring reserve improperly included $1.8 million of general reserves.  The general reserves consisted of:  $575,000 for computer conformity, utilities and taxes; $625,000 for travel and telephone expenses related to employee terminations; an overstatement by $180,000 of the MCI contract termination amount; an overstatement by $180,000 of the amount set aside for inventory write-downs; and $250,000 for "various employee severances," for which SmarTalk management failed to identify the number of employees, their job classifications and their locations, as is required under EITF 94-3.  SFAS No. 5, paragraph 14, prohibits the accrual of general reserves.  Accordingly, these costs were operating expenses that should not have been recorded until they were incurred.  PwC and Hirsch posted some of the general reserves to the effects schedule and considered them to be immaterial in light of offsetting adjustments identified in the effects schedule.  Nevertheless, PwC and Hirsch knew, or should have known, that general reserves were wrongly included in the restructuring reserve. 
+
+ PwC and Hirsch Failed to Adequately Audit the
+Improper Charging of 1997 Operating Expenses Against the Restructuring Reserve 
+ 
+SmarTalk's restructuring plan contemplated that SmarTalk would incur the previously described categories of costs in 1998.  Nevertheless, SmarTalk improperly charged a total of $1.06 million of 1997 operating expenses against the restructuring reserve at year-end 1997.  The expenses, which were not contemplated by the restructuring plan, included executive travel and entertainment costs, telephone and moving expenses, and consulting fees.  Most of the operating expenses charged against the restructuring reserve as of year-end 1997 were incurred in the third quarter of 1997.  If the total operating expenses charged as of December 31, 1997 had been properly reflected on SmarTalk's financial statements, earnings before one-time charges would have been reduced from $2.3 million to $1.2 million.  In SmarTalk's restated financial statements, most 1997 charges against the restructuring reserve were reversed and reclassified as operating expenses. 
+ 
+SmarTalk's Form 10-K for fiscal year 1997 failed to describe the types and amounts of costs charged against the liability in 1997, as required by EITF 94-3.  Instead, SmarTalk reflected these charges on its balance sheet by reducing the total restructuring reserves ($25 million) by the total amount charged as of year-end 1997 ($1.06 million).  Although the reduced restructuring reserve amount on the balance sheet reflected use of the reserve in 1997, the reduced restructuring reserve amount on the balance sheet was not explained anywhere in the Form 10-K.  Had the costs been described in SmarTalk's Form 10-K, as was required, the misuse of the restructuring reserve in 1997 would have been apparent. 
+ 
+A review by PwC and Hirsch of SmarTalk's restructuring reserve account would have revealed that SmarTalk had already improperly charged expenses against the restructuring reserve in 1997, when the restructuring reserve had been established for expenses purportedly to be incurred in 1998.  PwC had access to SmarTalk's accounting records and PwC accounting staff was aware that there were charges to the restructuring reserve in 1997.  In addition, the January 1998 Memorandum stated that some costs to be included in the restructuring reserve were "probably incurred pre 12/31."  In view of all of the information that PwC and Hirsch knew and had access to, PwC and Hirsch failed to adequately audit the amounts charged against the restructuring reserve at year-end 1997. 
+
+ Working Paper Alteration and Other Events 
+ 
+At the end of March 1998, after the audit of SmarTalk's 1997 financial statements was completed, Hirsch left PwC.  In April and May 1998, audit staff completed the working papers relating to the audit.  Then, in May 1998, Hirsch signed the working papers stating that all substantive matters had been completed and the issuance of PwC's audit report was appropriate.  In addition, in May 1998, PwC staff signed-off that the working paper files had been completed.  Several months later, PwC was considering resigning as SmarTalk's auditors because its relationship with SmarTalk had become contentious.  PwC's possible resignation prompted PwC to conduct a post-audit review of the working papers it prepared in connection with its 1997 audit.  The post-audit review began on July 18, 1998.  The PwC post-audit reviewer identified potential issues with SmarTalk's year-end 1997 financial statements, as well as the audit.  In late-July 1998, PwC became aware of a class action shareholder lawsuit alleging accounting fraud against SmarTalk and certain of its officers and directors.  At that time, PwC was not named as a defendant in that lawsuit.    9   
+ 
+During the period from the end of July through early August 1998, with the knowledge of several PwC partners with firm-wide responsibilities, PwC made revisions to its working papers.  Those revisions were not documented.  Language in the working papers was revised, added and deleted.  Documents were removed from the working papers and discarded, and documents were also added to the working papers.  The post-audit revisions were not dated or otherwise distinguished to indicate that they had been made as part of a post-audit review and PwC discarded most of the notes containing a second post-audit reviewer's instructions.  In addition, during this period, PwC deleted and discarded most of its "desk files."    10    At the time of PwC's conduct, there was no SEC investigation of SmarTalk's accounting or financial disclosures. 
+ 
+On August 7 and August 10, 1998, PwC informed SmarTalk of its concerns with the restructuring reserve and other accounting issues and of the need to restate SmarTalk's financial statements.  On August 10, 1998, SmarTalk announced that its auditors had informed management about potentially significant issues with SmarTalk's accounting treatment for acquisitions that occurred during 1997 and certain other items relating to fiscal year 1997.  In November 1998, SmarTalk issued restated financial statements for fiscal year 1997 and the first two quarters of 1998. 
+
+ PwC and Hirsch Engaged in Improper Professional Conduct
+Within the Meaning of Commission Rule of Practice 102(e) 
+
+ PwC and Hirsch 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.  AICPA Codification of Statements on Auditing Standards ("AU") Section 230.07. 
+ 
+Based on the foregoing, in connection with its audit of SmarTalk's 1997 year-end financial statements, PwC and Hirsch failed to maintain the attitude of professional skepticism required by GAAS concerning SmarTalk's accounting for its establishment of and charges against the restructuring reserves.  PwC and Hirsch did not follow up on certain information, including the reduced restructuring reserve amount on the balance sheet which reflected the improper charging of 1997 operating expenses against the restructuring reserve that was purportedly established for 1998 costs.  Furthermore, in some instances, PwC and Hirsch accepted uncorroborated representations of SmarTalk's management in lieu of performing additional audit procedures, in contravention of AU Section 333.  For example, in the Management Representation Letter, management represented that GAAP had been applied in the preparation of the financial statements for the year ended December 31, 1997.  However, as described above, this representation was contradicted by other audit evidence PwC and Hirsch obtained.  "[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 Section 333.02. 
+
+ PwC and Hirsch 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.  AU Sections 150.02 & 326.01. 
+ 
+Based on the foregoing, in connection with SmarTalk's year-end 1997 financial statements, PwC and Hirsch failed to obtain sufficient competent evidence (including sufficient management representations) in support of SmarTalk's accounting for its establishment of each component of the restructuring reserve and its charging 1997 expenses against the restructuring reserve that purportedly had been established for anticipated 1998 expenses. 
+
+ PwC and Hirsch Failed to Exercise Due Professional Care 
+ 
+Auditors must exercise due professional care in performing the audit and preparing the audit report.  AU Sections 150.02 and 230.01. 
+ 
+Based on the foregoing, in connection with the audit of SmarTalk's 1997 year-end financial statements, PwC and Hirsch failed to exercise due professional care by failing to plan and perform audit procedures necessary to afford a reasonable basis for PwC's audit opinion.  As described above, PwC and Hirsch identified a number of risk factors associated with the preparation of SmarTalk's financial statements.  Despite PwC's and Hirsch's awareness of numerous risks and other information that could materially impact the financial statements, PwC and Hirsch failed to perform sufficient audit procedures to assess properly whether SmarTalk's accounting for and charges against its restructuring reserves was in conformity with GAAP.  As a result, SmarTalk improperly established a non-GAAP restructuring reserve and, as described above, misused it to materially inflate earnings before one-time charges at year-end 1997. 
+
+ PwC and Hirsch Failed to Render an Accurate Audit Report 
+ 
+In conducting an audit, an auditor is required to state in the auditor's report whether, in the auditor's opinion, the financial statements are presented in all material respects in conformity with GAAP.  AU Sections 410 and 411.  An auditor may express that the financial statements are presented in conformity with GAAP only when the auditor has formed such an opinion on the basis of an audit performed in accordance with GAAS.  AU Section 508.07. 
+ 
+Based on the foregoing, in connection with the audit of SmarTalk's year-end 1997 financial statements, PwC and Hirsch failed to render an accurate audit report when they stated that SmarTalk's financial statements had been prepared in conformity with GAAP and the audit had been performed in accordance with GAAS.  In fact, the financial statements were not in conformity with GAAP, and the audit was not performed in accordance with GAAS. 
+
+ PwC's Responsibility 
+ 
+The failures of Hirsch, a PwC engagement partner and managing partner of PwC's Century City office, to comply with GAAS in the conduct of the audit bind and are imputed to PwC.  Furthermore, it is appropriate to sanction and seek other relief from PwC for the audit failures because PwC, as set forth more fully above, made undocumented changes to its 1997 audit working papers and discarded other documents relevant to its audit. 
+
+ Findings and Undertakings 
+ 
+Based on the foregoing, the Commission finds that PwC, through Hirsch in connection with the audit of SmarTalk's 1997 financial statements, engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.  Specifically, PwC engaged in repeated instances of unreasonable conduct, each resulting in a violation of applicable professional standards. 
+ 
+Respondent undertakes: 
+  within 10 days of the date of this Order, to pay $1,000,000 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 PwC as a Respondent in these proceedings, the file number of these proceedings, copies of which cover letter and money order or check shall be sent to Antonia Chion, Division of Enforcement, Securities and Exchange Commission, 450 5th Street NW, Washington, DC 20549-0801 and to Lisa Deitch, Division of Enforcement, Securities and Exchange Commission, 450 5th Street NW, Washington, DC 20549-0707.   
+ to establish and maintain policies and procedures to preserve working papers intact following the archiving of the working papers and also during the course of, and following the conclusion of, any post-audit review.  Such policies and procedures shall require that, to the extent PwC determines that it is necessary to make alterations or additions to the working papers, such alterations or additions will be properly documented, will indicate the time and circumstances under which they are made, and will be made in such a manner so as to preserve the original language of the working papers and the original documents included in the working papers.  Within three months of the date of this Order, PwC shall certify in writing to the Commission that such policies and procedures have been established and implemented; and   
+ after PwC certifies to the Commission that the policies and procedures set forth in paragraph 2, above, have been established and implemented, to retain, at PwC's expense, an independent consultant or consultants (the "Consultant") not unacceptable to the staff of the Commission.  PwC shall require the Consultant to:  (1) confirm that PwC has disseminated firm-wide, the policies and procedures referenced in paragraph 2, above; (2) conduct a review of a one-year period beginning three months from the date of this Order (the "Review Period") of any instances in which electronic working papers relating to public companies are unarchived; and (3) review PwC's software system to confirm that it is designed to meet the objectives of the policies and procedures referenced in paragraph 2, above.  PwC shall require the Consultant, no later than six months after the end of the Review Period, to complete its review and simultaneously submit a written report documenting its findings to PwC, the Commission and the Public Company Accounting Oversight Board.  In addition, PwC shall require the 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 Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with PwC, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such.  The agreement will also provide that the Consultant will require that any firm with which he/she is affiliated or of which he/she is a member, and any person engaged to assist the Consultant in performance of his/her duties under this Order shall not, without prior written consent of the Commission's staff, enter into any employment, consultant, attorney-client, auditing or other professional relationship with PwC, 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. 
+  
+In determining whether to accept the Offer, the Commission has considered the undertakings set forth in paragraphs 1 through 3, above. 
+
+ 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 PwC is censured pursuant to Rule 102(e)(ii) of the Commission's Rules of Practice. 
+ 
+By the Commission. 
+ 
+ 
+ 
+ 
+Jonathan G. Katz 
+Secretary 
+ 
+ 
+ 
+  Footnotes 
+ 
+       1   
+ Rule 102(e)(1)(ii) provides, in relevant part, that:  
+The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it . . . any person who is found . . . to have engaged in . . . improper professional conduct.        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   
+ In this Order, "PwC" refers to Price Waterhouse LLP before the merger and to PricewaterhouseCoopers LLP after the merger.        4   
+ Concurrent with the settlement of this matter by PwC, the Commission issued a settled Order Instituting Public Administrative Proceedings in the Matter of Philip Hirsch.        5   
+ PwC did not audit SmarTalk's quarterly financial statements.        6   
+ Hirsch was not involved in this conduct.        7   
+ Previously, the Commission issued an Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order in the Matter of Glen Andrew Folck and also filed a complaint for a civil penalty against Folck.        8   
+ A small portion of this component ($800,000) also related to SmarTalk's intention to terminate a contract with Polaroid in 1998, which was to produce holographic images on prepaid cards.  The analysis of why the Polaroid contract termination fees were improper restructuring costs is similar to the analysis of the carrier contract termination costs.        9   
+ PwC was named as a defendant in the class action shareholder lawsuit on September 21, 1998.        10   
+ In response to the staff's request for documents, PwC voluntarily produced documents in February 1999, that included listings of computer files showing that certain working paper files had been accessed in early August 1998.  However, PwC did not tell the staff until November 1999, that some working papers and other documents relating to PwC's audit report had been revised, created and discarded.    
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diff --git a/raw/aaer/2003/AAER-1790.txt b/raw/aaer/2003/AAER-1790.txt
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+Securities Exchange Act of 1934 
+
+Release No.  34-47947 / May 30, 2003 
+ 
+
+Accounting and Auditing Enforcement 
+Release No. 1790 / May 30, 2003 
+ 
+Administrative Proceeding 
+File No.  3-11139 
+        
+
+In the Matter of 
+  
+UMESH MALHOTRA,      
+  
+Chartered Accountant,  
+  
+Respondent   
+     
+    : : : : : : : : : : : :   
+
+   ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS      I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Umesh Malhotra ("Respondent" or "Malhotra") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice. 1  
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.3    below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that:  
+
+ 1. Umesh Malhotra, age 43, was a Chartered Accountant in England and Wales from 1984 through 1998.  Malhotra served as Chief Financial Officer and assistant secretary for COHR, Inc. ("COHR") from 1995 through 1998 and Treasurer of COHR from 1996 to 1998.  Malhotra was placed on paid leave by COHR in January of 1998 and ceased employment with COHR on February 20, 1998.   
+
+ 2. COHR was at all relevant times a Delaware corporation with its principal place of business in Chatsworth, California.  COHR purchased and serviced medical equipment for hospitals and clinics nationwide.  It also provided security and consulting services to hospitals.  At all relevant times, COHR's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the NASDAQ National Market. 
+
+ 3. On February 10, 2003, the Commission filed a complaint against Malhotra in  Securities and Exchange Commission v. Umesh Malhotra, et al . (Civil Action No.   1:03CV00211).  On May 20, 2003, the court entered an order which permanently enjoins Malhotra, by consent, from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  Malhotra was also ordered to pay a civil penalty of $32,500 and was prohibited from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act.  
+
+ 4. The Commission's Complaint alleged, among other things, that Malhotra, engaged in a fraudulent scheme which resulted in COHR filing materially false and misleading financial statements in the company's annual report on Form 10-K for the fiscal year ended March 31, 1997, and in the company's quarterly reports on Form 10-Q for the two quarters of fiscal year 1998.  The Complaint alleged that Malhotra engaged in a number of improper accounting practices that materially increased COHR's annual and quarterly revenue and net income in a departure from generally accepted accounting principles.  These practices included, among other things, improperly capitalizing expenses, prematurely recognizing revenue from sales, and improperly reducing reserve accounts.  In addition, the Complaint alleged that Malhotra provided false information to COHR'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 Malhotra's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+
+ Malhotra is suspended from appearing or practicing before the Commission as an accountant. 
+
+ 
+By the Commission. 
+ 
+
+ 
+ 
+ 
+Jonathan G. Katz 
+Secretary 
+
+ 
+ 
+
+ 
+  Footnotes 
+ 
+  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. 
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diff --git a/raw/aaer/2003/AAER-1791.txt b/raw/aaer/2003/AAER-1791.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4262cf967e04ba1302e00cbbd755b96bfc73e86f
--- /dev/null
+++ b/raw/aaer/2003/AAER-1791.txt
@@ -0,0 +1,1372 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Umesh Malhotra, Paul Chopra, and David Manigault AAER 
+     
+     
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+     
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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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+              Umesh Malhotra, Paul Chopra, and David Manigault AAER
+           
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+        Umesh Malhotra, Paul Chopra, and David Manigault AAER
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+ Litigation Release No. 18162 / May 30, 2003 
+
+ Accountng and Auditing Enforcement Release No. 1791 / May 30, 2003 
+
+  Securities and Exchange Commission v. Umesh Malhotra, Paul Chopra, and David Manigault , Civil Action No. 1:03CV00211 (D.D.C.) (filed February 10, 2003). 
+
+ Court Enters Judgment Against Three Former Senior Officers of COHR, Inc. For Securities Fraud
+
+ COHR's Former Chief Financial Officer Is Suspended By The Commission From Appearing Or Practicing Before It As An Accountant
+
+   On May 20, 2003, the Honorable Ricardo M. Urbina, United States District Judge for the District of Columbia, entered Judgments of Permanent Injunction and Other Relief against three former senior officers of COHR, Inc. ("COHR").  The Commission previously filed a settled action on February 10, 2003, alleging that Umesh Malhotra ("Malhotra"), Paul Chopra, and David Manigault ("Manigault") had defrauded investors from 1996 through 1998 by improperly recognizing revenue in violation of generally accepted accounting principles and by engaging in other accounting tricks that fraudulently inflated COHR's revenue and pre-tax profit. 
+
+ All three defendants, without admitting or denying the Commission's allegations in the Complaint, consented to the entry of the Judgments, which enjoined them from violating the federal securities laws.  In addition, Malhotra was ordered to pay a civil penalty of $32,500 and to be permanently barred from serving as an officer or director of any public company.  Manigault also agreed to pay a civil penalty of $25,000.  [ SEC v. Umesh Malhotra, Paul Chopra and David Manigault , Civil Action No. 1:03CV00211 (D.D.C.) (filed February 10, 2003);  Litigation Release No. 17979 , February 11, 2003] 
+
+ The Complaint alleged that all three defendants violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2.  The Complaint also alleged that all three defendants aided and abetted COHR's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13. 
+
+ On May 30, 2003, based on the entry of the final judgment against Malhotra, the Commission also instituted settled administrative proceedings against Malhotra pursuant to Section 102(e)(3) of the Commission's Rules of Practice.  Without admitting or denying the Commission's findings, Malhotra consented to the entry of the Commission's Order, which suspends him from the privilege of appearing or practicing before the Commission as an accountant. 
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diff --git a/raw/aaer/2003/AAER-1792.txt b/raw/aaer/2003/AAER-1792.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d360be771aaef8fb3499e48ebcb9d98f3d03122f
--- /dev/null
+++ b/raw/aaer/2003/AAER-1792.txt
@@ -0,0 +1,1380 @@
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+ Litigation Release No.  18170 / June 4, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1792 / June 4, 2003 
+
+  Securities and Exchange Commission v. Charles W. McCall,  United States District Court for the Northern District of California, Civil Action No.  CO3-2603-SC 
+
+ SEC Charges Former Chairman of the Board of Directors of McKesson HBOC for His Role in the Massive Accounting Fraud 
+
+ The Securities and Exchange Commission today announced charges against the former Chief Executive Officer of HBO & Company and the former Chairman of the Board of Directors of McKesson HBOC, Charles W. McCall, for his role in the financial reporting fraud at the companies.  McKesson HBOC (since renamed McKesson Corporation), a Fortune 100 company with headquarters in San Francisco, California, was formed by the January 1999 merger of McKesson Corporation with HBO & Company ("HBOC"), an Atlanta, Georgia-based vendor of healthcare software.  McCall becomes the eleventh person charged by the Commission in its investigation of the long-running fraudulent scheme to inflate the company's revenue and net income.  He is the highest company official to be charged.  McCall, age 59, lives in Fort Lauderdale, Florida. 
+
+ In a separate action, the U.S. Attorney's Office for the Northern District of California also filed criminal charges against McCall and Jay Lapine, HBOC's former general counsel.  The Commission already has a securities fraud suit pending against Lapine.   
+
+ According to the Commission's complaint, McCall and other top officers participated in a long-running fraudulent scheme to artificially inflate revenue and net income of HBOC and later McKesson HBOC.  When the fraud was discovered in April 1999, McKesson HBOC's stock tumbled from approximately $65 to $34 a share, a drop that slashed the company's market value by more than $9 billion.  McCall's participation in the fraud began at least by January 1998 and continued through the March 1999 quarter, which was the first combined reporting period for McKesson HBOC.   
+
+ As alleged in the Commission's complaint, McCall, in concert with others, used a variety of means to inflate HBOC's and McKesson HBOC's revenues and earnings, most prominently, by the use of side letters and agreements in connection with software licensing contracts.  These side letters and agreements provided customers with the right to cancel contracts or return product if certain contingencies were not met.  Generally Accepted Accounting Principles preclude recognition of revenue from contingent contracts, until the contingency is satisfied.  The side letters were separated from the rest of the contracts and were not provided to the company's outside auditors - thus circumventing the companies' accounting controls and falsifying the companies' books and records. 
+
+ The Commission's charges allege that McCall, acting with others, engaged in other prohibited practices, such as backdating contracts and swapping inventory for the purpose of increasing revenue.  McCall, in concert with others, also is alleged to have managed earnings by using the company's acquisition reserves to reduce unrelated current expenses.  This violated Generally Accepted Accounting Principles because it artificially reduced reported operating expenses and increased quarterly net income and earnings per share. 
+
+ McCall's role in the fraud is alleged to have culminated in April 1999, when he was chairman of the board of directors of the combined McKesson HBOC.  Shortly after the end of McKesson HBOC's March 31, 1999 quarter, McCall helped negotiate a $20 million software deal with Data General Corporation.  The deal was then backdated to make it appear that it had been entered into prior to the end of the March 31, 1999 quarter, and McKesson HBOC fraudulently recognized revenue on the transaction in that quarter.  As alleged in the Commission's complaint, the Data General transaction was designed by McCall and others to enable McKesson HBOC to meet analyst expectations for the March 31, 1999 quarter, which also was McKesson HBOC's fiscal year end. 
+
+ The fraud alleged against McCall enabled HBOC to report an unbroken run of financial success, and continually to exceed analysts' quarterly earnings expectations.  As a result of the fraud, the financial statements of HBOC, and later McKesson HBOC, were materially false and misleading during at least the period January 1998 through April 1999.  McKesson HBOC was required to restate its combined financial results for the previous three fiscal years.   
+
+ The Commission has charged that McCall violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder.  The Commission is seeking from McCall a permanent injunction against future violations of these provisions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.  The Commission also seeks to bar McCall from being an officer or director of a public company.   
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1793.txt b/raw/aaer/2003/AAER-1793.txt
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+++ b/raw/aaer/2003/AAER-1793.txt
@@ -0,0 +1,1378 @@
+
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+ 
+ 
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+     SEC.gov | Ramiro M. Fernandez-Moris, Daniel S. Lezak, and Ramiro Rafael ("Ray") Fernandez 
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+              Ramiro M. Fernandez-Moris, Daniel S. Lezak, and Ramiro Rafael ("Ray") Fernandez
+           
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+        Ramiro M. Fernandez-Moris, Daniel S. Lezak, and Ramiro Rafael ("Ray") Fernandez
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+ Litigation Release No. 18171 / June 4, 2003 
+
+ Accounting and Auditing Enforcement Release No.  1793 / June 4, 2003 
+
+ Ray Fernandez, Former Chairman and CEO of Madera International, Inc., Enjoined and Barred from Serving as an Officer or Director of a Public Company 
+
+  SEC v. Ramiro M. Fernandez-Moris, Daniel S. Lezak, and Ramiro Rafael ("Ray") Fernandez,  01 Civ. 1985 (JR) (D.D.C. filed Sept. 19, 2001) 
+
+ On May 8, 2003, the United States District Court for the District of Columbia entered a judgment of permanent injunction against Ramiro Rafael ("Ray") Fernandez.  The judgment enjoins Fernandez from violating the antifraud provisions of the federal securities laws (specifically, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5) and from aiding and abetting violations of the reporting provisions (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder).  The judgment also permanently prohibits Fernandez from acting as an officer or director of any publicly-held company 
+
+ The judgment further provides that the amount of any disgorgement or civil penalty to be paid by Fernandez shall be determined by the Court following a hearing.  At that hearing, the issues will be limited to determining the appropriateness and amount of any such disgorgement and civil penalty, Fernandez will be precluded from arguing that he did not violate the federal securities laws as alleged in the Commission's amended complaint, and the allegations of the complaint will be accepted as true by the Court. 
+
+ Fernandez consented to the entry of the judgment without admitting or denying the allegations of the Commission's amended complaint.  
+
+ Ray Fernandez was Madera's Executive Vice President in charge of sales and marketing and Chief Executive Officer of Madera International Environmental, Inc., a wholly-owned subsidiary of Madera.  In December 1998, he was additionally elected Chairman of the Board of Directors of Madera, and later, in November 2000, also became its Chief Executive Officer, replacing his father, Ramiro M. Fernandez-Moris.  The amended complaint alleges:  
+
+  Fernandez signed, in his capacities as Director and Chairman of the Board, Madera's fiscal year 1999 annual report on Form 10-K that was filed with the SEC on March 8, 2000 and that contained numerous false statements.   
+
+ Fernandez posted numerous false statements concerning Madera on an Internet message board during the period April through September 19, 2001.   
+
+ At the same time he inflated the share price of Madera through these fraudulent public disclosures about Madera's assets, operations, and revenues, Fernandez sold personal holdings of Madera common stock.  Specifically, from May 2000 through July 2001, Fernandez sold at least 7,939,200 shares of Madera common stock and obtained proceeds of at least $68,791.65.   The Court previously entered a Final Judgment of Permanent Injunction By Default against Madera International, Inc.  The judgment enjoins Madera from violating the antifraud, reporting, books and records, and internal control provisions of the Securities Exchange Act of 1934 (Sections 10(b), 13(a) and 13(b)(2)(A) and (B), and Rules 10b-5, 12b-20, 13a-1 and 13a-13).   Litigation Release No. 17546  (June 6, 2002). 
+
+ For more information, see Litigation Release Nos.  17140  (September 19, 2001) and  17916  (January 7, 2003). 
+
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diff --git a/raw/aaer/2003/AAER-1794.txt b/raw/aaer/2003/AAER-1794.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a056aa5aba1e532753b78034d77da6009c1bc897
--- /dev/null
+++ b/raw/aaer/2003/AAER-1794.txt
@@ -0,0 +1,1492 @@
+
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+ Securities Exchange Act of 1934  
+Release No. 47979 / June 4, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1794 / June 4, 2003 
+
+ Administrative Proceeding 
+File No.  3-11149 
+
+     In the Matter of 
+
+ MARC RABINOWITZ, CPA 
+
+ Respondent. 
+  
+ : : : : : : : : 
+
+ 
+ ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e)(3) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it in the public interest that public administrative proceedings be, and hereby are, instituted against Marc Rabinowitz, CPA ("Rabinowitz" or "Respondent") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice. 1  
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.2 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e)(3) 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. Marc Rabinowitz, CPA, age 46, is a partner at Ernst & Young LLP ("E&Y").  Until approximately 1998, Rabinowitz worked in the Assurance and Advisory Business Services ("AABS") practice of E&Y's Stamford, Connecticut office.  Rabinowitz was the audit engagement partner for CUC International Inc. ("CUC") and the former CUC portion of Cendant Corporation ("Cendant") from the third quarter of 1996 until April 1998.  At the relevant time, Rabinowitz was a certified public accountant licensed in the States of Connecticut and New York.   
+
+ 2. On April 30, 2003, a final judgment was entered by consent against Rabinowitz, permanently enjoining him from aiding and abetting an issuer that files with the Commission a report required to be filed with the Commission, pursuant to Section 13(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and the rules and regulations promulgated thereunder, in violation of Section 13(a) of the Exchange Act or Rules 12b-20, 13a-1 or 13a-13 promulgated thereunder in the civil action entitled  Securities and Exchange Commission v. Kenneth Wilchfort, CPA, and Marc Rabinowitz, CPA , Civil Action Number 03-0933, in the United States District Court for the District of Columbia.  
+
+ 3. The Commission's complaint alleges that Respondent improperly failed to detect that CUC's and Cendant's financial statements were not presented in conformity with generally accepted accounting principles and he had a duty to withhold his firm's audit report containing an unqualified opinion and take appropriate steps to prevent these financial statements from being filed with the Commission and circulated to investors.  By issuing E&Y audit reports containing unqualified opinions on the financial statements and allowing the reports and the financial statements to be filed with the Commission and circulated to investors, Respondent aided and abetted CUC's and Cendant's violations of the reporting provisions of the federal securities laws. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it in the public interest to impose the sanction agreed to in Respondent Rabinowitz's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+
+ A. Rabinowitz is suspended from appearing or practicing before the Commission as an accountant. 
+
+ B. After four (4) 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 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+ (b) Respondent, 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 or equivalent organization; and  
+
+ (c) As long as Respondent 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+ 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: 
+
+ Jonathan G. Katz  
+Secretary 
+
+ Endnote 
+
+  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. 
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diff --git a/raw/aaer/2003/AAER-1795.txt b/raw/aaer/2003/AAER-1795.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a4d529e4e262436e444d47c1da766671dcd5c774
--- /dev/null
+++ b/raw/aaer/2003/AAER-1795.txt
@@ -0,0 +1,1492 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+     SEC.gov | Kenneth Wilchfort, CPA 
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+              Kenneth Wilchfort, CPA
+           
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+        Kenneth Wilchfort, CPA
+       
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+ Securities Exchange Act of 1934  
+Release No. 47981 / June 4, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1795 / June 4, 2003 
+
+ Administrative Proceeding 
+File No.  3-11150 
+
+     In the Matter of 
+
+ KENNETH WILCHFORT, CPA 
+
+ Respondent. 
+  
+ : : : : : : : : 
+
+ 
+ ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e)(3) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING SANCTIONS    I. 
+ The Securities and Exchange Commission ("Commission") deems it in the public interest that public administrative proceedings be, and hereby are, instituted against Kenneth Wilchfort, CPA ("Wilchfort" or "Respondent") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice. 1  
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.2   below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e)(3) 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. Kenneth Wilchfort, CPA, age 50, is a partner at Ernst & Young LLP ("E&Y").  Until approximately 1999, Wilchfort worked in the Assurance and Advisory Business Services ("AABS") practice of E&Y's Stamford, Connecticut office.  Wilchfort served as the CUC International Inc. ("CUC") audit engagement partner from 1990 through the third quarter of 1996.  Thereafter, as mandated by rotation requirements set by the SEC Practice Section of the American Institute of Certified Public Accountants, Wilchfort ceased serving as audit engagement partner.  He continued to serve CUC and Cendant Corporation ("Cendant") as "Senior Advisory Partner."  At the relevant time, Wilchfort was a certified public accountant licensed to practice in the States of New York and Connecticut.   
+
+ 2. On April 30, 2003, a final judgment was entered by consent against Wilchfort, permanently enjoining him from aiding and abetting an issuer that files with the Commission a report required to be filed with the Commission, pursuant to Section 13(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and the rules and regulations promulgated thereunder, in violation of Section 13(a) of the Exchange Act or Rules 12b-20, 13a-1 or 13a-13 promulgated thereunder in the civil action entitled  Securities and Exchange Commission v. Kenneth Wilchfort, CPA, and Marc Rabinowitz, CPA , Civil Action Number 03-0933, in the United States District Court for the District of Columbia.  
+
+ 3. The Commission's complaint alleges that Respondent improperly failed to detect that CUC's and Cendant's financial statements were not presented in conformity with generally accepted accounting principles and he had a duty to withhold his firm's audit report containing an unqualified opinion and take appropriate steps to prevent these financial statements from being filed with the Commission and circulated to investors.  By issuing E&Y audit reports containing unqualified opinions on the financial statements and allowing the reports and the financial statements to be filed with the Commission and circulated to investors, Respondent aided and abetted CUC's and Cendant's violations of the reporting provisions of the federal securities laws. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it in the public interest to impose the sanction agreed to in Respondent Wilchfort's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+
+ A. Wilchfort is suspended from appearing or practicing before the Commission as an accountant. 
+
+ B. After four (4) 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 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+ (b) Respondent, 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 or equivalent organization; and  
+
+ (c) As long as Respondent 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+ 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: 
+
+ Jonathan G. Katz  
+Secretary 
+
+ Endnote 
+
+  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. 
+
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diff --git a/raw/aaer/2003/AAER-1796.txt b/raw/aaer/2003/AAER-1796.txt
new file mode 100644
index 0000000000000000000000000000000000000000..20d326ea35d65fbcfed2a423c3563133c0525537
--- /dev/null
+++ b/raw/aaer/2003/AAER-1796.txt
@@ -0,0 +1,1424 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Paul A. Allaire, G. Richard Thoman, Barry D. Romeril, Philip D. Fishbach, Daniel S. Marchibroda and Gregory B. Tayler 
+     
+     
+     
+     
+     
+     
+     
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+  
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+              Paul A. Allaire, G. Richard Thoman, Barry D. Romeril, Philip D. Fishbach, Daniel S. Marchibroda and Gregory B. Tayler
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+ Litigation Release No. 18174 / June 5, 2003 
+Accounting and Auditing Enforcement Release No. 1796 / June 5, 2003 
+
+  Securities and Exchange Commission v. Paul A. Allaire, G. Richard Thoman, Barry D. Romeril, Philip D. Fishbach, Daniel S. Marchibroda and Gregory B. Tayler , Civil Action No. 03 CV 4087 (DLC) (S.D.N.Y.) (June 5, 2003) 
+
+ Six Former Senior Executives of Xerox Settle SEC Enforcement Action Charging Them with Fraud 
+
+ Executives Agree to Pay Over $22 Million in Penalties, Disgorgement and Interest 
+
+ On June 5, 2003, the Securities and Exchange Commission filed a civil fraud injunctive action in the United States District Court for the Southern District of New York charging six former senior executives of Xerox Corporation, including its former chief executive officers, Paul A. Allaire and G. Richard Thoman, and its former chief financial officer, Barry D. Romeril, with securities fraud and aiding and abetting Xerox's violations of the reporting, books and records and internal control provisions of the federal securities laws.  The complaint alleges that the executives engaged in a fraudulent scheme that lasted from 1997 to 2000 that misled investors about Xerox's earnings to polish its reputation on Wall Street and to boost the company's stock price.  The scheme involved the use of accounting devices that were not disclosed to investors, many of which violated generally accepted accounting principles ("GAAP").  The complaint alleges that the defendants' fraudulent conduct was responsible for accelerating the recognition of equipment revenues by approximately $3 billion and increasing pre-tax earnings by approximately $1.4 billion in Xerox's 1997-2000 financial results.  The six defendants have agreed to pay over $22 million in penalties, disgorgement and interest without admitting or denying the SEC's allegations. 
+
+ The complaint names the following individuals as defendants who held senior positions at Xerox during 1997 through the publication of Xerox's 2000 financial statements: 
+
+   Paul A. Allaire : former CEO of the company until April 1999 and again from May 2000 through August 2001, and also the former Chairman of Xerox's Board of Directors and a Director throughout the period charged in the complaint;   
+
+  G. Richard Thoman : former President and Chief Operating Officer from July 1997 through April 1999, CEO from April 1999 through May 2000, and also a Director of the company from July 1997 through May 2000;   
+
+  Barry D. Romeril : former CFO from 1993 through December 2001, and executive vice president from 1997 through early 1999 and then Vice Chairman;   
+
+  Philip D. Fishbach:  former Controller until his retirement from Xerox in April 2000;   
+
+  Daniel S. Marchibroda : former Assistant Controller until January 2000; and   
+
+  Gregory B. Tayler:  former Director of Accounting Policy (March 1997-April 1999), Assistant Treasurer (May 1999-March 2000) and Controller (April 2000-November 2001).   The Commission's complaint alleges that the defendants relied on what Xerox internally called "one-time actions," "one-offs," "accounting opportunities" and "non-operational actions" to impose accounting adjustments on operational results for the purpose of increasing equipment revenues and inflating earnings in financial results Xerox reported to the public.  These accounting actions, which were not disclosed to investors, were used at the end of each financial reporting period during 1997 - 2000 to "close the gap" between Xerox's actual underlying earnings and its internal targets and those of Wall Street analysts.  The accounting devices improved Xerox's earnings, equipment revenues and margins in each quarter and year during 1997 - 2000, and allowed Xerox to meet or exceed Wall Street expectations in nearly every reporting period during 1997 - 1999.  By 1998, nearly three out of every ten dollars of Xerox's annual reported pre-tax earnings and up to 37 percent of its reported quarterly pre-tax earnings came from undisclosed changes to its historic accounting practices and estimates. 
+
+ According to the complaint, CEOs Allaire and Thoman, and CFO Romeril, set a "tone at the top" of the company, which equated business success with meeting short-term earnings targets.  Romeril directed or allowed lower ranking defendants in Xerox's financial department to make accounting adjustments to results reported from operating divisions to accelerate revenues and increase earnings.  Fishbach, Marchibroda and Tayler adopted and applied the accounting devices for the purpose of meeting earnings goals and predictions of outside securities analysts.  Allaire and Thoman then announced these results to the public through meetings with analysts and in communications to shareholders, celebrating that Xerox was enjoying substantially greater earnings growth than true operating results warranted.   
+
+ The complaint alleges that the defendants used undisclosed accounting devices to "close the gap" between underlying and desired financial results, and that the defendants were aware of Xerox's increasing dependence on such accounting actions during 1997-2000 through various internal Xerox reports, memos, e-mails and meetings that addressed the financial performance of Xerox's significant operating units and the company's overall consolidated financial results.  For example, the complaint alleges: 
+
+  In a September 1997 e-mail copied to Fishbach, Marchibroda and Tayler, Romeril asked the controller of Xerox Europe about his progress in assessing a potential accounting device and stated:  "This could be the crucial opportunity for making Quarter 3.  I cannot see a higher priority in terms of once-offs."   
+
+ In November 1998, Romeril informed Allaire, Thoman, Fishbach and others that over the past four years Xerox's major earnings-generating market in Brazil had "$700M of unreal profits" from "non-marketing actions" and that the "[c]onceptual framework [of] our profile is illusory . . . the profits are there the question is the timing of when you take them";   
+
+ In August 1998, Fishbach told Thoman that although Xerox Europe's "operational" growth was 2 percent, "the growth that is likely to be reported is closer to 10% given headquarters adjustments for margin normalization and other accounting items";   
+
+ In October 1999, Xerox's vice chairman reported to Romeril and Thoman that Xerox Europe's underlying operational results, without accounting devices and restructuring, "have been deteriorating since 1995 and are very different than the reported results," and he provided them a chart from Xerox Europe's president illustrating operational results with and without the use of accounting devices;   
+
+ Likewise in January 2000, the president of Xerox Europe informed Thoman, Romeril and others that Europe's pre-tax profits had been "declining since 1996," that declines in 1999 profits were "driven by prior year once-offs [including accounting devices], the benefits of which started to reverse during 1999," but that "this declining trend has been fully contained in the reported profit" in part through the use of such accounting devices.   
+
+ In November 1999, Romeril told Thoman and other Xerox executives that when accounting actions and certain other items were stripped away from Xerox's overall consolidated reported revenues, Xerox was essentially a "no growth" company from 1998-1999, and in that same month Romeril provided Thoman, Fishbach, and others with documents showing the historical impact of accounting actions and certain other items in order to show the company's "true operating economics."   Specifically, the Commission's complaint alleges that all of the defendants fraudulently failed to disclose to shareholders and investors the financial impact of the two principal accounting devices Xerox used during 1997-2000.  These devices, which were known internally within Xerox as "return on equity" and "margin normalization," accelerated the recognition of equipment revenue and increased earnings from leases of Xerox copiers that historically were recorded in future periods.  These two accounting actions increased Xerox's equipment revenues by $2.8 billion and its pre-tax earnings by $699 million from 1997 to 2000.  The complaint alleges that under Xerox's leasing arrangements, the revenue stream from Xerox's customer leases typically had three components:  the value of the "box," a term Xerox used to refer to the equipment; revenue that Xerox received for servicing the equipment over the life of the lease; and financing revenue that Xerox received on loans to its lessees.  Under GAAP, Xerox was required to book revenue from the "box" at the beginning of the lease, but was required to book revenue from servicing and financing over the course of the entire lease.  The complaint alleges that the "return on equity" method shifted revenue to equipment that the company historically had allocated to financing, and that "margin normalization" shifted revenue to equipment that historically had been allocated to servicing.  The complaint alleges defendants Romeril, Fishbach, Marchibroda and Tayler, Xerox's senior financial executives, knew or were reckless in not knowing that these accounting devices violated GAAP and should have been disclosed under GAAP.   
+
+ In addition to these accounting devices, the complaint alleges that Romeril, Fishbach and Marchibroda participated in the use of other non-GAAP accounting devices that allowed Xerox to prematurely recognize revenues from price increases it negotiated with existing customers and to retroactively increase the estimated "residual values" of its equipment (the estimated value of the equipment at the end of the lease term).  The complaint alleges that Tayler, as director of accounting policy, was also aware of these accounting practices.   
+
+ The complaint further alleges that Romeril, Fishbach and Marchibroda knowingly or recklessly used $415 million of excess or cushion reserves and $157 million of income from tax refunds to improperly increase earnings in violation of GAAP, and that Tayler was aware of the improper use of the largest of these reserves.   
+
+ Finally, the complaint alleges that all of the defendants failed to disclose the impact that approximately $400 million in sales of leases had on Xerox's 1999 operating results.  The effect of these undisclosed sales was to immediately recognize income that otherwise would have been recognized in future periods.  Although Xerox earlier had entered into similar transactions in small amounts, none compared in size or scope to the 1999 sales, which added $182 million in pre-tax profits to Xerox's 1999 results.  The complaint alleges that all of the defendants knew or should have known that these undisclosed transactions concealed financial and operation weaknesses. 
+
+ The defendants have each offered to settle by consenting, without admitting or denying the SEC's allegations, to the entry of a final judgment in the civil action that:   
+
+  Permanently enjoins each of them from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and (except for Allaire and Thoman) violating Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder;   
+
+ Imposes an officer and director bar against Allaire (5 years), Thoman (3 years) Romeril (permanent), and Fishbach (5 years);   
+
+ Requires each of them to pay civil penalties in the following amounts:  $1 million for Allaire; $750,000 for Thoman; $1 million for Romeril; $100,000 for Fishbach; $75,000 for Marchibroda; and $75,000 for Tayler;   
+
+ Requires each of them to pay disgorgement and prejudgment interest thereon in the following amounts:   
+
+   Allaire:  $5,696,678 - disgorgement; $1,938,124 - prejudgment interest;    Thoman:  $4,668,396 - disgorgement; $1,440,993 - prejudgment interest;    Romeril:  $2,987,282 - disgorgement; $1,227,688 - prejudgment interest;    Fishbach:  $666,748 - disgorgement; $289,904 - prejudgment interest;    Marchibroda:  $273,399 - disgorgement; $88,920 - prejudgment interest;    Tayler:  $92,603 - disgorgement; $32,397 - prejudgment interest; and        Requires Fishbach and Marchibroda to relinquish their respective rights to certain deferred bonuses ($127,035 for Fishbach and $50,228 for Marchibroda) plus accrued interest on these amounts.   In addition, both Romeril and Tayler have agreed to the entry by the SEC of an Order pursuant to Rule 102(e) of the SEC's Rules of Practice that suspends each of them (based on the entry of the injunction in the federal court action) from appearing or practicing before the SEC as an accountant.  This Order will suspend Romeril permanently and suspend Tayler for three years with a right to apply for reinstatement after the three-year period. 
+
+ The Commission previously brought two other injunctive actions based on the same fraudulent scheme as is alleged against the senior Xerox executives, as well as other allegations.  On April 11, 2002, the Commission brought an injunctive action against Xerox.  Without admitting or denying the allegations of the complaint, Xerox consented to the entry of a Final Judgment that permanently enjoined the company from violating the antifraud, reporting and record keeping provisions of the federal securities laws.  Xerox also paid a $10 million civil penalty, agreed to restate its financial statements and agreed to hire a consultant to review the company's internal accounting controls and policies.  Securities and Exchange Commission v. Xerox Corporation,  Civil Action No. 02-CV-2780 (DLC) (S.D.N.Y.) (April 11, 2002). See  Litigation Release No. 17465  / April 11, 2002/Accounting and Auditing Enforcement Release No. 1542 / April 11, 2002.   In addition, on January 29, 2003, the Commission brought an injunctive action against Xerox's former auditor, KPMG LLP, and four of its audit partners in connection with the audits of Xerox from 1997 - 2000.  The action against KPMG and its partners is currently in litigation.  Securities and Exchange Commission v. KPMG LLP, Joseph T. Boyle, Michael A. Conway, Anthony P. Dolanski and Ronald A. Safran , Civil Action No. 03 CV 0671 (DLC) (S.D.N.Y.) (January 29, 2003). See  Litigation Release No. 17954  / January 29, 2003/Accounting and Auditing Enforcement Release No. 1709 / January 29, 2003. 
+
+ The SEC's complaint can be found on the SEC's web site at:  
+
+ The SEC's complaint in  SEC v. Xerox Corporation  can be found on the SEC's web site at:  http://www.sec.gov/litigation/complaints/complr17465.htm  
+
+ The SEC's complaint in  SEC v. KPMG LLP, et al.  can be found on the SEC's web site at:   http://www.sec.gov/litigation/complaints/comp17954.htm   
+
+   SEC Complaint in this matter (Release No. 18174)  
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diff --git a/raw/aaer/2003/AAER-1798.txt b/raw/aaer/2003/AAER-1798.txt
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+              Debra D. Valice
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+        Debra D. Valice
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+ Securities Exchange Act of 1934  
+Release No. 47997 / June 6, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1798 / June 6, 2003 
+
+ Administrative Proceeding 
+File No.  3-11155 
+
+     In the Matter of 
+
+ DEBRA D. VALICE 
+
+ Respondent. 
+  
+ : : : : : : : : 
+
+ 
+ ORDER INSTITUTING PROCEEDINGS, MAKING FINDINGS,AND IMPOSING ACEASE-AND-DESIST ORDER    I. 
+
+ The Securities and Exchange Commission deems it appropriate to initiate public cease-and-desist proceedings against Respondent Debra D. Valice ("Valice" or "Respondent") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").  
+
+ In anticipation of these proceedings, Respondent has submitted an Offer of Settlement that the Commission has determined to accept. Solely for purposes of these proceedings and any others brought by or on behalf of the Commission or to which the Commission is 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 entry of this Order Instituting Proceedings, Making Findings and Imposing a 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. Background regarding Seitel and Respondent 
+
+ Seitel, Inc. is a Delaware corporation based in Houston, Texas, that licenses geologic seismic data for use in petroleum exploration activities.  Seitel files periodic and current reports and proxy statements with the Commission, pursuant to the registration of its common stock under Section 12(b) of the Exchange Act.  During all relevant periods, Seitel's common stock traded on the New York Stock Exchange. 
+
+ Respondent, age 46, of Houston, Texas, is a CPA and served as Seitel's chief financial officer from 1987 until June 2002.  She also served on the company's Board of Directors from 1995 until June 2002.  As CFO, Valice supervised and managed Seitel's accounting department and was responsible for the company's maintenance of an effective system of internal controls.  She was also responsible for ensuring that the company complied with the terms of its executive contracts.  
+
+ B. The Payments at Issue 
+
+ As discussed below, Seitel's deficient controls over payments to or on behalf of top executives facilitated unauthorized payments in 2001 and early 2002. 1  
+
+ 1. Payment of Former CEO's Personal Legal Expenses 
+
+ In April and July 2001, former Seitel CEO Paul A. Frame directed Seitel's accounting department to pay three invoices, from the company's principal outside counsel, totaling $750,000, purportedly for company legal fees.  In fact, these funds paid Frame's legal fees and settlement costs in a lawsuit brought by his former girlfriend, who alleged that he had converted property and abused her.   
+
+ Since the girlfriend also sought damages from Seitel for alleged complicity in Frame's misconduct, Seitel had instructed Frame to obtain separate counsel and to pay his own fees and expenses in the litigation. 2  Seitel's accounting department paid the invoices without further inquiry.  The invoices doubled Seitel's legal expense for the period and lacked supporting detail as to the services provided, contrary to typical legal invoices processed at Seitel.  In addition, the first two of these invoices, totaling $400,000, purported to be for "Legal Fees Retainer"; however, Seitel already was paying its outside counsel an agreed monthly retainer of $75,000.  The first invoice was addressed to Valice, which was not common at Seitel.  She did not inquire as to what legal matter the invoice related.  Instead, she asked Frame whether it should be paid.  He responded yes, without further explanation, so she marked the invoice "approved per Paul Frame" and put it in line for payment.   
+
+ 2. Payments for Frame's Car Racing Hobby 
+
+ Frame liked to race Ferraris and, in 2001, he deceived the company into funding his hobby.  In February 2001, Frame gave the accounting department what he described as a "sponsorship agreement" for the 2001 Ferrari Challenge season.  This "agreement" was merely a form letter from a Ferrari dealership, addressed to participating drivers and calling for a $75,600 "support" payment.  Because the alleged agreement came from Frame, Seitel's accounting department paid the amount without seeking further documentation to determine whether it pertained to Seitel's business. 
+
+ Also in February 2001, Frame asked Valice and the accounting department to approve an additional $179,000 payment to the Ferrari dealership.  Frame initially represented that this was to buy a racecar bearing Seitel's logo.  When asked for the car's title, Frame changed his story, claiming that the funds merely bought sponsorship of a racecar.  He also offered the unusual explanation that the company would receive a "residual" value of $130,000 when the car was sold in two years, so Seitel's advertising expense each year would only be $25,000.  Valice and the accounting department paid the requested amount without seeking a contract or other documentation to support Frame's representations. 
+
+ Over the rest of 2001, Frame submitted, and Seitel paid, additional invoices totaling over $150,000 for such things as track rentals, tires, fuel and lubricants, car preparation, and race entry fees.  Frame personally approved each invoice in writing, describing the costs as "advertising." Frame also charged about $30,000 on his corporate credit cards, which Seitel paid, for airline tickets, hotel accommodations, meals and other incidentals associated with these races, as well as for spare tires and other racing gear.  Frame described these expenses as business development.  Seitel's accounting department accepted Frame's descriptions without further inquiry and paid the invoices and statements, coding the costs to either advertising or entertainment expense.  This continued even as accounting department personnel grew increasingly skeptical that the expenses pertained to legitimate racing sponsorship or business development.   
+
+ In reality, the payments described above purchased a racecar for, and funded Frame's participation in, a racing club featuring amateur drivers racing specially configured Ferraris at various racetracks across North America and in Italy.  Contrary to Frame's representations, these events provided Seitel no advertising exposure, since they were not open to the public.  Valice does not appear to have known of these facts. 
+
+ 3. The Bonus Advances in Question 
+
+ During 2001 and early 2002, Seitel paid Frame almost $2 million as "advances" on his anticipated 2001 bonus, which, under his employment contract, was calculated as a percentage of Seitel's annual pre-tax profits above $10 million (the "pre-tax profits threshold").  Valice, whose bonus was discretionary to the Board and not specifically tied to the pre-tax profits threshold, also received advances on her anticipated 2001 performance bonus totaling $375,000.   
+
+ Neither person's employment contract expressly provided for payment of bonus advances.  Frame's contract stipulated that his bonus was payable only  after  Seitel's outside auditor certified that pre-tax profits exceeded the threshold and the Board's compensation committee approved payment of the bonus.  Valice's bonus was discretionary to the Board.  Because Seitel had filed these contracts as exhibits to its periodic reports, investors reasonably could expect Seitel to pay Frame and Valice in accordance with these limitations. 
+
+ In 2001, Seitel missed the pre-tax profits threshold. The Board declined to award Frame and Valice bonuses and instead determined that advances previously paid but not earned or awarded would be repaid pursuant to promissory notes.  The face amount of the notes exceeded what Valice and Frame actually had received in advances.  Accordingly, the accounting department, at Valice's direction, cut her and Frame checks for the difference, in the amounts of $159,437 and $176,844, respectively. 3    
+
+ 4. Payment for Frame's Home Security System 
+
+ In February 2002, Frame submitted a check request for $148,000, purportedly for an alarm system at a new data facility Seitel was building.  Seitel's accounting department obtained an invoice from the vendor, which showed that the system was for Frame's residence.  Valice learned of the invoice, but allowed Seitel's accounting department to pay it, even though Frame's employment contract did not provide that the company would pay for such things as personal security systems.    
+
+ C. Seitel Files Incomplete Annual Reports and Proxy Statements  
+
+ On April 30, 2001, Seitel filed its annual Proxy Statement pursuant to Section 14(a) of the Exchange Act, purporting to disclose, among other things, information concerning related party transactions and management's indebtedness to the company greater than $60,000, both since the beginning of 2000, as required by Item 404 of Regulation S-K.  While listing some related party transactions and indebtedness between Seitel and Frame, this Proxy Statement did not disclose that Frame, by that time, had already received $400,000 of personal legal fees, almost $300,000 of racing expenses and $325,000 of advances against his as-yet unearned 2001 bonus. 4      
+
+ On April 30, 2002, Seitel filed a Form 10-K/A for the year ended December 31, 2001, purporting to show the compensation Frame and other executives received during 2001, as well as the company's related party transactions.  This filing disclosed that Frame and Valice had received bonus advances, that bonuses were not awarded and that the company had accepted promissory notes for those advances.   However, Frame's personal legal costs and racing expenses are absent from these disclosures.  Frame signed the amended 10-K.  Valice reviewed both filings before they were submitted to the Commission.  
+
+ D. Conclusion  
+
+ As a result of the foregoing, the Commission finds that Respondent violated Section 13(b)(5) of the Exchange Act and caused Seitel's violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1 and 14a-9 promulgated thereunder. 
+
+ III. 
+
+ In determining whether to accept Respondent's Offer, the Commission has considered the undertaking by Respondent that she will not contest in her private litigation with Seitel that she owes the company $621,293 under the terms of her promissory note. 
+
+ 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, pursuant to Section 21C of the Exchange Act, that Respondent cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and from causing any violation and any future violation of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1 and 14a-9 promulgated thereunder. 
+
+ By the Commission: 
+
+ Jonathan G. Katz  
+Secretary 
+
+  Endnotes 
+
+  1   The Commission has simultaneously filed a civil injunctive action in federal district court against Seitel and Frame in connection with these matters.   See SEC v. Paul A. Frame and Seitel, Inc.  (Lit. Release No. 18177) (June 6, 2003). 
+
+  2   In May 2001, the former girlfriend dismissed Seitel from the case, giving it a complete release of liability.   
+
+  3   The Board terminated Valice in June 2002, which prompted her to sue the company.  On March 18, 2003, a state court jury found that Seitel wrongfully had terminated and libeled Valice and awarded her over $4 million in damages.   The jury also found that Valice had breached her fiduciary duty to Seitel and awarded the company $621,293, which is equal to the face amount of her promissory note.   
+
+  4   The Proxy Statement did disclose other details of Frame's compensation.   
+
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diff --git a/raw/aaer/2003/AAER-1799.txt b/raw/aaer/2003/AAER-1799.txt
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+              Arthur A. Goodwin and William J. Burke
+           
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+ Litigation Release No. 18180 / June 6, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1799 / June 6, 2003 
+
+  United States v. Arthur A. Goodwin  (United States District Court for the District of Massachusetts, C.A. No. 03-CR-10197-RGS) 
+
+  United States v. William J. Burke  (United States District Court for the District of Massachusetts, C.A. No. 03-CR-10199-GAO) 
+
+ On June 5, 2003, a federal grand jury in Boston, Massachusetts indicted Arthur A. Goodwin of Plano, Texas on eight counts of securities and wire fraud for his role in falsifying his company's financial results.  Goodwin was the former senior vice president of sales at Interspeed, Inc., a now defunct North Andover, Massachusetts Internet hardware developer. According to the indictment, Goodwin entered into secret side letter agreements with customers that provided the customers the right to return the goods purportedly sold to them; altered a sales contract for what would have been the company's largest sale in its history; and took other steps to hide the fraudulent nature of sales transactions he arranged.  Goodwin's actions, the indictment alleges, resulted in Interspeed overstating its revenue by approximately $9 million, or 60% of the company's reported revenue for the first thee quarters of its fiscal year ended September 30, 2000.  Goodwin faces up to 20 years imprisonment on each securities fraud count, imposition of a fine and an order of restitution to defrauded investors.  
+
+ In a parallel criminal information filed June 5, 2003, William J. Burke, Interspeed's former chief financial officer, was charged with knowingly withholding information from Interspeed's outside auditors during the auditors' July 2000 review of Interspeed's quarterly financial statements.  Burke is not charged with knowing of Goodwin's secret side letters, but is charged with concealing information from the auditors and structuring a payment from a third party to make it appear that the product was being paid for by the original customer.  Burke has agreed to plead guilty to one count of falsification of Interspeed's books, records and accounts. He faces up to 10 years imprisonment, a fine and an order of restitution.   
+
+  The Securities and Exchange Commission previously filed a civil injunctive action for financial fraud against Goodwin, Burke and another former officer of Interspeed, Inc., based on the conduct charged in the indictment.  The Commission's litigation is ongoing.  In that action, the Commission seeks, among other things, an order permanently barring Goodwin and Burke from acting as officers or directors of any public company. 
+
+ For further information see  Litigation Release No.  17758 . 
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diff --git a/raw/aaer/2003/AAER-1800.txt b/raw/aaer/2003/AAER-1800.txt
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1800.txt
@@ -0,0 +1,1378 @@
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+              Gene S. Foster, Jamie Olis and Helen C. Sharkey
+           
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+        Gene S. Foster, Jamie Olis and Helen C. Sharkey
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+ Litigation Release No. 18188 / June 12, 2003 
+Accounting and Auditing Enforcement Release No. 1800 / June 12, 2003 
+
+ Securities and Exchange Commission v. Gene S. Foster, Jamie Olis and Helen C. Sharkey, Civil Action No.H-03-2044, United States District Court for the Southern District of Texas, Houston Division (June 12, 2003). 
+
+ On June 12, 2003, the Commission filed an action in United States District Court in Houston charging three former employees of Dynegy Inc. with fraud in connection with Project Alpha ("Alpha"), a structured financing transaction.  Alpha was the subject of a settled cease-and-desist order issued by the Commission in September 2002; in the order, the Commission found that Dynegy violated the antifraud, reporting, books and records and internal controls provisions of the federal securities laws, by reflecting Alpha's impact on its financial statements in the form of $300 million in operating cash flow and $79 million in net income.   In re Dynegy Inc.,  Exchange Act  Release No. 34-46537  (September 24, 2002).    The Commission found in its order that the Alpha-derived funds were actually loan proceeds, representing, therefore, cash flow from financing activities, not operations, and that the Alpha-derived tax benefit was invalid.  In settling the Commission's action, Dynegy also paid a $3 million civil penalty. 
+
+ In its action against the former Dynegy employees, the Commission alleges that they engaged in fraud, and that they aided and abetted Dynegy's fraud, and other federal securities law violations, arising out of the Alpha transaction.  The individuals named in the Commission's suit are: 
+
+  Gene S. Foster , age 44, of Houston, Texas.  Foster, a Texas-licensed CPA, was Dynegy's "Vice President of Taxation" during the relevant period and was responsible for all of Dynegy's tax-related matters, including planning and compliance issues;   
+
+  Jamie Olis , age 37, of Houston, Texas.  Olis was Dynegy's "Senior Director, Tax Planning and International" for most of 2000 and 2001.  In January 2002, Olis was promoted to "Vice President, Finance."  Olis provided technical tax expertise on various Dynegy transactions, including Alpha.  Olis is a Texas-licensed CPA and an attorney licensed to practice in the State of Texas;   
+
+  Helen C. Sharkey , age 31, of Houston, Texas.  Sharkey was Dynegy's "Manager - Accounting, Deal Structure" during the relevant period.  Sharkey, a Texas-licensed CPA, was the sole accounting representative assigned to the Alpha deal team.   
+
+ In its complaint against Foster, Olis and Sharkey, the Commission alleges, in part, as follows: that in early 2001, tax and accounting professionals employed by Arthur Andersen LLP, Dynegy's auditor, worked closely with the defendants in structuring Alpha; that Andersen established guidelines for the structuring of Alpha to ensure the validity of Dynegy's intended accounting for Alpha under generally accepted accounting principles; that in the spring of 2001, Foster, Olis and Sharkey, under pressure to complete Alpha, disregarded Andersen's advice that certain forms of risk hedging would defeat Dynegy's intended accounting for Alpha, by requiring Alpha to be recorded as a financing; that the defendants effectively excluded Andersen's Alpha liaison, a tax professional, from crucial pre-closing meetings; that to ensure Alpha's closing, the defendants linked certain hedges to each other, contrary to Andersen's advice, in secret side agreements; and that the defendants allowed the equity investors in an Alpha special purpose entity to hedge all commodity price risk, also against Andersen's specific advice.  According to the complaint, Foster, Olis and Sharkey, knowing that, due to the proscribed hedge transactions, Dynegy could not rely on Andersen's support for its accounting for Alpha, intentionally concealed the transactions from Andersen and from Dynegy - and consequently, from the investing public. 
+
+ The Commission alleges in its complaint that Foster, Olis and Sharkey violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder and, that Foster, Olis and Sharkey aided and abetted Dynegy's violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13, thereunder.  In its action, the Commission is seeking, as against each defendant, a permanent injunction, disgorgement plus prejudgment interest, and a civil money penalty.   
+
+ The Commission acknowledges the assistance and cooperation of the United States Attorney's Office in Houston. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1802.txt b/raw/aaer/2003/AAER-1802.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8a1022241f4327b3a636faa73ce17fa91be0ebd4
--- /dev/null
+++ b/raw/aaer/2003/AAER-1802.txt
@@ -0,0 +1,1379 @@
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+ Litigation Release No. 18191 / June 16, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1802 / June 16, 2003 
+
+  Securities and Exchange Commission v. Steven S. Spitzer , Civil Action No. 03 CV 1178 IEG (NLS) (S.D. Cal.) (June 16, 2003) 
+
+ SEC Charges Former Peregrine Systems Sales Vice President with Financial Fraud, Insider Trading 
+
+ The Securities and Exchange Commission today filed civil fraud charges against Steven S. Spitzer for his role in an 11-quarter financial fraud at Peregrine Systems, Inc., a San Diego-based software company.  The Commission's complaint alleges that Spitzer, a former vice president of sales, participated in a scheme with other senior Peregrine executives and other parties to inflate Peregrine's revenue and stock price.  The complaint also alleges that Spitzer engaged in illegal insider trading of Peregrine stock. 
+
+ According to the complaint, the heart of the fraud was the recording of millions of dollars of revenue in violation of Generally Accepted Accounting Principles (GAAP).  Spitzer negotiated some of the largest of Peregrine's fraudulent transactions at the urging of more senior executives.  These transactions consisted of non-binding sales of software licenses to resellers (or purported resellers) with the understanding that the resellers owed nothing to Peregrine unless the software was sold to an end-user.  Those involved in the scheme called this "parking" the transaction.  Spitzer knew, or was reckless in not knowing, that parking transactions were intended to, and did, fraudulently inflate Peregrine's revenue.  Spitzer generated millions of dollars of bogus revenue through these parking transactions, enabling Peregrine to meet quarterly revenue goals. 
+
+ The complaint further alleges that Spitzer, during the time he was aware of the ongoing fraud, illegally sold 185,000 shares of Peregrine common stock for proceeds of approximately $5.2 million on the basis of material, nonpublic information concerning Peregrine's true financial condition. 
+
+ The Commission's complaint seeks to permanently enjoin Spitzer from violating certain antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5), and from violating, or aiding and abetting violations of, certain reporting, books and records, and internal controls provisions (Exchange Act Sections 13(a), 13(b)(5), 13(b)(2)(A), 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-1).  The complaint also seeks an accounting, disgorgement of ill-gotten gains, prejudgment interest, civil money penalties, and an order prohibiting Spitzer from acting as an officer or director of any reporting company. 
+
+ In November 2002, the Commission filed a civil injunctive action against Ilse Cappel, the former senior treasury manager at Peregrine ( Litigation Release No. 17859A ).  In April 2003, the Commission filed a civil injunctive action against former Peregrine CFO Matthew C. Gless ( Litigation Release No. 18093 ). 
+
+ The Commission's investigation of the financial fraud at Peregrine is continuing. 
+
+ The Commission thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation in this matter. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1803.txt b/raw/aaer/2003/AAER-1803.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7b3ca0b3752013aa134ecaaa41c838293a13698d
--- /dev/null
+++ b/raw/aaer/2003/AAER-1803.txt
@@ -0,0 +1,1382 @@
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+ Litigation Release No. 18194 / June 19, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1803 / June 19, 2003
+
+  Securities and Exchange Commission v. Robert Korkuc , CV 03 3016 (WEXLER) (E.D.N.Y.) 
+
+  The Securities and Exchange Commission announced today that it filed a civil injunctive action in federal court in Brooklyn, New York charging  Robert Korkuc ("Korkuc") , former Chief Accounting Officer of Symbol Technologies, Inc. ("Symbol"), with engaging in a vast fraudulent scheme to manipulate Symbol's reported financial results.  Based in Holtsville, New York, Symbol is a leading manufacturer of bar code scanners and related information technology whose stock is publicly traded on the New York Stock Exchange.  The complaint alleges that Korkuc and others rigged the financial results that Symbol reported in press releases and periodic reports filed with the Commission by manipulating millions of dollars in revenue, net income and other measures of financial performance from 1998 through 2002.   Korkuc ,   age 40, was Director of Corporate Accounting at Symbol before becoming Chief Accounting Officer in July 2000.  Symbol announced his resignation in March 2003. 
+
+ The Commission's complaint alleges that: 
+
+ Among other fraudulent accounting practices, Korkuc and others manipulated reserves and made other improper adjustments to Symbol's raw financial data to conform the reported results to market expectations.  Korkuc made or oversaw dozens of fraudulent entries on Symbol's accounting records that boosted net income and otherwise enhanced the results by tens of millions of dollars.  Throughout the relevant period, Korkuc and others prepared schedules, known within Symbol as "Tango sheets," that compared each quarter's raw consolidated results to management's forecasts.  The Tango sheets described adjustments to reserves and other items that eliminated shortfalls and otherwise rigged the reported results.  Korkuc distributed the Tango sheets to members of senior management and then adjusted the raw results according to their instructions.  These adjustments grossly violated generally accepted accounting principles. 
+
+ When making these improper "topside" adjustments, Korkuc knew that the raw results were already inflated because of fraudulent revenue recognition practices and similar misconduct.  Korkuc played a role in some of these other fraudulent practices, including paying resellers to secure their assistance in Symbol's channel stuffing schemes and recognizing sales revenue before the product was even shipped.  Korkuc also played a role in efforts to perpetuate and conceal the fraud.  He was involved in obtaining phony "bill and hold" letters to disguise premature revenue recognition, reclassifying past due trade receivables into undisclosed notes receivable to hide the adverse effects of channel stuffing on cash collection, and making fictitious general ledger entries to obscure earlier Tango sheet adjustments.  After the Commission began its investigation, Korkuc and others took additional steps to conceal important elements of the fraud from Symbol's outside counsel and the government.  
+
+ As a result of these and other fraudulent practices, Symbol materially overstated its revenue and net income in press releases and periodic reports filed with the Commission and disseminated to the public from 1998 through 2002.  Symbol is in the process of restating these financial results.  According to Symbol's public disclosures, the restatement will include changes in reserves and reductions in revenue and net income during the period that Korkuc was involved in the fraud. 
+
+ Symbol's disclosures about the need for a restatement arise from an internal investigation into the company's financial reporting practices that began in the spring of 2002 at the request of the Commission's staff. 
+
+ In the complaint, the Commission seeks a permanent injunction enjoining  Korkuc  from:  (i) committing securities fraud in violation of 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; (ii) falsifying corporate books and records, circumventing internal controls, making false and misleading statements to accountants, and engaging in other conduct in violation of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2; and (iii) aiding and abetting Symbol's violations of corporate reporting, recordkeeping and internal control provisions of the Exchange Act (Sections 13(a) and 13(b)(2) and Rules 12b-20, 13a-1 and 13a-13).  The Commission also seeks an order:  (i) requiring  Korkuc  to disgorge, and pay prejudgment interest on, his ill-gotten gains; (ii) imposing civil money penalties; and (iii) barring  Korkuc  from acting as an officer or director of a publicly traded company. 
+
+ This is the second enforcement action the Commission has brought as a result of its investigation into Symbol's financial reporting.  On March 25, 2003, the Commission brought a civil action against Robert Asti, a former sales finance executive at Symbol, alleging that Asti committed securities fraud and other violations.   Securities and Exchange Commission v. Robert Asti , 03 Civ. 1417 (LDW)(E.D.N.Y.)(March 25, 2003)( Litigation Release No. 18050 ). 
+
+ The United States Attorney's Office for the Eastern District of New York has announced that  Korkuc  is scheduled to plead guilty today to criminal charges based on conduct alleged in the Commission's complaint.  The Commission's investigation is continuing.  The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Eastern District of New York and the U.S. Postal Inspection Service in this matter. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1804.txt b/raw/aaer/2003/AAER-1804.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4f71cbfbe2644d9855a3333a82370c3e97e9ea3c
--- /dev/null
+++ b/raw/aaer/2003/AAER-1804.txt
@@ -0,0 +1,1379 @@
+
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+     SEC.gov | Alexander Ajemian, et al. 
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+ Litigation Release No.  18195 / June 19, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1804 / June 19, 2003 
+
+  United States v. Alexander Ajemian, et al. , Case No. 01-80514 (E.D. Mich.) 
+
+  Securities and Exchange Commission v. Alexander Ajemian, et al. , Case No. 02-60082 (E.D. Mich.) 
+
+ Former MCA Controller, Previously Sued By SEC For Involvement In MCA Financial And Offering Fraud, Sentenced To Prison Term And Restitution 
+
+ The Securities and Exchange Commission (Commission) announced that on June 18, 2003, the Honorable Judge John Feikens of the United States District Court for the Eastern District of Michigan sentenced Alexander Ajemian, former Controller of MCA Financial Corporation (MCA), to 37 months in prison for his involvement in a fraudulent scheme perpetrated by MCA.  Judge Feikens also ordered Ajemian to pay $256 million in restitution.  Previously, on August 28, 2001, Ajemian pled guilty to one count of mail fraud and one count of making false statements to the Commission. 
+
+ Ajemian and six other MCA executives and employees (defendants) are the subjects of a pending civil injunctive action filed by the Commission on April 23, 2002 in the United States District Court for the Eastern District of Michigan involving alleged violations of the antifraud, reporting and other provisions of the federal securities laws.  The Complaint alleges that MCA was a mortgage banking company headquartered in Southfield and Troy, Michigan that engaged in a financial and offering fraud in connection with two different types of securities.  First, the Complaint alleges that MCA sold $71 million of securitized interests in pools of mortgage loans from 1994 through 1999 while knowingly misrepresenting the risk, rate of return and historical performance of the interests in the offering materials.  The Complaint alleges that, as a result, investors lost at least $49 million.  Second, the Complaint alleges that MCA engaged in the fraudulent sale of $19 million in debentures between 1994 and 1999 by including financial statements that materially inflated its assets, income and equity in registration statements and annual and quarterly reports filed with the Commission.  The Complaint further alleges that MCA materially inflated its assets, income and equity by improperly: (1) recognizing gains on sale of real estate to related parties; (2) valuing certain mortgages held for resale; (3) failing to disclose related party mortgages held for resale; (4) failing to write down uncollectible related party receivables; and (5) failing to disclose MCA's potential liability in connection with the fraudulent sale of the securitized interests in pools of mortgage loans.  The Complaint alleges that as a result, investors in the debentures lost all $19 million invested.   
+
+ The Complaint alleges that all seven defendants violated, or aided and abetted violations of, the antifraud provisions of the federal securities laws as a result of their involvement in MCA's fraudulent sale of securities.  In addition, the Complaint alleges that Ajemian and four other defendants violated, or aided and abetted violations of, the periodic reporting and corporate record-keeping provisions of the federal securities laws.  The Complaint seeks, among other things, injunctive relief and civil penalties against all seven defendants and seeks to bar Ajemian and three other defendants from acting as an officer and director of a public company in the future.   
+
+ Criminal proceedings also have been instituted with respect to the other six defendants in the Commission's Complaint.  Four of the defendants in the Commission's Complaint have pled guilty to federal charges arising out of MCA's fraudulent scheme.  Only one of those defendants, Keith Pietila, has been sentenced.  Pietila was sentenced to four years in prison and $256 million in restitution on May 8, 2003.  The remaining two defendants in the Commission's Complaint were indicted on federal charges of conspiracy, mail fraud, wire fraud, bank fraud and making false statements to the Commission on June 23, 2002 and are scheduled to be tried in January 2004.  In addition, the Michigan Attorney General's Office has filed state felony securities fraud charges against Ajemian and three other defendants. 
+
+ The Commission wishes to thank the Office of the United States Attorney for the Eastern District of Michigan for its assistance and cooperation in this matter. 
+
+ For additional information, see  Litigation Release No. 17484  (April 23, 2002) and  Litigation Release 18131  (May 12, 2003). 
+
+     SEC Complaint in this matter   -->
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diff --git a/raw/aaer/2003/AAER-1805.txt b/raw/aaer/2003/AAER-1805.txt
new file mode 100644
index 0000000000000000000000000000000000000000..12bc4fd5f13624df4f5fd0c6f99f68abb65606c6
--- /dev/null
+++ b/raw/aaer/2003/AAER-1805.txt
@@ -0,0 +1,1392 @@
+
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+              Henry C. Yuen and Elsie M. Leung
+           
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+        Henry C. Yuen and Elsie M. Leung
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+ Litigation Release No. 18199 / June 20, 2003 
+
+ Auditing and Accounting Enforcement Release No. 1805 / June 20, 2003 
+
+  Securities and Exchange Commission v. Henry C. Yuen and Elsie M. Leung , Case No. CV 03-4376 NM (MANx) (C.D. Cal.) 
+
+ SEC Sues Former CEO And CFO Of Gemstar-TV Guide For Financial Fraud Scheme 
+
+ On June 19, 2003, the Securities and Exchange Commission filed securities fraud charges against the former chief executive officer and former chief financial officer of Gemstar-TV Guide International, Inc. for their roles in a widespread and complex scheme to inflate Gemstar's licensing and advertising revenues.  The Commission's lawsuit, filed in United States District Court in Los Angeles, seeks antifraud injunctions, civil money penalties, disgorgement of ill-gotten gains (including salaries, bonuses, and proceeds from the sale of stock during the fraud), and permanent bars from service as an officer or director of a public company.  The Commission also seeks continuation of the order that the district court entered on May 9, 2003 pursuant to the Sarbanes-Oxley Act requiring Gemstar to place into escrow extraordinary payments to any of its directors, officers, or other affiliates, including nearly $38 million in cash payments that the company had previously agreed to pay the defendants. 
+
+ Named in the Commission's complaint are the following defendants: 
+
+ Henry C. Yuen, age 55, of Pasadena, CA.  Yuen was Gemstar's chief executive officer and chairman of the board during the relevant period. 
+
+ Elsie M. Leung, age 57, of Pasadena, CA.  Leung, a California-licensed CPA, was Gemstar's chief financial officer and a member of its board of directors during the relevant period. 
+
+ The Commission's complaint alleges that Gemstar is a Los Angeles-based media and technology company that, among other things, publishes  TV Guide  magazine and develops, licenses, and markets an interactive program guide ("IPG") for televisions.  The IPG is a technology 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, Yuen 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 complaint alleges that, to enable Gemstar to meet its ambitious projections for revenue growth from IPG licensing and advertising, Yuen, Leung, and others engaged in a fraudulent scheme to overstate Gemstar's revenues and to report the inflated revenues to the investing public.  In total, the defendants caused Gemstar to overstate its total revenues by at least $223 million from March 2000 through September 2002.  
+
+ The Commission's complaint alleges that Yuen and Leung manipulated Gemstar's financial results in three ways.  First, Gemstar recorded revenue under expired, disputed, or non-existent agreements, and improperly reported this as IPG licensing and advertising revenue. 
+
+ Second, Gemstar recorded amounts from related transactions as if they were not related, some of which included "round-trip" transactions (that is, Gemstar paid money to a third party and then received it back) and non-monetary payments, and reported this as IPG advertising revenue in order to inflate those revenues. 
+
+ Third, Gemstar switched revenues from its media and licensing business sectors to its IPG advertising sector in order to show dramatic growth and acceptance of IPG advertising, when in fact such growth and acceptance did not exist.  In these transactions, Yuen and Leung allegedly created revenue by structuring the transactions so that all or a portion of the amount to be paid to Gemstar was nominally and falsely designated as the purchase of IPG advertising in order to inflate IPG advertising revenue.   
+
+ The Commission's complaint further alleges that Yuen and Leung reaped millions of dollars in financial gains from their fraudulent scheme in that their compensation was tied to the financial performance of the company.  By fraudulently overstating Gemstar's revenues, Yuen and Leung fraudulently inflated their own salaries and bonuses.  According to the complaint, from 2000 through 2002, Yuen received approximately $18.8 million in salary and bonuses; exercised stock options for a taxable profit of approximately $14.6 million; and realized over $63.6 million from the disposition of Gemstar stock.  In addition, Yuen is seeking payment of over $29 million as a termination fee and payment of salary, bonuses, and vacation pay that he claims to be owed by Gemstar.   
+
+ During this same period, Leung received over $5.3 million in salary and bonuses, and exercised stock options for a taxable profit of approximately $4.9 million, according to the complaint.  In addition, she is seeking payment of over $8.1 million as a termination fee and payment of salary, bonuses, and vacation pay that she claims to be owed. 
+
+ The SEC's complaint charges Yuen and Leung with securities fraud, lying to the auditors, falsifying Gemstar's books and records, and aiding and abetting Gemstar's reporting, record-keeping, and internal controls violations of the federal securities laws, specifically, 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 Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1, and 13b2-2 thereunder. 
+
+ Previously, on May 9, 2003, the U.S. District Court in Los Angeles granted the SEC's application for an order requiring Gemstar to escrow for 45 days any extraordinary payments to any of its directors, officers, partners, controlling persons, agents, or employees pursuant to Section 1103 of the Sarbanes-Oxley Act of 2002.  The Court's order placed in escrow, subject to court supervision, approximately $37.64 million in cash payments that Gemstar had previously agreed to pay to Yuen and Leung.   
+
+ The Commission's investigation into the conduct of others is continuing. 
+
+   SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2003/AAER-1807.txt b/raw/aaer/2003/AAER-1807.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7ab461cdb3b61e044665de00886143c124b4b142
--- /dev/null
+++ b/raw/aaer/2003/AAER-1807.txt
@@ -0,0 +1,1504 @@
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+ Securities Exchange Act of 1934 
+Release No.  48085 / June 25, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1807 / June 25, 2003 
+
+ Administrative Proceeding 
+File No. 3-11166 
+
+     In the Matter of 
+
+ ROBERT C. CLOYD, 
+
+ Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC 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 public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Robert C. Cloyd ("Respondent" or "Cloyd").   
+
+ 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 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:  
+
+ Background 
+
+ 1. This matter concerns a false audit confirmation sent by a customer of Digital Lava, Inc. ("Digital Lava"), a Southern California streaming-media company.  In September 2000, Cloyd, then the Vice-President of Sales for Three Point Digital, Inc. ("Three Point Digital"), participated in Three Point Digital's purchase of product from Digital Lava for $319,000.  As a part of the transaction, Cloyd obtained a letter (the "side letter") from Digital Lava's Vice-President of Sales providing that Three Point Digital did not have to pay for this product until Three Point Digital sold it to customers.  Digital Lava and its auditors, as part of the preparation of Digital Lava's interim financial statements, sought confirmation that Three Point Digital did not have any undisclosed agreements related to this transaction.  In response, Cloyd provided a false accounts receivable confirmation to Digital Lava's auditors that did not disclose the existence of an additional term even though the confirmation specifically requested this information. 
+
+ Respondent 
+
+ 2.  Robert C. Cloyd , 47, is a resident of Castaic, California.  He was the Vice-President of Sales and 50% owner of Three Point Digital, a private company, during the relevant period.  Cloyd is currently the majority owner and president of a private company that rents editorial equipment. 
+
+ Other Relevant Entities 
+
+ 3.  Digital Lava, Inc.  was incorporated in Delaware in 1996 and headquartered in Marina Del Rey, California, until its dissolution in January 2002.  The Company provided digital publishing services and software products that created on-demand, interactive presentations, training and communication services.  For the fiscal quarter ended September 30, 2000, Digital Lava recognized $1.7 million in revenue, which the Company subsequently restated to $1.1 million.  Over 90% of this restatement was related to improperly recognized revenue on a product called "Firestream." 
+
+ 4.  Three Point Digital, Inc.  is a California corporation that was located in Burbank, California and ceased operations in 2002.  During 2000, Three Point Digital performed two functions for Digital Lava.  First, as an integrator, Three Point Digital assembled the hardware component and installed Digital Lava's software into the Firestream system.  Second, Three Point Digital was also Digital Lava's largest distributor of the Firestream system, whereby it agreed to sell the Firestream system to its own customers.   
+
+ The Firestream Transaction And False Confirmation 
+
+ 5. On September 27, 2000, Cloyd, on behalf of Three Point Digital, issued a purchase order for $319,000 for Firestream systems to Digital Lava.  This purchase order was subject to a side letter, which did not require Three Point Digital to pay for the Firestream systems until Three Point Digital had re-sold the systems to customers.  This contingency was not included on the purchase order, because Digital Lava's Vice President of Sales requested that it be separately documented in a side letter, which he authorized.   
+
+ 6. On or about October 17, 2000, Digital Lava sent Three Point Digital an audit confirmation request asking Three Point Digital to confirm to Digital Lava's auditors that Three Point Digital owed Digital Lava $319,000 and that there were no undisclosed agreements or contingencies related to this transaction.   
+
+ 7. On October 17, 2000, Cloyd, on behalf of Three Point Digital, signed and returned the account receivable confirmation to Digital Lava's auditors.  In this audit confirmation, Cloyd confirmed the $319,000 owed to Digital Lava, but did not disclose the fact that the transaction was contingent on Three Point Digital's resale of the product, as the contingency was documented in the side letter. 
+
+ 8. On November 14, 2000, Digital Lava filed with the Commission its Form 10-Q for the quarter ended September 30, 2000, which reported $1,743,000 in total revenues.  Of this amount, $718,000, or 41%, represented revenue from the Firestream product.  Included in Firestream revenue was the $319,000 transaction to Three Point Digital.  The Three Point Digital transaction represented 18% of Digital Lava's reported revenues. 
+
+ 9. After Digital Lava filed the Form 10-Q, it discovered contingency terms that were attached to certain Firestream sales, including the sale to Three Point Digital.   
+
+ 10. On March 21, 2001, Digital Lava restated the revenue reported in the Form 10-Q for the quarter ended September 30, 2000 from $1,743,000 to $1,100,000.  The Three Point Digital transaction for $319,000 represented the largest transaction reversed. 
+
+ Legal Discussion:  Violation Of The Antifraud Provisions 
+
+ 11. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit an issuer or individual from making misstatements or omissions of material fact in connection with the purchase or sale of a security.  An issuer and its management may violate Section 10(b) and Rule 10b-5 by making material misstatements or by omitting material information from press releases, registration statements, or periodic reports filed with the Commission.   Basic Inc. v. Levinson , 485 U.S. 224, 231-32 (1988);  SEC v. Texas Gulf Sulphur Co. , 401 F. 2d 833 (2d Cir. 1968).   
+
+ 12. 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. 
+
+ 13. When Cloyd negotiated the Firestream transaction the contingency was documented in a side letter, as opposed to the purchase order.   Subsequently, when he was asked to confirm the accounts receivable amount for this transaction to Digital Lava's auditors, he should have disclosed the contingency.  Cloyd either knew or should have known that the purpose of documenting the contingency in a side letter was to allow Digital Lava's Vice President of Sales to conceal this contingency.  Additionally, Cloyd then confirmed the related accounts receivable amount to Digital Lava's auditors without disclosing the contingency, thereby facilitating a violation of the antifraud provisions by Digital Lava's Vice President of Sales. 
+
+ 14. As a result of the conduct described above, Cloyd caused violations by Digital Lava's Vice President of Sales of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent Cloyd's Offer. 
+
+  ACCORDINGLY, IT IS HEREBY ORDERED:  
+
+ Pursuant to Section 21C of the Exchange Act, that Respondent Cloyd 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. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ 
+ 
+ 
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diff --git a/raw/aaer/2003/AAER-1810.txt b/raw/aaer/2003/AAER-1810.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b1ce54eecf2bc4fd6e97e0d076baa9a558954097
--- /dev/null
+++ b/raw/aaer/2003/AAER-1810.txt
@@ -0,0 +1,1385 @@
+
+
+ 
+ 
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+              WorldCom Inc.
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+        WorldCom Inc.
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+ Litigation Release No. 18210 / July 2, 2003
+
+  Accounting and Auditing Enforcement Release No. 1810/ July 2, 2003
+
+   In WorldCom Case, SEC Files a Supplement to the Proposed Settlement Of 
+  Its Claim for a Civil Penalty; Proposed Settlement is Subject To 
+  District and Bankruptcy Court Review and Approval 
+
+   Securities and Exchange Commission v. WorldCom Inc. , Civil Action No. 02-CV-4963       (SDNY) (JSR)  
+
+ The Securities and Exchange Commission today filed documents modifying the proposed settlement of its claim for a civil penalty in its civil action against WorldCom Inc. in federal district court in the Southern District of New York.  The filings supplement the relief provisions in the proposed settlement previously filed in that action on May 19, 2003, which required WorldCom to pay a civil penalty judgment in the amount of $1,510,000,000.  That proposed settlement further provided that, as a result of the company's pending bankruptcy case, the Commission's judgment would be satisfied by WorldCom's payment, after review and approval of the terms of the settlement by the Bankruptcy Court, of $500,000,000.  (Litigation Release No. 18147).
+
+  Following the parties' agreement on the terms of the proposed settlement, and after an initial hearing before the District Court and in light of issues raised by the District Court Judge, WorldCom and the SEC mutually agreed to supplement to the terms of the proposed settlement.  The modifications to the proposed settlement filed today --- to which the Official Committee of Unsecured Creditors of WorldCom have consented --- provide that in the event of confirmation of a plan of reorganization of WorldCom by the Bankruptcy Court, WorldCom's obligations under the Commission's judgment shall be deemed to be satisfied by the company's payment of $500,000,000 in cash and by its transfer of common stock in the reorganized company having a value of $250,000,000 to a distribution agent to be appointed by the District Court.  The supplemental relief, if approved, would allow victims of the fraud to share in the potential upside of owning WorldCom common stock when it emerges from bankruptcy.  All other material terms of the proposed settlement remain the same.  The proposed settlement is subject to review and approval of the District Court hearing the Commission's action against WorldCom and the Bankruptcy Court handling WorldCom's bankruptcy case (which is also in the Southern District of New York).
+
+  Under the terms of the proposed settlement, the funds paid and the common stock transferred by WorldCom to satisfy the Commission's judgment will be distributed to victims of the company's fraud, pursuant to Section 308 (Fair Funds For Investors) of the Sarbanes-Oxley Act of 2002.
+
+  The Commission has alleged that WorldCom misled investors by overstating its income from at least as early as 1999 through the first quarter of 2002, as a result of undisclosed and improper accounting.   (Litigation Release No. 17829.) 
+
+  The Commission filed its case against WorldCom on June 26, 2002, the day after WorldCom announced that it intended to restate its financial results for five quarters-all quarters in 2001 and the first quarter of 2002.  (Litigation Release No. 17588).  The Commission also sought the appointment of a corporate monitor for WorldCom, and on July 3, U.S. District Judge Jed S. Rakoff appointed former SEC Chairman Richard Breeden to that position.
+
+  On November 26, 2002, the Commission obtained a judgment against WorldCom through which the Commission obtained the full injunctive relief it sought against WorldCom.  In addition, the judgment ordered WorldCom to undertake extensive reviews of its corporate governance and internal controls, as well as required the WorldCom to establish a training and education program for WorldCom officers and employees to minimize the possibility of future violations of the federal securities laws.  The November 26, 2002 judgment explicitly left open the determination of monetary penalties to be imposed on WorldCom.  (Litigation Release No. 17866).
+
+  Since the Commission filed its action against WorldCom, the company has made a series of announcements expanding its anticipated financial restatement due to the fraud, both in dollar amount and in time.  In addition, the Commission has brought civil actions against four former employees of WorldCom.  The Commission filed civil actions against former WorldCom Controller David F. Myers on September 26, 2002 (Litigation Release No. 17753); former WorldCom Director of General Accounting Buford "Buddy" Yates, Jr., on October 7, 2002 (Litigation Release No. 17771); and Betty L. Vinson and Troy M. Normand, former accountants in the WorldCom's General Accounting Department, on October 10, 2002 (Litigation Release No. 17783).  All of these actions are pending.  
+
+  In determining to enter into the settlement, the Commission considered remedial acts promptly undertaken by WorldCom and cooperation afforded the Commission staff.
+
+  The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.
+  
+     SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2003/AAER-1811.txt b/raw/aaer/2003/AAER-1811.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9391f4eaec792ac0df5918c028221bc898d3c4f0
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@@ -0,0 +1,1376 @@
+
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+ 
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+     SEC.gov | WorldCom Inc. 
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+              WorldCom Inc.
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+
+  Securities and Exchange Commission v. WorldCom Inc., Civil Action No. 02-CV-4963       (SDNY) (JSR)   
+
+ The Securities and Exchange Commission announced that United States District Judge Jed S. Rakoff today issued an Opinion and Order approving the SEC's settlement with WorldCom, Inc.  The settlement remains subject to review and approval of the United States Bankruptcy Court for the Southern District of New York. 
+
+ In its ruling, the Court wrote that "the Court is satisfied that the Commission has carefully reviewed all relevant considerations and has arrived at a penalty that, while taking adequate account of the magnitude of the fraud and the need for punishment and deterrence, fairly and reasonably reflects the realities of this complex situation." 
+
+ The Court concluded that "the proposed settlement is not only fair and reasonable but as good an outcome as anyone could reasonably expect in these difficult circumstances."  The Court noted that the civil penalty to be paid by WorldCom, would be "75 times greater than any prior such penalty." 
+
+ In its Opinion and Order, the Court stated that it would enter the Final Judgment as to Monetary Relief in the form submitted by the parties.  That Final Judgment provides that WorldCom is liable for a civil penalty in the amount of $2,250,000,000.  The Final Judgment also provides that in the event of confirmation of a plan of reorganization of WorldCom by the Bankruptcy Court, WorldCom's obligations under the Commission's judgment shall be deemed to be satisfied by the company's payment of $500,000,000 in cash and by its transfer of common stock in the reorganized company having a value of $250,000,000 to a distribution agent to be appointed by the District Court.  Under the terms of the settlement, the funds paid and the common stock transferred by WorldCom to satisfy the Commission's judgment will be distributed to victims of the company's fraud, pursuant to Section 308 (Fair Funds For Investors) of the Sarbanes-Oxley Act of 2002.   
+
+ The Commission has alleged that WorldCom misled investors by overstating its income from at least as early as 1999 through the first quarter of 2002, as a result of undisclosed and improper accounting. ( Litigation Release No. 17829. )  
+
+ The Commission filed its case against WorldCom on June 26, 2002, the day after WorldCom announced that it intended to restate its financial results for five quarters-all quarters in 2001 and the first quarter of 2002.  ( Litigation Release No. 17588 ).  The Commission also sought the appointment of a corporate monitor for WorldCom, and on July 3, 2002, U.S. District Judge Rakoff appointed former SEC Chairman Richard Breeden to that position. 
+
+ On November 26, 2002, the Commission obtained a judgment against WorldCom through which the Commission obtained the full injunctive relief it sought against WorldCom.  In addition, the judgment ordered WorldCom to undertake extensive reviews of its corporate governance and internal controls, as well as required WorldCom to establish a training and education program for WorldCom officers and employees to minimize the possibility of future violations of the federal securities laws.  The November 26, 2002 judgment explicitly left open the determination of monetary penalties to be imposed on WorldCom.  ( Litigation Release No. 17866 ). 
+
+ Since the Commission filed its action against WorldCom, the company has made a series of announcements expanding its anticipated financial restatement due to the fraud, both in dollar amount and in time.  In addition, the Commission has brought civil actions against four former employees of WorldCom.  The Commission filed civil actions against former WorldCom Controller David F. Myers on September 26, 2002 ( Litigation Release No. 17753 ); former WorldCom Director of General Accounting Buford "Buddy" Yates, Jr., on October 7, 2002 ( Litigation Release No. 17771 ); and Betty L. Vinson and Troy M. Normand, former accountants in WorldCom's General Accounting Department, on October 10, 2002 ( Litigation Release No. 17783 ).  All of these actions are pending.   
+
+ In determining to enter into the settlement, the Commission considered remedial acts promptly undertaken by WorldCom and cooperation afforded the Commission staff. 
+
+ The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation. 
+
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diff --git a/raw/aaer/2003/AAER-1812.txt b/raw/aaer/2003/AAER-1812.txt
new file mode 100644
index 0000000000000000000000000000000000000000..df6a9c35be44380c307338811e1dc237359e7825
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@@ -0,0 +1,1491 @@
+
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+              Barry D. Romeril and Gregory B. Tayler
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+Securities Exchange Act of 1934 
+Release No.  48134 / July 7, 2003 
+ 
+Accounting and Auditing Enforcement 
+Release No.  1812 / July 7, 2003 
+ 
+Administrative Proceeding 
+File No.  3-11171 
+      
+In the Matter of 
+  
+BARRY D. ROMERIL, ACCA (Former) 
+  
+     and  
+  
+GREGORY B. TAYLER, CA, 
+  
+Respondents  
+ 
+   
+    : : : : : : : : : : : :   
+   ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS      I. 
+ 
+The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Barry D. Romeril ("Romeril") and Gregory B. Tayler ("Tayler") (collectively, "Respondents") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.    1   
+
+ II. 
+ 
+In anticipation of the institution of these proceedings, the 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, and the findings contained in Section III(4) below, which are admitted, Respondents consent to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below. 
+
+ III. 
+ 
+On the basis of this Order and Respondents' Offers, the Commission finds that: 
+  Romeril, age 59, was the Chief Financial Officer ("CFO") of Xerox Corporation ("Xerox") from 1993 until he retired in December 2001.  Romeril was a member of The Association of Chartered Certified Accountants ("ACCA") in the United Kingdom from 1978 to 1994, and was also a fellow of the ACCA from 1988 to 1994.   
+ Tayler, age 45, has served in several positions at Xerox since 1997:  he was Xerox's Director of Accounting Policy from March 1997 to April 1999; Assistant Treasurer, Global Capital Markets from May 1999 to March 2000; Vice President and Controller from April 2000 to November 2001; and Vice President and Treasurer from November 2001 to September 2002.  Tayler is currently providing, among other things, transition assistance to Xerox Canada's CEO.  Since 1993 Tayler has been a Chartered Accountant, Ontario Institute of Chartered Accountants and since 1995 he has been a Chartered Accountant, Institute of Chartered Accountants of British Columbia.   
+ Xerox was, at all relevant times, a New York corporation with its principal place of business in Stamford, Connecticut.  Xerox is engaged in the business of manufacturing, selling and leasing document imaging products, services and supplies in the United States and 130 other countries.  Xerox is a public company whose securities are registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act") and is required to file periodic reports with the Commission pursuant to Section 13 of the Exchange Act.  Its securities are listed on the New York and Chicago Stock Exchanges and also are traded on the Boston, Cincinnati, Pacific Coast, Philadelphia, London and Switzerland exchanges.   
+ On June 5, 2003, the Commission filed a complaint against Respondents in  Securities and Exchange Commission v. Paul A. Allaire, et al.  (Civil Action No. 03 CV 4087 (DLC) (S.D.N.Y.) (June 5, 2003)), in the United States District Court for the Southern District of New York.  Respondents neither admit nor deny the allegations in that complaint.  On June 16, 2003, a final judgment was entered by consent against Romeril and Tayler, permanently enjoining them from committing violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated 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 promulgated thereunder.  The final judgment ordered Romeril to pay $2,987,282 in disgorgement of ill-gotten gains, $1,227,688 in prejudgment interest thereon and a $1,000,000 civil money penalty.  The final judgment ordered Tayler to pay $92,603 in disgorgement of ill-gotten gains, $32,397 in prejudgment interest thereon and a $75,000 civil money penalty.   
+  The Commission's complaint alleges, among other things, that, during 1997-2000, Romeril fraudulently misled investors about Xerox's true financial performance through the use of numerous accounting actions, most of which failed to comply with generally accepted accounting principles ("GAAP"), that accelerated the recognition of equipment revenues by approximately $3 billion and increased pre-tax earnings by approximately $1.4 billion.  As alleged in the complaint, Romeril directed or allowed lower ranking defendants in Xerox's financial department to make accounting adjustments to results reported from operating divisions to accelerate revenues and increase earnings, including the use of accounting practices known internally within Xerox as margin normalization, return-on-equity, and price uplifts and lease extensions.  In addition, Romeril, with the help of other senior Xerox financial executives, fraudulently established a $100 million reserve for "unknown risks" arising out of a 1997 acquisition by Xerox and Romeril knew and approved of the improper release of the reserve in later years to cover expenses unrelated to the acquisition.  Romeril also authorized Xerox's use of $315 million of numerous other excess or  cushion reserves and $157 million of interest income from tax refunds to manage Xerox's earnings in violation of GAAP.  The complaint alleges that Romeril failed to disclose the use and financial impact of all of these accounting actions, as well as certain lease transactions that Xerox entered into in 1999 (known as Partnership Asset Strategy or PAS transactions) that resulted in substantial and material increases in its financial results and earnings trends at the expense of future periods.    
+ The Commission's complaint further alleges, among other things, that, during 1997-2000, Tayler misled Xerox investors by participating in and failing to disclose the use of Xerox's most material accounting actions, including margin normalization and return-on-equity, that accelerated equipment revenues and earnings in violation of GAAP.  The complaint also alleges that Tayler fraudulently failed to disclose the use and financial impact of Xerox's 1999 PAS transactions.  In addition, the complaint alleges that Tayler aided and abetted Xerox's use of and failure to disclose other non-GAAP accounting actions used to boost earnings, including price uplifts and lease extensions, retroactive increases to the net residual values of Xerox's machines and a $100 million acquisition reserve. 
+  IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in the Respondents' Offers. 
+ 
+Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+  Romeril is suspended from appearing or practicing before the Commission as an accountant.   
+ Tayler is suspended from appearing or practicing before the Commission as an accountant.   
+ After three (3) years from the date of this order, Tayler 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 Tayler'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)  
+ Tayler, 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization");    (b)  
+ Tayler, 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 or equivalent organization; and     (c)  
+ As long as Tayler 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.     The Commission will consider an application by Tayler to resume appearing or practicing before the Commission as an accountant provided that his accountant status is current and he has resolved any disciplinary issues with the applicable board of accountancy.  However, if the resolution of any disciplinary action by a board of accountancy is dependent on reinstatement by the Commission, the Commission will consider an application on its other merits.  The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Tayler's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+  BY THE COMMISSION. 
+
+ 
+  
+ 
+Jonathan G. Katz 
+Secretary 
+
+
+
+ 
+ 
+ 
+        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. 
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diff --git a/raw/aaer/2003/AAER-1813.txt b/raw/aaer/2003/AAER-1813.txt
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+ Litigation Release No. 18229 / July 14, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1813 / July 14, 2003 
+
+  Securities and Exchange Commission v. Carnegie International Corporation, et al. , No. 1:03CV01513 (D.D.C.) (EGS) 
+
+ SEC Sues Carnegie International Corporation and Several Current and Former Executives in Accounting Fraud Case 
+
+ Carnegie's CEO and Former Corporate Secretary Consent to Permanent Officer and Director Bars 
+
+ Carnegie's Stock Registration Revoked in Related Proceeding 
+
+ On July 14, 2003, the Commission filed a civil injunctive action in the United States District Court for the District of Columbia against Carnegie International Corporation, a company headquartered in Laurel, Maryland, and six individual defendants.  The individual defendants are E. David Gable, Carnegie's chairman, Lowell Farkas, Carnegie's president and chief executive officer, David Pearl, a lawyer and the former corporate secretary of Carnegie, Richard J. Greene, Carnegie's former chief financial officer, Scott Caruthers, a former Carnegie director, and Dashielle Lashra Caruthers, the wife of Scott Caruthers.  The Caruthers are also named as relief defendants.  All the defendants except Gable have consented to the entry of final judgments in settlement of this matter. 
+
+ The Commission's complaint alleges, among other things, that Gable, Farkas, and Pearl carried out a financial fraud at Carnegie that resulted in Carnegie improperly reporting revenue and income on three transactions in filings with the Commission.  The transactions related to Carnegie's sale of a former subsidiary, Electronic Card Acceptance Corporation, and certain business assets of a second subsidiary, Talidan Limited, and its granting of distribution rights to a telephone voice-recognition product called MAVIS.  The filings at issue are the company's original and amended registration statements, filed in October 1998 and February 1999, respectively, and its original and amended 1998 Form 10-KSB annual report, filed in April 1999 and January 2000, respectively.   
+
+ The complaint further alleges that Carnegie senior management arranged for the sale of Carnegie shares through management-controlled entities, and had proceeds from these sales transferred to Carnegie as purported payment on certain of these transactions.  According to the complaint, Carnegie's accounting for these transactions, and the company's failure to make required disclosures concerning these transactions, including the involvement of related parties, was not in accordance with generally accepted accounting principles ("GAAP").   The complaint further alleges that Carnegie's financial reporting was highly susceptible to the financial fraud because Greene, Carnegie's former chief financial officer, failed to implement an adequate system of internal accounting controls.   
+
+ Carnegie is also alleged to have materially misrepresented Talidan's expected future performance in the company's 1998 Form 10-KSB, by failing to disclose known adverse events and uncertainties that were materially impacting Talidan's revenues.  Finally, the company is alleged to have materially misrepresented the terms of other purported MAVIS distribution agreements in press releases issued in 1998.   
+
+ According to the complaint, Gable and Pearl, along with the Caruthers, personally benefited from this fraud by selling Carnegie shares at inflated prices through an offshore trust, and they failed to make required disclosures concerning their beneficial ownership and sales of Carnegie shares.    
+
+ Based on the facts alleged, the Commission charged the following violations: 
+
+  Carnegie was charged with securities fraud in violation of Section 17(a) of the Securities Act of 1933 (the "Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Exchange Act Rule 10b-5, and with violating the reporting, books-and-records, and internal controls provisions of Exchange Act Sections 12(g), 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20 and 13a-1;
+
+  Gable, Farkas, and Pearl were each charged with (i) securities fraud in violation of Exchange Act Section 10(b) and Exchange Act Rule 10b-5; (ii) falsifying Carnegie's books, records, and accounts, and circumventing or failing to implement internal accounting controls, in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1; (iii) misleading Carnegie's auditors in violation of Exchange Act Rule 13b2-2; and (iv) aiding and abetting Carnegie's violations of Exchange Act Sections 12(g), 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20 and 13a-1.  Gable and Pearl were also charged with violating the antifraud provisions of Securities Act Section 17(a) and the stock ownership disclosure requirements of Exchange Act Section 16(a) and Exchange Act Rules 16a-2 and 16a-3;
+
+  Greene was charged with failing to implement internal accounting controls in violation of Exchange Act Section 13(b)(5), and with aiding and abetting Carnegie's violation of Exchange Act Section 13(b)(2)(B); and
+
+  The Caruthers were each charged with violating the stock ownership disclosure provisions of Exchange Act Sections 13(d) and 16(a) and Exchange Act Rules 13d-1, 13d-2, 16a-2, and 16a-3, and, in their capacity as relief defendants, with receiving unjust enrichment as a result of the fraud perpetrated by the other defendants.
+   Without admitting or denying the allegations in the Commission's complaint, all of the defendants except Gable have agreed to settle the Commission's charges by consenting to the entry of final judgments that, if approved by the Court, would permanently enjoin them from further violations of the securities laws.  In addition, Farkas and Pearl have consented to be permanently barred from serving as officers or directors of any public company.  The Court judgments would not impose civil penalties or disgorgement obligations on the settling individual defendants and relief defendants based on the sworn representations each of them made to the Commission regarding his or her financial condition.  With regard to Gable, the Commission's complaint seeks the entry of a final judgment permanently enjoining him from future violations of the federal securities laws, permanently barring him from serving as an officer or director of a public company, and ordering him to pay disgorgement (with prejudgment interest) and civil penalties.  
+
+ In a related administrative proceeding instituted on July 14, 2003, the Commission issued an order revoking Carnegie's stock registration pursuant to Exchange Act Section 12(j) based on the company's failure to file with the Commission any periodic reports required by Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 for reporting periods after September 30, 2001.  See  In the Matter of Carnegie International Corporation ,  Admin. Proc. 3-11177  (July 14, 2003).   In addition, Pearl has consented to the Commission's entry of an 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 attorney following the federal court's anticipated entry of an injunction against him. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1814.txt b/raw/aaer/2003/AAER-1814.txt
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index 0000000000000000000000000000000000000000..14f2de094e2ac73203e00500add3fbdf4fa9e54e
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+++ b/raw/aaer/2003/AAER-1814.txt
@@ -0,0 +1,1435 @@
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No. 48182 / July 16, 2003 
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 1814 / July 16, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-11182
+
+   PROCEEDINGS INSTITUTED AGAINST XAIBE, INC. AND LOWELL NICHOLAS 
+
+  The Commission instituted public administrative proceedings against Xaibe, Inc. ("Xaibe"), a defunct public corporation, and its sole officer and director, Lowell Nicholas ("Nicholas"), for alleged violations of the reporting requirements and antifraud provisions of the Securities Exchange Act of 1934 ("Exchange Act").  In the Order Instituting Proceedings ("Order"), the Division of Enforcement ("Division") alleges, among other things, that Nicholas caused Xaibe to file a late Form 10-KSB for the period ended June 30, 2001 that was materially false and misleading because it purported to include audited financial statements when, in fact, the financial statements were not audited.  The Division further alleges that Xaibe has failed to file mandatory Exchange Act reports for any period after December 2001, causing it to be delinquent in filing one annual report and four quarterly reports, and failed to file a Form 8-K disclosing the resignation of its auditor in May 2002.  In the proceedings against Xaibe, instituted pursuant to Section 12(j) of the Exchange Act, the Division alleges that Xaibe failed to comply with Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.  In the proceedings against Nicholas, instituted pursuant to Section 21C of the Exchange Act, the Division alleges that Nicholas violated Section 10(b) of the Exchange Act and Rule 10b-5 and was a cause of Xaibe's failure to comply with Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.  
+
+  A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Nicholas and Xaibe an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate and in the public interest. 
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diff --git a/raw/aaer/2003/AAER-1815.txt b/raw/aaer/2003/AAER-1815.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a6ecdd462f898bd85de7c06182487a62a9f996db
--- /dev/null
+++ b/raw/aaer/2003/AAER-1815.txt
@@ -0,0 +1,1594 @@
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+        Arsin Corporation and Danis Yadegar-Mooshiabadi
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+       SECURITIES EXCHANGE ACT OF 1934 Release No. 48192 / July 17, 
+      2003 
+       ACCOUNTING AND AUDITING ENFORCEMENT Release No. 1815 / July 17, 
+      2003 
+       ADMINISTRATIVE PROCEEDING File No. 3-11188 
+       
+           
+                In the Matter of   ARSIN CORPORATION and 
+            DANIS 
+            YADEGAR- MOOSHIABADI,   Respondents.    
+              
+               
+            
+              : : : : : : : : : : : :   
+            ORDER INSTITUTING PUBLIC CEASE-AND-DESIST PROCEEDING, MAKING 
+            FINDINGS AND ISSUING A CEASE-AND-DESIST 
+      ORDER       I. 
+       The Securities and Exchange Commission ("Commission") deems it 
+      appropriate that a public cease-and-desist proceeding be instituted 
+      pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange 
+      Act") against Arsin Corporation ("Arsin" or the "Company") and Danis 
+      Yadegar-Mooshiabadi ("Yadegar") (collectively, "Respondents"). 
+       Accordingly, IT IS HEREBY ORDERED that a cease-and-desist proceeding 
+      against Arsin and Yadegar be, and hereby is, instituted.  1   
+       II. 
+       In anticipation of the institution of this proceeding, Arsin and 
+      Yadegar have submitted Offers of Settlement ("Offers"), 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 Respondents admit the 
+      jurisdiction of the Commission over them and over the subject matter of 
+      this proceeding, Respondents consent to the issuance of this Order 
+      Instituting Public Cease-and-Desist Proceeding, Making Findings and 
+      Issuing a Cease-and-Desist Order ("Order"). 
+       III. 
+       On the basis of this Order and the Offers, the Commission makes the 
+      following findings  2  : 
+       A. Respondents 
+       Arsin Corporation is a software company primarily involved in providing 
+      consulting services. Based in Santa Clara, California, Arsin is a private 
+      corporation incorporated under California law. Arsin's stock is held by 
+      its CEO and Chairman, Danis Yadegar-Mooshiabadi, two outside investors, 
+      and by twenty-five current or former employees.  
+       Danis Yadegar-Mooshiabadi, age 47, resides in Campbell, California and 
+      is the President, Chairman, and CEO of Arsin. 
+       B. Summary 
+       In December 2000, Unify Corporation ("Unify") restated its previously 
+      announced financial results for all four quarters of its fiscal year 2000, 
+      which ended on April 30, 2000. A portion of Unify's restatement was to 
+      correct two "roundtrip" sales transactions involving Arsin that occurred 
+      at the end of Unify's third and fourth quarters of its fiscal year 2000. 
+      As part of Unify's restatement for the third quarter, Unify reversed 
+      $450,000 in previously recognized revenue relating to Arsin's purchase of 
+      a software license from Unify. This transaction caused Unify's originally 
+      reported revenue for the quarter to be overstated by 8.6%. As part of 
+      Unify's restatement of the fourth quarter, Unify reversed $500,000 in 
+      previously announced revenue relating to a fee that Arsin agreed to pay 
+      Unify in connection with an original equipment manufacturer's agreement. 
+      The second transaction caused Unify's originally reported revenue for the 
+      quarter to be overstated by 10.9 % in Unify's fiscal year 2000 earnings 
+      announcement. 
+       When it entered into these contracts with Unify, Arsin lacked the funds 
+      to pay for the software it was licensing from Unify and Arsin later used 
+      funds that it received from Unify to pay for Unify's software. In each 
+      instance, Arsin and Yadegar provided Unify with a check that Arsin lacked 
+      the funds to cover, with the understanding that Unify would show the check 
+      to Unify's independent auditor and that Unify would not deposit Arsin's 
+      check until Unify had provided Arsin with the funds necessary to cover 
+      Arsin's check.  
+       C. Prior Dealings Between Arsin and Unify  
+       In October 1999, Yadegar recruited Reza Mikailli, Unify's CEO, as the 
+      first outside member of Arsin's board of directors. Yadegar had known 
+      Mikailli for more than 12 years, since the two worked together at another 
+      high technology company. At the same time, in October 1999, Unify hired 
+      Arsin to carry out performance testing for a new software product Unify 
+      was planning to develop, called eWave. According to the terms of a 
+      so-called Funded Development Agreement dated October 20, 1999, Unify 
+      agreed to pay Arsin $125,000 to develop a testing protocol, test the 
+      product, and provide Unify with the test results. The contract provided 
+      that Arsin and Unify would jointly own both the testing protocol and the 
+      test results. Arsin completed its work under the contract in December 
+      1999. 
+       D. The January 2000 Roundtrip Transaction 
+       On January 24, 2000, Unify and Arsin entered into a software license 
+      that gave Arsin the right to have an unlimited number of its employees use 
+      Unify's eWave product, in exchange for $500,000. Unify recognized this 
+      entire amount as revenue in the Form 10-Q that Unify filed for the quarter 
+      ended January 31, 2000. Unify later determined that $450,000 of this 
+      revenue was improperly recognized because it was offset by a reciprocal 
+      agreement in which Unify supplied Arsin with funds to pay for the software 
+      license. 
+       Yadegar and Mikailli negotiated the license agreement, along with 
+      Unify's CFO, Gary Pado. Yadegar initially informed Mikailli and Pado that 
+      Arsin did not have the funds to cover payment. Mikailli told Yadegar that 
+      the license agreement would not cost Arsin anything but that he needed an 
+      agreement in the amount of $500,000 and required a check by the end of 
+      January 2000. Mikailli informed Yadegar that Unify wanted to close the 
+      transaction by the end of January because Unify required the $500,000 for 
+      its revenue for the quarter ended January 31, 2000. Mikailli and Pado also 
+      told Yadegar that Unify required the check in order to show it to their 
+      auditors in the first week of the following month. Yadegar gave Unify a 
+      check for the full amount after reaching an agreement with Mikailli and 
+      Pado that Unify would not cash the check until Yadegar informed them that 
+      he had the money to cover the check.  
+       In order to provide Arsin with the funds to pay for the license 
+      agreement, Yadegar and Pado simultaneously negotiated an amendment to the 
+      prior Funded Development Agreement between Arsin and Unify. Under the 
+      amended Funded Development Agreement, Arsin agreed to provide a revised 
+      testing protocol for eWave, run additional tests, and give Unify sole 
+      ownership of both the testing protocol and results, in exchange for an 
+      additional $450,000. The amended Funded Development Agreement was a sham 
+      agreement. No technical work was done under the agreement, and its purpose 
+      was to provide Arsin with the funds it needed to pay for the software 
+      license. 
+       E. The April 2000 Roundtrip Transaction 
+       On April 29, 2000, Unify and Arsin entered into an original equipment 
+      manufacturer ("OEM") agreement, in which Arsin agreed to pay $500,000 for 
+      the right to incorporate Unify's eWave product into software that Arsin 
+      had not yet developed. Unify recognized this entire amount as revenue in 
+      its earnings release for the fourth quarter ended April 30, 2000. Unify 
+      later determined that all of this revenue was improperly recognized 
+      because Unify supplied Arsin with the funds it needed to pay for the OEM 
+      agreement just two weeks after the agreement was signed. 
+       Mikailli and Pado called Yadegar in April 2000 and requested that Arsin 
+      do another $500,000 deal with Unify. Yadegar again informed them that 
+      Arsin lacked the funds to cover a $500,000 payment. Mikailli told Yadegar 
+      that Arsin ultimately would not have to pay for the agreement, but that 
+      Unify required a check from Arsin by the end of April. Mikailli and Pado 
+      told Yadegar that Unify wanted the contract to include it in Unify's 
+      quarterly revenue and required the check by the end of April so that they 
+      could present it to Unify's auditors. Yadegar executed the OEM contract on 
+      April 29, and provided Unify with a check for the entire $500,000 on the 
+      same day. Yadegar, Mikailli and Pado agreed that Unify would refrain from 
+      depositing the check until Arsin received funds from Unify to cover 
+it. 
+       Despite this agreement, in early May 2000 Unify deposited Arsin's 
+      check, which bounced due to insufficient funds. Upon learning of the 
+      bounced check, Yadegar threatened to cancel the OEM agreement with Unify. 
+      On May 12, 2000, Unify wired Arsin $500,000 to cover the bounced Arsin 
+      check. Arsin used the funds from the wire transfer to pay Unify. 
+       F. Legal Conclusions 
+       As described in Parts III.A through III.E above, from January 2000 
+      through the end of May 2000, Arsin and Yadegar engaged in misconduct 
+      intended to assist Unify in fraudulently boosting its financial results. 
+      As a result, Unify's financial statements for the periods ended January 
+      31, 2000 and April 30, 2000 (which were filed with the Commission, or 
+      otherwise disseminated to investors) were materially false and 
+      misleading. 
+       Based on the foregoing, the Commission finds that Arsin and Yadegar 
+      caused Unify's violations of Sections 13(a) and 13(b)(2)(A) of the 
+      Exchange Act and Rules 12b-20 and 13a-13 thereunder, and caused certain 
+      former officers of Unify's violations of Sections 10(b) and 13(b)(5) of 
+      the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2, thereunder. 
+       IV. 
+       Based on the foregoing, the Commission deems it appropriate to accept 
+      the Offers submitted by Arsin and Yadegar. Accordingly, IT IS HEREBY 
+      ORDERED pursuant to Section 21C of the Exchange Act that: By the 
+      Commission.
+        
+       Jonathan G. Katz Secretary 
+         
+        Footnotes 
+         1   Arsin cease and desist from committing or 
+      causing any violations or any future 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 and 
+      13a-13; and 13b2-1 thereunder, and from causing any violations or any 
+      future violations of Rule 13b2-2 thereunder, and 
+         2   Yadegar cease and desist from committing or 
+      causing any violations or any future violations of Sections 10(b), and 
+      13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 
+      thereunder, and from causing any violations or any future violations of 
+      Section 13(a), 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 
+      thereunder. 
+         
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diff --git a/raw/aaer/2003/AAER-1817.txt b/raw/aaer/2003/AAER-1817.txt
new file mode 100644
index 0000000000000000000000000000000000000000..96baff77b7fe00cfa8d1c1eec79375521a162d73
--- /dev/null
+++ b/raw/aaer/2003/AAER-1817.txt
@@ -0,0 +1,1510 @@
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  48214 / July 23, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.   1817 / July 23, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No. 3-11190      
+
+         In the Matter of  
+       RSA SECURITY, INC. 
+   Respondent.   
+     
+    : : : : : :   
+   ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING
+   FINDINGS, AND IMPOSING 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 RSA Security, Inc. ("RSA" 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 them and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing 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:
+
+   A. Summary 
+
+    This matter involves RSA's misleading statements in an April 10, 2001 press release and conference call with analysts and others (collectively the "announcements").  RSA stated that it had achieved analysts' earnings expectations for the first quarter of 2001 in a "difficult economic environment" and compared its net income, operating income, and earnings with its performance for the first quarter of 2000.  These statements were misleading because, during the quarter, RSA experienced a material one-time increase in operating income, net income, and earnings that resulted from a change in the way it recognized revenue from sales to distributors.  This accounting change increased RSA's reported revenue by 2.3% from $74.6 million to $76.3 million, operating income by 21% from $8.1 million to $9.8 million, and net income by 13% from $8.5 million to $9.6 million. 1   Without the change, RSA would have failed to meet analysts' earnings expectations by approximately $.02 per share, or 12.5%, and its operating income would have been 17.3% lower.  Although the accounting change itself complied with generally accepted accounting principles ("GAAP"), RSA's announcements created the misleading impression that its ability to meet analysts' earnings expectations for the quarter resulted solely from its operations, rather than, in part, the accounting change.  Moreover, disclosure of the accounting change would have shown that, without the change, RSA's net and operating income for the first quarter of 2001 declined in comparison to the first quarter of 2000, rather than increasing and staying approximately the same, respectively, as RSA reported in the announcements. 
+
+    By issuing the materially misleading announcements, RSA violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
+
+   B. Respondent 
+
+     RSA  is a Delaware corporation with its headquarters in Bedford, Massachusetts.  Among other things, RSA manufactures and sells software and tokens that allow secure access to computer networks by remote computer users.  RSA's stock is traded on the NASDAQ National Market System and is registered with the Commission pursuant to Section 12(g) of the Exchange Act. 
+
+   C. Facts 
+
+     1. The Accounting Change 
+
+    In its 2000 Form 10-K, filed on March 28, 2001, RSA described its revenue recognition method for shipments to distributors as follows:  "Revenue from shipments to distributors is recognized upon receipt of evidence of sale to end-users."  This method is known as "sell through," and is in conformity with GAAP.   See  SFAS 48 ("Revenue Recognition When Right of Return Exists").  By the first quarter of 2001, RSA had approximately three years of experience in selling to distributors who had a right of return, and it decided to analyze whether it should change this accounting.  RSA found that its distributors returned very little product that was shipped to them and that it had a reasonable basis for estimating distributor returns.  By the end of the first quarter of 2001, RSA concluded that, based upon this historical experience with distributors, it should recognize revenue upon shipment to distributors.  This method is known as "sell in."  
+
+    RSA discussed this accounting change with its outside auditors, who agreed that the change was appropriate under the circumstances and was in conformity with GAAP.  As a result of the change, RSA recognized $1.735 million in revenue in the first quarter of 2001 that otherwise would not have been recognized in that quarter.  The change did not alter RSA's accounting for expenses associated with the revenue, which continued to be recorded when incurred.  Accordingly, the change increased RSA's operating income for the quarter by approximately the same amount, or $1.735 million, and its earnings by approximately $.02 per share.  Without the change, RSA's operating income and net income for the first quarter of 2001 would have fallen compared to the first quarter of 2000, rather than staying approximately the same and increasing, respectively.  In addition, the change constituted 18% of RSA's operating income and 12.5% of RSA's net income and earnings per share for the quarter. 
+
+     2. The Press Release and Conference Call  
+
+    On the morning of April 10, 2001, RSA issued its press release and held its conference call, publicly announcing its financial results for the first quarter of 2001.  It reported pro forma core operating business earnings of $0.16 per share, revenue of $76.3 million, operating income of $9.8 million, and net income of $9.6 million.  Although it missed analysts' revenue expectations by approximately $1.7 million, RSA stated in the announcements that it had met analysts' "earnings expectations in a very difficult economic environment."  In addition, RSA compared the first quarter of 2001 earnings figures with figures from the same period in 2000. However, investors had no way of knowing that, because of the accounting change, those figures were not calculated on a consistent basis.  Although the method by which RSA calculated revenues from sales to distributors was in conformity with GAAP, the accounting change was material, and RSA failed to disclose the change in its announcements.  
+
+    The chart below shows the impact of the change on selected pro-forma core operating business figures RSA reported for the first quarter of 2001, as compared to the corresponding first quarter of 2000 figures also contained in the press release:  
+         First Quarter    2001 Per Release  
+ First Quarter 2001 If    No Accounting Change  
+  First Quarter 
+         2000 Per Release     Revenues    $76.34 million     $74.6 million           $63.34 million    Operating Income   $ 9.762 million    $  8.022 million     $9.845 million    Net Income    $ 9.633 million    $  8.418 million      $ 8.602 million    EPS     $ 0.16     $0.14            $0.13    RSA's press release and conference call were materially misleading.  By failing to inform investors that the accounting change had enabled it to achieve its financial results, RSA created the impression that it had met earnings expectations solely through its business efforts rather than at least in part through an accounting change.  In addition, by comparing its first quarter results for 2001 with 2000, RSA created the impression that its results were derived on a consistent basis when they were not.  These statements masked the fact that RSA's financial performance for the first quarter of 2001 had actually deteriorated when compared to the first quarter of 2000.
+
+    Certain of RSA's officers knew or were reckless in not knowing that RSA's press release and statements in its conference call were misleading.  RSA's auditors told RSA several times that the change had to be disclosed in the company's Form 10-Q for that quarter.  In addition, the senior manager of RSA's auditors told one of RSA's officers that the company should disclose the change in its press release.  Finally, these officers knew that the change would have a direct effect on RSA's reported revenue and income for the quarter. 
+
+    On May 15, 2001, RSA filed its Form 10-Q for the quarter, in which it disclosed the following:  "As a result of the Company's positive experience with returns from distributors, the Company began recognizing revenue upon shipment to distributors rather than upon sell-through, resulting in an increase in revenue of $1,735[,000] for the three months ended March 31, 2001."
+
+   D. RSA Violated Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder 
+
+    As a result of the conduct described above, RSA violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  Section 10(b) of the Exchange Act and Rule 10b-5 thereunder make it unlawful, in connection with the purchase or sale of securities, "to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading." To violate Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, a misrepresentation oromission must be material, meaning that a reasonable investor would have considered the misrepresented or omitted fact important when deciding whether to buy, sell or hold the securities in question.   See   Basic Inc. v. Levinson , 485 U.S. 224, 231-32, 108 S. Ct. 978, 983 (1988).  
+
+    To constitute a violation, the material misstatement or omission must be made with scienter.   Aaron v. SEC , 446 U.S. 680, 701-02, 100 S. Ct. 1945, 1958 (1980).  Recklessness is sufficient to establish scienter.   Greebel v. FTP Software, Inc. , 194 F.3d 185, 198-99 (1st Cir. 1999);  SEC v. Deyon , 977 F. Supp. 510, 516 (D. Me. 1997),  aff'd , 201 F.3d 428 (1st Cir. 1998). The actions and state of mind of high-ranking RSA officers can be imputed to the company.   See   City of Miami , Initial Dec. Rel. No. 185 (June 22, 2001), 2001 SEC LEXIS 1250, *53 ("City is responsible for the acts of its City Manager and Finance Department officials, and the knowledge of these individuals is imputed to the City"),  aff'd , Securities Act Rel. No. 8213 (March 21, 2003), 2003 SEC LEXIS 676;  Erik W. Chan , Initial Dec. Rel. No. 172 (Sept. 14, 2000), 2000 SEC LEXIS 2274, *28-29 (same) (citing cases).   
+
+    In Public Statements by Corporate Representatives, Securities Act Rel. No. 6504 (January 1984), the Commission reiterated to registrants that Section 10(b) and Rule 10b-5 apply to all public statements by persons speaking on behalf of a public company.  The Commission also made clear that public announcements and press releases constitute public statements.   Id .;  see   also   Sunbeam Corporation , Exchange Act Rel. No. 44305, 2001 SEC LEXIS 931 at *42-43 (May 15, 2001) (issuer violated Section 10(b) and Rule 10b-5 when it disseminated materially false and misleading press releases).  Thus, an issuer that knowingly or recklessly makes false or misleading statements in public announcements to investors, including press releases and other public statements, violates Section 10(b) and Rule 10b-5 thereunder.   See   Milton v. Van Dorn Co. , 961 F.2d 965, 968 n.4 (1st Cir. 1992) ("duty to disclose may arise ... where the defendant volunteers disclosure and the law implies the corollary duty to refrain from incomplete, inaccurate, or misleading disclosures").    See   also   Trump Hotels & Casino Resorts, Inc. , Exchange Act Rel. No. 45287, 2002 SEC LEXIS 96 at *16-17 (Jan.16, 2002) (imposing cease-and-desist order where press release gave the misleading impression that performance was due to operational improvements rather than a one-time gain).   In addition, when reporting financial results, issuers must disclose any material changes in their revenue recognition practices.   See   Richard P. Bellinger , Exchange Act Rel. No. 46291, 2002 SEC LEXIS 1986 at * 8 (Aug. 1, 2002) (GAAP requires disclosure of accounting change regardless of whether change was "a change in accounting principle or a change in accounting estimate" because change "had a material effect on the financial statements").    See   also   Edison Schools, Inc. , Exchange Act Rel. No. 45925, 2002 SEC LEXIS 1281 (May 14, 2002) (imposing cease-and-desist order when company inadequately disclosed revenue recognition practices in Commission filings, even though the practices conformed with GAAP).
+
+    RSA's failure to disclose the accounting change was materially misleading.  First, absent the accounting change, RSA would not have met analysts' expectations.   See   Ashford.com , Exchange Act Rel. No. 46052, 2002 SEC LEXIS 1484 (June 10, 2002) (issuer violated Section 13(a) of Exchange Act when it failed to disclose that change in classification of expenses enabled it to beat analysts' pro forma earnings expectations).  Second, RSA created themisimpression that it had met earnings expectations solely through its business efforts.   See   Trump ,  supra  at *2 (issuer's earnings release misleading because it created impression company exceeded earnings expectations primarily through operational improvements).  RSA met such expectations at least in part through a one-time event.  Third, RSA compared the first quarter of 2001 and the first quarter of 2000 figures, but investors had no way of knowing that those figures were not calculated on a consistent basis as required by GAAP.   See  Accounting Research Bulletin No. 43, ch. 2A, para. 3 (requiring disclosure when quarterly comparisons are made using figures that are not comparable).   See   Richard P. Bellinger ,  supra  at *8 (respondent failed to disclose that results for different periods were not comparable because issuer changed the way it recognized revenue).  Fourth, without the accounting change, RSA would have experienced a decline in both operating income and net income from the first quarter of 2000.  Instead, the company reported that the first quarter of 2001 operating income and net income remained approximately the same and increased, respectively, compared to the first quarter of 2000.   See   Trump ,  supra  at *3 (without undisclosed one-time gain, issuer's net income would have declined, and issuer would have missed analysts' expectations).  Finally, the change constituted 18% of RSA's operating income and 12.5% of RSA's net income and earnings per share for the quarter.  
+
+    Based on the foregoing, RSA violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by issuing the press release and conducting the conference call without disclosing the accounting change and its impact on RSA's financial results. 
+
+   E. The Respondent's Cooperation and Remedial Efforts 
+
+    In determining to accept the Respondent's Offer, the Commission considered the remedial acts undertaken by RSA, the cooperation provided to the Commission staff, and the limited duration of the violations. 
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to impose the sanction specified in Respondent's Offer.
+
+    Accordingly, it is hereby ORDERED:
+
+    Pursuant to Section 21C of the Exchange Act, that RSA 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.
+
+                Jonathan G. Katz
+               Secretary
+  __________________
+      1      These amounts reflect RSA's core business activity rather than its GAAP figures.  In the announcements, RSA reported both figures.  The major difference between the two is that the GAAP figures include amounts from RSA Capital, an RSA subsidiary engaged in venture capital activities. 
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diff --git a/raw/aaer/2003/AAER-1818.txt b/raw/aaer/2003/AAER-1818.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6c64bddf384a81f04bd983438f080d85882a4159
--- /dev/null
+++ b/raw/aaer/2003/AAER-1818.txt
@@ -0,0 +1,1368 @@
+
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+     SEC.gov | Jay Gilbertson, Albert Bergonzi and Dominick Derosa 
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+              Jay Gilbertson, Albert Bergonzi and Dominick Derosa
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+        Jay Gilbertson, Albert Bergonzi and Dominick Derosa
+       
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+
+ Litigation Release No. 18242  / July 22, 2003  
+
+ Accounting And Auditing Enforcement Release No. 1818  / July 22, 2003  
+
+ Securities and Exchange Commission v. Jay Gilbertson, Albert Bergonzi and Dominick Derosa, Case No. 00-3570 MJJ (N.D. Cal.) 
+
+ Court Accepts Settlements of Commission's Financial Fraud Claims Against Former HBO and Company Officers 
+
+ The Securities and Exchange Commission announced that Judge Martin J. Jenkins in San Francisco entered judgments against Jay Gilbertson and Dominick DeRosa on July 1 and July 3, 2003, respectively.  The court enjoined both Gilbertson, a former Co-President and Chief Financial Officer of HBO and Company ("HBOC"), and DeRosa, a former HBOC Executive Vice President for Enterprise Sales, from future violations of the federal securities laws noted below and from serving as a director or officer of any public reporting company.  The court also ordered Gilbertson to disgorge $733,360, plus prejudgment interest, and to pay a civil penalty of $1,000,000.  The court ordered DeRosa to disgorge $325,312, plus prejudgment interest, and to pay a civil penalty of $50,000.   
+
+ Both judgments were the result of settlements in which Gilbertson and DeRosa, without admitting or denying the allegations in the Commission's complaint, consented to the entry of judgments against them.  The Commission had alleged that Gilbertson, DeRosa and other officers of HBOC misrepresented HBOC's sales revenue, expenses and income by making false entries in the company's accounting records and hiding the terms of sales contracts in side letters to make the sales appear eligible for revenue recognition.  The action is still pending against Albert Bergonzi, Co-President of HBOC and subsequently President of the HBOC division of McKesson Corporation.  
+
+ The judgments enjoined Gilbertson and DeRosa from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(b)(5) of the Securities Exchange Act of 1934, Rule 13b2-1 and, as to Gilbertson, Rule 13b2-2. 
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diff --git a/raw/aaer/2003/AAER-1819.txt b/raw/aaer/2003/AAER-1819.txt
new file mode 100644
index 0000000000000000000000000000000000000000..79b31d1dcdc7a1d428cd31d27d1a7dfd36dc911a
--- /dev/null
+++ b/raw/aaer/2003/AAER-1819.txt
@@ -0,0 +1,1563 @@
+
+
+ 
+ 
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+     SEC.gov | John J. Canepa, CPA 
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+           
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+        John J. Canepa, CPA
+       
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+
+ Securities Exchange Act of 1934 
+Release No. 48224 / July 24, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1819 / July 24, 2003 
+
+ Administrative Proceeding 
+File No. 3-11007 
+
+     In the Matter of 
+
+ JOHN J. CANEPA, CPA 
+
+ Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER MAKING FINDINGS AND IMPOSING CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AND DISMISSING RULE 102(e) PROCEEDING    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate to accept the Offer of Settlement ("Offer") submitted by John J. Canepa ("Canepa" or "Respondent") pursuant to Rule 240(a) of the Commission's Rules of Practice, 17 C.F.R. § 201.240(a), for the purpose of settlement of these public administrative and cease-and-desist proceedings instituted by the Commission against him on January 13, 2003, pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice.  The Rule 102(e) Proceeding is dismissed. 
+
+ II. 
+
+ 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 over the subject matter of these proceedings, which is admitted, Respondent consents to the entry of this Order Making Findings and Imposing Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 and Dismissing Rule 102(e) Proceeding ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and the Respondent's Offer, the Commission finds  1   that: 
+
+ A. RESPONDENT AND RELATED ENTITIES 
+
+ 1. Respondent 
+
+  Canepa,  age 47, resides in Belmont, Massachusetts.  During the relevant period, he was a certified public accountant ("CPA") licensed in the state of Massachusetts.  His CPA license lapsed in June 2002.  Canepa was a partner with Arthur Andersen LLP ("Andersen") in its Boston office from September 1989 until May 2001.  He was the Andersen engagement partner for Anika Therapeutics, Inc. ("Anika") from the beginning of the engagement in or about June 1998 until May 2001.  
+
+ 2. Related Entities 
+
+ a.   Anika  is a Massachusetts corporation established in 1983, with its headquarters in Woburn, Massachusetts.  It manufactures and sells pharmaceutical products that are used to treat bone, cartilage and soft tissue injuries.  During all relevant times, Anika's common stock was traded on the NASDAQ National Market System and was registered with the Commission pursuant to Section 12(g) of the Exchange Act.  2   
+
+  b.    The Distributor  :  In November 1997, Anika entered into a ten-year exclusive agreement with the Distributor pursuant to which the Distributor received exclusive rights to distribute one of Anika's products, Orthovisc,  3   to customers in Canada, most of Europe and the United States (the "Agreement").  
+
+ c.  Andersen  provided accounting and auditing services to Anika beginning with a quarterly review for Anika's quarter ended June 30, 1998.  Anika terminated Andersen's engagement in July 2002. 
+
+ B. FACTS 
+
+ 1. Summary 
+
+ Respondent Canepa was a cause of Anika's improper recognition of approximately $1.3 million in revenue from 1998 and 1999 "bill-and-hold" transactions involving the sale of its product, Orthovisc, to the Distributor, in violation of generally accepted accounting principles ("GAAP").  4    Anika prematurely recorded on its books and records and reported in periodic filings with the Commission revenue from three bill-and-hold transactions with the Distributor at the time of invoicing and prior to actual shipment and delivery of the product to the Distributor.  Canepa reviewed and concurred with Anika's premature recognition of revenue from the bill-and-hold transactions in 1999.  Moreover, in March 2000, Canepa caused Anika to improperly recognize $342,980 in revenue from a 1998 bill-and-hold transaction in its restatement of revenue.  The company filed a second restatement in September 2001.  As a result, Canepa was a cause of Anika'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. 
+
+ 2. Anika Improperly Recognized Revenue From A Bill-and-Hold Transaction In 1998 
+
+ Pursuant to the Agreement, the Distributor placed orders with Anika for a total of approximately 15,000 units of Orthovisc in April and July 1998.  In early September 1998, in light of the different labeling and packaging requirements for Orthovisc in various regulatory jurisdictions, Anika recommended to the Distributor that Anika invoice for the approximately 15,000 unit order under Anika's normal payment terms, but that it hold the Distributor's order at Anika's refrigerated facility.  Under this arrangement, the Distributor would pay for the product within 45 days of invoicing, and Anika would hold the units as unlabeled, unpackaged, filled syringes, until the Distributor desired shipment.   
+
+ On September 24, 1998, Anika invoiced the Distributor $545,650 for 15,590 units from the April/July 1998 order.  The Distributor paid for the units in November 1998, within the 45 day payment period established by the parties under the Agreement.  The 15,590 unit order was not shipped to the Distributor until March 1999 as per the Distributor's request.  Anika  recorded revenue for the transaction on its books and records as a bill-and-hold transaction in the quarter ended September 30, 1998.  However, the transaction did not meet all the GAAP criteria necessary for revenue recognition in that quarter.  Even so, in its quarterly report for the quarter ended September 30, 1998, filed with the Commission on Form 10-Q, Anika recognized $545,650 from this bill-and-hold transaction as revenue for that quarter. Anika also recognizedthis revenue in its annual report for the year ended December 31, 1998, filed with the Commission on Form 10-K.  
+
+ 3. Anika Improperly Recognized Revenue From Bill-and-Hold Transactions in 1999 
+
+ Due to delays in launching Orthovisc in Europe in 1998, the Distributor was, in early 1999, still storing approximately 58,000 of the 60,000 units of Orthovisc it had already purchased from Anika.  Despite this level of inventory, in late April 1999, the Distributor proposed to Anika that it purchase 41,100 additional units of Orthovisc from Anika in the second and third quarters of 1999, or approximately $1 million of product.  The additional units were above and beyond the contractually required annual minimum purchase of 30,000 units.  Anika agreed to this proposal.  The additional units ordered were divided into two invoices, one on June 30, 1999, which the Distributor paid in August 1999, and the other on September 30, 1999, which the Distributor paid in November 1999.  In a May 20, 1999 letter, the Distributor requested that its order of 41,100 additional units be treated as bill-and-hold transactions.  Only a partial delivery was made of the June 30, 1999 order, which occurred in October 1999.  The balance of units from the June order and the units for the September 30, 1999 order were never delivered and ultimately were destroyed by agreement of the parties upon termination of the contract in late 2000. 
+
+ The June and September 1999 transactions also did not meet all the GAAP criteria necessary for revenue recognition as bill-and-hold transactions.  However, Anika prematurely recorded revenue from the June and September transactions on its books and records for the quarters ended June 30, 1999 and September 30, 1999.  In its quarterly report for the period ended June 30, 1999, filed with the Commission on Form 10-Q, Anika prematurely recognized $365,250 from the June 30, 1999 transaction for 15,000 units as revenue for that quarter.  In its quarterly report for the period ended September 30, 1999, filed with the Commission on Form 10-Q, Anika prematurely recognized $633,100 from the September 30, 1999 transaction for 26,000 units as revenue for that quarter.  
+
+ 4.   Anika's Accounting Treatment of the 1998 and 1999 Bill-and-Hold Sales Failed to Comply with GAAP 
+
+ As the Commission stated in  Sunbeam Corporation , Exchange Act Rel. No. 44305, Accounting and Auditing Enforcement Rel. No. 1393 (May 15, 2001), 2001 SEC LEXIS 931, "[b]ill and hold sales are unusual transactions subject to stringent accounting criteria."  The Commission has previously articulated these criteria in  Stewart Parness , Exchange Act Rel. No. 23507, Accounting and Auditing Enforcement Rel. No. 108 (August 5, 1986), 1986 SEC LEXIS 1051, and reaffirmed those criteria in Staff Accounting Bulletin No. 101 (December 3, 1999). Anika's 1998 and 1999 transactions with the Distributor failed to meet the following criteria necessary for recognizing revenue from bill-and-hold transactions: 
+
+    The risks of ownership must have passed to the buyer.   The risks of ownership had not passed to the Distributor on the date Anika recognized revenue for these transactions.  Although the Distributor agreed to take title to the inventory at the time of invoicing and had no right of return except for defective product, the full risk of ownership had not yet passed to the Distributor because Anika agreed that it would bear responsibility for any loss of product during packaging, a process that the Distributor's inventory had yet to undergo;   
+
+   There must be a fixed schedule for delivery of the goods.   At the time of the revenue recognition, Anika and the Distributor had not agreed to a fixed schedule for delivery of the goods;   
+
+   The seller must not have retained any specific performance obligations such that the earnings process is not complete.   Anika retained specific performance obligations after revenue was recognized for each of these transactions, including the labeling, packaging and final sterilization of Orthovisc, which constituted approximately 20% of Anika's total manufacturing cost of the product;   
+
+   The ordered goods must have been segregated from the seller's inventory and not be subject to being used to fill other orders.   Anika failed to properly segregate the Distributor's Orthovisc units from other units of Orthovisc stored as Anika's inventory.  In addition, the Orthovisc units that made up the September 30, 1998 transaction were not used to fill the September 1998 Distributor order, but rather were either delivered to another Anika customer or were used to fill other Distributor orders;   
+
+   The product must be complete and ready for shipment.  The product was not complete and ready for shipment at the time Anika recognized the revenue.  Anika had not yet labeled, packaged and sterilized the product in its packaging; and   
+
+   The buyer has the expected risk of loss in the event of a decline in the market value of the goods.   Under the Agreement between the parties, Anika shared with the Distributor the risk of loss if Orthovisc market prices declined.  Anika was required to refund money to the Distributor if the parties' targeted "estimated selling price" to end customers was higher than the actual selling price achieved. Anika ultimately refunded to the Distributor nearly $30,000 for its 1998 sales.   In addition, when it recognized revenue from the above transactions in the third quarter of 1998 and the second quarter of 1999, Anika contradicted the revenue recognition policy set forth in both its 1997 and 1998 Forms 10-K.  In the 1997 Form 10-K, the policy stated in relevant part that: "[t]he Company recognizes revenue on product sales when the products are shipped and the customer takes ownership."  In the 1998 Form 10-K, the policy stated in relevant part: "Product revenue is recognized upon shipment of commercial product and represents sales of products,Hyvisc and Orthovisc."  Anika did not ship the product from the 1998 third quarter transaction to the Distributor's facility until March 1999, almost six months after it had recognized revenue from the sale.  In addition, Anika's recognition of revenue from the June 30, 1999 transaction failed to conform with its 1998 policy statement as only a small portion of the product subject to the transaction was ever delivered and that partial shipment and delivery took place approximately four months following Anika's recognition of revenue for the transaction. Nonetheless, the company neither clarified the revenue recognition policy in its quarterly filings nor included information in its Commission filings about its deviation from its stated revenue recognition policy. 
+
+ 5. Canepa's Conduct as Anika's Independent Auditor 
+
+ During the relevant time period, Andersen served as Anika's independent auditor, and Canepa served as the engagement partner on the Anika engagement.  Canepa reviewed and concurred with Anika's recognition of revenue for the September 1998 and June and September 1999 bill-and-hold transactions. 
+
+ a.   Canepa's 1999 Review of the September 1998 Bill-and-Hold Transaction 
+
+ Canepa learned of the September 1998 bill-and-hold transaction in July 1999 during Andersen's quarterly review for the second quarter of 1999.  Canepa documented his analysis of the September 1998 transaction in an internal memorandum dated July 23, 1999, in which he acknowledged that "[t]he SEC staff has indicated that in order to recognize revenue on a bill-and-hold transaction,   all   of the [ Parness  criteria] must be met." (emphasis added) Canepa concurred with Anika's accounting treatment for the 1998 bill-and-hold transaction even though he knew or should have known that the transaction did not meet at least the following  Parness  criteria for revenue recognition:  (i) a delivery schedule had not been fixed; (ii) Anika retained specific performance obligations, including final packaging, labeling and sterilization of the product; and (iii) the product was not complete and ready for shipment.   
+
+ b. Canepa's Review of the 1999 Bill-and-Hold Transactions 
+
+ As part of his 1999 second quarter review, Canepa also became aware of the parties' April/May 1999 agreement in which the Distributor purchased an additional $1 million of product resulting in the June and September 1999 purchase of 41,100 units.  Canepa concurred with Anika's accounting treatment for the June 30,1999 bill-and-hold transaction even though he knew or should have known that the transaction failed to meet at least the following  Parness  criteria for revenue recognition:  (i) a delivery schedule was not fixed, but was based on "demand for the product in Europe;" (ii) Anika retained specific performance obligations, including final packaging, labeling and sterilization of the product; and (iii) the product was not complete and ready for shipment.   
+
+ Canepa reached the same conclusion regarding Anika's third quarter 1999 transaction. He concurred with Anika's recognition of revenue from the September 30, 1999 bill-and-hold transaction in the third quarter even though he knew or should have known that the transaction failed to meet at least the following  Parness  criteria for revenue recogntion:  (i) a delivery schedule was not fixed; (ii) Anika retained specific performance obligations, including final packaging, labeling and sterilization of the product; and (iii) the product was not complete and ready for shipment.  
+
+ 6. Anika's Restatements on March 31, 2000 and September 5, 2001 
+
+ On March 31, 2000, Anika restated its earnings figures for 1998 and the first three quarters of 1999 in its 1999 Form 10-K ("March 2000 Restatement").  A material component of the restatement was the bill-and-hold transactions Anika entered into with the Distributor during the third quarter of 1998, second quarter of 1999, and third quarter of 1999.  According to the March 2000 Restatement, Anika had materially overstated revenue and net income in its earlier periodic reports for those quarters.  The March 2000 Restatement changed Anika's accounting treatment for those three transactions and stated in relevant part:  "Anika had also recognized revenue in 1998 and the first three quarters of 1999 for Orthovisc which was held in its refrigerators at [the Distributor's] request.  Under the Company's revised revenue recognition policy, this revenue will be recorded when the Orthovisc is shipped to [the Distributor]."   
+
+ Accordingly, in its March 2000 Restatement, Anika reversed the June 30 and September 30, 1999 bill-and-hold transactions and restated revenues for the second and third quarters of 1999 by reducing revenue by the amounts previously recognized for those transactions.  6    Anika's improper recognition of revenue from those transactions in the second and third quarters of 1999 resulted in an overstatement of revenues of $365,250, or 10.3% (second quarter of 1999), and $633,100, or 21.0% (third quarter of 1999); and overstatements of net income of $152,445, or 38.3% (second quarter of 1999), and $237,646, which resulted in a change from net income of $4,186 to a net loss of $233,460 (third quarter of 1999).  
+
+ However, in its March 2000 Restatement, Anika, relying on advice from Canepa, improperly restated revenue for the September 30, 1998 bill-and-hold transaction by moving it to the fourth quarter of 1998 instead of to the first quarter of 1999, when the product was actually shipped and delivered to the Distributor.  In or about February 2000, in preparing for the March 2000 restatement, Anika personnel provided Canepa a spreadsheet that correctly placed revenue from the September 30, 1998 transaction in the first quarter of 1999.  Canepa recommended that, in the March 2000 restatement, Anika instead place the revenue in the fourth quarter of 1998 when payment was received.  Anika followed Canepa's advice.  However, Canepa's recommendation was incorrect and contrary to GAAP and the revised revenue recognition policy contained in the March 2000 Restatement.  
+
+ At the time of the March 2000 Restatement, Canepa knew or should have known that the September 30, 1998 transaction failed to meet the following  Parness  bill-and-hold criteria for revenue recognition:  (i) there was no fixed delivery date prior to December 31, 1998, the end of the fourth quarter of 1998; (ii) Anika retained specific performance obligations, including final packaging, labeling and sterilization of the product; and (iii) the product was not complete and ready for shipment.  
+
+ On September 5, 2001, Anika restated its earnings from the September 30, 1998 transaction for a second time.  Anika moved the revenue from the fourth quarter of 1998 into the first quarter of 1999.  Thus, 1998 fourth quarter revenue was reduced by $342,980, or 10.08%, and net income for the period was reduced by $118,983, or 19.5%.  Revenue and net income for the 1999 first quarter was increased by the same dollar amount.  For the year ended 1998, Anika overstated revenue by $342,980, or 2.7%, and overstated net income by $118,983, or 3.3%. 
+
+ C. LEGAL ANALYSIS 
+Canepa Was a Cause Of Anika'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 
+
+ Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers of registered securities to file annual and quarterly reports with the Commission.  It is implicit in this requirement that the information provided be accurate.   See SEC v. Kalvex, Inc. , 425 F. Supp. 310, 316 (S.D.N.Y. 1975) (filing misleading periodic 13(a) reports violates the federal securities laws);  SEC v. IMC International, Inc. , 384 F. Supp. 889, 893 (N.D. Tex. 1974) (Exchange Act reporting provisions are satisfied only by filing complete, accurate reports). Similarly, Regulation S-X requires that financial statements filed with the Commission pursuant to Section 13(a) of the Exchange Act be prepared in accordance with GAAP.   See Peritus Software Services, Inc. , Exchange Act Rel. No. 42673 (April 13, 2000), 2000 SEC LEXIS 724. Otherwise, such statements will be presumed to be misleading or inaccurate.  In addition, Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that statements made in them are not materially misleading.  No showing of scienter is necessary to establish a violation of Section 13(a) or Rule 12b-20.   See SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1167 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979);  SEC v. Wills , 472 F. Supp.1250, 1268 (D.D.C. 1978). 
+
+ Anika's recognition of revenue from the three bill-and-hold transactions, prior to shipment and delivery of the product, violated GAAP and contradicted the plain language of its revenue recognition policy as disclosed in filings with the Commission.  As a result of Anika's premature recognition of revenue, its Forms 10-K for the years ended December 31, 1998 and December 31, 1999 and its Forms 10-Q for the quarters ended September 30, 1998, June 30, 1999, and September 30, 1999 materially overstated the company's revenues.  Accordingly, the annual and quarterly reports discussed above were inaccurate, and Anika violated Section 13(a) of the Exchange Act and Rules12b-20, 13a-1, and 13a-13 thereunder. 
+
+ Section 13(b)(2)(A) of the Exchange Act states in pertinent part that every reporting company must make and keep books, records and accounts that accurately and fairly reflect the issuer's transactions.  Section 13(b)(2)(A) does not require a showing of scienter.  SEC v. World-Wide Coin Investments, Ltd. , 567 F. Supp. 724, 751 (N.D. Ga. 1983).  Anika violated Section 13(b)(2)(A) by failing to maintain accurate records of its revenues and net income.  The company's books and records reflected Anika's premature recording of revenues from bill-and-hold transactions that occurred in September 1998 and June and September 1999. 
+
+   Canepa was a cause of Anika'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.  Canepa reviewed and concurred with Anika's proposed recognition of revenue from bill-and-hold transactions in the second and third quarters of 1999 even though he knew or should have known that the transactions did not meet all of the  Parness  criteria for revenue recognition.  Canepa also caused Anika to make material misstatements in its March 2000 restatement.  In preparing for the restatement, Anika initially decided to place revenue from the September 1998 bill-and-hold transaction in the first quarter of 1999 (the quarter in which the product was shipped and delivered).  Despite the plain language of Anika's restated revenue recognition policy, which explicitly stated that revenue from sales of Orthovisc to the Distributor would not be recognized until shipment, Canepa recommended instead that Anika recognize revenue for the sale in the fourth quarter of 1998 when payment was received.  Anika followed Canepa's advice.  Canepa knew or should have known that the accounting treatment he recommended was inconsistent with Anika's revised revenue recognition policy and did not meet several of the  Parness  criteria for revenue recognition in that quarter.  In September 2001, Anika restated revenue from the September 1998 transaction for a second time by moving the revenue from the fourth quarter of 1998 into the first quarter of 1999.    
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by the Respondent and to impose the sanctions agreed to in the Respondent's Offer.   
+
+ Accordingly, it is hereby ORDERED, pursuant to Section 21C of the Exchange Act, that: 
+
+ Respondent Canepa shall cease and desist from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.      
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   1    The findings herein are not binding on anyone other than Respondent. 
+
+   2    On January 13, 2003, the Commission instituted and simultaneously settled related cease-and-desist proceedings against Anika, its former CEO, J. Melville Engle, and its former CFO, Sean F. Moran,  In the Matter of Anika Therapeutics, Inc., et al. , Exchange Act Rel. No. 46167 (January 13, 2003), 2003 WL 103216. 
+
+   3    Orthovisc is a treatment for osteoarthritis that is manufactured in a liquid form and placed into syringes for injection into the knee.  The product must be refrigerated during and after the manufacturing process and has a two year shelf life. 
+
+   4    Generally, a bill-and-hold transaction is a practice whereby a customer agrees to purchase goods and the seller invoices the customer, but the seller retains physical possession until a later delivery date.  There are very limited circumstances under GAAP that permit a seller to recognize revenue from a bill-and-hold transaction prior to shipping the goods, and Anika did not satisfy all of the necessary criteria for revenue recognition for its bill-and-hold transactions. 
+
+   6    Revenue ultimately was recorded for these transactions in late 2000 when the contract was terminated and the units were destroyed pursuant to the parties' agreement. 
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+              Barry C. Scutillo
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+              SECURITIES EXCHANGE ACT OF 1934 
+Rel. No. 48238 / July 28, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 1822 / July 28, 2003 
+
+ Admin. Proc. File No. 3-9863 
+
+ 
+	 
+		 
+			 
+			 
+			 In the Matter of 
+
+			 BARRY C. SCUTILLO 
+
+			 8000 North University Drive 
+
+			 Fort Lauderdale, Florida 33321 
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+		 
+	 
+ 
+
+ OPINION OF THE COMMISSION 
+
+ RULE 102(e) PROCEEDING 
+
+ Ground for Remedial Action 
+
+ Improper Professional Conduct 
+
+ Certified public accountant engaged in improper professional conduct by recklessly failing to comply with professional standards in connection with his audit of a public company.  Held , it is in the public interest to deny accountant the privilege of appearing or practicing before the Commission with the proviso that he may apply for reinstatement after three years. 
+
+ APPEARANCES: 
+
+  Jerome M. Selvers  and  John A. Rentschler , of Sonnenblick, Parker, & Selvers, P.C., for Barry C. Scutillo. 
+
+  Robert M. Fusfeld , for the Division of Enforcement. 
+
+ Appeal filed: May 17, 2001 
+
+ Last brief received: August 21, 2001 
+
+ I. 
+
+ Barry C. Scutillo, a certified public accountant and partner in the Florida firm of Scutillo & Blake, and the Division of Enforcement appeal from the decision of an administrative law judge. The order for proceedings charged that Scutillo failed to ensure that the 1994 financial statements of Sky Scientific, Inc.("Sky") complied with Generally Accepted Accounting Principles ("GAAP"), and that Scutillo's audit of those financial statements was not conducted in accordance with Generally Accepted Auditing Standards ("GAAS"). More specifically, the order charged that Scutillo engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of our Rules of Practice  1  in that he "intentionally, knowingly, or recklessly" failed to comply with professional standards with respect to (1) the valuation of Russian certificates of deposit ("CDs") held by Sky, (2) the failure to record expense incurred by Sky in connection with its issuance of common stock for services, and (3) the valuation of Sky's mining properties. 
+
+ The law judge found that Scutillo was reckless in connection with his audit of the Russian CDs and the stock expense. He concluded, however, that Scutillo's audit of Sky's mining properties was not shown to be reckless. Scutillo appeals from the first two determinations and the Division from the third. Both parties seek review of the sanction imposed by the law judge, who suspended Scutillo from practice before the Commission for a period of three years. We base our findings on an independent review of the record, except for those findings of the law judge that are not challenged on appeal. 
+
+ II. 
+
+ Background 
+
+ The charges in this case are based on Scutillo's audit of Sky's financial statements for the fiscal year ended February 28, 1994. Sky, with headquarters in Boca Raton, Florida  2  , was purportedly engaged in the mining and processing of precious metals on properties located in California and Nevada. Its common stock, registered with the Commission under Section 12(g)of the Securities Exchange Act of 1934  3  , was traded over-the-counter and quoted on NASDAQ. 
+
+ Walter A. Dorow, Jr., Sky's chairman and chief executive officer, and Jerry L. Foster, its chief financial officer  4  , hired Scutillo to conduct the Sky audit on May 16, 1994, just two weeks before Sky's annual report on Form 10-K was due. Sky obtained an extension of the due date until June 15. However, according to Mark F. Jensen, a Utah accountant whom Scutillo engaged as a concurring reviewer on the basis of Jensen's supposed expertise in auditing mining companies, Scutillo was under "big time pressure" to complete the audit.  5  
+
+ Scutillo was admittedly aware that Sky was a high risk engagement. The company had changed in-house controllers three times in the preceding year, and Scutillo told Jensen that Sky's financial records were "chaotic" and "in a mess." Even more significantly, Scutillo knew that, during the year prior to his hiring, Sky had employed three other auditors in succession. The law judge rejected as not credible Scutillo's testimony to the effect that he did not believe Sky was auditor-shopping. Noting the large number of auditor switches in a short period of time, and the fact that Sky dismissed two auditors shortly after they added going concern qualifications to previously unqualified audit reports, the law judge found that Scutillo was clearly on notice that Dorow fired auditors who did not see things his way. 
+
+ For the fiscal year ended February 28, 1994, Sky suffered a net loss of $2,936,828. The company had no sales for the year and, at year's end, had total cash of only $3,049. Sky's total assets of about $69.7 million consisted almost entirely of the Russian CDs ($40 million) and Sky's mining properties ($29.5 million). Scutillo's report expressed "substantial doubt about [Sky's] ability to continue as a going concern." 
+
+ III. 
+
+ The Russian CDs 
+
+ A. On February 28,1994, the last day of Sky's fiscal year, a Sky subsidiary purchased $40 million worth of CDs from the Bank Sinektika of Moscow.  6  The subsidiary paid for the CDs with 4 million shares of its convertible preferred stock having a face value of $10 per share. As noted above, the CDs constituted more than 50% of Sky's total assets. The purchase agreement was signed by Dorow and, on behalf of the bank, by Hillel Sher. The agreement noted that Sher was a resident of Florida with a South African passport, and stated that he was the bank's "attorney-in-fact." 
+
+ The terms of the CD transaction were highly unusual. Sky was given the right to rescind the transaction if its auditors concluded that the CDs were "not eligible to appear as an asset at full value on [Sky's] balance sheet." In addition, there was an extremely large disparity between the return on the CDs and the return on the preferred stock. The CD agreement provided that the CDs were to accrue interest at an annual rate of 11.25%. Sky's 1994 Form 10-K stated that the bank would receive dividends on the preferred stock at an annual rate of only 4.25%. However, the CD purchase agreement provided that the dividend rate would be even lower -- 2.5%. 
+
+ The CD transaction had other striking features. The Russian bank was to deposit the interest due Sky in an escrow account and pay it only when the CDs matured in four years. In addition, the CDs stated on their face that they had been issued for dollar deposits when, as noted, Sky had acquired them in exchange for preferred stock. 
+
+ Scutillo considered the valuation of the CDs a critical audit area. He was aware that the CD transaction was unusual and that Sky had entered into it on the last day of its fiscal year. Scutillo was concerned as to whether the bank even existed and, if so, whether it had the ability to pay its obligations to Sky. He was also aware that Sky had previously defaulted on dividendpayments on its preferred stock. Moreover, Sky's Form 10-K recited that "[t]he Company has not and is unable to declare dividends as a result of [its] accumulated deficit." 
+
+ Scutillo's audit of the CD transaction consisted of the following steps: 
+
+ 1. Scutillo examined the CD purchase agreement and the certificates. As noted above, the recitals on the certificates were inconsistent with the manner in which Sky had paid for the CDs, and the purchase agreement differed from the Form 10-K as to the dividend rate on the preferred stock. The record does not show that Scutillo ever sought to resolve these questions. Jensen was concerned about the CDs' recital on their face that Sky had paid for them in cash when the agreement stated that payment was in stock, and he raised the issue with Scutillo. However Scutillo testified that this discrepancy did not cause him any concern. The CD agreement examined by Scutillo also had another deficiency. Although the agreement indicated that Sher's authority as the bank's attorney-in-fact was documented in exhibits to the agreement, no such exhibits were included in Scutillo's work papers, and Scutillo could not recall seeing any such exhibits. He admitted that, aside from the agreement, he never saw a document reflecting that Sher had authority to act on behalf of the bank. 
+
+ 2. Scutillo requested Sky to send confirmation requests to several domestic banks where Sky had small balances, and each such request advised the recipient to return the completed form to Scutillo & Blake at its indicated address. However, Scutillo did not ask that a confirmation request be sent to the Bank Sinektika. According to Scutillo, that request had been sent out prior to his being hired to conduct the Sky audit, and he did not know where or to whom it had been sent. Scutillo did receive a facsimile ("fax") confirmation of the CD transaction that was sent to him from Sky's offices by Sher. The fax's cover sheet was a handwritten note from Sher stating that the original confirmation would be sent to Scutillo as soon as Sher received it from Moscow. Scutillo never received the original confirmation. 
+
+ The bank's mailing address, telephone number, fax number, and telex number appeared on the face of the CDs. Yet Scutillo never tried to contact the bank to confirm its existence, to verify Sher's authority, to request the missing confirmation, or to obtain any other information. Scutillo stated that, "based on all the other procedures [he] had performed," he did not think any direct contact with the bank was necessary. 
+
+ 3. In an effort to discover whether the Bank Sinektika could pay its obligations to Sky, Scutillo obtained an unaudited financial statement of the bank from either Sky or Sher. There was no indication on the document as to whether or not it had been prepared in accordance with GAAP, and Scutillo did notcontact the bank to determine if the financial statement was genuine. He simply had his staff perform the mathematical computation to convert the amounts on the balance sheet from rubles into dollars. According to Scutillo, he was advised by a banking consultant that Russian banks were not required to have audited financial statements.  7  Scutillo stated that he proceeded on the assumptions that the bank existed and that the financial statement was valid, and that, in his view, there is a "presumption . . . that an institution can pay [its] obligations." 
+
+ 4. Scutillo's last audit step was to talk with Richard Greene, Sky's outside counsel. Scutillo documented his conversation with Greene in a memorandum in his work papers which stated as follows: 
+
+ Barry Scutillo contacted Richard Greene, [Sky's] SEC attorney, to ensure that he was familiar with the CD agreement between [Sky] and [the bank]. Richard advised us that he was not only very familiar with the transaction, but also met with representatives from the [bank] when the agreements were being completed. 
+
+ Scutillo initially stated that he couldn't recall Greene telling him anything that was not reflected in the memorandum. However, he subsequently claimed that Greene stated that he had participated in negotiating the CD agreement and was aware that Sher was an agent of the bank. Scutillo admitted that Greene said nothing about what, if anything, he had done to verify Sher's authority or the bank's existence. 
+
+ Greene, whom Scutillo called as a witness, contradicted Scutillo's testimony. Greene stated that he neither negotiated nor prepared the CD agreement. He testified that, at Sky's request, he had a brief introductory meeting with Sher and another bank representative, but that nothing substantive was discussed. According to Greene, he told Scutillo merely that he had met two individuals representing themselves as connected with the bank who "seemed to be very . . . involved in the [CD] transaction." Greene stated that he did not ask these individuals for any identification, and none was given to him. 
+
+ The law judge rejected the Division's claim that Scutillo's memorandum of his conversation with Greene was a sham. However, the law judge stated that he did so "not because [he had] great faith in the integrity of the [memorandum], but because [he had] doubts about Greene's candor, as well as Scutillo's." The law judge explicitly found Scutillo's testimony with respect to the Russian bank transaction lacking in credibility. We find no reason to disagree with that assessment. 
+
+ Jensen and his partner Gordon Jones were uncomfortable with the CD transaction, and Jensen told Scutillo that it "did not pass the smell test." Shortly before the deadline for submission of the 10-K report, Scutillo and Jensen called Dorow and told him they were concerned as to whether the CDs should be included in the financial statements, and were considering additional audit steps. Dorow told the auditors that the CDs were real and not to "knock themselves out" with additional audit steps since rescinding the transaction was not an option. Dorow was "extremely anxious" to book the entire $40 million as an asset, and reminded the auditors that Sky's financial statements had to be completed in just a few days. According to Jensen, the conversation with Dorow was a "high pressure situation." Shortly thereafter, after Scutillo had another conversation with Dorow, he told Jensen that, since there was not enough evidence to write the CDs off, it would be arbitrary to take them off the balance sheet.  8  
+
+ B. Failure to Comply with GAAP 
+
+ Scutillo's audit report represented that Sky's 1994 financial statements presented Sky's financial position fairly in conformity with GAAP. However, as the law judge found, the value of the Russian CDs was materially overstated. 
+
+ When assets are acquired for other than cash, including assets acquired for stock (as were the CDs), the value to be assigned those assets may be determined by either the fair value of the consideration given or the fair value of the property acquired, whichever is more clearly evident.  9  Fair value must be determinable within reasonable limits. It is not so determinable when there are major uncertainties about the realizability of the value to be assigned.  10  If neither the fair value of the asset transferred nor the fair value of the asset received in exchange is determinable within reasonable limits, the recorded cost of the asset transferred  11  may be theonly available measure of the transaction.  12  As set forth below, neither the fair value of the preferred stock exchanged for the CDs nor the fair value of the CDs themselves was determinable within reasonable limits. Thus, since the preferred stock had no recorded cost on Sky's books, the CDs should have been given no value or only a nominal value on Sky's balance sheet. 
+
+ The value of $10 per share assigned to the preferred stock was wholly arbitrary. There is no evidence that an appraisal of the stock was ever made. The stock did not trade publicly and there was no evidence of its marketability. Sky had minimal cash, no revenues, and was already delinquent in paying dividends on the stock. 
+
+ As for the CDs, we agree with the law judge and Division expert Leslie Patten that the value of those instruments was too uncertain to record more than a nominal amount on Sky's financial statements. As Patten and Division expert William Holder pointed out, the valuation of the CDs depended in large measure on the Russian bank's ability to pay. Thus, in valuing that asset, Sky was required to evaluate the bank's resources and its capacity to make payment. Neither Sky nor its auditors made such an assessment. As GAAS makes clear, the unaudited financial statement that Sky or Sher gave to Scutillo (which did not disclose the basis for the accounting used in preparing it) did not provide an adequate basis for making the necessary evaluation.  13  We agree with the law judge that, without additional audit procedures, the unaudited statement was not competent evidential matter.  14  Even Scutillo's expert witness, Peter Burgher, stated that, if he had been engaged to audit the CD transaction, he would have sought "some form of independent confirmation of the existence and size of the bank." 
+
+ C. Failures to Comply with GAAS 
+
+ GAAS requires an auditor to exercise due professional care in performing an audit and preparing a report. The auditor must obtain sufficient competent evidential matter to afford a reasonable basis for an opinion with respect to the financialstatements under review.  15  He or she must maintain an attitude of professional skepticism.  16  Where the auditor determines that there is a significant risk in evaluating a transaction, more or different evidence is required to support that transaction than would be the case in the absence of such risk; for example, a "[t]ransaction that [is] both large and unusual, particularly at year-end."  17  If an auditor is in substantial doubt about any assertion of material significance, he or she must not form an opinion until sufficient competent evidential matter has been obtained to remove that doubt. If such evidential matter is not obtained, a qualified opinion or a disclaimer of opinion must be issued.  18  
+
+ Confirmation is undertaken to obtain evidence from third parties about financial statement assertions made by management.  19  The auditor should consider requesting confirmation as to the terms of unusual transactions in addition to the amounts involved.  20  When evidential matter is obtained from independent sources outside an entity, it provides greater assurance of reliability than that secured solely within the entity.  21  An auditor must maintain control over confirmation requests and responses. That means establishing direct communication between the intended recipient of the confirmation request and the auditor in order to minimize the possibility of interception and alteration.  22  Confirmation requests should be tailored to specific audit objectives,  23  and directed to a party who the auditor believes is knowledgeable about the information to be confirmed.  24  Where there is a significant, unusual, year-end transaction that has a material effect on the financial statements, the auditor should exercise a heightened degree of professional skepticism with respect to the requestrecipient's knowledge, motivation, objectivity, and freedom from bias with respect to the audited entity. In such circumstances, the auditor should consider whether there is a sufficient basis for concluding that the confirmation request is being sent to a person from whom the auditor can expect a response that provides meaningful and competent evidence.  25  Positive confirmation responses provide audit evidence only when they are received from the persons to whom they were directed.  26  Faxed confirmations, which involve risks because of the difficulty in ascertaining the source of the response, may require additional evidence to support their validity.  27  
+
+ In auditing the CD transaction, Scutillo ignored the dictates of GAAS. He failed to maintain control over the confirmation process, and did not obtain sufficient competent evidential matter. He failed to exercise due professional care and failed to exercise heightened professional skepticism when faced with an unusual year-end transaction that materially affected Sky's financial statements. 
+
+ Scutillo abdicated control over the confirmation process for the CDs. As noted, GAAS requires that direct communication be established with the intended recipient of a confirmation request. Although Scutillo was not even sure that the bank existed, had no evidence of Sher's authority, and was faced with a highly unusual and material year-end transaction, he did not send the bank a confirmation request, a request that could have been tailored, as GAAS provides, to resolve the many questions posed by that transaction. Instead, Scutillo was content to rely on a request purportedly sent by a predecessor accountant although Scutillo did not know where or to whom it had been directed. 
+
+ Scutillo argues that faxed confirmations are permissible under GAAS, and notes that he received such a fax from Sher. However, as noted, GAAS counsels that caution must be exercised with respect to the validity of faxed confirmation responses. Here the fax came from Sher whose authority to act for the bank had never been established. Moreover, although Scutillo spoke with Sher on the telephone after receiving the fax in order to confirm that Sher had sent it, he did not ask Sher where he had obtained the confirmation. Scutillo never received the promised original confirmation, and his subsequent efforts to contact Sher were unavailing. 
+
+ Scutillo further contends that, in any event, confirmation is an alternate audit procedure that is unnecessary when theunderlying documents have been examined. We cannot agree that Scutillo's inspection of the underlying documents somehow obviated the need for the assurance provided by a confirmation from the bank. We note, initially, that Scutillo's inspection missed or ignored obvious discrepancies between the documents as to the method of payment and the dividend rate on the preferred stock. Beyond that, confirmation was clearly a necessity in this instance. Given the size, importance, and unusual nature of the CD transaction, Scutillo's admitted doubts about it, and the substantial uncertainties and questions surrounding it, confirmation could not reasonably be eliminated. 
+
+ As noted above, Scutillo also failed to document a crucial fact. He never obtained competent evidential matter establishing Sher's authority to act for the bank. Scutillo argues that Greene confirmed Sher's authority, and that he (Scutillo) also spoke to Sher who confirmed his own authority to act for the bank. However, Greene did not support Scutillo's claim, nor does the memorandum that Scutillo prepared of his conversation with Greene lend any support to Scutillo's assertion. While Scutillo testified that Greene told him that Sher was an agent of the bank, the law judge found Scutillo's testimony lacking in credibility. In any event, even assuming that Greene made such a statement, Scutillo could not reasonably rely on the unsupported assertion of a third party who had no affiliation with the bank. Nor could he rely on assurances given by Sher himself. 
+
+ We have already noted that the unaudited bank financial statement given to Scutillo was not, without further audit procedures, competent evidential matter on which Scutillo could rely as establishing the bank's ability to pay. Scutillo claims that Greene confirmed the "bona fides" of the bank and the validity of the CD agreement. There is no support in the record for this assertion. 
+
+ Ultimately, Scutillo abandoned proper accounting procedures. Rather than obtaining sufficient competent evidence to support the valuation of the CDs, he concluded that they should remain on Sky's balance sheet simply because he did not have enough evidence to remove them. 
+
+ D. Recklessness 
+
+ Courts have long defined recklessness as "an extreme departure from the standards of ordinary care, . . . which presents a danger of misleading buyers or sellers that is either known to the [actor] or is so obvious that the actor must have been aware of it."  28  We followed that standard prior to the1998 amendment of Rule 102(e),  29  and reaffirmed it in adopting that amendment.  30  
+
+ Scutillo argues that he was not reckless. He points out, among other things, that an auditor is not a guarantor against misstatements and is normally entitled to rely on evidence that is persuasive rather than convincing.  31  Scutillo asserts that he developed extensive evidential matter as to the legitimacy of the CDs, and that his report not only included a going concern qualification as to Sky but was "clearly footnoted" as to the CDs' credit risk. He further states that he was not a party to and was deceived by the fraud of Sky and its officers, a fraud that was only subsequently uncovered. 
+
+ Scutillo had neither persuasive evidence nor sufficient competent evidential matter to support the CDs' valuation. His insertion of a going concern qualification in his report did not justify that valuation. Nor did his footnote disclosure. The only credit risk disclosed in the footnotes was the fact that the Bank Sinektika was an "overseas financial institution" that was "not insured by the Federal Deposit Insurance Corporation or any other similar regulatory institution." As the law judge pointed out, Scutillo primarily concerned himself with disclosing the characteristics of the CDs, rather than adjusting their valuation. Thus the financial statements disclosed that the CDs were a non-current, restricted, uninsured asset. However, their $40,000,000 valuation on the balance sheet remained unchanged. Scutillo cannot shift the blame for his actions to Sky. The fraud committed by Sky management did not relieve him of his obligation to conduct a proper audit in accordance with established standards.  32  We conclude that Scutillo was reckless.  33  He was faced with a highly unusual transactionthat accounted for more than half of Sky's assets, a transaction that had occurred on the last day of Sky's fiscal year. The transaction was economically irrational; a company with no cash, no revenues, and substantial doubt about its continued viability was ostensibly able to acquire $40 million in CDs paying 11.25% annual interest in exchange for preferred stock of dubious value with an annual dividend rate of 2.5%. Yet Scutillo conducted a perfunctory audit that, under the circumstances, was totally inadequate. 
+
+ Scutillo ignored or missed discrepancies on the face of the documents he assertedly inspected. He never established Sher's authority. He relied on an unaudited financial statement to determine the Russian bank's solvency. He never sent a confirmation request to the bank, much less a request tailored to the need for competent evidential matter. He failed to make a direct inquiry to Moscow even when he did not receive the promised original confirmation and Sher became unavailable. 
+
+ Although Jensen warned Scutillo that the CD transaction "did not pass the smell test," Scutillo responded to pressure from Dorow and kept the $40 million CD valuation on the balance sheet because, in his view, there was not enough evidence to remove it. 
+
+ We fully concur with the law judge's assessment of Scutillo's performance, which the law judge summed up as follows: 
+
+ When the June 15 filing deadline approached, Scutillo surrendered his professional judgment to the demands of his client. He held his nose, closed his eyes, and signed off on the audit report, even though the circumstances surrounding the Russian bank transaction plainly required a qualified opinion or a disclaimer of opinion. This was an egregious refusal to see the obvious or investigate the doubtful by any measure.  34  
+
+ IV. 
+
+ Unrecorded Expense -- Stock Issued for Services 
+
+ When a company issues stock in exchange for services, it must (as required by GAAP) record as an expense the quoted market price of the stock less any money that the company receives in exchange.  35  In fiscal 1994, Sky issued over 14.7 million shares of common stock.  36  Most of the new stock, either registered on Form S-8 or restricted, was issued to pay for the services of consultants and to compensate management and Sky's employees. However, the difference between the stock's market price and the money that was paid by the recipients was not reflected as an expense in Sky's financial statements. 
+
+ Scutillo was admittedly aware that Sky had issued stock for services. He obtained a schedule from Sky covering all of the common stock that the company had issued during fiscal 1994. The schedule listed each recipient, the number of shares issued to that individual or entity, the dates of issuance, and the money that the recipient had paid. As Scutillo knew from Sky's Form 10-K, the bid price of the company's common stock for that year had ranged from a high of $4.25 per share to a low of $0.47, much higher than the amounts paid by the recipients. 
+
+ The Division calculated the amount of Sky's unrecorded expense by comparing the closing bid price of Sky's common stock on the day before the stock was issued and the price paid for the stock by the consultant or employee who received it. If the stock in question was restricted, the staff made two additional calculations, one assuming a 25% discount from the bid price and the other a 50% discount. Based on this methodology, the staff determined that the total unrecorded expense ranged between $7.7 million and $10.6 million. We agree with the Division and its experts that this calculation was reasonable. 
+
+ Scutillo admitted that, in prior audits, he had never overlooked the expense associated with the issuance of stock for services. Thus he should have been aware that he needed to address that issue here. Indeed, the forms he used in connection with the Sky audit alerted him to that need. One checklist item warned the auditor to "disclose discounts on shares." Another directed auditors to consider the "treatment of deferred compensation arising from the sale of capital stock to officers or employees at prices below market." Both checklist items were marked "not applicable." Scutillo reviewed and approved the first such entry, and entered the second one himself. 
+
+ Scutillo agrees that GAAP requires disclosure of the expense incurred in connection with the issuance of stock for services. He stated that his failure to account for that expense in the Sky audit was an "oversight." He argues, however, that he cannot be faulted for that error, noting that, in another proceeding involving Sky, we subsequently held that some of the stock in question was issued to persons who did not in fact perform any services, and that the market price of Sky's stock during the period in question was manipulated.  37  Thus Scutillo asserts that, if he had followed the dictates of GAAP in this instance, he would still have produced inaccurate financial statements. 
+
+ Our findings of misconduct with respect to Sky and its stock are not determinative of whether Scutillo's professional conduct was proper. His treatment of the stock expense must be judged on the basis of the information that was known to him at the time of his audit, not on the basis of subsequently uncovered information of which he was then unaware. 
+
+ By omitting the expense resulting from the issuance of stock for services, Sky's financial statements did not comply with GAAP. Scutillo also failed to comply with GAAS in that, in omitting that expense, he failed to exercise due professional care and failed to identify an area of Sky's business that required special consideration.  38  We agree with the law judge that Scutillo was reckless. Scutillo knew that Sky had issued huge quantities of stock to employees and consultants at prices substantially below the market price. He had recorded the resulting expense in prior audits in similar circumstances, and his checklist alerted him to the necessity of doing so here. Yet he inexplicably ignored this very substantial item that was material to Sky's reported results. 
+
+ V. 
+
+ The Mining Properties 
+
+ A. At issue in this proceeding is the valuation of three undeveloped gold mining properties that were owned or leased by Sky -- Evergreen, Berry, and Danner.  39  As with the Russian CDs, Scutillo viewed the valuation of these properties as a critical audit area. Sky had purchased its interests in Evergreen and Berry for convertible preferred stock with a face value of $5.5 million and $8 million, respectively. It acquired its interest in Danner for preferred stock with a face value of $14 million plus $2 million in promissory notes. Sky purchased its Danner mining claims about a month prior to February 28, 1994, the close of its fiscal year. As Scutillo was aware, Sky was already delinquent on February 28 in paying dividends (in the amount of $445,000) on the preferred stock it had issued to acquire Evergreen and Berry. It was also delinquent on several of its notes. 
+
+ Sky's mining staff prepared estimates of the ore reserves and related extraction and refining costs for Evergreen, Berry, and Danner. Sky engaged Charles H. Schultz, an engineering geologist, to review those estimates,  40  and it used the estimates to prepare earnings projections for its properties, on which it based estimates of their net present value ("NPV").  41  The NPV estimates (which were included in the narrative portion of Sky's Form 10-K but not in the audited financial statements) were far higher than the face value of the preferred stock and notes that Sky had issued to acquire the properties.  42  
+
+ Scutillo reviewed and sent to Jensen the valuation materials he received from Sky. Scutillo admittedly lacked the ability to analyze the underlying geological data. He and Jensen paid avisit to three of Sky's mining properties (Berry, Danner and Tallulah) in order to verify their existence. Sky mining employees drove Scutillo and Jensen to the sites, and conducted walking tours in which Jensen's participation was limited due to a physical disability. Although Scutillo thought he saw processing activity at Tallulah (whose valuation is not at issue in this proceeding),  43  there was no equipment at Berry or Danner, and no mining operations (or any other activity) being conducted there. 
+
+ At the conclusion of the tour, Scutillo told Raymond J. Bowkus, Sky's director of mining operations, that he needed additional documentation from Schultz. Scutillo wanted Schultz "to give us comfort" that the extraction cost estimates used in Sky's NPV calculations were within industry standards, and that the proposed mining techniques were reasonable. He "wanted some representation from an expert that the analyses prepared by the company had some validity [with respect] to industry standards." 
+
+ Schultz responded with three brief identical letters to Dorow, one each for Evergreen, Berry, and Danner. The letters stated that Schultz had examined each property, reviewed all prior reports about it, and made a personal geological and engineer's assessment, evaluating the recovery system and recovery cost estimates which fell within industry standards. The letters did not mention Sky's NPV calculations. However, Scutillo assumed that they referred to those calculations, and felt it unnecessary to contact Schultz to clarify the matter. In fact, neither Scutillo nor Jensen ever spoke to Schultz. 
+
+ Scutillo never asked Jensen if he had analyzed the underlying data to determine if it supported Schultz's conclusions, and Scutillo did not consider it his responsibility to verify what Schultz had done. Instead, he simply placed his faith in Schultz's purported expertise. Scutillo stated that he relied on Schultz and Sky management with respect to the NPV calculations, and that Schultz's work was "absolutely" critical to his audit conclusions. However, Scutillo had little reason to place great confidence in Schultz. 
+
+ Scutillo knew nothing about Schultz's professional reputation except what he was told by Sky employees. Schultz provided no references, and Scutillo had no idea if Schultz had ever had any experience in calculating ore reserves or extraction costs. The only investigation Scutillo made was to call the State of California which confirmed that Schultz was a validly licensed engineering geologist. Scutillo admitted that he didnot know what that term meant.  44  Division expert Geoffrey Snow explained that an engineering geologist is typically concerned with the construction of such things as highways, dams, and bridge abutments, and may not be competent to calculate ore reserves and mining costs. According to Snow, an economic geologist was far better qualified to make the necessary evaluations.  45  
+
+ Despite Scutillo's asserted confidence in Schultz, he and Jensen had substantial misgivings about the NPV calculations. Scutillo told Jensen that the NPV values were "off the scale," and Jensen stated that the wide disparity between the consideration given for the mining properties and the NPVs gave rise to "a healthy dose of professional skepticism." Scutillo admitted that this disparity was a red flag. In response to a staff question, he acknowledged that he did wonder why "old prospector Don Danner [sold] $155 million worth of gold for . . . $14 million in preferred stock and a couple of million dollars in notes." 
+
+ There were other obvious problems with the NPV calculations. As Scutillo conceded, the calculations did not take development costs into account,  i.e. , the capital necessary to get the properties to the stage where mining could begin. Scutillo had recently visited Berry and Danner where he saw no equipment or activity. He was well aware that Sky had no money to pay for start-up expenses which, according to Snow, would amount to millions of dollars. Despite that fact, the NPV calculations assumed that full-scale mining would begin almost immediately. In the case of Evergreen and Berry, the start-up date was assumed to be September 1, 1994. 
+
+ In addition to the necessary development before mining could begin, there was another problem with Evergreen's purported start-up date. The Form 10-K recited as follows: 
+
+ Beginning in October 1993, federal law has required that a watershed assessment be performed prior to any new development in a watershed wilderness area. [Sky]...is prepared to begin operations [at Evergreen]when the assessment is completed. The Forest Service estimates this may take from one to three years. 
+
+ Despite this language, Scutillo stated that he relied on a statement in a Schultz report on Evergreen which, without any reference to the watershed assessment, referred to "one [Evergreen] ore zone which is immediately available for mining." Scutillo never asked Schultz if his report took the watershed assessment into account. 
+
+ There were additional questions about the mining properties. In his work papers, Scutillo noted that Greene would be asked to confirm (1) Sky's legal title to Berry and Danner, (2) that Sky had a valid leasehold interest in Evergreen, and (3) that "there [were] no uncertainties or other contingencies underlying [Sky's] ownership." In response to Scutillo's inquiry, Greene wrote a letter stating that a Nevada attorney had confirmed that Sky had the legal right to mine Danner, and that there was "a high probability" that Sky could legally mine Berry. As for Evergreen, Greene stated that Sky "appear[ed] to have a legal right to mine the property." Scutillo could not recall any follow-up conversation with Greene to resolve the uncertainties in Greene's letter. 
+
+ B. Failure to Comply with GAAP 
+
+ The GAAP principles that applied to the Russian CDs also applied to Sky's mining properties. As noted above, where property of uncertain value is acquired for other property of uncertain value, the value to be assigned the acquired assets may be determined by either the fair value of the property exchanged or the fair value of the property received, whichever is more readily ascertainable. If neither value is determinable within reasonable limits, the recorded cost of the asset transferred may be the only available measure of the transaction. 
+
+ As noted above, the face amount assigned to Sky's preferred stock was wholly arbitrary. Scutillo admitted that it was impossible to determine the value of that stock. Moreover, the NPV calculations were not a reliable guide to the value of Sky's mining properties. As the law judge stated, these "hypothetical calculations were based on unrealistic assumptions," and the large disparities between the NPVs of the mines and the face amount of the stock and notes issued to acquire them cast further doubt on the NPVs' validity. As Division expert Patten stated, "reliance on a future income stream to calculate present value requires reasonable certainty that such an income stream will occur." No such certainty existed here. Thus, since the values of Sky's stock, notes, and mining properties were not determinable within reasonable limits, and the stock and notes had a zero cost basis, the mining properties should have been given no more than a nominal value on Sky's balance sheet, or at best no more than $18,250, the amount of capitalized expense incurred by Sky with respect to Berry and Danner. 
+
+ Instead, Evergreen, Berry, and Danner were listed on Sky's balance sheet with a valuation of $29.5 million, the total face amount of the stock and notes issued to acquire them. In reaching this result, Scutillo abandoned GAAP in favor of his own technique,  i.e. , valuing the mines on the basis of what he considered to be the lower of cost or market. Thus he decided that the NPV valuations were an appropriate method of determining the mines' market value, and that the face amount of the stock and notes could properly be treated as the mines' "cost." Since the mines' "cost" was lower than their "market value," the mines were valued on Sky's balance sheet at the lower figure. Scutillo admitted that, "in essence," his technique gave the parties to a transaction the ability to place their own value on the assets being acquired. 
+
+ C. Failures to Comply with GAAS 
+
+ In addition to the standards noted above in connection with Scutillo's valuation of the Russian CDs, GAAS provides that representations from management are not a substitute for the application of auditing procedures necessary to afford a reasonable basis for an auditor's opinion.  46  Nor may an auditor simply acquiesce in the opinion of a specialist. An auditor must satisfy himself with respect to the professional qualifications and reputation of the specialist.  47  He must consider (1) the reputation and standing of the specialist in the views of his peers and others familiar with his capability or performance, and (2) the relationship, if any, of the specialist to the client.  48  
+
+ Although a specialist with a relationship to the client may be acceptable when circumstances so warrant, an auditor should ordinarily attempt to obtain a specialist who is unrelated to the client. The work of an unrelated specialist will usually providegreater assurance of reliability.  49  If the specialist is related to the client, the auditor should consider performing additional procedures with respect to some or all of the specialist's assumptions, methods, or findings to determine that the findings are not unreasonable, or he should engage an outside specialist for that purpose.  50  
+
+ The auditor, the client, and the specialist should have an understanding as to the nature of the work to be performed by the specialist. Preferably, the understanding should be documented and cover, among other things, the objectives and scope of the specialist's work; the specialist's representations as to his relationship with the client; and the methods or assumptions to be used.  51  
+
+ Scutillo could not simply rely on management's NPV calculations, and he ignored the requirements of GAAS with respect to using the work of a specialist. Scutillo had no reasonable basis for relying on Schultz. He never spoke to Schultz, and what he knew of Schultz's reputation came solely from Sky's management and employees. Scutillo never specifically confirmed the nature and scope of Schultz's engagement, never evaluated Schultz's relationship to Sky and its employees, and never really understood the nature of Schultz's work or his methods and assumptions. He did not even know what an engineering geologist was, or that, as indicated by Snow, an economic geologist was much better qualified to make the requisite evaluations. 
+
+ Scutillo also failed to comply with GAAS in other respects. He clearly failed to maintain a sufficient degree of professional skepticism with respect to the NPV calculations. His analysis did not reflect the great disparity between the NPV calculations and the face amount of the consideration given to acquire the mines; the calculations' failure to account for development costs; Sky's inability to pay for such costs; and the wholly unrealistic start-up dates presumed for Evergreen and Berry, Moreover, he failed to exercise due professional care. He did not resolve the apparent conflict between Evergreen's posited start-up date and the watershed assessment delay noted in the Form 10-K. Nor did he question Greene about his statements that there was only a "high probability" that Sky could legally mine Berry, and that Sky merely "appeared" to have a legal right to mine Evergreen. 
+
+ D. Recklessness 
+
+ Although the law judge concluded that the evidence did not show that Scutillo's audit of the mining properties was reckless, he stated that "the issue [was] a close one." We do not agree with the law judge's conclusion, or that the issue is close. 
+
+ Scutillo admittedly understood that he was required to determine the value of Sky's mining properties, and that the valuation required him to determine either the value of the consideration that Sky gave for the mines or the value of the properties that Sky received in return. As noted above, he acknowledged that it was impossible to determine the value of Sky's preferred stock. With respect to valuing the mines, he told Jensen that the NPV valuations were "off the scale," and admitted that the great disparity between the NPV valuations and the face value of Sky's stock and notes was a warning signal as to the validity of the NPV valuations. Faced with the fact that neither the fair value of the mines nor the fair value of the consideration given for them could be determined within reasonable limits (which absent further auditing procedures required that the mines be recorded at no more than a nominal amount), Scutillo decided to abandon proper auditing principles and adopt his own standard, the lower of cost or market as those terms were defined by him. Accordingly, he treated the "off the scale" NPV valuations as the "market," and the arbitrarily determined face value of Sky's preferred stock and its notes as the "cost." He then valued the mines on Sky's balance sheet at the lower figure. Thus Sky was allowed to place a wholly arbitrary valuation on its mining properties. Under the circumstances, we think it clear that Scutillo was reckless. 
+
+ Scutillo contends that he was not reckless. He argues that he reasonably relied on the expertise of Jensen, "an experienced auditor of mining properties," who assertedly directed the audit of Sky's mines. The record lends no support to Scutillo's claim that Jensen directed the audit of Sky's mining properties. Nor could Scutillo reasonably rely on Jensen. Scutillo had no reasonable basis for believing that Jensen was experienced in auditing mining properties. When he engaged Jensen, he failed to question him closely about the nature of his experience in mining company audits. In fact, Jensen could recall participating in only one such audit prior to Sky, and in that audit he merely assisted the engagement partner "in certain aspects." Jensen had never acted as engagement partner in a mining company audit, and Scutillo never asked him if he had. 
+
+ Scutillo further contends that he reasonably relied on Schultz and the reports he prepared, and on Sky and its mining employees. He further notes that he obtained an opinion from Greene assertedly establishing Sky's legal right to mine its properties. As discussed above, Scutillo had no reasonable basis for relying on Schultz. The only check he made of Schultz's qualifications was to determine that Schultz was a licensed engineering geologist. Scutillo never spoke to Schultz, and never explored Schultz's relationship with Sky. Similarly,Scutillo could not reasonably rely on Sky and its employees to provide the necessary support for his independent auditing judgment.  52  And Greene's equivocal letter about Sky's legal right to mine its properties raised more questions than it answered. 
+
+ Scutillo also argues that he was not reckless in valuing the Berry mine. He notes that, as of July 31, 1992, one of Sky's former auditors, BDO Seidman, assigned an $8 million value to Berry (the same figure that Scutillo used), and that Sky subsequently sold the mine for $8.5 million. GAAS provides that information from prior audits must be objectively evaluated in order to determine whether financial statements are free of material misstatement.  53  Scutillo never contacted Seidman, never saw the underlying audit records, and had no evidence of what audit procedures Seidman may have used in reviewing Sky's claim of an $8 million value for Berry. Moreover, Scutillo ignores the fact that a subsequent auditor, Weinberg & Company, whose report (as of February 28, 1993) appears in Sky's Form 10-K, gave a zero valuation to Sky's mining properties. While Sky sold the Berry mine to Cerda, Inc. and Inland Pacific Resources, Inc. ("IPR") in late 1994 (after the date of the financial statements at issue), Sky did not receive any cash. It received only IPR convertible preferred stock with a face value of $8.5 million. Scutillo did not know whether IPR's financial statements were audited, whether IPR stock was publicly traded, or whether the stock had any market value. 
+
+ Scutillo further notes that, on his visit to Sky's Nevada mining properties, he also visited the Springer ore processing facility (which Sky had signed a letter of intent to acquire) in order to verify its existence and confirm Sky's offer. Scutillo asserts that this intended acquisition was significant in that "its consummation, coupled with additional funding," would assertedly have allowed Sky to commence significant mining activities. Scutillo also asks that he be given credit for getting Sky to drop a $16 million valuation for the Bowerman mining property from its balance sheet due to uncertainties as to Sky's title to the property. 
+
+ We fail to see how these facts diminish Scutillo's recklessness in valuing Evergreen, Berry, and Danner. We note, moreover, that Scutillo was aware from reading Sky's 1994 Form 10-K that Sky's transactions (like the proposed acquisition of the Springer facility) had a tendency to evaporate. In fact, Sky's plan to acquire that facility collapsed after promised funding from a third party failed to materialize. 
+
+ VI. 
+
+ Due Process 
+
+ Scutillo argues that he is being denied due process. He suggests that the Court in  Checkosky v. SEC   54  invalidated Rule 102(e) as it existed prior to its 1998 amendment. He accordingly argues that the Commission cannot be permitted to utilize a rule "which was not in effect until 1998" to sanction him for conduct that occurred in 1994. Scutillo asserts that, at the time of the audit, he lacked reasonable notice that his actions might subject him to liability. 
+
+ The order for proceedings for this matter charges Scutillo with improper professional conduct pursuant to unamended Rule 102(e). As we have previously pointed out, that rule has long given us the authority to bring proceedings for intentional, knowing, or reckless misconduct, and it was not invalidated by  Checkosky .  55  Although the 1998 amendment specified what kind of negligent conduct would constitute improper professional conduct, it introduced nothing new with respect to our longstanding use of the recklessness standard to identify such conduct. That standard is hardly novel, and we have applied it in Rule 102(e) proceedings predating the rule's amendment.  56  Scutillo could hardly have been unaware in 1994 that a reckless disregard of professional standards would subject him to liability for improper professional conduct under our rule as then in effect. 
+
+ VII. 
+
+ Scutillo argues that the three-year suspension imposed by the law judge is too harsh. He asserts, among other things, thathe cooperated with our staff in its investigation of Sky, that he was "at the mercy" of Sky's fraud, that any auditing failure on his part was an "isolated incident" that occurred many years ago, that his record is otherwise unblemished, and that his firm received favorable peer review reports in 1996 and 1999. The Division urges that Scutillo be permanently barred from practice before the Commission.  57  
+
+ Sky's fraud did not cause Scutillo's auditing deficiencies. In the case of the Russian CDs, he abandoned his independent judgment with respect to a highly suspect transaction and acquiesced in the demands of his client to include the CDs on the balance sheet at a valuation that had no reasonable basis. His failure to record the expense incurred by Sky in issuing stock for services and his deficient valuation of Sky's mining properties are also evidence of his egregious abdication of professional responsibilities. Reckless failures to comply with auditing standards, such as those of Scutillo, "jeopardize the achievement of the objectives of the securities laws and can inflict great damage on public investors."  58  
+
+ As stated above, the law judge concluded that it was not necessary to bar Scutillo from Commission practice. He noted that Scutillo had no prior or subsequent disciplinary history and that, as Scutillo points out, Scutillo's firm received "fully favorable" peer review reports in 1996 and 1999. The law judge also stressed the fact that Scutillo cooperated fully in the Division's investigation of Sky's principals, testifying three times and providing requested documents. 
+
+ Under all the circumstances, we have determined to deny Scutillo the ability to appear and practice before the Commission provided that, after three years, he may apply to the Commission for reinstatement, upon an appropriate showing. Scutillo may not 
+
+ resume Commission practice unless and until that application is granted. Our determination recognizes the factors identified by the law judge while assuring that any resumption of practice by Scutillo will be consistent with the public interest. 
+
+ An appropriate order will issue.  59  
+
+ By the Commission (Chairman DONALDSON and Commissioners GLASSMAN, GOLDSCHMID, and ATKINS); Commissioner CAMPOS not participating. 
+
+ Jonathan G. Katz 
+Secretary 
+
+  
+
+ 
+ UNITED STATES OF AMERICA 
+
+ before the 
+
+ SECURITIES AND EXCHANGE COMMISSION 
+
+ SECURITIES EXCHANGE ACT OF 1934 
+
+ Rel. No. 48238 / July 28, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+
+ Rel. No. 1822 / July 28, 2003 
+
+ Admin. Proc. File No. 3-9863 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			 In the Matter of 
+
+			 BARRY C. SCUTILLO 
+			8000 North University Drive 
+			Fort Lauderdale, Florida 33321 
+
+			  
+		 
+	 
+ 
+
+ ORDER IMPOSING REMEDIAL SANCTION 
+
+ On the basis of the Commission's opinion issued this day, it is 
+
+ ORDERED that Barry C. Scutillo be, and he hereby is, denied the privilege of appearing or practicing before the Commission with the proviso that, after three years, he may apply to the Commission for reinstatement, upon an appropriate showing. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+  
+
+ 
+ 
+	 
+		 
+			  1  
+			 17 C.F.R. § 201.102(e)(1)(ii). 
+		 
+		 
+			  2  
+			 In 1996, the Commission instituted administrative proceedings against Sky and seventeen other firms and individuals. On the basis of its default, Sky was found to have made false statements to investors and false filings with the Commission, and to have falsified its accounting records. A cease and desist order was issued against the company.  Sky Scientific, Inc. , Securities Act Rel. No. 7474 (November 7, 1997), 65 SEC Docket 2579. The Commission subsequently issued a full opinion with respect to some of the other respondents in that case.  Daniel R. Lehl , Securities Act Rel. No. 8102 (May 17, 2002), 77 SEC Docket 2153,  aff'd , No. 02-1228 (D.C. Cir. May 13, 2003). 
+		 
+		 
+			  3  
+			 15 U.S.C. § 78-l(g). 
+		 
+		 
+			  4  
+			 Dorow and Foster were respondents in the administrative proceeding cited in n.2,  supra . On the basis of his default, Dorow was found to have violated registration, antifraud, and reporting provisions of the securities laws. A cease and desist order was entered against him, and he was ordered to disgorge $549,983 plus prejudgment interest.  Sky Scientific, Inc. , Securities Act Rel. No. 7471 (October 22, 1997), 65 SEC Docket 2278. The law judge's initial decision in that proceeding became final as to Foster. A cease and desist order was entered against him, and he was ordered to disgorge $29,325 plus prejudgment interest.  Jerry L. Foster , Securities Exchange Act Rel. No. 41364 (May 4, 1999), 69 SEC Docket 2170. 
+		 
+		 
+			  5  
+			 Jensen was a respondent in this proceeding. Pursuant to an offer of settlement in this and another proceeding, Jensen was found to have engaged in improper professional conduct and barred from practice before the Commission, with the proviso that he may seek reinstatement after three years.  Barry C. Scutillo , Exchange Act Rel. No. 44264 (May 4, 2001), 74 SEC Docket 2599. 
+		 
+		 
+			  6  
+			 In the proceeding referred to in note 2,  supra , we found that the Russian CDs were counterfeit.  Daniel R. Lehl ,  supra , 77 SEC Docket at 2158, n.13. There is no evidence that Scutillo was aware of that fact. 
+		 
+		 
+			  7  
+			 Scutillo's asserted telephone conversation with the consultant was not documented in his work papers. 
+		 
+		 
+			  8  
+			 According to Jensen, Scutillo stated that "he didn't have any proof one way or another whether the bank existed or not and whether the CDs were good or not, and that, because he had no proof that the CDs were bad, he was going to permit them on the balance sheet." 
+		 
+		 
+			  9  
+			 Opinions of the Accounting Principles Board (hereinafter "APB") No. 16, ¶ 67(c) and No. 29, ¶ 18. 
+		 
+		 
+			  10  
+			 APB No. 29 ¶¶ 17, 20, 26. 
+		 
+		 
+			  11  
+			 One of the Division's experts, William Holder, referred to this figure as the "carrying amount," which he defined as"the amount at which the consideration given is reflected in the balance sheet in the financial statements of the company immediately prior to the transaction." 
+		 
+		 
+			  12  
+			 APB No. 29, ¶ 26. 
+		 
+		 
+			  13  
+			   See  AICPA, Codification of Statements on Auditing Standards (hereinafter "AU") §§ 332.05(a) and 332(b)(i). 
+		 
+		 
+			  14  
+			 AU § 150.02. 
+		 
+		 
+			  15  
+			   Id . 
+		 
+		 
+			  16  
+			 AU § 316.16. 
+		 
+		 
+			  17  
+			 AU § 316.20. 
+		 
+		 
+			  18  
+			 AU § 326.23. 
+		 
+		 
+			  19  
+			 AU § 330.06. 
+		 
+		 
+			  20  
+			 AU § 330.25. 
+		 
+		 
+			  21  
+			 AU § 326.19a. 
+		 
+		 
+			  22  
+			 AU § 330.28. 
+		 
+		 
+			  23  
+			 AU § 330.16. 
+		 
+		 
+			  24  
+			 AU § 330.26. 
+		 
+		 
+			  25  
+			 AU § 330.27.  See   also  AICPA Audit Risk Alert - 1991, p. 11. 
+		 
+		 
+			  26  
+			 AU § 330.18. 
+		 
+		 
+			  27  
+			 AU § 339.29. 
+		 
+		 
+			  28  
+			   See ,  e.g. ,  SEC v. Steadman , 967 F.2d 636, 641 (D.C. Cir. 1992);  Sundstrand Corp. v. Sun Chemical Corp. , 553 F.2d 1033, 1045 (7th Cir. 1977). 
+		 
+		 
+			  29  
+			   See ,  e.g. ,  Robert D. Potts, CPA , 53 S.E.C. 187, 203 n.40 (1997),  aff'd , 151 F.3d 810 (8th Cir. 1998);  David J. Checkosky , 52 S.E.C. 1177, 1185 n.23 (1997),  rev'd on other grounds , 139 F.3d 221 (D.C. Cir. 1998);  Meyer Blinder , 50 S.E.C. 1215, 1229-1230 (1992). 
+		 
+		 
+			  30  
+			   Amendment to Rule 102(e) of the Commission's Rules of Practice ("Amendment") , Securities Act Rel. No. 7593 (October 19, 1998), 68 SEC Docket 707, 710. 
+		 
+		 
+			  31  
+			   See  AU § 326.20. 
+		 
+		 
+			  32  
+			   See   Ernst & Ernst , 46 S.E.C. 1234, 1272 (1978). 
+		 
+		 
+			  33  
+			 The Division excepts to the law judge's determination not to consider the testimony of its expert, William Holder, that Scutillo was reckless. The Division urges us either toconsider Holder's opinion or ignore both his opinion and the contrary opinion of respondent's expert. Scutillo argues that the law judge improperly found him reckless without the benefit of expert testimony to that effect. We have made it clear, however, that neither a law judge nor this Commission requires expert testimony on questions of law.  See   Robert D. Potts, CPA , 53 S.E.C. at 208 and n.56;  Pagel, Inc. , 48 S.E.C. 223, 230 (1985),  aff'd , 803 F.2d 942 (8th Cir. 1986). Thus we have not deemed it necessary to rely on the experts' opinions as to whether Scutillo was reckless. 
+		 
+		 
+			  34  
+			 The Division appeals from a ruling of the law judgeexcluding from evidence the affidavit of a Russian banking official summarizing Russian banking regulations with respect to CDs and concluding that the CDs at issue were bogus. The law judge concluded, among other things, that the affidavit was irrelevant to the issues in this case. We need not reach this question. Its resolution is unnecessary to our determination that Scutillo recklessly engaged in improper professional conduct. 
+		 
+		 
+			  35  
+			 APB No. 25, ¶ 10. 
+		 
+		 
+			  36  
+			 This was a more than 900% increase over its previous level of about 1.6 million outstanding shares. 
+		 
+		 
+			  37  
+			   See   Daniel R. Lehl ,  supra , 77 SEC Docket at 2162, 2170. 
+		 
+		 
+			  38  
+			   See  AU § 311.06(a). 
+		 
+		 
+			  39  
+			 Evergreen is located in California, and Berry and Danner in Nevada. Sky leased its Evergreen mining claims, and owned its Berry and Danner claims. 
+		 
+		 
+			  40  
+			 Schultz also prepared independent reports evaluating the three properties' mining potential. 
+		 
+		 
+			  41  
+			 NPV is the difference between the present value of the future net cash receipts of an investment project (discounted at the firm's cost of capital) and the initial cash investment in the project.  Kohler's Dictionary for Accountants , 343 (6th ed. 1983). 
+		 
+		 
+			  42  
+			 The Form 10-K listed NPVs of $9,489,024 for Evergreen and $58,394,189 for Berry. It reported a "probable" NPV of $141,839,026 for Danner. 
+		 
+		 
+			  43  
+			 Scutillo did not see any significant tailings, or waste rock, at Tallulah that would have evidenced recent operations. 
+		 
+		 
+			  44  
+			 Scutillo stated, "Somebody (like Schultz) that's been in the business for . . . 30 to 40 years as a geologist certainly would have extensive experience in the mining area." 
+		 
+		 
+			  45  
+			 Economic geologists study the distribution of mineral deposits and the economic considerations involved in their recovery. They also assess the reserves available, and help determine which deposits are economically available to mine.  See  12  Encyclopedia Americana, International Edition  453 (1997). 
+		 
+		 
+			  46  
+			 AU § 333.02.  See   also   Montgomery's Auditing , 12th Ed. John Wiley & Sons, 1990 at 47 ("[D]ue care is not exercised if the auditor fails to corroborate representations of client management that are significant to the financial statements..."). 
+		 
+		 
+			  47  
+			 AU § 336.05. Our citations and discussion of GAAS standards with respect to using the work of a specialist are based on Statement on Auditing Standards ("SAS") No. 11 (1975). SAS No. 11 has been superseded by SAS No. 73, which contains similar standards and applies to audits of periods ending on or after December 15, 1994. 
+		 
+		 
+			  48  
+			   Id.  
+		 
+		 
+			  49  
+			 AU § 336.06. 
+		 
+		 
+			  50  
+			 AU § 336.08. 
+		 
+		 
+			  51  
+			 AU § 336.07. 
+		 
+		 
+			  52  
+			   See  n.46,  supra , and the accompanying text. 
+		 
+		 
+			  53  
+			 AU § 316.16. 
+		 
+		 
+			  54  
+			 139 F.3d 221 (D.C. Cir. 1998). 
+		 
+		 
+			  55  
+			   See   KPMG Peat Marwick LLP , Exchange Act Rel. No. 43862 (January 19, 2001), 74 SEC Docket 384, 420 n.99,  aff'd   on   other   grounds , 289 F.3d 109 (D.C. Cir. 2002);  Russell Ponce , Exchange Act Rel. No. 43235 (August 31, 2000), 73 SEC Docket 442, 465 n.52, 467 n.57,  appeal pending , No. 00-71398 (9th Cir.);  Albert Glenn Yesner, CPA , Exchange Act Rel. No. 42030 (October 19, 1999), 70 SEC Docket 2743, 2746-2747. 
+		 
+		 
+			  56  
+			   See ,  e.g. ,  Robert D. Potts, CPA ,  supra ;  Marvin E. Basson , Exchange Act Rel. No. 35840 (June 13, 1995), 59 SEC Docket 1650;  Samuel George Greenspan , Securities Act Rel. No. 6907 (August 26, 1991), 49 SEC Docket 1086, 1089;  Stephen Kutz , Exchange Act Rel. No. 24027 (January 28, 1987), 37 SEC Docket 971, 979, 982;  Gary L. Jackson , 48 S.E.C. 435, 437, 438 (1986). 
+		 
+		 
+			  57  
+			 Contrary to Scutillo's contention, the Division made the same recommendation to the law judge. 
+		 
+		 
+			  58  
+			   Touche Ross & Co. v. SEC , 609 F.2d 570, 581 (2d Cir. 1979). 
+		 
+		 
+			  59  
+			 We have considered all of the arguments advanced by the parties. We have rejected or accepted them to the extent that they are inconsistent or in accord with the views expressed herein. 
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diff --git a/raw/aaer/2003/AAER-1823.txt b/raw/aaer/2003/AAER-1823.txt
new file mode 100644
index 0000000000000000000000000000000000000000..22e66813560d23e4494bad558037bf974c23ccd8
--- /dev/null
+++ b/raw/aaer/2003/AAER-1823.txt
@@ -0,0 +1,1965 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
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+     
+     
+     SEC.gov | Michael J. Marrie, CPA and Brian L. Berry, 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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+              Michael J. Marrie, CPA and Brian L. Berry, CPA
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+        Michael J. Marrie, CPA and Brian L. Berry, CPA
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+              SECURITIES EXCHANGE ACT OF 1934 
+Rel. No. 48246 / July 29, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 1823 / July 29, 2003 
+
+ Admin. Proc. File No. 3-9966 
+
+ 
+	 
+		 
+			 
+			 
+			 In the Matter of the Application of 
+
+			 MICHAEL J. MARRIE, CPA and 
+			BRIAN L. BERRY, CPA 
+
+			  
+
+			  
+			 
+			  
+			 
+		 
+	 
+ 
+
+ OPINION OF THE COMMISSION 
+
+ RULE 102(e) PROCEEDING 
+
+ Grounds for Remedial Action 
+
+ Improper Professional Conduct 
+
+ Certified public accountant acting as engagement partner and certified public accountant acting as audit manager engaged in improper professional conduct in the audit of the financial statements of a public company.  Held , it is in the public interest to deny the accountants the privilege of appearing or practicing before the Commission. 
+
+ APPEARANCES: 
+
+  Michael F. Perlis ,  Wrenn E. Chais  and  James W. Denison  of Strook & Strook & Lavan LLP, for Michael J. Marrie and Brian L. Berry. 
+
+  James A. Howell  and  Craig D. Martin , for the Division of Enforcement. 
+
+ Appeal filed: October 12, 2001 
+
+ Last brief received: April 7, 2002 
+
+ Oral argument: July 10, 2003 
+
+ I. 
+
+ The Division of Enforcement and the Office of the Chief Accountant (together the "Division") appeal from the decision ofan administrative law judge. The law judge found that Michael J. Marrie and Brian L. Berry did not engage in improper professional conduct within the meaning of Rule of Practice 102(e) 1  during the course of an audit by the accounting firm of Coopers & Lybrand LLP ("Coopers" or the "Firm") of the 1994 fiscal year financial statements of California Micro Devices, Inc. ("CMD"), a public company. Marrie, a certified public accountant ("CPA") and former partner with Coopers, was the engagement partner for the audit of CMD. Berry, a CPA and former manager with the Firm, was the audit manager for the CMD audit. 
+
+ The Division alleges that Marrie and Berry recklessly failed to comply with applicable standards of professional conduct in their audit of CMD's 1994 fiscal year financial statements in three critical areas: (1) CMD's write-off of $12 million of accounts receivable, (2) confirmation of CMD's accounts receivable, and (3) CMD's sales returns and allowances for sale returns. According to the Division, Marrie and Berry recklessly failed to conduct the audit in accordance with Generally Accepted Auditing Standards ("GAAS") as a result of their failure to exercise professional skepticism and to obtain sufficient competent evidential matter with respect to these audit areas. 2  The Division contends that this conduct constitutes improper professional conduct within the meaning of Rule 102(e)(1)(iv)(A) of the Commission's Rules of Practice. 
+
+ The Division seeks to deny Marrie and Berry the privilege of appearing or practicing before the Commission. 3  We base ourfindings on an independent review of the record, except with respect to those findings not challenged on appeal. 
+
+ II. 
+
+ The facts concerning the audit of CMD's financial statements are largely undisputed by Marrie and Berry. CMD is a California corporation with its headquarters in Milpitas, California. CMD is a designer, manufacturer, and distributor of electric circuits and semiconductors. During the period covered by the financial statements at issue, CMD's common stock was registered with the Commission pursuant to 12(g) of the Securities Exchange Act of 1934. 4  
+
+ Coopers acted as independent auditors for CMD from 1990 until January 6, 1995. The primary services Coopers provided to CMD were annual audits and quarterly reviews of CMD's financial statements. Marrie acted as the concurring partner for the Firm's 1990 and 1991 audits of CMD and was the engagement partner for Coopers' audits of CMD from 1992 through 1994. Marrie had specific responsibilities for the planning, supervision, and review of the audit work. 5  He was required, as the engagement partner, to be sufficiently involved in the audit to reachinformed conclusions regarding the quality and sufficiency of the audit procedures performed. 6  
+
+ Berry was the audit manager for the 1994 audit and had worked on two or three prior CMD audits. Berry was primarily responsible for the supervision of the audit field work. He participated in the planning of the audit and in interactions between the audit team and CMD's management. 7  
+
+ In its filings with the Commission, CMD presented a picture of robust growth in sales and income. CMD's Form 10-K for fiscal year 1994 reported that net sales increased from $33 million in fiscal year 1993 to $38.2 million in fiscal year 1994. According to the Form 10-K, CMD's net income increased from $2 million in fiscal year 1993 to $5 million in fiscal year 1994. 
+
+ Not all of the developments at CMD during fiscal year 1994 were positive. CMD had lost Apple Computer, Inc. ("Apple") as a major customer that year. Apple accounted for 32 percent of CMD's total product sales in fiscal year 1993, but in the first half of fiscal year 1994, CMD's sales to Apple amounted to only 6 percent of its total product sales. For all of fiscal year 1994, CMD's sales to Apple declined by $9.2 million. Apple had paid its bills timely and, thus, the Apple accounts receivable were dependably collectible in a reasonable time frame. This meant that CMD's accounts receivable during the years that Apple had been its largest customer reflected the dependable collection of amounts owed by Apple. The loss of Apple as a major customer meant that CMD could not reliably depend on the past collectibility of its accounts receivable to predict future collectibility. 
+
+ At the same time, CMD's net product sales to foreign customers, many of whom were located in the Far East, had increased from 52 percent in fiscal year 1993 to 59 percent in fiscal year 1994. This development was significant because, while CMD's normal sales terms for foreign customers required payment in 60 days, shipments to customers in the Far East often involved lengthy transit times and certain of these customers would not pay until they had received the product. CMD therefore found it necessary to offer extended payment terms of 90 to 120days, or more, to several customers located in the Far East. This change in circumstances regarding CMD's customer base resulted in an increase in the amount of time it took CMD to collect payments, and, thus, resulted in an increase in the amount owed to CMD for product shipped to customers, as reflected in its balance of accounts receivable. CMD acknowledged an increase in its accounts receivable balance in its 1994 fiscal year second and third quarter filings with the Commission. The shift in customer base also meant that the history of returns by CMD's customers might no longer be valid because an increase in customers receiving product via a lengthy transit time could result in a longer time for a customer to make a return. 
+
+ Marrie testified that he was aware that CMD's sales to Apple had decreased significantly, but did not give much thought to the loss of Apple's business because of a strategic alliance that CMD had entered with Hitachi Metals. The strategic alliance called for CMD to license its technology to Hitachi Metals. This technology license agreement was to continue for ten years and was to be extended for another ten years unless cancelled by either party. In return, Hitachi Metals agreed to purchase 880,000 newly issued shares of CMD common stock at $24 per share. The transaction resulted in a total payment to CMD of over $21.1 million and Hitachi Metal's ownership of approximately 10 percent of CMD's common stock The strategic alliance consisted of a license of technology -- CMD was able to record the payment as non-sales revenue. While revenue from the license of technology offset revenue lost from Apple, the strategic alliance did not impact the loss of product revenue from Apple and the effect of that loss on CMD's accounts receivable balance. 
+
+ Marrie and Berry had received warning signs in a number of audit categories in their audits of CMD's financial statements for years prior to fiscal year 1994 and in the course of their quarterly reviews in fiscal year 1994. For example, CMD had problems with respect to its recognition of revenue in fiscal years 1992 and 1993. CMD's stated policy was to recognize revenue for products only upon shipment to customers. In practice, however, CMD was more aggressive, recognizing revenue on products that were ready for shipment on the last day of a reporting period, even if the product was not shipped until later. Marrie and Berry were aware of these discrepancies with respect to CMD's revenue recognition. They understood that the effect of this practice was to inflate falsely CMD's reported revenue. 
+
+ CMD also experienced difficulty maintaining revenue linearity, historically reporting 70 to 90 percent of its sales in the third month of each quarter. This trend continued infiscal year 1994. For example, CMD invoiced and shipped products accounting for approximately 70 percent of its revenue for the second quarter during the last week of December 1993, the final month of that quarter. CMD acknowledged its difficulty in maintaining revenue linearity in its second and third quarter filings with the Commission. Difficulty maintaining revenue linearity is not atypical among high technology companies. However, it can be a signal that revenue is not being recorded properly. For example, there is a greater risk that revenue from products sold at the end of the quarter but shipped after the end of the quarter may be included improperly in revenue for the earlier quarter. Also a spike in sales at the end of a quarter may be an indication that products sold after the end of the quarter are being included improperly in revenue for the earlier quarter. 
+
+ Marrie and Berry were aware of this history of erroneous revenue recognition by CMD as they designed and tested CMD's procedure to examine accounts receivable for the 1994 audit. When asked whether there was a relationship between the problems that CMD had experienced with revenue recognition as a result of improper sales cut-offs and the process of confirming accounts receivable, Marrie testified that they "go hand in hand." Marrie discussed the importance of proper recognition of revenue with CMD's audit committee in preparation for the 1994 audit. Berry testified that in audits prior to the 1994 audit he had found it unusually difficult to determine what CMD had and had not shipped. 
+
+ Formal planning for Coopers' audit of CMD's financial statements took place between July 14 and July 24, 1994. The audit plan included a plan to confirm certain of CMD's accounts receivable balances as of June 30, 1994. Marrie and Berry selected for confirmation all balances greater than or equal to $100,000 and randomly selected twenty additional balances under $100,000. The audit plan developed by Marrie and Berry also called for an analysis of CMD's sales returns and the adequacy of the company's allowance for returns. 
+
+ During the course of formal planning for the audit, CMD's chief accounting officer, Ronald Romito, told Marrie that the company expected to write off $12 million in accounts receivable. Marrie and Romito had several meetings and discussions to review information and documents about the proposed write-off. They discussed how to allocate the write-off among various categories including reversal of sales, sales returns, and bad debt. CMD proposed that over $4 million of the write-off be allocated to bad debt. CMD's management wanted to maximize the portion of the write-off allocated to bad debt and minimize the amount allocatedto returns because amounts written-off as returns would be deducted directly from reported revenues while amounts written off as bad debt would be treated as expenses and therefore would not decrease reported revenues. 
+
+ When Romito reported to Marrie that CMD proposed to allocate $4 million of the write-off to bad debt, Marrie objected and told Romito that the write-off would have to be recalculated. Marrie advised Romito to prepare a "line by line" analysis setting forth CMD's reasons for writing off each receivable for each customer. Romito then prepared a spreadsheet listing the receivables and allocating the write-off for each one. Marrie and Romito had additional discussions regarding the allocation of the write-off and the spreadsheet was revised a number of times. Berry was involved in a number of meetings with Marrie and Romito in which the issue of the allocation of the write-off was discussed, but Berry did not remember reviewing the spreadsheet or any other documentation regarding this issue. The final allocation apportioned $1.8 million to the cost of sales, $1.3 million to bad debt, $7.2 million to sales returns and price adjustments, and $1.7 million to sales reversals, with the remainder allocated to freight, advertising, and commission expense. 
+
+ There is little mention of the write-off in Coopers' work papers for the 1994 audit. The work papers do not contain any spreadsheets relating to the write-off. 8  The senior accountant on the audit team mentioned the write-off of accounts receivable in her review of fourth quarter adjustments and concluded, without elaboration, that the treatment appeared reasonable. She did not recall if this conclusion was based on observation or only on conversations with Marrie or Berry. One of the junior associates on the audit team discussed the write-off briefly in a note to the purchases/returns analysis. The only other references to the write-off in the work papers are in CMD's Form 10-K and in draft and final press releases announcing the write-off. 
+
+ Coopers began field work for the audit on July 27, 1994 and this work continued through August 25, 1994. On August 3, 1994,during the second week of Coopers' field work, Romito gave Marrie and Berry a draft of a press release announcing CMD's earnings for the fourth quarter and for fiscal year 1994. The draft stated that non-product sales for the quarter had been $7 million, reflecting the sale of technology to Hitachi Metals. The draft then made the following statement regarding the write-off of accounts receivable: 
+
+ Offsetting non-product sales were product returns and related expense charges totaling $8,300,000 for the quarter. The company authorized selected Far East distributors, unable to pay for the product on a timely basis, to return the product ($5,300,000) and in certain cases, these distributor balances were written off to cost of sales ($1,700,000) or bad debt expense ($1,300,000). 
+
+ The draft press release differed from the information Marrie reviewed with Romito concerning the write-off. While Romito previously told Marrie about a write-off of $12 million, the draft press release noted "product returns and related expense charges" of only $8.3 million. Berry reviewed the draft press release, verified that the numbers CMD proposed to report for prior periods were mathematically accurate, and then discussed the draft with Marrie. 
+
+ The next day, August 4, CMD issued its press release, publically disclosing its fourth quarter net income and earnings, as well as an $8.3 million write-off of accounts receivable. Consistent with the draft, the press release announced the $7 million sale of technology. With respect to the write-off, however, the press release stated: 
+
+ Offsetting non-product sales were product returns and related expense charges totaling $8,300,000 for the quarter.  As a result of the success of establishing second source to thin film IPEC products, the company decided to reduce its emphasis on certain distribution channels by terminating selected distributors. The company authorized these terminated distributors and others who were unable to pay for product on a timely basis,  to return the product ($5,300,000) and in certain cases, these distributor balances were written off to cost of sales ($1,700,000) or bad debt expense ($1,300,000). 
+
+ The highlighted language denotes the changes that CMD made after the time Respondents reviewed the draft. 
+
+ Respondents received a copy of CMD's August 4 press release, reviewed it, and initialed it. They could not recall if they compared the information in the draft and final press releases to the spreadsheets Romito previously provided concerning the write-off. Marrie reviewed the sampling criteria proposed to be used for confirming accounts receivable after learning of the write-off, but concluded that the planned criteria did not need to be altered as a result of the write-off. 
+
+ The August 4 press release was followed by a drop in CMD's stock price and by a shareholder lawsuit alleging accounting improprieties. Marrie and Berry were aware of these facts. The senior associate for the audit questioned CMD's in-house counsel and Romito about the lawsuit and noted in the audit work papers that the likelihood of an unfavorable outcome or any settlement amount in the lawsuit was unknown. Marrie and Berry did not make any adjustments to the audit plan or the scheduled field work in response to these events. 
+
+ Coopers presented its independent accountants report in a letter dated August 25, 1994 addressed to CMD's shareholders and directors. The report stated that Coopers had conducted its audit in accordance with GAAS and that the financial statements accorded with Generally Accepted Accounting Principles ("GAAP"). CMD's financial statements and Cooper's opinion on those statements were included in the company's report on Form 10-K which was filed with the Commission on September 29, 1994. 
+
+ In response to the shareholder suits filed against CMD, the company retained counsel. Counsel reported to CMD's audit committee that there were numerous irregularities in the company's sales records, including the falsification of some records. CMD's board of directors then appointed a special committee of independent directors to investigate possible revenue recognition and other accounting irregularities that might have affected the financial statements for fiscal year 1994. To assist in its investigation, the special committee engaged counsel who, in turn, retained the special services group of Ernst & Young, LLP to conduct a forensic accounting of CMD's financial reporting practices and procedures. 
+
+ It soon became clear that the reason for the write-off was that CMD had recorded revenue on a number of transactions during fiscal year 1994 where there was no realistic prospect of collecting payment. These receivables were uncollectible because the goods had never been shipped, the likelihood of timely payment was in doubt, or there were customer concerns about the quality of the goods. In the third quarter ending March 31, 1994, CMD recognized millions of dollars of revenue for productthat had not been shipped. CMD used the write-off to "clean" its books in an attempt to prevent Coopers from discovering CMD's fraud. CMD sales, shipping, and accounting personnel, as well as CMD customers, created false shipping documents and invoices to disguise at least a portion of the improperly recorded sales. 
+
+ On January 6, 1995, Coopers confirmed that it was terminating its auditing relationship with CMD and would not reissue its audit opinion on CMD's 1994 financial statements. On February 3, 1995, CMD reached an agreement for the appointment of Ernst & Young, LLP as its new independent accountants. 
+
+ In a February 6, 1995, filing with the Commission, CMD restated its results for fiscal year 1994. Upon restatement, CMD reported, among other things, a net loss of $15.2 million instead of earnings of $5 million, a reduction in total revenues from $45.3 million to $30.1 million, a reduction in accounts receivable from $16.9 million to $6.3 million, inventories of $13.9 million instead of $5.1 million, and net property and equipment of $7.1 million instead of $10.4 million. The revised financial statements were unaudited. 
+
+ III. 
+
+ The Division alleges that Marrie and Berry engaged in improper professional conduct within the meaning of Rule 102(e)(1)(iv)(A) of the Commission's Rules of Practice by recklessly engaging in conduct that did not comport with professional standards. The parties disagree over the meaning of recklessness to be used in this context. The Division charged that Marrie and Berry engaged in improper professional conduct by engaging in "intentional or knowing conduct, including reckless conduct, that results in the violation of applicable professional standards." We will first examine Marrie's and Berry's legal challenges to the application of this definition of improper professional conduct to their 1994 fiscal year audit of CMD's financial statements. We then will examine whether Marrie and Berry recklessly failed to comply with applicable professional standards in their audit of CMD's financial statements in three critical audit areas: (1) the $8.3 million write-off of accounts receivable; (2) confirmation of accounts receivable; and (3) sales returns and allowances for sales returns. 
+
+ A. Improper Professional Conduct Within the Meaning of Rule of Practice 102(e) May Be Established by a Reckless Failure to Comply With Applicable Standards of the Accounting Profession 
+
+ The Division contends that Marrie and Berry intentionally, knowingly and recklessly failed to comply with the standards of their profession in the conduct of the audit of CMD's financial statements. At the hearing, however, the Division presented evidence to establish only that Marrie and Berry acted recklessly and did not attempt to establish that the two acted knowingly with respect to the CMD audit. 
+
+ Marrie and Berry challenge on two distinct grounds the Division's allegations that Respondents' conduct with respect to CMD's 1994 fiscal year financial statements was reckless. Marrie and Berry contend that use of the recklessness standard codified in Rule 102(e) in 1998 is an impermissible retroactive application of the Rule to conduct that occurred in 1994. Respondents also contend that, even if the recklessness standard contained in Rule 102(e) is applicable here, it requires the Division to show a type of recklessness that approximates an actual intent to aid in the fraud being perpetrated by the audited company. 
+
+ The application of Rule 102(e) to Respondents' audit of CMD is not a retroactive application of a new standard of conduct. The 1998 amendment to Rule 102(e) codified our longstanding use of the recklessness standard. 9  As we noted in adopting the amended rule and in prior decisions, we have applied this recklessness standard in Rule 102(e) proceedings predating the rule's amendment. 10  The 1998 amendment introduced nothing new with respect to the Commission's longstanding use of that standard. Marrie and Berry can hardly claim to have been unaware in 1994 that a reckless disregard of professional standards would subject them to liability for improper professional conduct under Rule 102(e) as then in effect. 
+
+ Marrie and Berry contend that, if they can be disciplined for reckless conduct pursuant to Rule 102(e), the definition articulated by the Commission requires that, in order to establish that they acted recklessly with respect to the audit of CMD's financial statements, the Division must show a type of recklessness that approximates an actual intent to aid in the fraud being perpetrated by the audited company. 11  We adopted the definition used in Rule 102(e) "for purposes of consistency under the federal securities laws" and to highlight that reckless conduct is not merely a heightened form of ordinary negligence, but rather a lesser form of intent. 12  In adopting this definition, however, we specifically noted that the standards of professional conduct are not fraud-based. 13  
+
+ The definition of reckless conduct establishes the mental state that must be shown with respect to conduct that results in a violation of applicable professional standards. The question is not whether an accountant recklessly intended to aid in the fraud committed by the audit client, but rather whether the accountant recklessly violated applicable professional standards. 14  Recklessness, then, can be established by ashowing of an extreme departure from the standard of ordinary care for auditors. 
+
+ The Commission and the investing public rely heavily on accountants to assure disclosure of accurate and reliable financial information as required by the federal securities laws. Adherence to applicable professional auditing standards protects the Commission's processes regardless of whether a fraud has been committed because it ensures that certified financial statements of public companies have been audited appropriately. Requiring proof of a mental state approximating an actual intent to aid in the fraud committed by the audited company would conflict with this purpose and fail to protect the Commission's processes from accountants who lack competence to appear before it. 
+
+ The Division also challenges the law judge's determination that it was required to prove that the audited financial statements were materially misstated in order to establish that Marrie and Berry recklessly failed to comply with the standards of the accounting profession. Respondents contend that the law judge was correct and maintain that the Commission lacks the authority to discipline them in the absence of proof that CMD's financial statements filed with the Commission were false or materially misleading. 
+
+ The Commission has the authority to discipline accountants in order to "ensure that those professionals, on whom the Commission relies heavily in the performance of its statutory duties, perform their tasks diligently and with a reasonable degree of competence" as a means "to protect the integrity of its own processes." 15  As the Second Circuit has noted, "[i]f incompetent or unethical accountants should be permitted to certify financial statements, the reliability of the disclosure process would be impaired." 16  
+
+ Auditors are required by professional standards to comply with GAAS when conducting an audit. 17  An auditor who fails to audit properly under GAAS should not be shielded because the audited financial statements fortuitously are not materially misleading. An auditor who skips procedures designed to test a company's reports or looks the other way despite suspicions is a threat to the Commission's processes. Even if an auditor's improper professional conduct does not result in false financial statements, it damages the integrity of the Commission's processes because filings with the Commission are unreliable if auditors certify that their audits were conducted in accordance with GAAS when in fact they were not. Accordingly, a determination that Marrie and Berry engaged in improper professional conduct does not depend on finding that CMD's audited financial statements for fiscal year 1994 contained a material misstatement. 18  
+
+ B. Marrie's and Berry's Conduct With Respect to Three Critical Audit Areas Recklessly Failed to Comply With Applicable Professional Standards 
+
+ Having concluded that improper professional conduct within the meaning of Rule 102(e) includes the reckless failure to adhere to applicable professional auditing standards, we turn to Marrie's and Berry's conduct with respect to three critical audit areas. The write-off was a critical audit area because of its size and timing. Confirmation of accounts receivable was a critical audit area because of previous problems Marrie and Berry had identified with respect to CMD's revenue recognitionpractices and because of the change in CMD's customer base. The analysis of, and allowance for, sales returns was a critical audit area because of the change in CMD's customer base. In the report that Marrie signed and submitted to CMD's audit committee prior to the audit, he identified specifically the adequacy of allowance for doubtful accounts, revenue recognition and review of year-end sales cut-offs, and the adequacy of product return reserves as factors the auditors would consider in developing their audit strategy. 
+
+ 1. Marrie and Berry Recklessly Failed to Comply With Applicable Professional Standards in Their Audit of CMD's Write-Off of Accounts Receivable 
+
+ Marrie and Berry were required to exercise due professional care in the performance of the audit of CMD's financial statements. 19  An audit of financial statements in accordance with GAAS should be planned and performed with an attitude of professional skepticism. 20  GAAS require an auditor to obtain "[s]ufficient competent evidential matter . . . through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit." 21  
+
+ The Division contends that Marrie and Berry engaged in improper professional conduct as a result of their reckless failure to comply with applicable professional standards when they omitted to exercise professional skepticism and to obtain sufficient competent evidential matter with respect to CMD's write-off. The Division then contends that Marrie and Berry engaged in improper professional conduct as a result of their reckless failure to comply with applicable professional standards by omitting to consider the impact of the write-off in their examination of inventory values and in their examination of the ability of CMD to collect on its accounts receivable. 
+
+ a. Marrie and Berry Recklessly Failed to Exercise Professional Skepticism and Obtain Competent Evidential Matter with Respect to CMD's Write-off of Accounts Receivable 
+
+ Marrie and Berry recognized that accounts receivable were an important audit area and that the write-off of accounts receivable that occurred near the end of fiscal year 1994 was unusual. 22  As described above, Marrie questioned the company's initial proposal for allocation of over $4 million of the write-off to bad debt and instructed the company to prepare a more detailed analysis setting forth its reasons for writing off each specific receivable for each customer. However, when Romito, a member of management, returned with a revised allocation but without the requested detailed analysis, Marrie and Berry did not insist that the requested analysis be provided. Nor did they investigate to determine whether there was any basis for Romito's revised allocations, for example by contacting customers to determine whether product had been returned or whether the customer could not pay. 
+
+ An auditor's duty to exercise professional skepticism requires that large and unusual transactions, particularly transactions occurring at year-end, should be selected for testing. 23  Marrie and Berry were aware that the write-off was unusually large and had occurred near the end of the fiscal year. Despite the size and timing of the write-off, Marrie and Berry never instructed the audit team to perform any additional examinations or procedures to determine the validity of the stated reasons for the write-off. They did not even follow up on their request that Romito provide an analysis of the write-off. This was a failure to exercise professional skepticism and to obtain competent evidential matter. 
+
+ Marrie and Berry were given further reason for concern when they reviewed CMD's press release announcing its fourth quarter and year-end results. Marrie and Berry each reviewed a draft of the announcement that stated that CMD was writing off $8.3 million of accounts receivable. This amount conflicted with the information that CMD previously had given to Marrie and Berry,which indicated that the write-off would total $12 million. When Marrie and Berry received the final press release, that document provided a reason for the write-off that had not been included in the draft press release that they had reviewed -- that CMD was terminating distributors. 
+
+ This conflicting information about the write-off contained in the draft and final press releases should have caused Marrie and Berry, at a minimum, to ask questions and to exercise a heightened degree of professional skepticism concerning the true amount of the write-off and the reasons for it. Marrie and Berry were aware that a shareholder lawsuit alleging accounting improprieties in connection with the write-off had been filed during the pendency of the field work. The lawsuit was another "red flag" that should have caused Marrie and Berry to view the write-off with increased skepticism and to obtain competent evidential matter. Nevertheless, the inconsistencies between the press release announcing the write-off and the information previously provided to Marrie and Berry by CMD's management, as well as the shareholder lawsuit, elicited no reconsideration of the audit plan, no additional field work, and no request for an explanation of the inconsistencies. 
+
+ We conclude that Marrie's and Berry's failure to ask questions, to obtain competent evidential material, and to exercise a heightened degree of skepticism in the face of these numerous inconsistencies with respect to the write-off was a reckless failure to comply with applicable professional standards. 
+
+ b. Marrie and Berry Recklessly Failed to Consider the Implications of the Write-Off of Accounts Receivable in Their Examination of Inventory Values 
+
+ The Division argues that, in addition to failing to exercise professional skepticism and to obtain competent evidential material with respect to CMD's write-off, Marrie and Berry failed to consider the implication of the write-off in their examination of CMD's estimates of its inventory values contained in its 1994 fiscal year financial statements. Auditors are required by GAAS to evaluate, with an attitude of professional skepticism, the reasonableness of management estimates. 24  In evaluating the reasonableness of management's estimates, an auditor should,where appropriate, "[r]eview subsequent events or transactions occurring prior to completion of fieldwork." 25  
+
+ The write-off was an event that was announced subsequent to the end of the fiscal year, but during the audit field work, and it should have alerted Marrie and Berry to the need to examine closely CMD's estimates of its inventory values. As part of the write-off, CMD authorized customers to return product. CMD's products, like those of many high technology companies, were vulnerable to rapid changes and advancements in technology. In such an environment, the longer the product remained unsold, the greater the risk that obsolescence would cause a decline in the product's value 26  CMD also allowed some product to be returned because it was defective. 
+
+ Marrie and Berry failed to consider how long returns of non-defective products would take and what impact this might have on the products' obsolescence. They also failed to consider whether defective products could have been repaired and resold, and if so how long that process would take. These were all critical factors that could have significantly lowered CMD's inventory valuations. We find that Marrie and Berry were reckless in failing even to consider the impact of the write-off with respect to these aspects of inventory valuation. 
+
+ Marrie and Berry claim that the only support for the claim that they recklessly failed to consider the impact of the write-off on inventory obsolescence is the fact that CMD's restatement of earnings increased the allowance for obsolete inventory. They argue, in essence, that simply because other auditors valued inventory differently does not establish that their audit was reckless. Marrie's and Berry's argument demonstrates a fundamental misunderstanding of the charges against them. 
+
+ The Division is not claiming that Marrie and Berry came up with the "wrong" amount, but rather that they failed to take any steps to consider the impact of the write-off on inventory obsolescence in the face of substantial indicators that there wasa risk of error in management's estimate. Marrie and Berry were aware that CMD operated in a market where technological advances occurred rapidly and where product obsolescence was a risk. Yet they failed to consider what impact the write-off would have on inventory valuation. The only mention of the write-off in the work papers with respect to returns notes an increase in fourth quarter returns due to customers' inability to pay, but makes no mention of the impact of those increased returns on inventory valuation. This was an extreme departure from the standards of ordinary care that auditors are required to follow. We conclude that Marrie and Berry were reckless in failing to consider the impact that the product returns authorized by CMD's write-off would have in their examination of inventory valuation and obsolescence. 
+
+ c. Marrie and Berry Recklessly Failed to Consider the Implication of the Write-Off of Accounts Receivable in Their Examination of CMD's Ability to Collect Its Remaining Accounts Receivable 
+
+ The Division argues that Marrie and Berry also failed to consider the implication of the write-off in their examination of the realizable value of the accounts receivable. CMD indicated in the August 4 press release that it was writing off amounts due from "terminated distributors or others who were unable to pay for product on a timely basis." A substantial portion of CMD's claimed June 1994 accounts receivable, however, was the result of sales to entities that had returned product in May 1994 as part of the write-off that CMD made public on August 4. 
+
+ This was a serious discrepancy that would have been obvious to Marrie and Berry from a cursory review of the relevant documents. It raised the risk that some of the June 1994 sales would not be collectible because they were made to customers referred to in the August 4 press release as terminated distributors or others who were unable to pay for product. At a minimum, the fact that CMD was selling product to some of the same entities that had returned product in May 1994, resulting in the write-off that was announced in the August 4 press release, raised the possibility that CMD's calculations of accounts receivable were unreliable. The write-off was a critical factor that indicated that CMD could face a risk of being unable to collect its accounts receivable. We find that Marrie and Berry were reckless in failing to consider the impact of the write-off with respect to the collectibility of CMD's accounts receivable. 
+
+ d. Marrie's and Berry's Claim That They Did Not Act Recklessly With Respect to the Write-Off and Its Impact on CMD's Inventory Obsolescence and CMD's Ability to Collect Its Accounts Receivable Is Without Merit 
+
+ The law judge concluded that Marrie and Berry "violated their duty to exercise professional skepticism and to obtain sufficient competent evidential matter" with respect to the write-off, but nevertheless found that this conduct did not constitute a reckless departure from the standards of the accounting profession. We disagree. The size and the timing of the write-off made it a critical audit area and, therefore, Marrie and Berry were required to examine it closely. Instead, they all but ignored it. Even though Marrie and Berry were aware that the write-off was unusually large and occurred near the end of the fiscal year, they did not alter their audit plan or conduct additional testing to determine whether the reasons CMDgave for the write-off were accurate. Nor did they consider the impact of the write-off in their evaluation of CMD's inventory valuations or CMD's ability to collect its accounts receivable. We find that Marrie's and Berry's failure to take these basic steps, in the face of a write-off that was so large that Marrie stated he was "dumbfounded" by its size, constitutes a reckless failure to comply with the standards of the accounting profession. 
+
+ Nor is there merit to Marrie's and Berry's argument that they were not reckless because the press release did not constitute a red flag. Respondents assert that the difference between the $12 million write-off reported by Romito and the $8.3 million write-off announced in the press release could be accounted for by the fact that the $3.7 million difference "represented credit memos that went from the product return category to the sales reversal category" and, therefore, were not included in the press release. There is no evidence that Marrie and Berry inquired about this discrepancy or obtained the explanation they now urge upon us. Respondents' attempt to account for this discrepancy is nothing more than an after-the-fact justification for their failure to exercise the required degree of professional care. 
+
+ Marrie and Berry claim that they did not believe they were required to audit the write-off or exercise increased skepticism with respect to it because the receivables being written off were no longer being reported as assets and revenues of CMD. This claim is without merit. Marrie and Berry each recognized that the write-off of a large amount of receivables near the end of the fiscal year was a significant issue. In addition, as described above, the write-off had the potential to impact inventory valuation and collection of accounts receivable. We conclude that Marrie and Berry, therefore, were required to consider its impact in their review of CMD's financial statements. 
+
+ 2. Marrie and Berry Recklessly Failed to Comply With Applicable Professional Standards in Their Confirmation of CMD's Accounts Receivable 
+
+ Confirmation of an account receivable is a test of whether, as of a certain date, a customer of an audit client acknowledges owing what the audit client's records show the customer owes. Confirmation involves obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financialstatements. 27  Confirmation is a useful audit tool because, when evidential matter can be obtained from independent sources outside of an audited entity, it provides greater assurance of reliability for the purposes of an independent audit than information secured solely from the audited entity. 28  
+
+ When an auditor concludes that evidence provided by confirmations alone is not sufficient to reduce "audit risk for the related assertions to an acceptably low level," additional procedures should be performed. 29  When an auditor has not received replies to positive confirmation requests, the auditor should employ alternative procedures, which may include the examination of subsequent cash receipts (including matching such receipts with the actual items being paid), shipping documents, or other client documentation. 30  An auditor should exercise an appropriate level of professional skepticism throughout the confirmation process. 31  
+
+ To confirm CMD's accounts receivable balances as of June 30, 1994, Marrie and Berry selected all balances greater than or equal to $100,000 and randomly selected twenty additional balances under $100,000. This plan resulted in confirmation testing of fifty-four customer accounts, representing over 92 percent of CMD's accounts receivable. Twenty-five of the accounts tested confirmed 100 percent of their outstanding balances, twelve confirmed a portion of their outstanding balances, and seventeen did not confirm any portion of the receivable balance. For each account balance that the customer did not fully confirm, the Coopers' audit team performed alternative procedures to test unconfirmed amounts. 
+
+ Marrie reviewed the sampling criteria to be used for confirming accounts receivable after learning of the write-off, but concluded that additional steps were not necessary. Berry reviewed a summary of the confirmations and alternativeprocedures performed and he testified that he discussed the results of the confirmations and alternative procedures with the senior accountant assigned to the audit team. The Division has challenged the adequacy of the procedures used by the audit team in six cases to test accounts whose outstanding balances had not been fully confirmed. 
+
+ CMD claimed receivables of $148,067 for products shipped to Solectron, Inc., of San Jose, California. On August 12, Solectron informed the auditors that it owed only $33,017 and had no record of two shipments that CMD claimed to have sent to Solectron on June 30, 1994, for the disputed amount of $115,050. Solectron requested that the auditors provide them with a copy of the purchase orders for the products in question, but there is no evidence that the auditors ever looked for the purchase orders or inquired as to why goods shipped from CMD's Milpitas, California facility to a location about ten miles away in San Jose, California had not arrived at their destination forty-two days later. The audit team's senior accountant wrote in the work papers that she reviewed unidentified shipping documents showing that $115,050 in product had been shipped "right before year end" and represented "goods in transit." No adjustment was made to the receivables for products CMD claimed to have shipped to Solectron, but Solectron did not acknowledge receiving. 
+
+ CMD claimed receivables of $215,375 owed by Analogic, Inc., of Peabody, Massachusetts. On August 18, Analogic claimed that $71,935 of this amount was not in its records and could not be verified. The senior accountant determined that $11,132 of this amount related to sales in prior quarters for which payment had been received. She did not match gross cash receipts with the actual items being paid. GAAS requires that if, as an alternative procedure to confirm the reported amount of accounts receivable, an auditor elects to examine cash receipts, the cash receipts must be matched with the actual items paid. 32  The remaining $60,803 in dispute related to shipments that CMD claimed to have made to Analogic on June 30, 1994. The senior accountant indicated in the work papers that she reviewed CMD's shipping documents for the items that Analogic had not received. There is no evidence that any member of the audit team ever inquired as to why a product that was shipped from Milpitas, California to Massachusetts had not arrived at its destination forty-eight days later. 
+
+ CMD claimed that National Semiconductor Corporation ("NSC") owed $1,288,767 for receivables, but, due to the state of itsrecords, NCS claimed that it could confirm only shipments received up to June 26, 1994. The senior accountant on the audit team treated as confirmed the $949,625 balance for shipments received by NSC up to June 26, 1994. For the remaining $339,142, the senior accountant reviewed subsequent payments by NSC to confirm that it had paid $163,339 but did not match the gross cash receipts with the actual items being paid. 33  The remaining balance of $175,803 was traced to shipping records and was treated as confirmed. 
+
+ GSS/Array Technology ("GSS") confirmed the full amount of $204,465 that CMD had claimed it owed as accounts receivable. Five days later, however, GSS denied all but $10,556 of the amount. The work papers indicate that, "[p]er discussion with Ron Romito and per review of written documentation," GSS subsequently confirmed that it owed $100,000 of the disputed receivables. The work papers do not explain any steps taken to address these discrepancies. 34  
+
+ The law judge determined that Marrie and Berry failed to comply with GAAS in evaluating confirmation responses and performing alternative procedures, but that these violations were not reckless. We do not agree. Prior to the audit, Marrie andBerry identified accounts receivable as a critical audit area. There were substantial reasons for them to do so. Marrie and Berry knew when they were planning the 1994 audit that CMD improperly had recognized revenue during fiscal years 1992 and 1993 for product that had not been shipped before the end of the applicable quarter. The prior problems with revenue recognition were red flags that, along with the responses that failed to confirm the reported amount of receivables, should have alerted Marrie and Berry that they needed to exercise a heightened degree of professional skepticism when they encountered discrepancies during the confirmation process. 35  
+
+ Over half (twenty-nine out of fifty-four) of the customers to whom Coopers sent confirmations did not confirm the accounts receivable as reported by CMD. This was a significant discrepancy that pointed to a general unreliability in CMD's calculation of accounts receivable. We conclude that Marrie's and Berry's failure to examine the reliability of the confirmation process generally, given the high rate of non-confirming responses and the previous problems with revenue recognition, was a reckless failure to comply with their professional duties. 
+
+ We find that the auditors also were reckless in the manner in which they followed up on particular non-confirming responses. With respect to the confirmation responses received from Solectron and Analogic, it was reckless to limit the confirmation process to reviewing shipping documents because the auditors were aware that these customers reported that product CMD claimed tohave shipped from Milpitas, California to locations in San Jose and in Massachusetts had not arrived at its destination forty-two days and forty-eight days later, respectively. 
+
+ This information raised the risk that, similar to CMD's earlier improper recognition of revenue for product that had not been shipped by the end of the quarter, CMD improperly was including in its accounts receivable amounts for products that may not have been shipped. Merely reviewing shipping documents would not necessarily answer why the customers reported that these products had not been received. The accountant's duty to exercise skepticism and to obtain sufficient competent evidential matter required Marrie and Berry to take steps to determine if the customer had ordered the product and expected its arrival. 36  We find that Marrie and Berry failed to take such steps in the face of the risk that CMD, at least with respect to Solectron and Analogic, was treating as accounts receivable amounts for products that had not been shipped. 37  
+
+ GSS provided three different answers when asked to confirm the balance owed on receivables and Marrie and Berry failed to take any steps to explore the reasons for GSS's changing responses. Rather, they simply accepted the word of Romito, a member of CMD management, without question. 
+
+ In failing to inquire further about these discrepancies in the confirmation responses, Marrie and Berry recklessly failed to exercise appropriate professional skepticism and to obtain sufficient evidential matter with respect to CMD's statement of its accounts receivable. We conclude that the conduct of Marrie and Berry in failing to follow-up on questionable confirmations was a reckless failure to comply with the professional standards of the auditing profession. 
+
+ 3. Marrie and Berry Recklessly Failed to Comply With Applicable Professional Standards in Their Audit of CMD's Sales Returns and Allowance for Sales Returns 
+
+ The Division also challenges the steps taken by Marrie and Berry in their analysis of CMD's sales returns and in their analysis of the adequacy of the company's allowance for returns. An auditor is responsible for evaluating the reasonableness of accounting estimates made by management and should consider, with an attitude of professional skepticism, both the subjective and objective factors involved in management's estimation process. 38  In evaluating reasonableness, the auditor should obtain an understanding of how management developed the estimate. 39  Based upon that understanding, the auditor should use one or a combination of three approaches: (a) review and test the processes used by management to develop the estimate; (b) develop an independent expectation to corroborate the reasonableness of management's estimate; and (c) review events or transactions occurring subsequent to management's development of the estimate but prior to the completion of field work. 40  
+
+ We find that Marrie and Berry failed to exercise the professional skepticism necessary to evaluate the reasonableness of CMD's estimates with respect to sales returns in several ways. First, in reviewing CMD's sales return reserve calculation, the auditors compared a year of sales to a year of returns and calculated a ratio of returns to sales for each of the company's two production facilities. Then, relying on CMD's representation that "virtually all returns are made within [two] months of purchase," the auditors applied the return ratio to sales only in May and June 1994, assuming that no additional returns would be made for products sold prior to May 1994. 
+
+ This methodology was seriously flawed. CMD policy, as stated in form contracts retained in the auditors' work papers, allowed returns for up to one year. CMD management's representation that shipment to foreign customers frequently tooksix weeks to deliver also raised an issue as to whether returns could be completed within two months. 41  
+
+ Marrie and Berry accepted the company's figure of $4,504,288 for the amount of returns for fiscal year 1994. CMD's August 4 press release, however, disclosed returns in the fourth quarter alone of $5.3 million. This was a significant discrepancy that was obvious from the face of the relevant documents and should have prompted a review of the entire return estimation process. 
+
+ In calculating sales returns, Marrie and Berry accepted a figure of $7,016,544 as product sales in May and June 1994 based upon CMD management's monthly trend report. Yet this figure conflicted with CMD's listing of accounts receivable by date (the aged trial balance) for the end of fiscal year 1994, which showed $12,165,351 in accounts receivable less than thirty days old. 42  These conflicting numbers raised the possibility that the product sales figure of $7,016,544 that Marrie and Berry used to estimate sales returns was significantly lower than actual product sales in May and June. This would have resulted in an artificially low estimate of sales returns. At the very least, this should have put Marrie and Berry on notice of an increased risk that CMD was improperly accounting for sales returns for products sold in May and June 1994. 
+
+ We conclude that the failure of Marrie and Berry to investigate any of these significant discrepancies was an extreme departure from the standards of ordinary care. When these discrepancies are considered in combination, Marrie's and Berry's failure to investigate them is even more troubling. These discrepancies would have been apparent on the face of the relevant documents. Marrie's and Berry's conduct here evinces an egregious refusal to investigate the doubtful and to see the obvious. The failure of Marrie and Berry to investigate these discrepancies and seek competent corroborative evidence from customers was a reckless violation of their professional duties. 
+
+ 4. Marrie's and Berry's Other Claims Are Without Merit 
+
+ Rather than dispute the facts presented by the Division with respect to their treatment of the write-off, their confirmation of accounts receivable, and their analysis of the adequacy of CMD's allowance for sales returns, Marrie and Berry contend that, for a number of reasons, it would be a mistake to conclude from these facts that they engaged in improper professional conduct within the meaning of Rule 102(e). 
+
+ Marrie and Berry argue that the Division's expert could not identify one instance in which Respondents acted recklessly and, therefore, according to Respondents, the Division impermissibly seeks to infer recklessness from the total audit environment. Marrie and Berry assert that this amounts to finding recklessness by stringing together numerous allegations of purported negligence. 
+
+ Respondents' argument is without merit. The Commission has considered each of the alleged failures to comply with GAAS; Marrie's and Berry's review of CMD's write-off, accounts receivable, and allowance for sales returns. We have concluded that each of these failures to comply with GAAS resulted from Marrie's and Berry's reckless conduct. 
+
+ Marrie and Berry were presented with numerous reasons for concern with respect to the write-off, the confirmation of accounts receivable, and the analysis of sales returns. When taken together, these discrepancies formed an avalanche of warnings that CMD's accounting practices and financial statements were suspect. Marrie and Berry were required to consider the financial statements as a whole and were not entitled to ignore the implications of discrepancies in one audit area for other audit areas. 
+
+ Marrie and Berry repeatedly protest that they could not have uncovered the fraud committed by CMD because it was an elaboratedeception that involved the destruction and fabrication of documents and the collusion of CMD employees and third parties. Their argument misses the point. Marrie's and Berry's violation arises not from their failure to discover CMD's fraud, but from their improper professional conduct in failing to adhere to GAAS in the audit. We do not know whether CMD's fraud would have been uncovered had Marrie and Berry fulfilled their professional duties in conducting the audit, but that is not relevant to our inquiry. An auditor is not a guarantor of the accuracy of financial statements of public companies, but the Commission and the investing public rely heavily on auditors to perform their tasks in auditing public companies "diligently and with a reasonable degree of competence." 43  Our concern here is whether Marrie and Berry discharged their responsibilities with diligence and consistent with the profession's responsibility to the public. We conclude that they did not. 
+
+ * * * 
+
+ We conclude that Marrie's and Berry's reckless deviations from the obligations imposed by GAAS with respect to the write-off, the confirmation of accounts receivable, and the analysis of sales returns and estimated allowances for sales returns constituted improper professional conduct. 
+
+ IV. 
+
+ Marrie and Berry challenge, on several fronts, our authority to institute this action. Respondents argue that any interpretation of recklessness that does not incorporate an intent to defraud is unconstitutionally vague because it fails to provide adequate notice of what conduct is prohibited. This argument is without merit. Due process requires only that laws give a "person of ordinary intelligence a reasonable opportunity to know what is prohibited." 44  The degree of required notice varies according to the circumstances. 45  
+
+ Disciplinary rules, like Rule 102(e), long have withstood vagueness challenges because professionals are deemed to know thestandards that govern their conduct. 46  The standards we enforce in this matter, basic concepts of GAAS such as the duties to exercise due care, to evaluate whether audit conclusions are supported by sufficient competent evidential matter, and to bring to the work an appropriate level of professional skepticism, are standards to which all accountants must adhere and which any accountant can be expected to understand. Marrie's and Berry's breaches of these principles are clear and uncontroverted. We have found these breaches to be reckless and Marrie and Berry cannot claim that they were unaware that reckless violations of their professional duties constitute improper professional conduct. 
+
+ Marrie and Berry challenge, also on vagueness grounds, the definition of "practicing before the Commission." Rule 102(f) provides that "practicing before the Commission" shall include, but not be limited to: 
+
+ (1) Transacting any business with the Commission; and 
+
+ (2) The preparation of any statement, opinion or other paper by any attorney, accountant, engineer or other professional or expert, filed with the Commission in any registration statement, notification, application, report or other document with the consent of such attorney, accountant, engineer or other professional or expert. 
+
+ Marrie and Berry contend that the phrase "shall include, but not be limited to" makes the concept of "practicing before the Commission" an "unbounded concept" and, therefore, is unconstitutionally vague. 
+
+ Marrie's and Berry's argument is without merit. Rule 102(e) is tailored specifically to provide the Commission "with themeans to ensure that those professionals, on whom the Commission relies heavily in the performance of its statutory duties, perform their tasks diligently and with a reasonable degree of competence." 47  It is uncontroverted that Marrie's and Berry's activities with respect to the audit of CMD's 1994 fiscal year financial statements constitute practice before the Commission. 48  
+
+ Marrie and Berry raise the defense of latches and allege that they have been prejudiced by what they view as the Division's delay in bringing this action. Respondents contend that this delay has resulted in faded memory on the part of certain witnesses and the loss of certain documents. The defense of laches is not available against federal agencies acting to protect the public interest. 49  
+
+ Even were the defense of laches available to Marrie and Berry, they have not made the required showing of a delay that is unreasonable and causes prejudice. 50  The decision to commence proceedings for improper professional conduct under Rule 102(e) after prosecuting claims for substantive violations of the securities laws by CMD's officers, directors and accounting personnel was not unreasonable. Marrie and Berry have failed to establish that they suffered prejudice from this delay. Documentary evidence, particularly the work papers for the CMD audit, has been preserved and all critical witnesses were available to testify at the hearing. The law judge found that, while various witnesses claimed to be unable to recall certain events, these witnesses had no difficulty recalling exculpatory facts. We agree with the law judge's conclusion that Respondents were not prejudiced by any alleged claims of poor memory. We conclude that there is no basis for Respondents' claimed defense of laches or prejudice from delay. 
+
+ V. 
+
+ Under all of the circumstances, we believe that the appropriate sanction for the improper professional conduct by Marrie and Berry is to deny them the privilege of appearing or practicing before the Commission. Marrie and Berry violated fundamental principles of audit work. They failed to exercise due care and appropriate professional skepticism and failed to collect sufficient competent evidential matter to provide the basis for the expression of an audit opinion with respect to CMD's write-off, accounts receivable, and sales returns. Their substantial departures from their professional duties establish that the Commission cannot rely upon Marrie and Berry to perform diligently and with reasonable competence their audit responsibilities in the future. 
+
+ Marrie and Berry have significant experience in audit work; at the time of the audit Marrie had been a licensed CPA for over 20 years, Berry for nearly 10 years. This lengthy experience makes their failure to conduct the audit in accordance with applicable professional standards all the more troubling. In addition, Marrie's and Berry's long experience in the accounting profession and the fact that they both are actively licensed CPAs create a significant risk that they may return to that professionand again conduct audits of public companies. 51  We conclude that these circumstances fully warrant that Marrie and Berry be denied the privilege of appearing or practicing before the Commission. 
+
+ An appropriate order will issue. 52  
+
+ By the Commission (Chairman DONALDSON and Commissioners GLASSMAN, GOLDSCHMID and CAMPOS); Commissioner ATKINS, not participating. 
+
+ Jonathan G. Katz 
+Secretary 
+
+  
+
+ 
+ UNITED STATES OF AMERICA 
+
+ before the 
+
+ SECURITIES AND EXCHANGE COMMISSION 
+
+ SECURITIES EXCHANGE ACT OF 1934 
+Rel. No. 48246 / July 29, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 1823 / July 29, 2003 
+
+ Admin. Proc. File No. 3-9966 
+
+  
+
+ 
+	 
+		 
+			 
+			 
+			 In the Matter of the Application of 
+
+			 MICHAEL J. MARRIE, CPA and 
+			BRIAN L. BERRY, CPA 
+
+			  
+		 
+	 
+ 
+
+ ORDER IMPOSING REMEDIAL SANCTIONS 
+
+ On the basis of the Commission's opinion issued this day, it is 
+
+ ORDERED that Michael J. Marrie and Brian L. Berry be, and hereby are, denied the privilege of appearing or practicing before the Commission in any way. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+  
+
+ 
+ 
+	 
+		 
+			  1  
+			 17 C.F.R. § 201.102(e). 
+		 
+		 
+			  2  
+			 The Division did not allege and did not attempt to establish that Marrie and Berry failed to prepare CMD's financial statements in conformity with Generally Accepted Accounting Principles ("GAAP"). 
+		 
+		 
+			  3  
+			 Marrie and Berry also have sought review of the law judge's decision. Rule of Practice 410, 17 C.F.R. § 201.410, provides that "any party, and any other person who would have been entitled to judicial review of the decision" may file a petition for review. The law judge dismissed the proceedings against Marrie and Berry and, therefore, they are not entitled to Commission review of that decision. We noted in our January 11, 2002 order denying Marrie's and Berry's petition for review of our order granting the Division's petition for review, however, that Marrie's andBerry's petition for review raises issues appropriate for Commission review on our own motion pursuant to Rule of Practice 411(c), 17 C.F.R. § 201.411(c). Accordingly, we have considered the arguments raised in the briefs to the Commission filed by Marrie and Berry. Specifically, Marrie and Berry argue that a bar is not warranted here because the Division is seeking to apply Rule 102(e) retroactively in violation of Respondents' constitutional rights; the Rule fails to give fair warning of the conduct prohibited; and the Rule as applied is constitutionally vague and exceeds the powers of the Commission. 
+		 
+		 
+			  4  
+			 15 U.S.C. § 78l(g). 
+		 
+		 
+			  5  
+			 AICPA,  Codification of Statements on Auditing Standards , AU § 150.02 (hereinafter "AICPA, AU § __"), Standard of Field Work, ¶ 1 (1995). Rule 202 of the AICPA's  Code of Professional Conduct  recognizes Statements on Auditing Standards as interpretations of GAAS. 
+		 
+		 
+			  6  
+			 AICPA, AU § 150.02, Standard of Field Work, ¶ 3. 
+		 
+		 
+			  7  
+			 The Division does not distinguish further between Marrie and Berry with respect to their general roles in Cooper's audit of CMD's 1994 fiscal year financial statements. 
+		 
+		 
+			  8  
+			 The work papers do include a "Credit Memorandum Summary Journal Entry, June 1994." Although Marrie could not recall if he reviewed this document, he recalled seeing a document in similar form. Based upon Marrie's testimony, the law judge concluded that this document either was the spreadsheet of the accounts receivable write-off that Marrie reviewed in 1994, or was sufficiently similar to serve as a substitute for purposes of the administrative hearing. 
+		 
+		 
+			  9  
+			   Russell Ponce , Exchange Act Rel. No. 43235 (Aug. 31, 2000), 73 SEC Docket 442, 465 n.52,  appeal pending , No. 00-71398 (9th Cir.). 
+		 
+		 
+			  10  
+			 Amendment to Rule 102(e) of the Commission's Rules of Practice, Exchange Act Rel. No. 40567 (Oct. 18, 1998), 68 SEC Docket 707, 709 (hereinafter "Amendment to Rule 102(e)").  See   also   Russell Ponce , 73 SEC Docket at 467 n.57;  Albert Glenn Yesner, CPA , Exchange Act Rel. No. 42030 (Oct. 19, 1999), 70 SEC Docket 2743, 2746-2747;  Robert D. Potts, CPA , 53 S.E.C. 187, 203-04 (1997);  Marvin E. Basson , Exchange Act Rel. No. 35840 (June 13, 1995), 59 SEC Docket 1650;  Gary L. Jackson , 48 S.E.C. 435, 437-38 (1986) (review of injunctive allegations in Rule 102(e) proceeding). 
+		 
+		 
+			  11  
+			 We have defined "reckless conduct" for purposes of assessing accountant conduct under Rule 102(e) as "not merely a heightened form of ordinary negligence; it is an extreme departure from the standard of ordinary care . . . which presents a danger of misleading buyers or sellers that is either known to the actor or is so obvious that the actor must have been aware of it." Amendment to Rule 102(e), 68 SEC Docket at 710. 
+		 
+		 
+			  12  
+			 Amendment to Rule 102(e), 68 SEC Docket at 710,  citing   SEC v. Steadman , 967 F.2d 636, 641 (D.C. Cir. 1992) (quoting  Sundstrand Corp. v. Sun Chemical Corp. , 553 F.2d 1033, 1045 (7th Cir. 1977),  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193-94 n.12 (1976)). 
+		 
+		 
+			  13  
+			 Amendment to Rule 102(e), 68 SEC Docket at 710. 
+		 
+		 
+			  14  
+			 For this reason, the cases to which Marrie and Berry cite in support of their claim that recklessness for the purposes of determining a violation of Rule 102(e) should be defined as approximating actual intent to aid in the fraud perpetrated by the audited company are inapposite.  Philadelphia v. Fleming Cos. , 264 F.3d 1245, 1261 (10th Cir. 2001);  In re Software Toolworks , 50 F.3d 615, 627 (9th Cir. 1994);  Decker v. Massey-Ferguson, Ltd , 681 F.2d 111, 121 (2d Cir. 1982);and  SEC v. Price Waterhouse , 797 F. Supp. 1217, 1240 (S.D.N.Y. 1992) are all cases involving actions against accountants or others for violations of the antifraud provisions of the federal securities laws. 
+		 
+		 
+			  15  
+			   Touche Ross & Co. v. SEC , 609 F.2d 570, 582 (2d Cir. 1979). 
+		 
+		 
+			  16  
+			   Id.  at 581. 
+		 
+		 
+			  17  
+			 AICPA,  Code of Professional Conduct , Rule 202. 
+		 
+		 
+			  18  
+			 This is not to imply that the concept of materiality is irrelevant.  See  AICPA, AU § 150.04 ("The concept of materiality is inherent in the work of the independent auditor.") The law judge, however, misinterpreted the role that materiality plays in assessing whether an auditor acted improperly as a result of a reckless failure to comply with GAAS. For example, GAAS directs that "[t]here 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 (noting by way of example that "accounts receivable usually will receive more attention than prepaid insurance"). 
+		 
+		 
+			  19  
+			 AICPA, AU § 150.02, General Standard, ¶ 3. 
+		 
+		 
+			  20  
+			 AICPA, AU § 316.16. 
+		 
+		 
+			  21  
+			 AICPA, AU § 150.02, Standard of Field Work, ¶ 3. 
+		 
+		 
+			  22  
+			 Marrie told a special agent of the Federal Bureau of Investigation that he was "dumbfounded" by the size of the proposed write-off. At the hearing, Marrie could not recall telling the FBI that he was dumbfounded, but the law judge found that his testimony in this regard was not credible. 
+		 
+		 
+			  23  
+			 AICPA, AU § 316.20. ("When evaluation at the financial statement level indicates significant risk, the auditor requires more or different evidence to support material transactions than would be the case in the absence of such risk. . . . Transactions that are both large and unusual, particularly at year-end, should be selected for testing."). 
+		 
+		 
+			  24  
+			 ACIPA, AU § 342.04. 
+		 
+		 
+			  25  
+			 AICPA, AU § 342.10. 
+		 
+		 
+			  26  
+			   Cf.  Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 48,  Revenue Recognition When Right Of Return Exists  ¶ 8 (June 1981) (stating that susceptibility of the product to significant external factors, such as technological obsolescence, is one factor that may impair the ability of an auditor to make a reasonable estimate of the amount of future returns). 
+		 
+		 
+			  27  
+			 AICPA, AU § 330.04. 
+		 
+		 
+			  28  
+			 AICPA, AU § 326.19(a). 
+		 
+		 
+			  29  
+			 AICPA, AU § 330.09. "Audit risk is the risk that the auditor may unknowingly fail to appropriately modify his opinion on financial statements that are materially misstated." AICPA, AU § 312.02. 
+		 
+		 
+			  30  
+			 AICPA, AU § 330.32. 
+		 
+		 
+			  31  
+			 AICPA, AU § 330.15. 
+		 
+		 
+			  32  
+			 AICPA, AU § 330.32. 
+		 
+		 
+			  33  
+			   See  AICPA, AU § 330.32. 
+		 
+		 
+			  34  
+			 The Division also alleges that two confirmation responses raised questions about consignment sales. It is inconsistent with GAAP to count consignment sales as actual sales and to record the anticipated revenue.  See   Worlds of Wonder Sec. Litig. , 35 F.3d 1407, 1418 (9th Cir. 1994) (citing  Malone v. Microdyne Corp. , 26 F.3d 471, 478 (4th Cir. 1994)). UPC Electronics responded to Cooper's confirmation request by stating that many of the items had been ordered on consignment and that some of the items were still in its warehouse. YHK International, LTD. responded to a letter requesting confirmation of a receivable balance of $144,747 by stating that it was in negotiation to return some of the product. YHK later requested that it be allowed to return $103,750 of product. The Division alleges that Marrie and Berry did not inquire further with respect to these and other customer accounts to determine if CMD was engaged in consignment sales.
+			 These confirmations indicated that CMD was counting consignment sales as actual sales. These confirmations were a red flag that pointed to a risk that CMD was improperly inflating its accounts receivable balance. 
+			 
+		 
+		 
+			  35  
+			 The loss of Apple as a major customer was another factor that should have alerted Respondents to the need to exercise a heightened degree of skepticism with respect to confirmation of accounts receivable. Marrie testified that he did not give much thought to the loss of Apple's business because of the strategic alliance that CMD had entered with Hitachi Metals. The strategic alliance did not alter the impact of the loss of Apple as a customer on CMD's ability to collect on its accounts receivable amounts owed as a result of product delivery. The loss of Apple, a customer that always made timely payments, was a change in circumstances that created for CMD an increased risk that it would be unable to collect on its accounts receivable to the extent it had when Apple was a customer. Given these red flags, Marrie's and Berry's professional duty to exercise skepticism and to obtain sufficient evidential material required them to do more than perform a superficial examination of the questionable confirmations. 
+		 
+		 
+			  36  
+			   See  AICPA, AU § 150.02 (sufficient competent evidential matter); AICPA, AU § 316.16 (professional skepticism). 
+		 
+		 
+			  37  
+			 The review of cash collections from Analogic and NSC also failed to comply with GAAS. GAAS requires that, if an auditor elects to examine subsequent cash receipts as an alternate procedure in response to a discrepancy resulting from the confirmation process, the auditor must match the subsequent cash receipts with the actual items being paid. AICPA, AU § 330.32. The auditors failed to match the cash receipts for the disputed amounts with respect to Analogic and NCS with the actual items being paid. 
+		 
+		 
+			  38  
+			 AICPA, AU § 342.04. 
+		 
+		 
+			  39  
+			 AICPA, AU § 342.10. 
+		 
+		 
+			  40  
+			   Id.  
+		 
+		 
+			  41  
+			 When confronted with this information during the audit process, Marrie and Berry did not take steps to investigate whether a return could be accomplished in this time frame. While the record does not establish whether the two-week period after foreign shipment was sufficient for a foreign customer to determine that a product was unsatisfactory and effectuate a return, the fact that Marrie and Berry did not inquire concerning this was a failure to obtain competent evidence to corroborate management's assertion that virtually all product returns were made within two months of purchase. 
+		 
+		 
+			  42  
+			 These were not the only numbers that did not add up. The purchases and returns analysis conducted as part of the audit stated that sales for the fourth quarter were $10,258,746. CMD's August 4 press release stated that the company had product sales of $12.7 million for the fourth quarter, without considering returns. This discrepancy was further evidence of an increased risk that CMD was accounting improperly for product sales and returns. 
+		 
+		 
+			  43  
+			   See   Touche Ross v. SEC , 609 F.2d 570, 581 (2d Cir. 1979). 
+		 
+		 
+			  44  
+			   Grayned v. City of Rockford , 408 U.S. 104, 108 (1972). 
+		 
+		 
+			  45  
+			   Village of Hoffman Estates v. Flipside, Hoffman Estates , 455 U.S. 489, 498 (1982). 
+		 
+		 
+			  46  
+			   See, e.g. ,  United States v. Hearst , 638 F.2d 1190, 1197 (9th Cir. 1980) (the phrase "conduct unbecoming a member of the bar" is not unconstitutionally vague because "[i]t refers to the legal profession's 'code of behavior' and 'lore,' of which all attorneys are charged with knowledge" and which are illustrated by the American Bar Association's Code of Professional Responsibility);  Crimmins v. American Stock Exch., Inc. , 368 F. Supp. 270, 277 (S.D.N.Y. 1973),  aff'd , 503 F.2d 560 (2d Cir. 1974) (rejecting a vagueness challenge to American Stock Exchange, Inc. rule barring conduct in violation of "just and equitable principles of trade" because an experienced securities representative "may be fairly charged with knowledge of the ethical standards of his profession.") 
+		 
+		 
+			  47  
+			   Touche Ross , 609 F.2d at 582 (quoting  Mourning v. Family Publication Servs., Inc. , 411 U.S. 356, 369 (1973)). 
+		 
+		 
+			  48  
+			 To the extent that Marrie and Berry argue that the Rule also is vague with respect to the Division's request to deny Marrie and Berry the privilege of appearing or practicing before the Commission, we reject this argument. Congress has granted us the authority to deny accountants the privilege of practicing before the Commission in order to ensure that "those professionals, on whom the Commission relies heavily in the performance of its statutory duties, perform their tasks diligently and with a reasonable degree of competence as a means "to protect the integrity of its own processes."  Touche Ross , 609 F.2d at 581-82.
+			 We do not address whether Berry's current position as a financial officer for a company whose shares are publically traded constitutes practicing before the Commission. This case concerns Berry's conduct with respect to the 1994 fiscal year audit of CMD's financial statements and, therefore, it is not the proper forum for the Commission to make a determination concerning the nature of Berry's current position. Moreover, the record contains insufficient facts concerning the nature of Berry's role in his current occupation to allow us to determine whether Berry's activities constitute appearing or practicing before the Commission. 
+			 
+		 
+		 
+			  49  
+			   See   United States v. Alvarado , 5 F.3d 1425, 1427 (11th Cir. 1993);  David Disner , 52 S.E.C. 1217, 1223 (1997).
+			  
+			 
+		 
+		 
+			  50  
+			   Danjac LLC v. Sony Corp. , 263 F.3d 942, 951-56 (9th Cir. 2001). 
+		 
+		 
+			  51  
+			 Marrie and Berry contend that the sanctions sought by the Division here serve no remedial purpose but rather are intended purely as punishment for past conduct and, therefore, are beyond the Commission's authority. Their argument is without merit. As we have explained, Marrie's and Berry's improper professional conduct demonstrates a future threat to the Commission's processes and, therefore, the application of Rule 102(e) here is remedial and not punitive in nature. 
+		 
+		 
+			  52  
+			 We have considered all of the parties' contentions. We have rejected or sustained these contentions to the extent that they are inconsistent or in accord with the views expressed in this opinion. 
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diff --git a/raw/aaer/2003/AAER-1824.txt b/raw/aaer/2003/AAER-1824.txt
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+              Philip L. Pascale, CPA Lillian A. McEwen, Administrative Law Judge
+           
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+        Philip L. Pascale, CPA Lillian A. McEwen, Administrative Law Judge
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+ The Securities and Exchange Commission ("Commission") has instituted public cease-and-desist 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") and proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order") against Philip L. Pascale ("Pascale"), a certified public accountant, to determine:  (i) whether Pascale has willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and willfully aided and abetted and caused violations of Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 thereunder, and whether Pascale engaged in improper professional conduct; and (ii) whether any order should be issued pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act or pursuant to Rule 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice. 
+
+ The Division of Enforcement ("Division") alleges that false and misleading financial statements included in filings with the Commission by Composite Holdings, Inc., formerly World Homes, Inc., resulted from failed audits conducted by Pascale.  It is further alleged that these financial statements, covering annual and quarterly reports for the periods from June 30, 1999, through December 31, 2001, were materially false because the recorded amount for patents acquired in a merger between Composite and an entity under common control with Composite, was stepped-up and recorded at an amount materially in excess of fair value, contrary to Generally Accepted Accounting Principles ("GAAP").  Finally, the Division alleges that, even if the write-up in the basis of the patents had been appropriate under GAAP, Composite's recording of a deferred tax asset related to the patents also resulted in material overstatements of assets and equity and material misstatements of net losses.  The false financial statements were also allegedly included by reference in several registration statements on Form S-8. 
+
+ It is alleged that during the relevant times, Pascale provided yearly audit and quarterly review services to Composite and that he issued unqualified reports on its financial statements which were included in filings with the Commission.   
+
+ A public hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Pascale an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate. 
+ 
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diff --git a/raw/aaer/2003/AAER-1825.txt b/raw/aaer/2003/AAER-1825.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9deafa9bf05e15f735c026199977932fc8c2aab7
--- /dev/null
+++ b/raw/aaer/2003/AAER-1825.txt
@@ -0,0 +1,1477 @@
+
+
+ 
+ 
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+     SEC.gov | Jay P. Gilbertson, C.P.A. 
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+              Jay P. Gilbertson, C.P.A.
+           
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+        Jay P. Gilbertson, C.P.A.
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+ Securities Exchange Act of 1934 
+Release No.  48248 / July 29, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No.  1825 / July 29, 2003 
+
+ Administrative Proceeding 
+File No.  3-11195 
+
+     In the Matter of 
+
+ JAY P. GILBERTSON, C.P.A. 
+
+ 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 (the "Commission") deems it appropriate and in the public interest that administrative proceedings be, and hereby are, instituted against Jay P. Gilbertson ("Gilbertson"), a certified public accountant, pursuant to Rule 102(e)(3)(i)(A) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Gilbertson 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 in which the Commission is a party, and without admitting or denying the findings contained herein (except that Gilbertson admits the jurisdiction of the Commission over him and over the subject matter of these proceedings and that a final judgment of permanent injunction has been entered against him), Gilbertson 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") as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Gilbertson's Offer, the Commission finds that: 
+
+ A. Gilbertson, 43, a certified public accountant who is duly licensed by the Texas Board of Accountancy, is a defendant in  Securities and Exchange Commission v. Jay Gilbertson, et al. , Case No. C-00-3570 MJJ in the United States District Court for the Northern District of California.  Gilbertson, former Co-President, Co-Chief Operating Officer and Chief Financial Officer for HBO & Co. ("HBOC" or the "Company"), resides in Georgia. 
+
+ B. On July 1, 2003, in the above-referenced matter, the United States District Court for the Northern District of California: (a) permanently enjoined Gilbertson from future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13b2-1 and 13b2-2 thereunder; (b) ordered Gilbertson to pay a civil monetary penalty of $1,000,000; and (c) barred him from serving as an officer or director of a public company.  Gilbertson consented, without admitting or denying the allegations contained in the Commission's complaint (except as to jurisdiction, which he admitted), to the issuance of the order of permanent injunction and the entry of final judgment. 
+
+ C. The Commission's complaint in the above action alleged that Gilbertson was a primary and active participant in a scheme to defraud investors by causing HBOC to materially inflate the profits that it reported to the investing public.  Gilbertson carried out this fraudulent scheme by causing numerous improper journal entries to be input into HBOC's general ledger, which falsely reduced HBOC's expenses.  Gilbertson also facilitated the recognition of revenue on software sales that were subject to contingencies contained in side letters and therefore could not properly be recorded as revenue.  He also took steps to conceal the company's accounting improprieties from HBOC's auditors.  The fraud caused HBOC to significantly overstate its revenue and net income for several consecutive quarters.  Gilbertson signed HBOC's Forms 10-Q filed with the Commission for the March, June, and September 1998 quarters knowing that the financial statements contained therein were false and misleading as a result of the fraud.  Gilbertson also signed HBOC's registration statements on Forms S-4 and S-4/A that were filed with the Commission on August 14, August 21, August 24, and October 1, 1998.  These forms incorporated HBOC's false and misleading financial statements for the quarters ended March 31 and June 30, 1998.   
+
+ IV. 
+
+ Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction consented to by Gilbertson in his Offer. 
+
+ Accordingly, it is hereby  ORDERED,  effective immediately, that Gilbertson is suspended from appearing or practicing before the Commission as an accountant. 
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   1   Rule 102(e)(3)(i)(A) of the Commission's Rules of Practice provides, in pertinent 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/2003/AAER-1827.txt b/raw/aaer/2003/AAER-1827.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7e17f6a7d70a583dcc0e2916af6bc497aa6c615c
--- /dev/null
+++ b/raw/aaer/2003/AAER-1827.txt
@@ -0,0 +1,1526 @@
+
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+ 
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+     SEC.gov | David S. Pearl, Esq. 
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+              David S. Pearl, Esq.
+           
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+        David S. Pearl, Esq.
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+   Release No. 48257 / July 30, 2003
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+    Release No. 1827 / July 30, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+    File No.  3-11196 
+		
+      In the Matter of 
+
+ DAVID S. PEARL, ESQ.,
+  Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS, MAKING FINDINGS AND IMPOSING 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 administrative proceedings against Respondent David S. Pearl, Esq. ("Pearl"), pursuant to Rules 102(e)(1)(iii) and 102(e)(3)(i)(A) of the Commission's Rules of Practice [17 C.F.R. §§ 201.102(e)(1)(iii) and 201.102(e)(3)(i)(A)].  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Pearl 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 this proceeding, and the findings contained in Section III.D below relating to his being permanently enjoined from future violations of the Federal securities laws, which are admitted, Pearl consents to the issuance of this Order.  
+
+ III. 
+
+ The Commission finds that: 
+
+ A. Pearl, age 48, served as acting treasurer of Carnegie International Corporation ("Carnegie") from September 1996 through May 1997, as corporate secretary of Carnegie from May 1997 through January 1999, and as a paid consultant to Carnegie from January 1999 through December 1999.  Pearl has been a licensed attorney in the State of Maryland since 1980. 
+
+ B. Carnegie is a Colorado corporation headquartered in Laurel, Maryland.  During the relevant period, Carnegie owned and operated several subsidiaries, including a credit card services company and a telephone-sex company.  Carnegie's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78l(g)], from December 28, 1998, through July 14, 2003.  2    From September 1996 through April 1999, Carnegie's stock was quoted on the OTC Bulletin Board.  The stock was listed on the American Stock Exchange ("AMEX") on April 29, 1999.  AMEX halted trading of the stock on April 30, 1999, and delisted the stock in January 2000.  Carnegie's stock most recently traded in the over-the-counter market and was quoted in the "Pink Sheets" published by Pink Sheets LLC.     
+
+ C. To create the appearance of rapid financial growth in Carnegie's 1998 fiscal year, the year Carnegie registered its common stock with the Commission, Pearl, along with other Carnegie management, caused Carnegie to report revenues and income on certain transactions that, under generally accepted accounting principles ("GAAP"), were not revenue or income producing transactions.  Among other things, Pearl knowingly helped prepare phony and backdated agreements and other documents used to improperly report these transactions, which were provided to Carnegie's auditors.  As a result of these improperly reported transactions, the revenues and income reported in Carnegie's original and amended registration statement, filed with the Commission on October 28, 1998, and February 13, 1999, respectively, and in its original and amended 1998 Form 10-KSB, filed with the Commission on April 27, 1999, and January 25, 2000, respectively, were materially overstated, and the terms of these transactions were materially misrepresented.  Pearl knew, or was reckless in not knowing, that the phony and backdated agreements and other documents he helped prepare were used to materially misrepresent the terms of these transactions in Carnegie's filings with the Commission, and to mislead Carnegie's auditors.  Pearl, along with other Carnegie management, personally benefited from this fraud through the undisclosed sale of Carnegie securities.   
+
+ D. On July 14, 2003, the Commission filed a complaint in the United States District Court for the District of Columbia, captioned  SEC v. Carnegie International Corporation, et al. , C.A. No. 03-1513, alleging, among other things, that Pearl engaged in the conduct described above.  On July 29, 2003, Pearl was permanently enjoined from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Exchange Act Sections 10(b), 13(b)(5), and 16(a) and Rules 10b-5, 13b2-1, 13b2-2,  16a-2, and 16a-3, and from aiding and abetting violations of Exchange Act Sections 12(g), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20 and 13a-1.  Pearl consented to entry of the final judgment in the civil action without admitting or denying the allegations of the Commission's complaint, except as to jurisdiction.   
+
+ IV. 
+
+ FINDINGS
+
+  On the basis of this Order and the Respondent's Offer, the Commission finds that:  
+
+ A. Pearl willfully violated Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(b)(5), and 16(a) and Rules 10b-5, 13b2-1, 13b2-2, 16a-2, and 16a-3 thereunder, and willfully aided and abetted violations of Exchange Act Sections 12(g), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20 and 13a-1 thereunder; and  
+
+ B. On July 29, 2003, in an action brought by the Commission, the United States District Court for the District of Columbia entered a final judgment permanently enjoining Pearl from violating Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(b)(5), and 16(a) and Rules 10b-5, 13b2-1, 13b2-2, 16a-2, and 16a-3, and from aiding and abetting violations of Exchange Act Sections 12(g), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20 and13a-1. 
+
+ V. 
+
+ ORDER 
+
+ Accordingly,  IT IS HEREBY ORDERED , effective immediately, that: 
+
+ Pearl is denied the privilege of appearing or practicing before the Commission as an attorney. 
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+   
+
+  SERVICE LIST  
+
+ Rule 141 of the Commission's Rules of Practice provides that the Secretary, or another duly authorized officer of the Commission, shall serve a copy of the Order Instituting Administrative Proceedings, Making Findings and Imposing Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order") on each person named as a party in the Order and their legal agent. 
+
+ The attached Order has been sent to the following parties and other persons entitled to notice: 
+
+ The Honorable Brenda P. Murray 
+   Chief Administrative Law Judge 
+	 Securities and Exchange Commission 
+	 450 Fifth Street, N.W. 
+	 Washington, DC  20549-1106 
+
+ Brian O. Quinn, Esq. 
+   Division of Enforcement 
+	 Securities and Exchange Commission 
+	 450 Fifth Street, N.W. 
+	 Washington, DC  20549-0806 
+
+ Mr. David S. Pearl 
+   c/o Eric A. Kuwana, Esq. 
+	 Patton Boggs LLP 
+	 2550 M Street, N.W. 
+	 Washington, DC  20037-1350 
+
+ Eric A. Kuwana, Esq. 
+   Patton Boggs LLP 
+	 2550 M Street, N.W. 
+	 Washington, DC  20037-1350 
+	 [Attorney for Respondent David S. Pearl] 
+	 
+-->
+   
+      1       Rule 102(e) provides, in pertinent part: 
+
+   (1) 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 . . . . (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.
+
+    (3)(i) The Commission, with due regard to the public interest and without preliminary hearing, may, by order, temporarily suspend from appearing or practicing before it any attorney    . . . who has been by name:
+
+    (A) [p]ermanently enjoined by any court of competent jurisdiction, by reason of his   . . . 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 . . . . 
+
+    (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 (e)(3) to have been enjoined by reason of the misconduct alleged in the complaint. 
+
+       2       On July 14, 2003, the Commission instituted a separate proceeding against Carnegie in which it ordered Carnegie's stock deregistered pursuant to Exchange Act Section 12(j).   See In the Matter of Carnegie International Corporation,  Admin. Proc. No. 3-11177 (July 14, 2003). 
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diff --git a/raw/aaer/2003/AAER-1828.txt b/raw/aaer/2003/AAER-1828.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3d0ea4cf30496120f737dbc720238be48c9ebdc8
--- /dev/null
+++ b/raw/aaer/2003/AAER-1828.txt
@@ -0,0 +1,1396 @@
+
+
+ 
+ 
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+ 
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+     SEC.gov | Alexander H. Edwards, III 
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+                                                                                                                                                                                                                                                                                                                                                 
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+              Alexander H. Edwards, III
+           
+     
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+   
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+     
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+      
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+             
+        Alexander H. Edwards, III
+       
+
+             
+   
+
+
+        
+                   
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+  
+    
+      
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+   
+
+             
+                        
+             
+
+ LITIGATION Release No.   18271 / August 5, 2003
+
+  ACCOUNTING AND AUDITING Release No.   1828 / August 5, 2003
+
+   Securities and Exchange Commission v. Alexander H. Edwards, III , U.S. District Court for the Middle District of Florida (Civil Action No. 8:03-CV-1647-T-26MAP.
+
+   FORMER PRESIDENT OF SRI/SURGICAL EXPRESS, INC. SETTLES SECTION 10(b) CHARGE CONCERNING SRI'S OVERSTATED REVENUE  
+
+   SRI, ITS FORMER COO, AND CFO ALSO SETTLE CEASE AND DESIST PROCEEDING 
+
+   A. The Edwards Complaint 
+
+  The U.S. Securities and Exchange Commission today filed a settled civil enforcement action in U.S. District Court in Tampa, Florida, against Alexander H. Edwards, III, former president of SRI/Surgical Express, Inc. (SRI), a Florida hospital supply company that trades on the NASDAQ National Market System under the symbol STRC.  The complaint alleged that Edwards caused SRI to enter into two transactions that resulted in SRI overstating its Fiscal 2001 third quarter revenue by $832,000 even though neither of the counter parties ever agreed to accept delivery of, or pay for, additional products in SRI's third quarter.  More specifically, the complaint alleges:  
+      The first transaction involved Jewish Hospital Healthcare System ("JHHS") based in Lexington, Kentucky.  A few weeks prior to the September 30, 2001 close of SRI's third quarter, Edwards told JHHS that SRI was having trouble balancing inventory among its various facilities.   Edwards asked if SRI could pre-bill JHHS for 60 to 90 days of inventory.  Edwards explained that he did not expect JHHS to pay SRI any of the invoices for goods billed and not delivered.  Instead, and consistent with their contractual arrangement, Edwards acknowledged JHHS would only pay for the products it received.  In or about October, Edwards sent the purchasing agent's controller invoices totaling $753,480 for the entire pre-billed inventory.  As a result, SRI improperly recorded $753,480 in sales revenue in its third quarter, even though SRI did not deliver $753,480 worth of additional supplies to JHHS in that quarter.
+
+       The second transaction involved UMass Memorial Medical Center ("UMass") in Worcester, MA.  Shortly before the close of SRI's third quarter, Edwards asked if UMass would accept early shipment of some inventory that SRI had customized for it.  Edwards explained that he was interested in shipping an additional 30-day supply of inventory to the depot SRI used to service UMass in exchange for a discount in the purchase price.  Although the UMass officials asked Edwards to put the proposal in writing, Edwards never provided UMass with any written documentation.  Accordingly, UMass never ordered any additional supply of products under the arrangement Edwards proposed.  SRI's accounting group prepared invoices based on its understanding of the transaction as relayed to it by Edwards.  As a result of this purported transaction sale, SRI recorded approximately $88,000 of sales revenue on its books and records.
+
+       As SRI's president and sales director, Edwards was reckless in not knowing that these transactions were not sales. 
+   Without admitting or denying the allegations in the complaint, Edwards consented to the entry of a Final Judgment permanently enjoining him from future violations of (or aiding and abetting violations of) Sections 10(b), 13(b)(5), and 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 13b2-1.  The Final Judgment also imposes a $50,000 civil penalty.
+
+   B. The Cease-and-Desist Order Against SRI, its former COO and CFO 
+
+  The Commission also issued a settled cease-and-desist order today (the "Order") against SRI, its former COO Wayne R. Peterson, and its former CFO James T. Boosales.  The findings in the Order involved the premature recognition of customer orders at the end of SRI's 2001 second and third quarters.  More specifically, the Order found that:   
+      SRI's internal controls contained a significant loophole that allowed its revenue recognition policy to be circumvented.  SRI did not record the date or time that it actually delivered the shipments to its customers.  As a result, the only dates in SRI's records were the "order request" date and the "ship confirm" date, and both of these dates could be manually overridden.  
+
+       In mid-to-late June 2001, COO Wayne R. Peterson informed SRI's operations staff that SRI's revenues were falling short of the company's internal expectations.  Peterson emphasized that SRI needed to sell an additional day and a half worth of product by month's end.  In response to Peterson's directives, certain operations personnel instructed their facilities to invoice as much product as possible over the remaining days of the second quarter.  An operations employee emphasized that plant managers he supervised could invoice products that had been pulled, packed and staged for delivery if necessary at the end of the quarter.  Other operations personnel also instructed their respective plants to move orders that had been staged for delivery from Monday to Friday to help alleviate the shortfall.  SRI operations personnel manually changed dates in the company's computer system to accelerate the recognition of the revenue.  
+
+       SRI's Assistant Controller observed an unusual spike in quarter-end revenue and found a number of instances in which one customer's account reflected two orders on Friday, June 29.  Unable to find any logical reason for these double orders and believing that some mistakes had occurred, with CFO James Boosales' authorization, he moved approximately $150,000 worth of the backdated sales into the third quarter.  Despite his efforts to correct SRI's second quarter revenue, the Assistant Controller did not catch all of the prematurely recognized customer sales.  As a consequence, SRI's second quarter revenues remained overstated by $120,000 in SRI's second quarter Form 10-Q for the period ended June 30, 2001.
+
+
+       In September 2001, the last month of SRI's fiscal third quarter, with just five days remaining in the quarter, SRI had a $2 million shortfall from its revenue goal.  Peterson encouraged the plants to increase customer inventory levels and provided the operations staff with specific revenue targets for each plant.  In Peterson's presence, an operations supervisor commented that the facilities might have to "borrow from next week" to meet those targets.  Specifically, Peterson heard someone commenting that "borrowing from next week" might have an adverse effect on Monday's revenue.  Peterson did not ask what measures the plants would undertake to reach their respective revenue goals.  Some operations personnel told their plants that moving orders that had been staged for delivery from the fourth to the third quarter was a tool they could use to reach their respective targets, and many of the plants resorted to this practice.  As a result, SRI employees prematurely recognized $216,000 worth of orders in the third quarter.
+
+       On November 27, 2001, SRI restated its third quarter financial results.  SRI reversed out the prematurely recognized customer orders and the JHHS and UMass sales, thereby reducing its third quarter revenue by $1,034,000.  SRI restated its earnings per share to $0.22 per share-well short of analysts' expectations.
+
+       The Order notes that the Commission took into account remedial acts promptly undertaken by the respondents and cooperation afforded the Commission staff.  
+   SRI, Peterson, and Boosales neither admitted nor denied the findings in the Order.  In the Order, the Commission ordered that:  (1) SRI cease and desist from committing or causing any violations and any future violations of Sections 13(a), and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 13a-13 and 12b-20 thereunder; (2) Peterson cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder; and (3) Boosales cease and desist from causing any violations and any future violations of Section 13(b)(2)(B) of the Exchange Act.  
+
+
+  
+     SEC Complaint in this matter  
+
+-->
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diff --git a/raw/aaer/2003/AAER-1829.txt b/raw/aaer/2003/AAER-1829.txt
new file mode 100644
index 0000000000000000000000000000000000000000..41baff1801e0eeed3ea5a313bd0d8d0c974afca5
--- /dev/null
+++ b/raw/aaer/2003/AAER-1829.txt
@@ -0,0 +1,1559 @@
+
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+     SEC.gov | SRI/Surgical Express, Inc., Wayne R. Peterson, and James T. Boosales 
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+               Administrative Proceedings 
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+       
+              SRI/Surgical Express, Inc., Wayne R. Peterson, and James T. Boosales
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        SRI/Surgical Express, Inc., Wayne R. Peterson, and James T. Boosales
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
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+             
+                        
+              Before the
+    SECURITIES AND EXCHANGE COMMISSION
+  SECURITIES EXCHANGE ACT OF 1934
+ Release No.  48282 / August 5, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  1829 / August 5, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-11193
+
+  
+       In the Matter of 
+     SRI/Surgical Express, Inc., 
+    Wayne R. Peterson, and  James T. Boosales 
+   Respondents. 
+     
+    : : : : : :   
+  ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 
+     I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against SRI/Surgical Express, Inc. ("SRI"), Wayne R. Peterson ("Peterson"), and James T. Boosales ("Boosales") (collectively "Respondents").  
+
+   II. 
+
+    In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement (the "Offers"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over Respondents and the subject matter of these proceedings, Respondents consent to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934, as set forth below.  
+
+   III.  
+
+    Findings  
+
+    On the basis of this Order and Respondents' Offers, the Commission finds   1    that:
+
+    Respondents  
+      Respondent SRI/Surgical Express, Inc., a Florida corporation headquartered in Tampa, FL, provides disposable and reusable surgical products to over 300 hospitals and surgery centers in 24 states.  SRI's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is traded on the NASDAQ National Market System under the symbol "STRC."  The company operates on a 52 to 53 week fiscal year ending the Sunday nearest December 31.  For its fiscal year ended December 30, 2001, SRI reported total revenues of $86,426,000 and net income of $5,057,000.
+
+
+
+    Respondent Wayne R. Peterson, 51, co-founded SRI in 1991 and was SRI's chief operating officer ("COO") until he resigned in December 2002.  As COO, Peterson oversaw the operations of the company's various facilities.  Peterson resides in Clearwater, FL.
+
+
+
+    Respondent James T. Boosales, 60, co-founded SRI and served as its chief financial officer ("CFO") from its inception until he resigned in December 2002.  Boosales resides in Palm Harbor, FL.
+     Summary  
+
+      SRI, a hospital supply company, overstated revenue by 4.9% and net income by at least 17.5% in its third quarter 2001 report.  The overstatement resulted from the premature recognition of customer orders and the recognition of two transactions with hospital customers, which were improperly recorded as sales.   
+
+      On November 27, 2001, SRI restated its third quarter Form 10-Q to reverse the prematurely recognized customer orders and to undo the transactions that were mischaracterized as sales.  SRI's COO Wayne Peterson failed to properly oversee the second and third quarter sales pushes, which resulted in the premature recognition of customer orders.  SRI's CFO James Boosales failed to devise and maintain sufficient internal accounting controls to prevent the early recognition of orders.
+
+    Background  
+
+   SRI  provides hospitals and surgery centers with a daily delivery and retrieval service that furnishes both reusable and disposable products used in various surgical procedures.  In 2001, SRI served hospitals and surgery centers from 27 reprocessing and distribution centers located in 24 states throughout the United States.  The majority of SRI's customers placed daily orders through one of several regional facilities.  The company's drivers then delivered the products directly to the customer's surgery area by the following morning.  If a customer failed to place an order, SRI would deliver a pre-determined amount based on the customer's prior usage. SRI's drivers and customer service representatives maintained the inventory for the remaining customers based on each hospital's surgery schedule.
+
+    SRI's revenue recognition policy-as disclosed in the company's Form 10-K-required products to actually be delivered to the customer before recognizing the sale on SRI's books.  However, SRI's internal controls contained a significant loophole that allowed this policy to be circumvented.  Order entry personnel at SRI regional facilities entered shipments into SRI's accounting system when they were staged for delivery - a process referred to as "ship confirming."  After the regional facilities recorded the shipments, SRI's accounting staff would print out and mail weekly invoices to the customers for those shipments for which the order request date, the date the customer wanted the order delivered, and the ship confirm date had passed.  However, SRI did not record the date or time that it actually delivered the shipments to its customers.  As a result, the only dates in SRI's records were the "order request" date and the "ship confirm" date, and both of these dates could be manually overridden.  
+
+    SRI's Second Quarter 2001  
+
+      In the spring of 2001, SRI's stock price traded at its highest in the company's history. The stock price steadily climbed from $13 per share in January to $30 per share in mid-June 2001.  At that point, just weeks before the June 30, 2001 close of the second quarter, management learned that SRI was likely to miss its quarterly earnings target.  This projected revenue fall-off was mainly attributed to two factors.  First, sales from the company's existing customer base were down.  SRI lost more accounts during the summer of 2001 than it had in the company's history.  Second, SRI's sales force failed to realize anticipated new business.
+
+      In an attempt to address the projected shortfall, at meetings in mid-to-late June 2001, Peterson informed SRI's operations staff that SRI's revenues were falling short of the company's internal expectations.  Peterson instructed his subordinates to increase sales to customers whose inventory SRI controlled and to ship as much product as possible to other customers.  Peterson emphasized that SRI needed to sell an additional day and a half worth of product by month's end.  
+
+      In response to Peterson's directives, certain operations personnel instructed their facilities to invoice as much product as possible over the remaining days of the second quarter.  An operations employee emphasized that plant managers he supervised could invoice products that had been pulled, packed and staged for delivery if necessary at the end of the quarter.  Other operations personnel also instructed their respective plants to move orders that had been staged for delivery from Monday to Friday to help alleviate the shortfall.  Accordingly, SRI's operations staff recognized $270,000 in gross revenue prematurely at the end of SRI's fiscal second quarter.  SRI operations personnel manually changed dates in the company's computer system to accelerate the recognition of the revenue.  The operations staff explained that they did not realize that company policy required that customer orders be delivered before the revenue could be recognized.
+
+    SRI's Assistant Controller observed an unusual spike in quarter-end revenue and examined sales orders for Friday, June 29.  He found a number of instances in which one customer's account reflected two orders that day.  Unable to find any logical reason for these double orders and believing that some mistakes had occurred, he informed CFO James Boosales, who authorized him to correct the perceived error.  As a result, SRI moved approximately $150,000 worth of the backdated sales into the third quarter.  
+
+      Despite the Assistant Controller's efforts to correct SRI's second quarter revenue, he did not catch all of the prematurely recognized customer sales.  As a consequence, SRI's second quarter revenues remained overstated by $120,000 in SRI's second quarter Form 10-Q for the period ended June 30, 2001 filed with the Commission on July 26, 2001.  This $120,000 of additional revenue contributed approximately $24,000 to SRI's net income.  Without this additional income, SRI's diluted earnings per share for the quarter would have been $0.23, missing analysts' expectations by $0.01.   
+
+    SRI's Third Quarter 2001  
+
+      In September 2001, the last month of SRI's fiscal third quarter, the company remained well short of its revenue targets.  With just five days remaining in the third quarter, SRI had a $2 million shortfall from its revenue goal.  Peterson again encouraged the plants to increase customer inventory levels and ship as much product as possible to customers whose inventory SRI managed.  Peterson also provided the operations staff with specific revenue targets for each plant.  In Peterson's presence, an operations supervisor commented that the facilities might have to "borrow from next week" to meet those targets.  Specifically, Peterson heard someone commenting that "borrowing from next week" might have an adverse effect on Monday's revenue.  Peterson did not ask what measures the plants would undertake to reach their respective revenue goals.  
+
+      Some operations personnel again told their plants that moving orders that had been staged for delivery from the fourth to the third quarter was a tool they could use to reach their respective targets, and many of the plants resorted to this practice.  As a result, SRI employees prematurely recognized $216,000 worth of orders in the third quarter.  As a consequence, the financial statements contained in SRI's third quarter Form 10-Q for the period ended September 30, 2001, filed on October 25, 2001, overstated revenue by $216,000.
+
+    The JHHS and UMass Transactions  
+
+      In connection with efforts to address the third quarter revenue deterioration, SRI's then-CFO James Boosales asked SRI's then-president Alexander Edwards to contact some of SRI's larger customers to see if they would be interested in purchasing additional product. In response to Boosales' request, Edwards caused SRI to enter into two transactions that improperly boosted SRI's sales to meet SRI's revenue targets.
+
+      The first transaction involved Jewish Hospital Healthcare System ("JHHS") based in Lexington, Kentucky.  A few weeks prior to the September 30, 2001 close of SRI's third quarter, Edwards told JHHS and its purchasing agent that SRI was having trouble balancing inventory among its various facilities.   Edwards asked the purchasing agent if SRI could pre-bill JHHS for 60 to 90 days of inventory.  Edwards explained that he did not expect JHHS to pay SRI any of the invoices for goods billed and not delivered.  Instead, and consistent with their contractual arrangement, Edwards acknowledged JHHS would only pay for the products it received.  In or about October, Edwards sent the purchasing agent's controller invoices totaling $753,480 for the entire pre-billed inventory.  
+
+      As a result, SRI improperly recorded $753,480 in sales revenue in its third quarter, even though JHHS had not agreed to take delivery of the additional product and SRI did not deliver $753,480 worth of additional supplies to JHHS in that quarter.   
+
+      The second transaction involved UMass Memorial Medical Center ("UMass") in Worcester, MA.  Like JHHS, UMass typically paid SRI for products as SRI actually delivered them to the hospital.  Shortly before the close of SRI's third quarter, Edwards called two UMass officials and asked if they would accept early shipment of some inventory that SRI had customized for UMass.  Edwards explained that he was interested in shipping an additional 30-day supply of inventory to the depot SRI used to service UMass in exchange for a discount in the purchase price.  Although the UMass officials asked Edwards to put the proposal in writing, Edwards never provided UMass with any written documentation.  Accordingly, UMass never ordered any additional supply of products under the arrangement Edwards proposed.
+
+  Nonetheless, SRI's accounting group prepared invoices based on its understanding of the transaction as relayed to it by Edwards.  As a result of this purported transaction sale, SRI recorded approximately $88,000 of sales revenue on its books and records.  
+
+      As a result of the purported transactions with JHHS and UMass, SRI's third quarter 2001 revenues were further overstated by $832,000, or 3.9 percent of total revenue.  Thus, including the backdated invoices, SRI's Form 10-Q contained total overstatements of revenue of $1,048,000, or 4.9 percent of total revenue.  This overstatement allowed SRI to meet analysts' earnings per share targets, which ranged from $0.24 to $0.26.  By virtue of these overstatements, SRI's third quarter Form 10-Q was materially false and misleading.
+
+    On November 27, 2001, SRI restated its third quarter financial results.  SRI reversed out the prematurely recognized customer orders and the JHHS and UMass sales, thereby reducing its third quarter revenue by $1,034,000.  SRI restated its earnings per share to $0.22 per share-well short of analysts' expectations.
+
+    Legal Analysis  
+
+    Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file annual and quarterly reports with the Commission and to keep this information current.  The obligation to file such reports embodies the requirement that they be true and correct.  See ,  e.g. ,  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  Rule 12b-20 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.
+
+    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) 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 generally accepted accounting principles and to maintain the accountability of assets.  Section 13(b)(5) of the Exchange Act provides that no person shall knowingly falsify any book, record, or account or circumvent internal controls.  Rule 13b2-1 prohibits any person from directly or indirectly falsifying or causing to be falsified any book, record, or account reflecting a company's transactions and the disposition of its assets.
+
+    SRI violated Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder by filing two quarterly reports that materially overstated its second and third quarter revenue in connection with the premature recognition of customer orders.  The early recognition of orders from the next quarter violated Generally Accepted Accounting Principles ("GAAP") because to record revenue from product sales, the revenue must be realized or realizable and earned.  In the context of product sales, these two criteria are usually met by the delivery of the product to the customer,   2    as recognized in SRI's revenue recognition policy described in its Form 10-K.  The two sales to hospital customers orchestrated by SRI's president violated GAAP because SRI recorded revenue from the sales before persuasive evidence of an agreement existed and before those products were delivered or services were rendered.   3     SRI did not deliver its product to the hospitals; rather it continued to make its customary daily deliveries out of its own depots as needed.  Likewise, both hospitals had written agreements with SRI, which were never amended to reflect the oral arrangement that SRI's then-president claimed existed.  SRI violated Section 13(b)(2)(A) of the Exchange Act by failing to maintain accurate books and records of customer orders and sales to hospitals.  SRI violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain sufficient internal controls to prevent others from taking advantage of the loophole in SRI's revenue recognition policy that allowed employees to enter and alter the delivery date.  Only when the Commission staff informed SRI of the allegations of premature revenue recognition did SRI close this loophole by requiring its truck drivers to include a delivery time and date on their receipts.  
+
+    Wayne Peterson, the company's former COO, was a cause of the acceleration of customer orders in the second and third quarters because he orchestrated quarter-end sales pushes seeking specific revenue targets without regard to how those targets were achieved.  When an operations supervisor mentioned "borrow from next week," Peterson knew or should have known that to achieve these goals plant managers would prematurely recognize customer orders or otherwise circumvent SRI's internal controls.  Peterson therefore caused others to violate Section 13(b)(5) of the Exchange Act and Rule 13b2-1.
+
+    Chief financial officer James Boosales failed to devise and maintain sufficient internal controls to prevent others from taking advantage of the loophole in SRI's revenue recognition policy discussed above.  Boosales also failed to follow-up and investigate when his Assistant Controller told him just after the close of the second quarter that he had observed shipments booked in the second quarter that should have been recorded in the third quarter.  As a result, Boosales caused SRI to violate the internal controls provisions in Section 13(b)(2)(B) of the Exchange Act.
+
+    Upon learning of allegations of backdating in the fall of 2001, Boosales and Peterson informed the audit committee, who retained outside counsel and forensic accountants and conducted an internal investigation.  SRI restated its financial statements shortly thereafter, and took several remedial measures to prevent fraudulent conduct.  SRI strengthened its internal controls by requiring a confirmation date for all product deliveries.  SRI also required two officers to sign off on changes to its financial statements.  Finally, SRI recently hired a new chief financial officer and a new chief executive officer.  
+
+    SRI's Remedial Efforts  
+
+  In determining to accept the Offers, the Commission considered remedial acts promptly undertaken by Respondents and cooperation afforded the Commission staff.
+
+   IV. 
+
+  Based on the foregoing, the Commission finds that:
+
+    Respondent SRI violated Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder;
+
+    Respondent Peterson caused violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder; and   
+
+  Respondent Boosales caused violations of Section 13(b)(2)(B) of the Exchange Act.
+
+
+
+   V. 
+
+    In view of the foregoing, the Commission deems it appropriate to issue this order and to impose the sanctions agreed to in Respondents' Offers of Settlement.
+
+     ACCORDINGLY, IT IS HEREBY ORDERED: 
+
+    A. Pursuant to Section 21C of the Exchange Act, that Respondent SRI/Surgical Express, Inc. cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and (B) of the Exchange Act, and Rules 13a-13 and 12b-20 thereunder. 
+
+    B. Pursuant to Section 21C of the Exchange Act, that Respondent Wayne R. Peterson cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder.  
+
+    C. Pursuant to Section 21C of the Exchange Act, that Respondent James T. Boosales cease and desist from causing any violations and any future violations of Section 13(b)(2)(B) of the Exchange Act.  
+
+    By the Commission.
+
+                Jonathan G. Katz
+               Secretary
+  ___________________
+      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     Financial Accounting Standards Board (FASB) Statement of Concepts No. 5, "Recognition and Measurement in Financial Statements of Business Enterprises," Paragraph 84a states that: "The two conditions (being realized or realizable and being earned) are usually met by the time product or merchandise is delivered . . . and revenues from manufacturing and selling activities . . . are commonly recognized at the time of sale (usually meaning delivery)."
+
+      3      See  FASB Statement of Concepts No. 5;  see   also  Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," Topic 13, A.1 explains that:  "The staff believes that revenue generally is realized or realizable and earned when . . . persuasive evidence of an arrangement exists, . . . delivery has occurred or services have been rendered. . ."
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+              Oliver Hilsenrath and David S. Klarman
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+        Oliver Hilsenrath and David S. Klarman
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+ Litigation Release No.  18275  /  August 6, 2003 
+
+ Accounting and Auditing Release No.  1831 / August 6, 2003 
+
+  SEC v. Oliver Hilsenrath and David S. Klarman , Civil Action No. C-03-3252 (BZ) (N.D. Cal.). 
+
+  SEC CHARGES FORMER EXECUTIVES OF U.S. WIRELESS WITH FRAUD  
+
+ The U.S. Securities and Exchange Commission announced today that it has filed an action in federal court charging Oliver Hilsenrath and David S. Klarman with fraud and other misconduct in violation of the federal securities laws.  Hilsenrath is the former Chief Executive Officer and Klarman the former General Counsel for U.S. Wireless Corporation ("U.S. WIRELESS"), headquartered in San Ramon, California.  
+
+ The Commission's complaint alleges as follows:  From August 1997 to January 2000, Hilsenrath and Klarman had U.S. WIRELESS transfer common stock worth approximately $3.2 million and cash totaling approximately $428,000 to several offshore entities that they secretly owned and controlled.  The transfers were part of a scheme by Hilsenrath and Klarman to extract assets from U.S. WIRELESS without providing any consideration in return.  In order to conceal their misappropriation of company funds and stock, the defendants caused U.S. WIRELESS to make materially false and misleading statements in its 1998, 1999, and 2000 annual and periodic financial reports filed with the Commission.  Under the direction of Hilsenrath and Klarman, the cash and stock transfers were originally recorded in U.S. WIRELESS's books and financial statements as compensation for services or as the sale of stock for valid consideration.  Hilsenrath and Klarman also made misrepresentations about the transfers to U.S. WIRELESS's auditors.  The defendants also made false statements in at least one Form S-3 filing.  In early 2001, U.S. WIRELESS's Board of Directors received information challenging the validity of the transfers.  Once the unauthorized and illegal character of the transfers was recognized, U.S. WIRELESS restated its financial results for fiscal 2000 to increase its annual net loss from $11.4 million to $17.7 million, or by 35%.   
+
+ The Commission's Complaint charges Hilsenrath and Klarman with violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the 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)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  The Commission seeks an order enjoining Hilsenrath and Klarman from future violations of these provisions, barring them from serving as directors or officers of companies reporting to the Commission, requiring them to disgorge their ill-gotten gains, and requiring them to pay civil money penalties. 
+
+ In a separate action, the U.S. Attorney's Office for the Northern District of California filed criminal charges against Hilsenrath and Klarman. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1833.txt b/raw/aaer/2003/AAER-1833.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2bde33178c049ea219b7118693d8e849608e334c
--- /dev/null
+++ b/raw/aaer/2003/AAER-1833.txt
@@ -0,0 +1,1376 @@
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+     SEC.gov | David Andrew Hilton and Stephen Scott Lowber 
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+              David Andrew Hilton and Stephen Scott Lowber
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+ Litigation Release No.   18276 / August 7, 2003 
+
+ Accounting and Auditing Enforcement 
+    Release No.  1833 / August 7, 2003 
+
+  SECURITIES AND EXCHANGE COMMISSION v. DAVID ANDREW HILTON and STEPHEN SCOTT LOWBER , United States District Court for the Western District of Washington (Seattle Division), Civil Action No. C 03-2511-Z 
+
+  SEC FILES FRAUD CHARGES AGAINST FORMER EXECUTIVES OF SEATTLE CLOTHING COMPANY CUTTER & BUCK  
+
+ The Securities and Exchange Commission today announced the filing of a complaint alleging financial accounting fraud against Stephen Scott Lowber and David Andrew Hilton, the former Chief Financial Officer and former Regional Sales Vice President, respectively, of Cutter & Buck Inc., an upscale clothing company based in Seattle, Washington.  The Commission's complaint alleges that the executives caused Cutter to fraudulently inflate its financial results for the fiscal quarter and year ended April 30, 2000, by improperly recognizing as revenue $5.7 million in shipments to distributors functioning as Company warehouses, and later concealed the improper transactions from the Company's auditors and shareholders.  In a related matter, the Commission instituted cease-and-desist proceedings against Cutter for alleged violations of the corporate reporting, books and records and internal controls provisions of the federal securities laws.   
+
+ Simultaneously with the filing of the complaint, Lowber and Hilton agreed to settle the charges without admitting or denying the Commission's allegations, consenting to orders permanently barring them from violations of the antifraud and other provisions of the federal securities laws and requiring them to pay civil penalties of $50,000 and $25,000, respectively.  Lowber also consented to the entry of an order barring him from serving as an officer or director of a public company, and an order prohibiting him from practicing before the Commission as an accountant.  Cutter has likewise agreed to the entry of a cease-and-desist order without admitting or denying the Commission's findings. 
+
+ The Commission's complaint, filed in the United States District Court for the Western District of Washington, alleges that Cutter was encountering declining sales as it approached the end of its fiscal year ended April 30, 2000.  In the final days of April, Hilton, now 46 and residing in Parkville, Missouri, negotiated deals with three distributors under which Cutter would ship them a total of $5.7 million in products.  Hilton struck side deals with the distributors, assuring them that they had no obligation to pay for any of the goods until customers located by Cutter paid the distributors.  Because of Cutter's ongoing obligation to complete the sales, revenue recognition was improper under generally accepted accounting principles (known as "GAAP").  In press releases and in filings with the Commission that were distributed to the public, Cutter announced revenue of $54.6 million for the fourth quarter of Fiscal 2000 and $152.5 million for the entire fiscal year.  However, because these figures included $5.7 million in improperly recognized revenue on the distributor sales, they overstated Cutter's true quarterly and annual revenue by 12% and 4%, respectively. 
+
+ The complaint also charges that Lowber, 52, of Mill Creek, Washington, learned by late 2000 that these distributors were operating as Cutter warehouses and that revenue recognition had been improper.  Rather than restate and correct the company's financial statements, as required under GAAP, Lowber took steps to conceal the transactions from Cutter's independent auditors and board of directors.  Lowber arranged for the distributors to return $3.8 million in unsold inventory in early 2001.  According to the complaint, Lowber directed Cutter personnel to override the company's accounting software program and divide the returns among multiple company sales divisions in order to hide the magnitude of the returns. 
+
+  Hilton left the company in 2001, and Lowber resigned in August 2002.  On August 12, 2002, Cutter, which had undergone a change in management, announced that it would restate its financial statements for fiscal years 2000 and 2001 as a result of the improper distributor transactions.  The announcement caused Cutter's stock price to drop from $4.02 to $3.44, or 14%, the following day.  
+
+ The complaint charges Hilton and Lowber with securities fraud (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder) and causing Cutter to report false financial information to the Commission (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1).  The complaint additionally charges Lowber with lying to accountants (Rule 13b2-2 under the Exchange Act), falsifying the company's books and records (Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder), and causing Cutter's failure to maintain accurate books and records and internal controls (Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act). 
+
+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2003/AAER-1834.txt b/raw/aaer/2003/AAER-1834.txt
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index 0000000000000000000000000000000000000000..3c60d8c0ecb217899b586f0bc7393e904c1994a7
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+       
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+ Litigation Release No. 18277 / August 7, 2003  
+
+ Accounting and Auditing Enforcement Release No. 1834 / August 7, 2003  
+
+  Securities and Exchange Commission v. WorldCom, Inc. , Civil Action No. 02-CV-4963       (SDNY) (JSR) 
+
+ The Honorable Arthur J. Gonzalez Approves Settlement of the SEC's Claim for a Civil Penalty Against WorldCom 
+
+ The Securities and Exchange Commission announced that on August 6, 2003, the Honorable Arthur J. Gonzalez, United States Bankruptcy Judge, issued an Order approving the SEC's settlement with WorldCom, Inc.  Judge Gonzalez is presiding over WorldCom's bankruptcy reorganization proceeding, which is pending in the Southern District of New York.  ( In re WorldCom, Inc., et al. , Ch. 11 Case No. 02-13533 (Bankr. S.D.N.Y.)). 
+
+ In a statement accompanying the Order approving the settlement, Judge Gonzalez found the WorldCom settlement "fair and reasonable," and overruled the objections to the settlement made by several of WorldCom's creditors. 
+
+ The settlement was reached in the SEC's District Court litigation against WorldCom for violations of the federal securities laws, and had been previously approved by that court on July 7, 2003.  The settlement provides that the SEC's civil penalty judgment of $2,250,000,000 against WorldCom shall be satisfied, in the event of the Bankruptcy Court's confirmation of a plan of reorganization, by WorldCom's payment of $500,000,000 in cash and by its transfer of common stock in the reorganized company having a value of $250,000,000 to a distribution agent to be appointed by the District Court, on the effective date of the plan of reorganization.  Under the terms of the settlement, the funds paid and the common stock transferred by WorldCom to satisfy the Commission's judgment will be distributed to victims of the company's fraud, pursuant to Section 308 (Fair Funds for Investors) of the Sarbanes-Oxley Act of 2002.   Because WorldCom is in bankruptcy reorganization, the settlement was required to be reviewed and approved by both the District Court and the Bankruptcy Court.  ( Litigation Release No. 18219 ). 
+
+ In the District Court litigation, the Commission alleged that WorldCom misled investors by overstating its income from at least as early as 1999 through the first quarter of 2002, as a result of undisclosed and improper accounting.   ( Litigation Release No. 17829 ).  
+
+ The Commission filed its case against WorldCom on June 26, 2002, the day after WorldCom announced that it intended to restate its financial results for five quarters-all quarters in 2001 and the first quarter of 2002.  ( Litigation Release No. 17588 ).  The Commission also sought the appointment of a corporate monitor for WorldCom, and on July 3, 2002, U.S. District Judge Jed S. Rakoff appointed former SEC Chairman Richard Breeden to that position. 
+
+ On November 26, 2002, the Commission obtained a judgment against WorldCom through which the Commission obtained the full injunctive relief it sought against the company.  In addition, the judgment ordered WorldCom to undertake extensive reviews of its corporate governance and internal controls, as well as required the company to establish a training and education program for WorldCom officers and employees to minimize the possibility of future violations of the federal securities laws.  The November 26, 2002 judgment explicitly left open the determination of monetary penalties to be imposed on WorldCom.  ( Litigation Release No. 17866 ). 
+
+ Since the Commission filed its action against WorldCom, the company has made a series of announcements expanding its anticipated financial restatement due to the fraud, both in dollar amount and in time.  In addition, the Commission has brought civil actions against four former employees of WorldCom.  The Commission filed civil actions against former WorldCom Controller David F. Myers on September 26, 2002 ( Litigation Release No. 17753 ); former WorldCom Director of General Accounting Buford "Buddy" Yates, Jr., on October 7, 2002 ( Litigation Release No. 17771 ); and Betty L. Vinson and Troy M. Normand, former accountants in WorldCom's General Accounting Department, on October 10, 2002 ( Litigation Release No. 17783 ).  All of these actions are pending. 
+
+ In determining to enter into the settlement, the Commission considered remedial acts promptly undertaken by WorldCom and cooperation afforded the Commission staff. 
+
+ The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation. 
+
+     SEC Complaint in this matter   -->
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diff --git a/raw/aaer/2003/AAER-1836.txt b/raw/aaer/2003/AAER-1836.txt
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+     SEC.gov | Morris Weissman 
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+ LITIGATION RELEASE NO.  18283 / August 12, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1836 / August 12, 2003 
+
+ U.S. v. MORRIS WEISSMAN, Criminal Action No. 01 CR 529 (BSJ) (S.D.N.Y.)  
+
+ MORRIS WEISSMAN, FORMER CEO AND CHAIRMAN OF THE BOARD OF AMERICAN BANKNOTE CORPORATION AND AMERICAN BANK NOTE HOLOGRAPHICS, INC., CONVICTED OF CONSPIRACY, SECURITIES FRAUD, FALSIFYING BOOKS AND RECORDS, AND MAKING FALSE STATEMENTS TO AUDITORS 
+
+ On August 6, 2003, following a jury trial before the U.S. District Court for the Southern District of New York, a verdict was returned finding Morris Weissman guilty of  fraud in the offer and sale of securities in violation of  Sections 17(a) of the Securities Act of 1933 ("Securities Act"), falsifying books and records in violation of Sections 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rule 13b2-1, and making false statements to auditors  in violation of Section 13(b)(1) of the Exchange Act, and Exchange Act Rule 13b2-2.  The jury also found Weissman guilty of conspiracy with respect to each of the above counts.  
+
+ The evidence at trial established that Weissman, the former chief executive officer and chairman of the board of American Bank Note Holographics, Inc. ("ABNH") and American Banknote Corporation ("ABN"), ABNH's former publicly-held parent, and two subordinate ABNH executives fraudulently inflated ABNH's reported revenue and earnings for fiscal years 1996 and 1997 and for the first three fiscal quarters of 1998.  Weissman and his co-conspirators engaged in sham transactions, recognized revenue from sales of holograms before the manufacturing process was even complete, and lied to the company's independent auditors in an effort to conceal the scheme.  The evidence at trial established that in July 1998, Weissman and his co-conspirators, on the basis of this fraudulent financial information, caused ABN to sell the common stock of ABNH to members of the investing public for $115 million.  The evidence established that on January 19, 1999, six months after the ABNH IPO, ABNH announced that it would restate some of its previous financial statements.  Over the following few days, the price of ABNH stock plummeted from approximately $16 a share to approximately $1.80, resulting in a decline of more than $190 million in ABNH's market capitalization. Restated financial statements issued by ABNH in December 1999 revealed that ABNH had overstated its actual net income for 1996 by 11%, and overstated its actual revenue and net income for 1997 by 34% and 169% respectively.   
+
+ Weissman, who was convicted on each of the charges above, faces a maximum sentence of 30 years in prison, a fine of $1 million or twice the gross loss or gain resulting from the offense, and mandatory restitution.  The District Court scheduled sentencing for November 13, 2003. 
+
+ For additional information, see Litigation Releases  17068A  and  18081 . 
+
+ 
+     SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2003/AAER-1837.txt b/raw/aaer/2003/AAER-1837.txt
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+++ b/raw/aaer/2003/AAER-1837.txt
@@ -0,0 +1,1519 @@
+
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+   
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+     SEC.gov | Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge 
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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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+              Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge
+           
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+        Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+    Release No.  48325 / August 12, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+    Release No.  1837 / August 12, 2003 
+
+ ADMINISTRATIVE PROCEEDING  
+    File No. 3-9793 
+
+     In the Matter of 
+
+ Jean-Paul Bolduc, Brian J. Smith, C.P.A.,  
+   Richard N. Sukenik, C.P.A., Philip J.  
+	 Ryan III, Constantine L. Hampers,  
+	 A. Miles Nogelo, and Robert W. 
+	 Armstrong III, C.P.A., 
+
+ Respondents. 
+  
+ : : : : : : : : : : : 
+ 
+ ORDER MAKING FINDINGS AND IMPOSING CEASE-AND-DESIST ORDER AGAINST CONSTANTINE L. HAMPERS, M.D. 
+   I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate to accept the Offer of Settlement ("Offer") submitted by Constantine L. Hampers, M.D. ("Dr. Hampers" or "Respondent") pursuant to Rule 240(a) of the Rules of Practice of the Commission, 17 C.F.R. § 201.240(a), for the purpose of settlement of public cease-and-desist proceedings instituted against him by the Commission on December 22, 1998 pursuant to an 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 ("OIP"). 
+
+ II. 
+
+ Solely for the purpose of this proceeding, Dr. Hampers admits the jurisdiction of the Commission over him and over the subject matter of these proceedings, and consents to the entry by the Commission of this Order, which orders Dr. Hampers to cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 13b2-1 thereunder, and from causing any violation and any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+ III. 
+
+ On the basis of this Order and the Respondent's Offer, the Commission finds that:  1   
+
+ BACKGROUND 
+
+ 1. Respondent Dr. Hampers was the founder of National Medical Care ("NMC") and chairman and chief executive from 1971 through June 1996.  From March 1991 until December 1996, Dr. Hampers was an executive vice president and member of the board of directors of W.R. Grace & Co. ("Grace"). 
+
+ 2. Grace was a New York corporation with its principal executive offices in Boca Raton, Florida during at least 1991 through 1996.  Grace's primary businesses were packaging, specialty chemicals and health care services.  During the relevant time period, Grace had a December 31 fiscal year end. 
+
+ 3. Between at least fiscal years 1991 and 1995, NMC was Grace's main health care subsidiary, with its headquarters in Waltham, Massachusetts.  NMC provided kidney dialysis and home health services and manufactured specialized medical products.  During the relevant period, NMC comprised the bulk of Grace's Health Care Group, which group was, until the first quarter of 1995, one of Grace's core businesses and was reported as a segment in Grace's consolidated financial statements.  The Health Care Group contributed a significant portion of the consolidated pretax earnings of Grace during the majority of the period 1991-1995. 
+
+ EXCESS RESERVES AT NMC 
+
+ 4. As described in greater detail below, during the fiscal years 1991 through 1995 ("relevant period"), Grace engaged in fraudulent conduct by deferring income earned by NMC primarily to smooth the earnings of the Health Care Group.  Grace deferred reporting income by increasing or establishing "excess reserves" that were not in conformity with generally accepted accounting principles ("GAAP").  Grace used the reserves to manipulate the reported quarterly and annual earnings of the Health Care Group and Grace.  2   
+
+ Creation of the Excess Reserves 
+
+ 5. Beginning in 1990 or 1991, NMC experienced a significant and unanticipated increase in revenues and earnings, in excess of Grace's internal forecasts, due to changes in Medicare reimbursement procedures.  Dr. Hampers and other members of NMC senior management deferred some of the unanticipated income by increasing or establishing reserves (an expense).   
+
+ 6. At some point in mid-1991, as the reserves reached a level of between $10 and $20 million, certain members of NMC senior management realized that the reserves were going to be significant by year end and contacted Grace management to determine how Grace wanted NMC to account for the reserves, which became known as the "excess reserves."  Grace management directed that NMC maintain the excess reserves and report Health Care Group earnings consistent with Grace's targeted levels (specifically a 24% growth rate for 1991 and a 27-28% growth rate for 1992) because Grace would not be credited by the investing public for growth rates beyond the targeted levels.  Thus, rather than report its actual earnings, NMC, at the direction of certain former members of Grace senior management, underreported its earnings for 1991 and 1992. 
+
+ 7. The final reported 1991 growth rate for the Health Care Group was 24%, and the final reported 1992 growth rate was 27.5%. 
+
+ Use of the Excess Reserves 
+
+ 8. During the relevant period, the excess reserves were primarily used for profit planning purposes, i.e., to bring the Health Care Group's quarterly reported results of operations in line with Grace's targets for the Health Care Group.  In general, from 1991 through the first quarter of 1995, the reported Health Care Group growth rates remained relatively steady - from about 23% to 37% -- whereas the actual growth rates fluctuated from about an 8% decline in growth to a 61% increase.   
+
+ 9. However, at various times, Grace also directed NMC to release some of the excess reserves to increase Grace's earnings per share.  For example, Grace requested NMC to report an additional $1.5 million in income for the fourth quarter of 1994 because Grace needed the additional income for its consolidated results of operations. 
+
+ 10. Throughout the relevant period, Dr. Hampers and other officers of NMC and Grace discussed the creation and use of the excess reserves with Price Waterhouse LLP ("PW"), Grace's independent auditors.  (PW merged with Coopers & Lybrand, L.L.P. on July 1, 1998 to form PricewaterhouseCoopers LLP.)  Also throughout the relevant time period, PW performed audits of Grace's consolidated financial statements and issued audit reports containing unqualified opinions thereon.  3    Additionally, during the relevant time period, Grace's audit committee was advised of the excess reserves and that PW had concluded the excess reserves did not significantly affect Grace's consolidated financial statements or the financial reporting process.  Dr. Hampers was aware of PW's conclusions as communicated to the audit committee. 
+
+ RESPONDENT'S CONDUCT 
+
+ 11. Dr. Hampers, in his position as CEO of NMC, knew NMC was entering the excess reserve information in NMC's books and records at the direction of Grace management as a step in the process of consolidating NMC's financial information into Grace's financial statements, and allowed the activity to continue.  Thus, Dr. Hampers, through his actions or omissions, was a cause of (i) Grace filing periodic reports that contained material misstatements and omissions, and (ii) Grace's failure to make and keep books and records which accurately reflected its transactions and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit the preparation of financial statements in conformity with GAAP. 
+
+ 12. On December 22, 1998 the Commission issued the OIP against Respondent and other members of senior management of Grace and NMC.   In re Bolduc, et al. , Administrative Proceeding File No. 3-9793.   
+
+ VIOLATIONS 
+
+ 13. Based upon the aforesaid conduct, Respondent Dr. Hampers was a cause of Grace's violations 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. 
+
+ IV. 
+
+ Respondent Dr. Hampers 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; and (2) orders Dr. Hampers to cease and desist from committing or causing any violations, or future violations, of certain provisions of the federal securities laws, as set forth below.  As set forth in Dr. Hampers' Offer of Settlement, Dr. Hampers undertakes to cooperate with the Commission staff in preparing for and presenting any civil litigation or administrative proceedings concerning any transaction that is the subject of the Order.   
+
+ V. 
+
+ On the basis of the foregoing, the Commission deems it appropriate to accept Respondent's Offer. 
+
+  ACCORDINGLY, IT IS ORDERED  that: 
+
+ Respondent Dr. Hampers cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and from causing any violation and any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+ By the Commission. 
+
+    
+	 Jonathan G. Katz 
+      Secretary
+	 
+     
+
+       1     
+       The findings herein are made pursuant to Respondent Dr. Hampers' Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
+       2     
+       On June 30, 1999, Grace consented to the entry of an Order by the Commission (the "Grace Order") requiring Grace to cease and desist from committing or causing any violation and any future violation of Sections 10(b), 13(a) and 13(b) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.   See In the Matter of W. R. Grace & Co. , Securities Exchange Act Release No. 41578; Accounting and Auditing Enforcement Release No. 1140 (June 30, 1999).  Pursuant to the Grace Order, Grace also undertook to establish a fund of $1 million for program(s) to further awareness and education relating to financial statements and generally accepted accounting principles.
+       3     
+       On June 30, 1999, the Commission, on consent, ordered two PW partners who were involved in the audits of Grace's consolidated financial statements during the relevant period to cease and desist from causing any violation and any future violation of Sections 13(a) and 13(b) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.   See In the Matter of Eugene Gaughan, C.P.A. , Securities Exchange Act Release No. 41580, Accounting and Auditing Enforcement Release No. 1141 (June 30, 1999);  In the Matter of Thomas Scanlon, C.P.A. , Securities Exchange Act Release No. 41581, Accounting and Auditing Enforcement Release No. 1142 (June 30, 1999).
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diff --git a/raw/aaer/2003/AAER-1838.txt b/raw/aaer/2003/AAER-1838.txt
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index 0000000000000000000000000000000000000000..0d9416885f9c52f66844968bec6488f4a890ac4e
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+++ b/raw/aaer/2003/AAER-1838.txt
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+              Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge
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+        Robert W. Armstrong, III Carol Fox Foelak, Administrative Law Judge
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+ SECURITIES EXCHANGE ACT OF 1934 
+    Release No.  48326 / August 12, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+    Release No.  1838 / August 12, 2003 
+
+ ADMINISTRATIVE PROCEEDING  
+   File No. 3-9793 
+
+	 
+     In the Matter of 
+
+ Jean-Paul Bolduc, Brian J. Smith, C.P.A.,  
+   Richard N. Sukenik, C.P.A., Philip J.  
+	 Ryan III, Constantine L. Hampers,  
+	 A. Miles Nogelo, and Robert W. 
+	 Armstrong III, C.P.A., 
+
+ Respondents. 
+  
+ : : : : : : : : : : : 
+ 
+ ORDER MAKING FINDINGS AND IMPOSING CEASE-AND-DESIST ORDER AGAINST CONSTANTINE A. MILES NOGELO 
+   I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to accept the Offer of Settlement ("Offer") submitted by A. Miles Nogelo ("Nogelo" or "Respondent") pursuant to Rule 240(a) of the Rules of Practice of the Commission, 17 C.F.R. § 201.240(a), for the purpose of settlement of public cease-and-desist proceedings instituted against him by the Commission on December 22, 1998 pursuant to an 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 ("OIP"). 
+
+ II. 
+
+ Solely for the purpose of this proceeding, Nogelo admits the jurisdiction of the Commission over him and over the subject matter of these proceedings, and consents to the entry by the Commission of this Order, which orders Nogelo to cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 13b2-1 thereunder, and from causing any violation and any future violation of Section 13(b)(2) of the Exchange Act.   
+
+ III. 
+
+ On the basis of this Order and the Respondent's Offer, the Commission finds that:  1   
+
+ BACKGROUND 
+
+ 1. Respondent Nogelo was a vice president, chief financial officer, and treasurer of National Medical Care Inc. ("NMC") from 1984 through September 1995, and was a vice president and treasurer of NMC from September 1995 until his retirement in December 1996. 
+
+ 2. W.R. Grace & Co. ("Grace") was a New York corporation with its principal executive offices in Boca Raton, Florida during at least 1991 through 1996.  Grace's primary businesses were packaging, specialty chemicals and health care services.  Grace had a December 31 fiscal year end. 
+
+ 3. Between at least fiscal years 1991 and 1995 (the "relevant period"), NMC was Grace's main health care subsidiary, with its headquarters in Waltham, Massachusetts.  NMC provided kidney dialysis and home health services and manufactured specialized medical products.  During the relevant period, NMC comprised the bulk of Grace's Health Care Group, which group was, until the first quarter of 1995, one of Grace's core businesses and was reported as a segment in Grace's consolidated financial statements.  The Health Care Group contributed a significant portion of the consolidated pretax earnings of Grace during the majority of the relevant period. 
+
+ EXCESS RESERVES AT NMC 
+
+ 4. As described in greater detail below, during the relevant period, Grace engaged in fraudulent conduct by deferring income earned by NMC from 1991 through 1995, primarily to smooth the earnings of the Health Care Group.  Grace deferred reporting income by increasing or establishing reserves not in conformity with generally accepted accounting principles ("GAAP").  Grace used the reserves to manipulate the reported quarterly and annual earnings of the Health Care Group and Grace.  2    As a result of this activity, Grace made materially false filings with the Commission and publicly disseminated materially false statements.  Grace also failed to make and keep books and records which accurately reflected its transactions, and failed to maintain a system of internal accounting controls sufficient to provide assurances that transactions were recorded as necessary to permit the proper preparation of financial statements in conformity with GAAP.  
+
+ Creation of the Excess Reserves 
+
+ 5. Beginning in 1990 or 1991, NMC experienced a significant and unanticipated increase in revenues and earnings, in excess of Grace's forecasts, due to changes in Medicare reimbursement.  Nogelo and other former members of NMC senior management deferred some of the unanticipated income by increasing or establishing reserves (an expense).   
+
+ 6. At some point in mid-1991, as the reserves reached a level of between $10 and $20 million, Nogelo and other former members of NMC senior management realized that the reserves were going to be significant by year end and contacted Grace management to determine how Grace wanted NMC to account for the reserves, which became known as the "excess reserves."  Grace management directed that NMC maintain the excess reserves and report Health Care Group earnings consistent with Grace's targeted levels (specifically a 24% growth rate for 1991 and a 27-28% growth rate for 1992) because Grace would not be credited by the investing public for growth rates beyond the targeted levels.  Thus, rather than report its actual earnings, NMC, at the direction of certain former members of Grace senior management, underreported its earnings for 1991 and 1992. 
+
+ 7. The final reported 1991 growth rate for the Health Care Group was 24%, and the final reported 1992 growth rate was 27.5%. 
+
+ Use of the Excess Reserves 
+
+ 8. During the relevant period, the excess reserves were primarily used for profit planning purposes, i.e., to bring the Health Care Group's quarterly reported results of operations in line with Grace's targets for the Health Care Group.  In general, from 1991 through the first quarter of 1995, the reported Health Care Group growth rates remained relatively steady - from about 23% to 37% -- whereas the actual growth rates fluctuated from about an 8% decline in growth to a 61% increase.   
+
+ 9. However, at various times, Grace also directed NMC to release some of the excess reserves to increase Grace's earnings per share.  For example, Grace requested NMC to report an additional $1.5 million in income for the fourth quarter of 1994 because Grace needed the additional income for its consolidated results of operations. 
+
+ 10. Throughout the relevant period, Nogelo and other officers of NMC and Grace discussed the creation and use of the excess reserves with Price Waterhouse LLP ("PW"), Grace's independent auditors.  (PW merged with Coopers & Lybrand, L.L.P. on July 1, 1998 to form PricewaterhouseCoopers LLP.)  Also throughout the relevant time period, PW performed audits of Grace's consolidated financial statements and issued audit reports containing unqualified opinions thereon.  3    Additionally, during the relevant time period, Grace's audit committee was advised of the excess reserves and that PW had concluded the excess reserves did not significantly affect Grace's consolidated financial statements or the financial reporting process. 
+
+ RESPONDENT'S CONDUCT 
+
+ 11. Respondent, as a vice president, chief financial officer, and treasurer of NMC, assisted in entering the excess reserve information in NMC's books and records at the direction of Grace management as a step in the process of consolidating NMC's financial information into Grace's financial statements.  Respondent, through his actions or omissions, was a cause of Grace's failure to make and keep books and records which accurately reflected its transactions and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit the preparation of financial statements in conformity with GAAP.   
+
+ 12. On December 22, 1998 the Commission issued the OIP against Nogelo and other members of senior management of Grace and NMC.   In re Bolduc, et al. , Administrative Proceeding File No. 3-9793.   
+
+ VIOLATIONS 
+
+ 13. Based upon the foregoing, Respondent was a cause of Grace's violations of Sections 13(b)(2) and 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder.   
+
+ IV.   
+
+ Respondent Nogelo 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; and (2) orders Nogelo to cease and desist from committing or causing any violations, or any future violations, of certain provisions of the federal securities laws, as set forth below.  As set forth in Nogelo's Offer of Settlement, Nogelo undertakes to cooperate with the Commission staff in preparing for and presenting any civil litigation or administrative proceedings concerning any transaction that is the subject of the Order. 
+
+ V. 
+
+ On the basis of the foregoing, the Commission deems it appropriate to accept Respondent's Offer.   
+
+  ACCORDINGLY, IT IS ORDERED  that: 
+
+ Nogelo cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and from causing any violation and any future violation of Section 13(b)(2) of the Exchange Act. 
+
+ By the Commission. 
+    
+	 Jonathan G. Katz 
+      Secretary
+	 
+     
+
+       1     
+         The findings herein are made pursuant to Respondent Nogelo's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
+       2     
+         On June 30, 1999, Grace consented to the entry of an Order by the Commission (the "Grace Order") requiring Grace to cease and desist from committing or causing any violation and any future violation of Sections 10(b), 13(a) and 13(b) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.   See In the Matter of W. R. Grace & Co. , Securities Exchange Act Release No. 41578, Accounting and Auditing Enforcement Release No. 1140 (June 30, 1999).  Pursuant to the Grace Order, Grace also undertook to establish a fund of $1 million for program(s) to further awareness and education relating to financial statements and generally accepted accounting principles.
+       3     
+        On June 30, 1999, the Commission, on consent, ordered two PW partners who were involved in the audits of Grace's consolidated financial statements during the relevant period to cease and desist from causing any violation and any future violation of Sections 13(a) and 13(b) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.   See In the Matter of Eugene Gaughan, C.P.A. , Securities Exchange Act Release No. 41580, Accounting and Auditing Enforcement Release No. 1141 (June 30, 1999);  In the Matter of Thomas Scanlon, C.P.A. , Securities Exchange Act Release No. 41581, Accounting and Auditing Enforcement Release No. 1142 (June 30, 1999).
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diff --git a/raw/aaer/2003/AAER-1839.txt b/raw/aaer/2003/AAER-1839.txt
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+              Richard P. Scalzo, C.P.A.
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+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48328 / August 13, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1839 / August 13, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11212 
+
+ 
+	 
+		 
+			 
+			 
+			  
+
+			 In the Matter of 
+
+			 RICHARD P. SCALZO, CPA, 
+
+			 Respondents. 
+
+			  
+
+			  
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 ORDER INSTITUTING PUBLICADMINISTRATIVE AND CEASE- AND-DESIST PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER 
+		 
+	 
+ 
+
+ I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Richard P. Scalzo, CPA ("Respondent" or "Scalzo") 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, 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 Respondent admits, Respondent consents to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds  2   that: 
+
+ A. SUMMARY 
+
+ Richard P. Scalzo was the PricewaterhouseCoopers LLP ("PwC") engagement partner for the audits of the financial statements of Tyco International Ltd. ("Tyco") for the company's fiscal years 1997 through 2001. In the course of those audits, Scalzo became aware of facts and events that provided him notice regarding the integrity of Tyco's senior management. By the end of the Tyco annual audit for its fiscal year ended September 30, 1998, if not before, those facts were sufficient to obligate Scalzo, pursuant to generally accepted auditing standards ("GAAS"), to reevaluate the risk assessment of the Tyco audits and to perform additional audit procedures, including further audit testing of certain items (most notably, certain executive benefits, executive compensation, and related party transactions). Scalzo did not take sufficient steps in these regards. Accordingly, Scalzo did not conduct those Tyco financial statement audits in accordance with GAAS. However, for each of the Tyco fiscal years from its fiscal year ended September 30, 1998, through its fiscal year ended September 30, 2001, PwC issued an audit report stating that PwC had conducted an audit of Tyco's financial statements "in accordance with auditing standards generally accepted in the United States of America." As the engagement partner for the PwC team auditing Tyco's financial statements, Scalzo was responsible for those statements, and, at the time those statements were made, Scalzo was reckless in not knowing that the Tyco audits had not been conducted in accordance with GAAS. 
+
+ B. RESPONDENT 
+
+  Richard P. Scalzo , age 46, was the PwC engagement partner for the firm's audits of the financial statements of Tyco, beginning with the Tyco fiscal year ended June 30, 1997, and continuing through Tyco's fiscal year ended September 30, 2002.  3    He is currently licensed as a Certified Public Accountant by the Commonwealth of Massachusetts and has been so licensed since July of 1984. He resides in Massachusetts. 
+
+ C. OTHER RELEVANT ENTITIES AND INDIVIDUALS 
+
+  1. PricewaterhouseCoopers LLP  is a limited liability partnership engaged in public accounting. It maintains its principal place of business in New York City. The firm was formed by the July 1, 1998, merger of Coopers & Lybrand, LLP and Price Waterhouse, LLP. 
+
+  2. Tyco International Ltd.  is a Bermuda corporation with its headquarters in Bermuda. Tyco is a manufacturing and service company involved in fire and safety systems, electronic security services, disposable medical products, packaging materials, flow control products, electrical and electronic components, and underwater telecommunications systems. The common stock of Tyco is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is traded on the New York Stock Exchange. 
+
+  3. L. Dennis Kozlowski  was Tyco's Chairman of the Board, President, and Chief Executive Officer from 1997, and an Executive Officer of Tyco from 1992, until his resignation in June of 2002. Kozlowski had been affiliated with the company since 1975. 
+
+  4. Mark H. Swartz  was Tyco's Chief Financial Officer and an Executive Vice President from 1995 until September of 2002. Swartz was also a Tyco Director from 2001 until his resignation in August 2002. Swartz had been affiliated with the company since 1993 
+
+  5. Frank E. Walsh, Jr.  was an outside Director of Tyco from 1992 until February of 2002. In that capacity, Walsh served as the Chairman of the Board's Compensation Committee from 1998 through 2000 and as a member of the Board's Corporate Governance Committee and Lead Director in 2001. 
+
+ D. FACTS 
+
+ 1. SCALZO PUT ON NOTICE REGARDING INTEGRITY OF TYCO SENIOR MANAGEMENT 
+
+  a. The Key Employee Loan Program Loans  
+
+ September 30, 1997, was the first fiscal year-end for the new, larger Tyco that emerged from the mid-1997 merger of Tyco and ADT Limited, and Scalzo was the engagement partner for the audit of Tyco's September 30, 1997, financial statements. By the time of that audit, however, factual red flags had already begun to appear in the audit working papers compiled by the team working under Scalzo's direction. Perhaps the most significant red flag for that audit involved the Tyco Key Employee Loan Program ("KELP"). The KELP, established in 1983, was designed to encourage ownership of Tyco common shares by executives and other key employees. For each Tyco fiscal year from the fiscal year ended September 30, 1997, through the fiscal year ended September 30, 2001, the notes to Tyco's consolidated financial statements included in the company's annual report on Form 10-K, stated that loans under the KELP "are made . . . for the payment of taxes upon the vesting of shares granted under [the company's] Restricted Stock Ownership Plans."  4   For the fiscal year 1997 audit, the working papers concerning that statement contain twenty-six-pages of reports prepared by the company, listing the activity in the various KELP accounts of Tyco employees. Three of those twenty-six pages set forth the KELP account activity for L. Dennis Kozlowski (then the company's Chief Executive Officer and Chairman) from February 1, 1987, through September 30, 1997. Most of the 1997 line items for the Kozlowski account also include a brief description for each such item, and eighteen carry descriptions that are immediately recognizable as not being for the payment of taxes on the vesting of restricted stock. For example, one item reads "WINE CELLAR," another reads "NEW ENG WINE," another "BMW REG/TAX," another "ANGIE KOZLOWS," and thirteen read either "WALDORF," "WALDORF RENT," "WALDORF EXPEN," "WALDORF RENT A," or WALDORF RENT S."  5   
+
+ For each of the Tyco fiscal years from its fiscal year ended September 30, 1998, through its fiscal year ended September 30, 2001, the PwC audit working papers continued to include schedules for the KELP accounts of Tyco employees. Although those schedules did not include Kozlowski activity line item descriptions, the schedules nevertheless continued to show Tyco's most senior officers utilizing the KELP with a frequency that is impossible to reconcile with the payment of taxes on the vesting of restricted stock. In fact, the rate of KELP activity for those officers was due to their use of the program as a revolving line of credit -- and should have led the PwC audit team to inquire further as to whether the loans could possibly be authorized. 
+
+ Scalzo's own desk files contain at least one additional document that clearly reflects the KELP being used for purposes other than the payment of taxes on the vesting of restricted stock. The document, with marginalia in Scalzo's handwriting, relates to a series of transactions that took place over a three-day period in 1998 and involved an exercise of Tyco stock options by Kozlowski, Mark H. Swartz (then Tyco's Chief Financial Officer), and one other Tyco executive. The stock options were exercised by the executives borrowing, in the aggregate, in excess of $50 million from the KELP and then selling the shares received from their option exercise back to the company, through an off-shore subsidiary. The first two lines of the Scalzo desk file document states "17-Jul-98; LDK & MS & DB exercises [sic] options by borrowing cash from TYCO US; TYCO US forwards money to TIL."  6   The document then lists the initial journal entries reflecting the transaction. The first three entries listed include debits to "Key Employee Loans [sic] DB"; "Key Employee Loan LDK"; and "Key Employee Loan MS." 
+
+ These documents provided notice to Scalzo regarding the integrity of Tyco's most senior management. Specifically, the documents showed that his client was using the KELP for the improper benefit of its most senior officers, and, in any event, for purposes other than the only purpose stated in the notes to the company's financial statements -- the payment of taxes on the vesting of restricted stock. 
+
+  b. Tyco's Refusal to Disclose Non-Interest-Bearing "Relocation" Loans   
+
+ The consistent refusal of Tyco's management to disclose non-interest-bearing "relocation" loans granted to Tyco executives provided notice to Scalzo regarding the nature of Tyco's management. Scalzo was aware of tens of millions of dollars of these non-interest-bearing loans to Tyco's top two officers. By the time of the fiscal year 1999 audit, Scalzo knew, for example, that Kozlowski had $35.5 million, and that Swartz had $8 million, of such loans. The loans ostensibly were granted under Tyco's relocation loan program and were to be used to assist with the purchase of real estate by Tyco employees who were required to relocate to Tyco's offices in New York City and Boca Raton, Florida. These loans were recorded on the books and records of the company and were reviewed as part of the audit process. 
+
+ Pursuant to the firm's standard audit procedures, the PwC audit team for the Tyco audits recommended that Tyco disclose in its periodic reports the existence of these non-interest-bearing loans. When Scalzo raised the issue with the principal beneficiaries of the loans (Kozlowski and Swartz), Swartz told Scalzo that disclosure was not needed because the loans were not material to Tyco's financial statements, and Swartz refused to make the disclosure. The resistance to such disclosure, together with other facts and events discussed herein, provided notice to Scalzo regarding the character and integrity of Tyco senior management. 
+
+  c. Post-period Adjustments Off-setting Unanticipated Charges   
+
+ Two separate incidents, and one ongoing practice, in which management utilized post-period adjustments to negate the impact of unanticipated charges discovered post-period provided notice to Scalzo regarding the integrity of Tyco management. Most of those adjustments involved reversals of accruals. PwC had objected in prior periods to most of the accruals, and Tyco had refused in those periods to record the adjustments requested by PwC. 
+
+  (i) Fiscal Year 1998: Compensation Charge   
+
+ As noted above, during the course of the audit of Tyco's financial statements for its fiscal year ended September 30, 1998, the PwC audit team noticed a series of transactions from July 1998 in which Kozlowski, Swartz, and one additional Tyco executive exercised Tyco stock options, by borrowing from the KELP, and then sold the shares realized from their options exercises back to the company the next business day, along with additional shares previously held by the executives, through an off-shore Tyco subsidiary. Tyco then wrote a check to the executives, representing a net settlement of the stock buybacks, the KELP loans used to exercise the options, interest on those loans, and other unrelated KELP loans owed by the executives.  7   After consulting with PwC national partners, the PwC audit team came to the conclusion that Tyco should include a compensation charge of approximately $40 million. 
+
+ On October 15, 1998, when PwC first learned of the transactions, Tyco was within days of a scheduled October 22 earnings release and had already conditioned Wall Street analysts to expect earning numbers that did not include the previously unanticipated compensation charge. Taking an additional multi-million dollar compensation charge would have caused the company to report earnings per share that would have been several cents lower than those the Street was anticipating. Scalzo clearly knew the urgency of this issue at the time that he consulted with PwC's national partners. A Scalzo e-mail communication summarized the accounting issue for his partners and concluded by stating, "The potential impact to Tyco on this issue is significant." 
+
+ Faced with the reality of having to book an unanticipated $40 million compensation charge, Tyco suddenly arrived at $40 million in additional, contemporaneous, post-period adjustments which had the effect of negating the impact of the $40 million charge. The entries are set forth in a memorandum dated October 20, 1998, from Tyco's corporate controller at the time.  8   The Tyco entries negating the impact of the compensation charge were a series of credits to the selling, general and administrative expenses ("SG&A") line item on Tyco's income statement. The $40 million in credits raise significant issues -- each of which provided additional notice to Scalzo about the integrity of Tyco's management. Of those credits, $7.8 million resulted from Tyco reversing a previous "fourth quarter charge for restricted stock expense for certain executives no longer required." The rationale advanced for that reversal was that the executives had decided to forego the corresponding bonuses in the fourth quarter.  9   
+
+ One issue raised by the credits was the fact that $12.25 million of them resulted from Tyco's reversal of an "accrued restructuring reserve" into SG&A. That decrease of SG&A was accomplished by first reversing the accrued restructuring reserve against restructuring expense on the restructuring ledger and then debiting restructuring expense and crediting administrative expense on Tyco's general ledger. Scalzo was aware of the nature of these adjustments at the time they were made.  10   Documents in Scalzo's handwriting show that Scalzo was also aware of an additional issue raised by the reversal of the restructuring reserve -- the fact that Tyco had suddenly decided that $12.25 million of the reserve would be reversed. Scalzo's notes made at the time that Tyco was attempting to resolve these issues contain a notation -- with the letters "SEC" printed to its left -- stating, "Why is this the right qtr to reverse restructuring vs prior periods." The Tyco controller's memorandum lists the justification for the reversal as the need "[t]o reverse certain restructuring items that have been resolved during the fourth quarter." Scalzo accepted this written representation from his client. 
+
+ Of the remaining credits, several were the result of entries that PwC previously had advised Tyco to make, but which Tyco in the past had declined. Tyco, at least in part, followed previously rejected PwC recommendations in recording $19.2 million of the adjustments. Faced with a $40 million post-period crisis, however, Tyco changed its mind and made the previously rejected entries on its books. Any doubt as to whether Tyco would have taken these entries otherwise should be put to rest by the fact that Tyco was days away from its earnings release and had already conditioned analysts to expect earnings that did not include the impact of any these entries.  11   
+
+ Part of the $19.2 million in adjustments was a $2 million credit resulting from Tyco's partial reversal of its "corporate general reserve." In fact, during the previous fiscal year, PwC had noted on its Summary of Unadjusted Differences ("SUD") that the reserve was per se impermissible and should be reversed completely.  12   At that time, Tyco had declined to reverse the reserve in any amount, and, at the time of the post-period adjustments off-setting the impact of the $40 million compensation charge, Tyco only reversed $2 million of that reserve -- leaving the remainder of the accrual available for future use. 
+
+ The facts point to Scalzo's knowledge of the process whereby Tyco arrived at $40 million in adjustments to negate the impact of the compensation charge. The notes in Scalzo's handwriting, which make sense only if they date from some point in time prior to the final "resolution" of the matter, set forth, near the bottom of one page, three line items reading, "13M reverse restricted stock award; 14M reverse I/C hit; 13M restructuring reversal." The line items aggregate $40 million. Moreover, they closely resemble the types of post-period adjustments that eventually were made on Tyco's books.  13   All of these issues provided further notice to Scalzo regarding the integrity of Tyco's management. Moreover, the very next fiscal year the post-close fire-drill reoccurred. 
+
+  (ii) Fiscal Year 1999: Purchase Accounting Charges   
+
+ During the annual audit for Tyco's fiscal year ended September 30, 1999, the PwC team auditing Tyco's Flow Control division came to the conclusion that $10.6 million in expenses at the division's Earth Tech subsidiary had been improperly charged against purchase accounting accruals.  14   Scalzo, once informed of the findings, told the client that these errors were "black and white" and had to be reversed. 
+
+ Tyco, in fact, agreed to reverse the entries and allow the expenses to flow through Tyco's operating expense. By memorandum dated October 21, 1999, the Flow Control divisional controller informed the Tyco corporate controller that "[p]er our discussion, Tyco Flow Control will reverse $10.6 m of inappropriate Earth Tech purchase accounting spending" and that "Flow Control will reverse the following accruals  to cover this inappropriate purchase accounting spending ."  15   (emphasis added). The memorandum then listed three items, aggregating $10.6 million: 
+
+ 
+	 
+	 $2.1 m - Dog Leg Accruals (excess booked in post close in Boca) 
+	 
+	 
+	 $5.4 m - Flow Control Books (Account 021-0035) 
+	 
+	 
+	 $3.1 m - Corporate (Boca) General Reserve 
+	 
+ 
+
+ Once again, suddenly faced with an unexpected charge, Tyco came up with additional post-period adjustments to off-set the impact of the unanticipated charge. In fact, the adjustments that "cover" the purchase accounting reversals were all items that had been slated by PwC for inclusion on the fiscal year 1999 SUD, although Tyco booked them selectively and only partially, as necessary to off-set the impact of the unexpected charges. The Flow Control memorandum leaves little doubt that Tyco would have declined to make the adjustments, barring the unanticipated post-period $10.6 million in additional expense. In fact, the $3.1 million reversal from the corporate general reserve is a reversal of the same corporate reserve utilized a year earlier when Tyco covered the effect of the $40 million compensation charge. Again, the very existence of that reserve had been noted on the PwC SUD annually, and annually Tyco had declined to reverse the accrual. The $2.1 million reversal of the excess "Dog Leg" accrual, moreover, bears no economic or business relation to the 1996 Earth Tech acquisition. "Dog Leg" was the Tyco transactional code name for its August 1999 disposition of The Mueller Company, another subsidiary within the Flow Control division.  16   
+
+  d. Continued Use of General Unallocated Reserves  
+
+ Scalzo continued to witness Tyco's use of general unallocated reserves to off-set unexpected expenses throughout Tyco's fiscal years 1998-2001. For example, the PwC Discussion Outline for the Tyco fiscal quarter ended June 30, 2001, notes "[g]eneral reserves of $26m recorded through post-close entries; Increase is allocated to various Corporate accrual and reserve accounts, but intention is primarily to off-set possible (but unidentified) under accruals at a divisional level." 
+
+  e. Improper Accounting Treatment for Certain Executive Bonuses  
+
+ On three occasions over one calendar year, the company's treatment for certain executive bonuses provided notice to Scalzo regarding the integrity of Tyco senior management. 
+
+  (i) The TyCom IPO   
+
+ In July 2000, Tyco successfully completed an initial public offering ("IPO") of approximately fourteen percent of the outstanding common stock of its previously wholly-owned subsidiary, TyCom Ltd., which served as the holding company for Tyco's undersea fiber optic cable communications business. The TyCom IPO generated a one-time gain of approximately $1.76 billion on the books of Tyco. In early September 2000, Kozlowski decided to grant bonuses to fifty-one Tyco officers, managers, and employees, ostensibly for their contributions to the gain from the TyCom IPO. On November 30, 2000, Scalzo received a facsimile transmission of a memorandum purportedly written by Swartz and dated September 29, 2000. The memorandum noted the TyCom IPO bonuses and stated that selected employees would receive their bonuses in the form of cash, forgiveness of relocation loans, and/or Tyco stock under Tyco's restricted stock program. The memorandum also stated that the bonus payments are not in lieu of a normal year-end bonuses but instead represented an incremental payment to reward selected employees for the successful TyCom IPO. 
+
+ The relocation loan forgiveness, and other components of the bonuses, aggregated $95,962,653, of which Kozlowski and Swartz received $49,586,754. According to a Tyco report on Form 8-K, filed with the Commission on September 10, 2002, an internal Tyco investigation found that Tyco had classified $44,642,065 of the $95.9 million as a TyCom offering expense, with the remainder charged against previous overaccruals of general and administrative expense and against an accrual for federal income taxes. 
+
+ Scalzo first learned of the TyCom IPO bonuses in the course of PwC's year-end audit in October 2000. An October 19 draft Discussion Outline from Scalzo's desk files bears a notation in his handwriting that states "IPO; GAIN -- offsets need memo" and shows that Scalzo was aware of and focused on off-sets to the IPO. Scalzo subsequently discussed the TyCom IPO bonuses with Swartz, a primary beneficiary of the bonuses, and was told that the bonuses were not material. Management also represented to Scalzo that the bonuses were direct and incremental costs of the TyCom IPO.  17   
+
+  (ii) The ADT Automotive Divestiture   
+
+ In October 2000, Tyco sold its ADT Automotive business for approximately $1 billion in cash, with a net gain on the sale of approximately $400 million. In November 2000, Kozlowski used the ADT Automotive divestiture as a vehicle for the payment of almost $56 million in bonuses to Tyco officers and managers, in the form of cash bonuses, relocation loan repayments, and grants of restricted stock.  18   Although the bonus recipients were almost exclusively Tyco corporate headquarters personnel, Swartz directed that the $56 million in charges be netted against the gain on the divestiture, and that all but the restricted stock components be classified as "direct selling costs" associated with the ADT Automotive divestiture. 
+
+ A January 15, 2001, draft of PwC's Discussion Outline for the Tyco quarter ended December 31, 2000, lists, as one of nine "Key Items," an issue relating to "[c]harges recorded against gain on sale of businesses."  19   The "Corporate" section of the draft Discussion Outline cites the ADT Automotive issue more explicitly. Discussing a "$(410.4)m gain on disposal of businesses," the Outline states, "Calculation of gain nets a number of additional charges against the mechanical gain calculation (proceeds less net assets) of $548.1m, including: Management bonuses of $61.5m - documentation of these bonuses is that they are direct and incremental costs of the sale of ADT Automotive."  20   The "Key Item" language and the "Corporate" language appear in identical form in another document from Scalzo's desk files, a document entitled "Audit Committee Discussion Outline - March 26, 2001." Scalzo received a representation from Swartz that the bonuses were direct and incremental costs of the transaction.  21   While Scalzo brought the bonuses to the attention of the audit committee, he did not disclose to the committee that Kozlowski and Swartz were recipients of the bonuses. 
+
+  (iii) The FLAG Telecom Transaction   
+
+ On June 22, 2001, Tyco acquired 15 million shares of FLAG Telecom for $11,421,810 in cash and 5,580,647 shares of common stock in Tyco's subsidiary, TyCom Ltd.  22   Tyco reported a $79,364,700 gain associated with its swap of TyCom shares for the FLAG Telecom equity. Kozlowski and Swartz directed bonuses to a handful of Tyco corporate headquarters officers and managers, again ostensibly to reward the officers and managers for their role in creating the $79 million gain. At the end of its fiscal third quarter ended June 30, 2001, when it was still not clear what form these bonuses might take, Tyco established a $15 million accrual for management bonuses and netted the accrual against the gain on the FLAG Telecom transaction. During its fiscal fourth quarter, Tyco management decided to take the bonuses in the form of accelerated vestings of restricted stock. The officers and managers sold those shares back to Tyco, through a Tyco off-shore subsidiary, and the proceeds were then wired to their personal accounts. The aggregate cost of those bonuses was $15,378,700, of which $12,329,475 went to Kozlowski and Swartz. Kozlowski and Swartz then awarded themselves a tax gross-up on their FLAG Telecom bonuses, in the form of approximately $9.6 million in additional restricted stock. The tax gross-up was charged against a corporate income tax account on Tyco's balance sheet. Accordingly, neither Kozlowski's and Swartz' initial FLAG Telecom bonuses nor their tax gross-up affected Tyco's operating expense. 
+
+ The PwC audit team knew that, once again, Tyco management had classified executive bonuses so that the charges would not be included in operating expenses. The PwC audit team disagreed with that accounting treatment for the FLAG Telecom bonuses and included that item on its SUD, which was provided to the audit committee. The PwC Discussion Outline for the quarter ended June 30, 2001, lists as its first "Key Item" "$15m `bonuses' netted against gain on issuance of TyCom shares for FLAG equity purchase - netted against special charges." Under its "Corporate" section, the Discussion Outline again lists the item, and explicitly questions its classification, this time stating, "$15m `bonus' netted against gain on issuance of subsidiary shares - basis?  Is this operating? " (emphasis added). A PwC outline for the fiscal third quarter report to the Tyco audit committee, dated August 8, 2001, continues to list the matter, noting under the header "Unusual Transactions," the item "[g]ain on sale of subsidiary shares -- for flag investment $64m."  23   Scalzo also listed the $9.6 million tax item on the 2001 fiscal year SUD, although the listing did not tie the item to executive bonuses. These facts provided notice to Scalzo that Tyco management was aggressively attempting to classify executive bonuses in a manner that would keep the bonuses out of Tyco's operating expenses.  24   
+
+  f. The Frank E. Walsh, Jr. CIT Finder's Fee   
+
+ Finally, in early December 2001, during the financial statement audit for Tyco's fiscal year 2001, Scalzo was informed by the PwC team auditing Tyco's Tyco Capital Corporation subsidiary that the team had noticed a $20 million finder's fee paid to Frank E. Walsh, Jr., then a Tyco outside Director, in connection with Tyco's 2001 acquisition of The CIT Group, Inc. (Tyco Capital Corporation, later renamed CIT Group Inc., was formed as a result of Tyco's acquisition of The CIT Group, Inc.) The Tyco Capital Corporation audit team especially wanted Scalzo to know that the $20 million fee consisted of a $10 million payment directly to Walsh and a $10 million contribution by Tyco to a charitable foundation chosen by Walsh.  25   By the time that the Tyco Capital Corporation audit team informed Scalzo about the finder's fee, the PwC audit team under Scalzo had already interviewed Tyco management regarding the existence of related party transactions for Tyco's fiscal year 2001 and had been told that there were no such transactions to report.  26   Therefore, Tyco management had given the audit team false information. Once again, Scalzo was faced with facts that raised serious questions about the integrity of Tyco management. 
+
+ 2. HAVING BEEN PUT ON NOTICE, SCALZO FAILED TO TAKE STEPS REQUIRED BY GAAS 
+
+ These facts and events -- repeated and consistent -- provided notice to Scalzo, by the end of the PwC audit for Tyco's fiscal year 1998, if not before, regarding the character and integrity of Tyco management. So informed, and as the engagement partner for the PwC Tyco audits, Scalzo faced certain obligations under GAAS. 
+
+  a. The Requirements of GAAS   
+
+ As an initial matter, in order for an audit to be conducted in accordance with GAAS, the auditor must plan the audit "to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud." AU § 316.01. The auditor's obligations regarding assurance, however, do not end there. The auditor is directed to also  perform  the audit in a manner calculated to obtain such assurances. AU § 316.01. Thus, "the assessment of the risk of material misstatement due to fraud is a cumulative process and one that should be ongoing throughout the audit." AU § 316.35. Because this process is a cumulative one, "[a]s the auditor performs planned procedures, the evidence obtained may cause him or her to modify the nature, timing, and extent of other planned procedures." AU § 316.33. Thus, "conditions may be identified  during fieldwork  that  change  or support  a judgment  regarding the [risk] assessment," including "[t]ransactions not recorded in a complete or timely manner or  improperly recorded as to  amount, accounting period,  classification , or entity policy" or " [l]ast-minute adjustments  by the entity that significantly affect financial results." AU § 316.25 (emphasis added). Statements on Auditing Standards make clear that one of the ways that "procedures may need to be modified" in response to facts uncovered during an audit is that "[t]he  nature  of audit procedures performed may need to be changed to obtain evidence that is more reliable or to obtain additional corroborative information." AU § 316.28. 
+
+ Risk assessments, and, accordingly, any reevaluations of risk assessments, should be made with consideration of applicable risk factors.  See  AU § 316.12, .14. Thus, the auditor's response to a risk assessment "is influenced by the nature and significance of the risk factors identified as being present." AU § 316.26. One of the principal categories of "[r]isk factors that relate to misstatements arising from fraudulent financial reporting" is " [m]anagement's characteristics and influence over the control environment ." AU § 316.16. Those factors "pertain to management's abilities, pressures, style, and  attitude relating to  internal control and  the financial reporting process ." AU § 316.16 (emphasis added).  27   One of the examples of the risk factors from another principal category, that of risk factors relating to operating characteristics and financial stability, is "[s]ignificant  related-party transactions not in the ordinary course of business " AU § 316.17 (emphasis added). 
+
+ One of the cardinal principles of GAAS is that "[d]ue professional care is to be exercised in the planning  and performance  of the audit and the preparation of the [audit] report." AU § 230.04 (emphasis added). Statements on Auditing Standards note that "[d]ue professional care requires the auditor to exercise  professional skepticism ," AU § 230.07, and "[i]n exercising professional skepticism, the auditor should not be satisfied with less than persuasive evidence because of a belief that management is honest," AU § 230.09. In fact, one of the ways in which a reevaluation of risk assessment may affect the audit is in the increased application of professional skepticism.  See  AU § 316.27. "Some examples demonstrating the application of professional skepticism in response to the auditor's assessment of the risk of material misstatement due to fraud include  (a)  increased sensitivity in the selection of the nature and extent of documentation to be examined in support of material transactions, and  (b)  increased recognition of the need to corroborate management explanations or representations concerning material matters -- such as further analytical procedures, examination of documentation, or discussion with others within or outside the entity." AU § 316.27. 
+
+ The auditor's obligation of ongoing risk assessment does not end once the fieldwork is complete. "At the completion of the audit, the auditor should consider whether the accumulated results of audit procedures and other observations [for example, conditions arising during fieldwork] affect the assessment of the risk of material misstatement due to fraud he or she made when planning the audit." AU § 316.33. "Such an accumulation may provide further insight into the risk of material misstatement due to fraud and whether there is a need for additional or different audit procedures to be performed." AU § 316.33. Moreover, "[w]hen audit test results identify misstatements in the financial statements, the auditor should consider whether such misstatements may be indicative of fraud." AU § 316.34. 
+
+ In conducting such an analysis, even seemingly immaterial transactions may trigger the need to reevaluate the audit's risk assessment.  See  AU §§ 312.11, 316.34.  28   Thus, "[i]f the auditor has determined that misstatements are or may be the result of fraud, but the effect of the misstatements is not material to the financial statements, the auditor nevertheless should evaluate the implications,  especially those dealing with the organizational position of the person(s) involved ." AU § 316.34 (emphasis added). This is true because, " when the matter involves higher level management, even though the amount itself is not material to the financial statements, it may be indicative of a more pervasive problem ." AU § 316.34 (emphasis added).  29   
+
+ As noted, if risk assessment is reevaluated properly, GAAS may well lead an auditor to the conclusion that he or she is required to take additional audit steps. In addition, an auditor's identification of certain types of transactions or events may also trigger the need to take specific, additional actions. For example, during the course of an audit, the auditor may become aware of reportable conditions, that is, "matters coming to the auditor's attention that, in his judgment, should be communicated to the audit committee because they represent significant deficiencies in the design or operation of internal control, which could adversely affect the organization's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements." AU § 325.02. One example of a reportable condition is "[e]vidence of significant or extensive undisclosed related party transactions." AU § 325. Similarly, "[w]hen the auditor, as a result of the assessment of risk of material misstatement due to fraud, has identified risk factors that have continuing control implications ( whether or not transactions or adjustments that could be the result of fraud have been detected ), the auditor should consider whether these risk factors represent reportable conditions relating to the entity's internal control that should be communicated to senior management and the audit committee." AU § 316.39 (emphasis added). Additional matters encountered during the course of the audit may also need to be brought to the attention of the audit committee, AU § 380, including, for example, "audit adjustments," or proposed corrections "of the financial statements that, in the auditor's judgment, may not have been detected except through the auditing procedures performed." AU § 380.09. 
+
+  b. Scalzo's Failure to Follow GAAS   
+
+ In contrast to the requirements of GAAS, Scalzo conducted the financial statement audits for Tyco's fiscal years 1998, 1999, 2000, and 2001, under an assessment of risk that remained unchanged by facts and events that called into question the character and integrity of Tyco's most senior management. With regard to those facts and events, "the evidence obtained" did not cause him "to modify the nature, timing, and extent of other planned procedures." AU § 316.33. When it came to Tyco's most senior management, Scalzo did not reevaluate risk assessment as a result of conditions that arose during the course of fieldwork or as a result of audit test results.  See  AU § 316.25, .33. In fact, at no point during the course of his work as engagement partner for the Tyco audits did Scalzo reassess the level of audit risk with regard to executive compensation or related party transactions.  30   
+
+ A principal vehicle of executive compensation and related party transactions at Tyco was the KELP loans to its senior officers.  31   Nevertheless, the PwC audit team did not pursue troublesome facts regarding KELP. The PwC working papers contained documents that contradicted the KELP financial statement footnote they were ostensibly intended to support. Scalzo knew, and documents contained in his own desk files showed, that KELP loans had been used to exercise tens of millions of dollars worth of stock options rather than to pay taxes on the vesting of restricted stock. Failing to reevaluate audit risk in this area, Scalzo took no further steps. He did not perform, nor did he direct PwC personnel to perform, any audit steps to determine whether KELP loans made to Tyco's top officers, in fact, were consistent with the program purpose stated in the financial statement footnote. He did not inform the audit committee of Tyco's Board of Directors that Tyco's most senior officers had used KELP loans for non-program purposes. 
+
+ Another principal area of Tyco executive compensation and related party transactions was that of non-interest-bearing loans extended to Tyco's senior management. Here, also, the audit team failed to respond to troublesome facts and events. Scalzo was aware of tens of millions of dollars in non-interest-bearing loans to Tyco's top two officers. For each of the Tyco fiscal years 1999-2001, PwC's recommendation that these loans be disclosed was rejected. Scalzo raised the issue with the principal beneficiaries of the loans: Kozlowski and Swartz. Swartz told Scalzo that disclosure was not needed because the loans were not material to Tyco's financial statements. Scalzo considered that statement and the impact of non-disclosure on the financial statements.  32   Scalzo did not reevaluate audit risk in this area, and he took no additional audit steps regarding the propriety and disclosure of the loans or their authorization, other than to review and consider management's draft financial statements. He did not review the PwC working papers on the use of the loans. He did not insist on separate disclosure of the loans in Tyco's financial statements, and he did not inform the audit committee of the existence of the non-interest-bearing loans. 
+
+ The facts and events that should have led Scalzo to reevaluate audit risk at Tyco continued to accumulate with his exposure to post-period adjustments made to cover the impact of unanticipated charges. The fiscal year 1998 and fiscal year 1999 post-period episodes informed Scalzo that his client, when faced with unexpected charges, made adjustments that the client had previously declined to make despite being advised that adjustments were required by generally accepted accounting principles ("GAAP"). At least for the fiscal year 1998 incident, Scalzo knew that the unanticipated charges were significant for Tyco and, if not off-set, would decrease Tyco's expected earnings per share by several cents. Scalzo knew that Tyco maintained a corporate general reserve, which was unallocated and which Tyco had been told was impermissible under GAAP and should be reversed in its entirety. Scalzo knew that the client utilized a portion of this reserve to negate part of the impact of the unexpected compensation charge for its fiscal year 1998. His own handwritten notes show that he was aware, prior to the resolution of the matter, that Tyco was attempting to find additional adjustments to cover the impact of the post-period charge. Scalzo came to know that Tyco used the unallocated reserve to off-set unexpected expenses during its fiscal years 1998-2001. Nevertheless, witnessing "last-minute adjustments by the entity that significantly affect financial results" did not lead Scalzo to reevaluate the relevant audit risk. AU § 316.25. Nor did the client's continued use of an impermissible reserve. This in spite of the fact that the corporate general reserve had repeatedly been placed on the PwC SUD and brought to the attention of Tyco management, without result. Scalzo did not bring the last-minute post-period adjustments or the use of a general unallocated reserve to the attention of the audit committee, nor did he insist that Tyco management cease using the reserve to off-set expenses.  33   
+
+ Scalzo also failed to reevaluate audit risk when confronted with the issues raised by the bonuses granted in connection with the TyCom IPO, the ADT Automotive divestiture, and the FLAG Telecom transaction. Scalzo discussed the TyCom IPO bonuses with Swartz, a primary beneficiary of the bonuses, and was told that the bonuses were not material. Scalzo considered Swartz' representation and accepted the lack of disclosure of the bonuses in the context of the financial statements. Scalzo accepted management's representation that the bonuses were direct and incremental costs of the TyCom IPO. He did not reevaluate audit risk. He did not insist that the bonuses be separately disclosed in the financial statements, and he did not report to the audit committee that Kozlowski and Swartz received the bonuses. 
+
+ Faced with the accounting treatment for the ADT Automotive executive bonuses, Scalzo again accepted a management representation that the bonuses were direct and incremental costs of the transaction and allowed the accounting treatment to stand. He listed the bonuses on the audit committee Discussion Outline along with a notation that there was documentation that the bonuses were direct and incremental costs of the sale. More important for the violations discussed herein, he did not reevaluate audit risk. Accordingly, he undertook no additional audit procedures or testing. He did not direct the audit team to ascertain whether the bonuses were authorized by Tyco's Board of Directors. Although he discussed the bonuses with the audit committee, he did not identify the recipients of the bonuses to the audit committee and did not require the bonuses to be separately disclosed in the financial statements. 
+
+ In response to Tyco's accounting treatment for the FLAG Telecom executive bonuses, Scalzo posted the amount of the bonuses on the SUD and discussed it with management (the beneficiaries of the bonuses). Although Scalzo explicitly questioned the accounting classification, he did not insist that the accounting treatment be changed, because he did not believe that it was material. Scalzo also listed the tax gross-up component on the SUD, although less explicitly. He did not point out that the tax item was another component of the FLAG Telecom executive bonuses. As above, he did not insist on its accounting treatment being changed. Again, faced with his client's acts and his client's response to his advice, he did not reevaluate audit risk. Accordingly, he undertook no additional audit procedures or testing. When faced with problematic facts regarding executive bonuses, Scalzo's analysis did not heed the cautionary statement, set forth in SAS, that, "when the matter involves higher level management, even though the amount itself is not material to the financial statements, it may be indicative of a more pervasive problem." AU § 316.34 .  34   
+
+ Moreover, during the fiscal year 2001 audit, Scalzo learned that Tyco management had not voluntarily informed the PwC audit team about the Walsh CIT finder's fee, and in fact had told the audit team that there were no related party transactions to report for that fiscal year. After another PwC audit team found, and informed Scalzo of, the fee, Scalzo discussed it with Tyco management and was told that the fee was not material for purposes of separate financial statement disclosure. Although his client had given the audit team false information regarding related party transactions, Scalzo did not reevaluate audit risk for such transactions. Accordingly, he did not perform, or direct PwC personnel to perform, any additional audit steps. Moreover, without the benefit of any such additional steps, Scalzo reached a determination that the payment was not material for purposes of separate financial statement disclosure. Scalzo did not inform the audit committee about the fee. 
+
+ In sum, it is important to note that Scalzo was exposed to all of these facts and events -- not just those of a single fiscal year and not just those of a single type of transaction. Nevertheless, at no point during the course of his work as engagement partner for the Tyco audits did Scalzo reassess the level of audit risk with regard to executive compensation or related party transactions. For Scalzo, it was only exposure to these facts, and not the assessment of audit risk that was "a cumulative process." 
+
+ 3. SCALZO WAS RESPONSIBLE FOR AUDIT REPORTS FALSELY STATING THAT PwC HAD CONDUCTED THE TYCO AUDITS IN ACCORDANCE WITH GAAS 
+
+ Because of these repeated failures, PwC, under Scalzo's direction, for each of Tyco's fiscal years ended September 30, 1998; September 30, 1999; September 30, 2000; and September 30, 2001, failed to conduct an audit of Tyco's financial statements in accordance with GAAS. Nevertheless, for each of those fiscal years, PwC issued an audit report falsely stating that the firm had conducted its audit of Tyco's financial statements "in accordance with auditing standards generally accepted in the United States of America." Scalzo, as the PwC engagement partner for those Tyco audits, was responsible for the false statements. At the time those statements were made, Scalzo was reckless in not knowing that the Tyco audits had not been conducted in accordance with GAAS, and, therefore, that the statements were false. 
+
+ Scalzo recklessly allowed PwC to issue an audit report containing the false statement in Tyco's annual report on Form 10-K for each of its fiscal years ended September 30, 1998; September 30, 1999; September 30, 2000; and September 30, 2001. Accordingly, as a result of the false statement contained in the PwC audit reports, Tyco filed with the Commission, and distributed to investors, false and misleading annual reports that misrepresented whether Tyco's financial statements had, in fact, been submitted to an audit in accordance with GAAS. 
+
+ E. VIOLATIONS OF THE FEDERAL SECURITIES LAWS 
+
+ Section 10(b) of the Exchange Act of 1934 and Exchange Act Rule 10b-5 prohibit a person, in connection with the purchase or sale of a security, from making an untrue statement of a material fact or from omitting to state a material fact necessary to make statements made, in light of the circumstances under which they were made, not misleading. "[T]o fulfill the materiality requirement [of these provisions] `there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available.'"  Basic Inc. v. Levinson , 485 U.S. 224, 231-32 (1988) (citation omitted). Few matters could be more important to investors than that of whether an issuer's financial statements, contained in its filings with the Commission, had, in fact, been subjected to an annual audit conducted in accordance with GAAS in all material respects. To violate Section 10(b) or Rule 10b-5, a defendant must act with scienter,  Aaron v. SEC,  446 U.S. 680, 695, 701-02 (1980), which the Supreme Court has defined as "a mental state embracing intent to deceive, manipulate, or defraud,"  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 n.12 (1976). Such scienter encompasses knowing or intentional misconduct, or recklessness.  See ,  e . g .,  IIT v. Cornfeld , 619 F.2d 909, 923 (2d Cir. 1980);  Lanza v. Drexel & Co ., 479 F.2d 1277, 1306 (2d Cir. 1973) (en banc). By means of the conduct set forth above, Scalzo violated Section 10(b) and Rule 10b-5. 
+
+ F. IMPROPER PROFESSIONAL CONDUCT 
+
+ Rule 102(e)(1)(ii) of the Commission's Rules of Practice allows the Commission to deny, temporarily or permanently, the privilege of appearing or practicing before it to any accountant who the Commission finds has engaged in improper professional conduct. According to the records of the Massachusetts Board of Public Accountancy, Scalzo is currently licensed by Massachusetts as a Certified Public Accountant and has been so licensed since July 1984. Rule 102(e)(1)(iv) provides, in relevant part, that "[w]ith respect to persons licensed to practice as accountants, `improper professional conduct' under [Rule 102(e)(1)(ii)] means: (A) Intentional or knowing conduct, including reckless conduct, that results in a violation of applicable professional standards." 
+
+ The Commission has recently noted that it adopted the recklessness standard set forth in Rule 102(e)(1)(ii)(A) "to highlight that reckless conduct is not merely a heightened form of ordinary negligence, but rather a lesser form of intent."  Michael J. Marrie, CPA, and Brian L. Berry, CPA , Exchange Act Release No. 48246 (July 29, 2003). "The question is not whether an accountant recklessly intended to aid in the fraud committed by the audit client, but rather whether the accountant recklessly violated applicable professional standards."  Marrie and Berry.  Scalzo's conduct set forth above constitutes reckless violations of applicable professional standards, and, accordingly, Scalzo engaged in improper professional conduct. "An auditor who skips procedures designed to test a company's reports or looks the other way despite suspicions is a threat to the Commission's processes."  Marrie and Berry.  
+
+ G. FINDINGS 
+
+ 
+	 
+	 Based on the foregoing, the Commission finds that Scalzo committed and caused violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. 
+	 
+	 
+	 Based on the foregoing, the Commission finds that Scalzo 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 Scalzo's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that :  
+
+ 
+	 
+	 Scalzo shall cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. 
+	 
+	 
+	 Scalzo is denied the privilege of appearing or practicing before the Commission as an accountant. 
+	 
+ 
+
+ By the Commission. 
+
+ 
+	 
+		 
+			  
+			 Jonathan G. Katz 
+			Secretary 
+		 
+	 
+ 
+
+  
+
+ 
+   1    Rule 102(e)(1)(ii) provides, in relevant part, that: 
+
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it . . . to any person who is found . . . to have engaged in . . . improper professional conduct. 
+
+   2    The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. 
+
+   3    The present-day Tyco was formed by the July 1997 merger between Tyco International Ltd. and a wholly-owned subsidiary of what was formerly called ADT Limited. ADT Limited had a fiscal year-end of December 31, while former Tyco had a year-end of June 30. The new Tyco adopted a year-end of September 30. The June 30, 1997, and September 30, 1997, audits of Tyco's financial statements were conducted by a predecessor firm of PwC, Coopers & Lybrand, LLP. 
+
+   4    In the note for the fiscal year ended September 30, 2001, the words "under Former Tyco's Restricted Stock Ownership Plans" became "under our Restricted Share Ownership Plans." The purpose stated in these notes was, in fact, the only authorized purpose for Tyco KELP loans. 
+
+   5    Other line items are nearly as explicit in setting forth purposes other than the payment of taxes on the vesting of restricted stock: For example, another line item reads "KENSHIRE GAL," three read "UTILITIES," and four read "LIVING SPACE." In fact, apart from one item that reads "LOAN VESTING," and perhaps another that reads "IRS," none of the descriptions bear an apparent tie to the payment of such taxes. 
+
+   6    "DB" was another Tyco executive; "TIL" is Tyco International Ltd. 
+
+   7    The description set forth here mirrors that contained in a document, found in the fiscal year 1998 working papers, that discusses the transactions. The description coincides, therefore, with the understanding documented by the Tyco PwC audit team after their review of the transactions. 
+
+   8    The memorandum is contained in PwC's fiscal year 1998 working papers. 
+
+   9    The referenced "executives" were Kozlowski and Swartz -- the same two executives selling the lion's share of the stock bought back by the company in the transactions underlying the $40 million compensation charge. 
+
+   10    Scalzo's desk file contains several pages of handwritten notes made at the time that Tyco was attempting to resolve issues raised by the unanticipated $40 million compensation charge. One of those pages contains the following notation: "Any credits should go to the right place -- ie in restructuring reserves." 
+
+   11    Tyco had already conditioned the Street to expect earnings that did not include  any  of these post-period adjustments. If Tyco, prior to the discovery of the $40 million compensation charge, had intended to take the additional $40 million in credits to SG&A, then Tyco inexplicably had conditioned the Street to anticipate earnings $40 million lower than the earnings that Tyco, in fact, expected to announce. 
+
+   12    Generally accepted accounting principles ("GAAP") prohibit the use of "reserves for general contingencies." Financial Accounting Standards Board ("FASB") Statement No. 5, Accounting for Contingencies, ¶ 14. 
+
+   13    The adjustments actually made included a $7.8 million reversal of restricted stock expense, a $14 million reversal of a balance sheet credit into intercompany charges, and a $12.25 million reversal of restructuring expense. 
+
+   14    Tyco acquired The Earth Technology Corporation or "Earth Tech" in the first quarter of calendar 1996. 
+
+   15    A copy of the memorandum was maintained in a "Post-Close" folder in the PwC working papers for the Tyco fiscal year 1999 audit. 
+
+   16    One of the Mueller Company's principal products was fire hydrants. Hence, the code name "Dog Leg." 
+
+   17    "Direct and incremental costs" meant that the costs were direct costs of the transaction and that the bonuses were incremental to the usual and ordinary bonuses the executives would receive. 
+
+   18    Of the approximately $56 million in Tyco corporate ADT Automotive bonuses, approximately $25.5 million was paid to Kozlowski, and an additional $12.8 million was paid to Swartz. 
+
+   19    The draft Discussion Outline was produced to the staff as part of Scalzo's desk files. Moreover, a typed list of "PwC Notes" for a March 2001 meeting with the Tyco audit committee contains, next to the bullet-point "[c]ertain charges recorded against gain on sale of businesses," a note in Scalzo's handwriting stating "ie ADT Auto." 
+
+   20    The difference between the $61.5 million cited on the Discussion Outline and the $56 million that Swartz directed be taken against the gain on the divestiture of ADT Automotive is $5.5 million that was designated as "ADT Auto Bonuses" -- as opposed to "Tyco Cash Bonuses" or "Tyco Restricted Stock Bonuses" -- and actually may have gone to individuals at ADT Automotive. 
+
+   21    In fact, the PwC audit team received an early indication that Tyco might attempt to net bonuses against the gain on the sale of ADT Automotive. An item on a draft PwC Discussion Outline for the Tyco quarter ended June 30, 2000, (and therefore drafted well ahead of the October transaction) noted, under the "Corporate" section, "$2.2m to defer ADT Automotive retention bonuses through to date of sale; Plan to recognize as direct cost of sale;  If employees are involved in revenue producing activities then should period [sic] expenses ." (emphasis added). 
+
+   22    FLAG is an acronym formed from "Fiberoptic Link Around the Globe." 
+
+   23    A $79 million gain on the stock issuance, less $15 million for "bonuses," would net $64 million. 
+
+   24    In addition to repeatedly classifying certain executive bonuses in a manner calculated to keep them from affecting its operating expenses, Tyco regularly failed to clearly disclose the existence of those same bonuses in its proxy statements or in its annual reports on Form 10-K, as either compensation or as related party transactions. 
+
+   25    Scalzo was told by Tyco management that the payment would be disclosed in Tyco's proxy statement, and in fact it was so disclosed. 
+
+   26    The finder's fee paid to Walsh constituted a related party transaction. See AU § 334; FASB Statement No. 57, Related Party Disclosures. 
+
+   27    Examples of such risk factors, and indicators of such risk factors, include "[a]n excessive interest by management in maintaining or increasing the entity's stock price or earnings trend through the use of unusually aggressive accounting practices," "[a] failure by management to display and communicate an appropriate attitude regarding internal control and the financial reporting process," "[d]omination of management by a single person or small group without compensating controls such as effective oversight by the board of directors or audit committee," and "[m]anagement failing to correct known reportable conditions on a timely basis." AU § 316.17. 
+
+   28    "As a result of the interaction of quantitative and qualitative considerations in materiality judgments, misstatements of relatively small amounts that come to the auditor's attention could have a material effect on the financial statements." AU § 312.11. 
+
+   29    "In such circumstances, the auditor should reevaluate the assessment of the risk of material misstatement due to fraud and its resulting impact on (a) the nature, timing, and extent of the tests of balances or transactions, (b) the assessment of the effectiveness of controls if control risk was assessed below the maximum, and (c) the assignment of personnel that may be appropriate in the circumstances." AU § 316.34. 
+
+   30    In fact, the PwC audit team under Scalzo not only failed to consider whether additional audit testing was required for related party transactions, it also regularly failed to undertake some of the basic audit procedures in connection with related party transactions. AU § 334.08. Moreover, once an auditor has identified related party transactions, "the auditor should apply the procedures he considers necessary to obtain satisfaction concerning the purpose, nature, and extent of these transactions and their effect on the financial statements." AU § 334.09. "The procedures should be directed toward obtaining and evaluating sufficient competent evidential matter and should extend beyond inquiry of management." AU § 334.09. As noted, such extended inquiry specifically did not occur during the Tyco audits conducted under Scalzo's direction. 
+
+   31    Generally, loans between an entity and the entity's executive officers constitute related party transactions. See AU § 334; FASB Statement No. 57, Related Party Disclosures. At Tyco, as noted above, executive loans, on more than one occasion, were forgiven, giving rise as well to executive compensation. 
+
+   32    Scalzo was obligated under GAAS to "consider all the relevant circumstances" surrounding the relocation loans, including "the factual context" in which the readers of Tyco's financial statements would "view the financial statement item."  Staff Accounting Bulletin No. 99 , SEC Release No. SAB - 99 (August 12, 1999). The Commission and the courts have consistently rejected a formulaic and mechanical assessment of materiality relying solely on quantitative measures, such as that apparently conducted by Scalzo in this instance.  See   Arthur Andersen LLP , Exchange Act Release No. 44444 (June 19, 2001);  see also   Ganino v. Citizens Utilities Co ., 228 F.3d 154, 162 (2d Cir. 2000). Finally, the staff's guidance on materiality states that quantitative benchmarks for assessing materiality ( e . g ., a five percent threshold) do not apply in circumstances involving self-dealing and misappropriation of corporate assets by senior management.  See   Staff Accounting Bulletin No. 99,  SEC Release No. SAB - 99 ("One rule of thumb in particular suggests that the misstatement or omission of an item that falls under a 5% threshold is not material in the absence of particularly  egregious circumstances, such as self-dealing or misappropriation by senior management. ") (emphasis added). 
+
+   33    In fact, although he knew and advised management that GAAP did not allow general unallocated reserves, Scalzo viewed the Tyco corporate general reserve as a convenient mechanism to assist in the closing process. 
+
+   34    In setting forth this cautionary statement, Statements on Auditing Standards clearly contemplated a situation such as the one that ultimately unfolded at Tyco. Scalzo did not. 
+
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diff --git a/raw/aaer/2003/AAER-1840.txt b/raw/aaer/2003/AAER-1840.txt
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@@ -0,0 +1,1519 @@
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+              Steven L. Hunt, Esq.
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+        Steven L. Hunt, Esq.
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+ SECURITIES EXCHANGE ACT OF 1934 
+    Release No.  48330 / August 13, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+    Release No.  1840 / August 13, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+    File No.   3-11214 
+		
+     In the Matter of 
+
+ STEVEN L. HUNT, ESQ. 
+
+ Respondent. 
+  
+ : : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934, SECTIONS 203(f) AND 203(k) OF THE INVESTMENT ADVISERS ACT OF 1940, AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND-DESIST ORDER  
+   I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Steven L. Hunt ("Respondent" or "Hunt") pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 ("Exchange Act"), Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 ("Advisers Act"), and Rule 102(e)(1)(iii) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Administrative and Cease-And-Desist Proceedings Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, Sections 203(f) and 203(k) of the Investment Advisers Act of 1940, and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-And-Desist Order ("Order"), as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds  2   that:  
+
+ RESPONDENT 
+
+ 1. Hunt, age 52, resides in Tulsa, Oklahoma.  From October 23, 2001 to November 18, 2002, Hunt was president and general counsel of Southmark Advisory, Inc. (f/k/a Southmark of Tulsa, Inc.) ("Southmark Adviser"), an investment adviser registered with the Commission since March 2002, and Southmark, Inc. ("Southmark Broker"), a broker-dealer registered with the Commission since August 1993.  Hunt is licensed to practice law in Oklahoma. 
+
+ FACTS 
+
+ 2. Throughout the relevant time period, Southmark Adviser provided investment management services, primarily to retired individuals, through the firm's "Managed Account Program."  The Managed Account Program included investments of client moneys in mutual funds and the use of a market timing service to transfer client funds between money market and stock funds within the same family of mutual funds.  Southmark Adviser purchased mutual funds on behalf of its clients through its affiliate, Southmark Broker.  Throughout the relevant time period, Wendell D. Belden was the chairman and control person of Southmark Broker and Southmark Adviser. 
+
+ 3. During his tenure as president and general counsel of Southmark Adviser and Southmark Broker, Hunt was responsible for preparing and filing with the Commission forms and amendments on behalf of both firms.  Hunt executed and filed with the Commission, on behalf of Southmark Adviser, a Form ADV dated December 21, 2001, and amendments thereto dated February 13, 2002, April 19, 2002, May 3, 2002, June 4, 2002 and June 12, 2002.  Hunt also executed and filed with the Commission amendments to Southmark Broker's Form BD dated February 28, 2002, March 20, 2002, April 12, 2002, May 15, 2002, May 21, 2002, June 4, 2002, and July 12, 2002.   
+
+ 4. In 1993, the National Association of Securities Dealers ("NASD") disciplined Belden for distributing sales literature that had not been approved by his employer member firms and had not been filed with the NASD's advertising department.  The NASD censured Belden and imposed a $25,000 fine against him.  Hunt was aware of that disciplinary action, but he willfully failed to disclose it in any of the forms or amendments that he filed with the Commission on behalf of Southmark Adviser or Southmark Broker. 
+
+ 5. On August 13, 2002, the National Adjudicatory Council ("NAC") of the NASD suspended Belden from associating with any NASD member for one year, imposed a fine of $40,000 against Belden, and ordered Belden to pay restitution of $55,567, after determining that Belden had made unsuitable recommendations to a Southmark Adviser client.  Hunt was aware of that material disciplinary event, but he willfully failed to amend promptly Southmark Broker's Form BD and Southmark Adviser's Form ADV to reflect the event. 
+
+ 6. On August 29, 2002, the Administrator for the Oklahoma Department of Securities ("ODS") censured Southmark Adviser, imposed a fine of $50,000 against Southmark Adviser, barred Belden from associating with an investment adviser subject to the Oklahoma Securities Act, and fined Belden $50,000, after determining that Belden engaged in fraudulent, dishonest and unethical business practices.  Hunt was aware of that material disciplinary event, but he willfully failed to amend promptly Southmark Broker's Form BD and Southmark Adviser's Form ADV to reflect the event. 
+
+ 7.  Violations  
+      Section 207 of the Advisers Act prohibits any person from willfully making "any untrue statements of material fact in any registration application or report filed with the Commission under Section 203 or 204 [of the Advisers Act], or willfully [omitting] to state in any such application or report any material fact which is required to be stated therein."  Item 11.E of Form ADV requires an applicant to disclose whether a self-regulatory organization has ever found the applicant or an affiliate to have violated one of its rules.   A fact is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision.   Basic, Inc. v. Levinson , 485 U.S. 224, 231-32, 240 (1988);  SEC v. Moran , 922 F. Supp. 867, 899 (S.D.N.Y. 1996).  Willful means "intentionally committing the act which constitutes the violation."   Moran , 922 F. Supp. at 900.   
+
+        Hunt prepared, signed and filed Southmark Adviser's application for registration on Form ADV on December 21, 2001, and subsequently filed five Form ADV amendments, none of which disclosed the NASD's 1993 disciplinary action against Belden, who was one of Southmark Adviser's affiliates.  The 1993 NASD action was a material fact, and Hunt was aware of it when he filed Southmark Adviser's initial Form ADV in December 2001, and thereafter.  Hunt intended to execute and file the misleading reports, and therefore willfully violated Section 207 of the Advisers Act. 
+
+        Section 204 of the Advisers Act and Rule 204-1(a)(2) thereunder require investment advisers to amend Form ADV in accordance with the form's instructions, and the General Instructions require investment advisers to amend their response to Item 11 promptly if the response becomes inaccurate.  Item 11.E requires an investment adviser to disclose whether (i) a self-regulatory organization has found the applicant or an affiliate to be in violation of one of its rules; or (ii) a self-regulatory organization has disciplined or suspended the applicant or an affiliate.  Item 11.D requires investment advisers to disclose whether a state regulatory agency has found the applicant or an affiliate to have committed certain acts: making a false statement or omission; being dishonest, unfair, or unethical; violating an investment-related regulation or statute; or causing an investment adviser's authorization to do business to be denied, suspended, revoked or restricted. 
+
+        Southmark Adviser did not amend its Form ADV to disclose the August 13, 2002 NAC decision or the August 29, 2002 ODS consolidated order until after the Commission brought its civil action against the Southmark entities and Belden in October 2002.  During the relevant period, Hunt was responsible for preparing, signing and filing reports with the Commission on the firm's behalf, and by failing to ensure that Southmark Adviser promptly amended its June 12, 2002 Form ADV to disclose subsequent disciplinary events, Hunt caused Southmark Adviser to violate Section 204 of the Advisers Act and Rule 204-1(a)(2) thereunder.  Hunt also willfully aided and abetted Southmark Adviser's violations of those provisions, because he knew his role was part of an overall activity that was improper, and he knowingly and substantially assisted the conduct that constituted the violations.   See   Graham v. SEC , 222 F.3d 994, 1000 (D.C. Cir. 2000);  Woodward v. Metro Bank , 522 F.2d 84, 94-95 (5th Cir. 1975).   
+
+        Section 206(4) of the Advisers Act prohibits investment advisers from engaging in acts, practices, or courses of business that are fraudulent, deceptive, or manipulative, as the Commission, by rules and regulations, may define and prescribe, and Rule 206(4)-4(a)(2) thereunder makes it a fraudulent, deceptive, or manipulative act, practice, or course of business for an adviser to fail to disclose to any client or prospective client all material facts with respect to a legal or disciplinary event that is material to an evaluation of the adviser's integrity or ability to meet contractual commitments to clients.  Materiality depends on the significance a reasonable investor would place on the withheld or misrepresented information in making an investment decision.   Basic, Inc. , 485 U.S. at 231-32, 240.  Pursuant to Rule 206(4)-4(c) under the Advisers Act, the information required to be disclosed under Rule 206(4)-4(a) must be disclosed "to clients promptly, and to prospective clients not less than 48 hours prior to entering into any written or oral investment advisory contract...."   
+
+        Southmark Adviser's failure to inform its clients of its and Belden's disciplinary history promptly, and to inform its prospective clients of those facts within the specified 48-hour time frame, violated Section 206(4) of the Advisers Act and Rules 206(4)-4(a)(2) and 206(4)-4(c) thereunder, because the NASD and ODS proceedings were "disciplinary event[s] that [were] material to an evaluation of the adviser's integrity."  Hunt caused and willfully aided and abetted Southmark Adviser's violations of Section 206(4) of the Advisers Act, and Rules 206(4)-4(a)(2) and 206(4)-4(c) thereunder, in that he was responsible for preparing, signing and filing all of Southmark Adviser's required Commission filings, and was aware that none of the firm's filings adequately disclosed Southmark Adviser and Belden's disciplinary history. 
+
+        Section 15(b) of the Exchange Act and Rule 15b3-1 thereunder require every broker-dealer to ensure that an up-to-date Form BD is on file with the NASD.  Rule 15b3-1(a) provides: "If the information contained in any application for registration as a broker or dealer, or in any amendment thereto, is or becomes inaccurate for any reason, the broker or dealer shall promptly file with the Central Registration Depository (operated by the NASD) an amendment on Form BD correcting such information."   
+
+        Southmark Broker did not disclose the 1993 NASD action against Belden in its Form BD, or any amendments thereto that it filed with the Commission.  Southmark Broker has not filed an amended Form BD since July 12, 2002, and since that time, the NAC issued an order on August 13, 2002, fining and suspending Belden, and the ODS issued an order on August 29, 2002, fining and barring Belden.  Thus, Southmark Broker violated Section 15(b) and Rule 15b3-1, because it did not promptly file an amended Form BD disclosing those disciplinary events.  Hunt caused and willfully aided and abetted Southmark Broker's violations of Section 15(b) of the Exchange Act and Rule 15b3-1 thereunder, because he was responsible for preparing, signing and filing all of Southmark Broker's required Commission filings, and was aware that none of the firm's filings adequately disclosed Southmark Adviser and Belden's disciplinary history.   
+     8.  Findings   
+
+ Based on the foregoing, the Commission finds that Hunt: 
+      Willfully violated Section 207 of the Advisers Act;  
+
+	    Caused and willfully aided and abetted Southmark Adviser's violations of Sections 204 and 206(4) of the Advisers Act and Rules 204-1(a)(2), 206(4)-4(a)(2) and 206(4)-4(c) thereunder; and 
+
+	    Caused and willfully aided and abetted Southmark Broker's violations of Section 15(b) of the Exchange Act and Rule 15b3-1 thereunder. 
+     IV. 
+
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondent's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+      Hunt shall cease and desist from committing or causing any violations and any future violations of Sections 204, 206(4), and 207 of the Advisers Act and Rules 204-1(a)(2), 206(4)-4(a)(2) and 206(4)-4(c) thereunder, and Section 15(b) of the Exchange Act and Rule 15b3-1 thereunder. 
+
+	    Pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act, Hunt be, and hereby is barred from association with any broker, dealer, or investment adviser, with the right to reapply for association after three (3) years to the appropriate self-regulatory organization, or if there is none, to the Commission. 
+
+      Hunt is denied the privilege of appearing or practicing before the Commission as an attorney for three years.   
+
+	    Before appearing and resuming practice before the Commission, Hunt will submit an affidavit to the Commission's Office of the General Counsel truthfully stating, under penalty of perjury, that he has complied with the Commission's orders, that he is not subject to any suspension or disbarment as an attorney by a court of the United States or of any state, territory, district, commonwealth, or possession, and that he has not been convicted of a felony or misdemeanor involving moral turpitude as set forth in Rule 102(e)(2) of the Commission's Rules of Practice. 
+
+      Based upon Respondent's sworn representations in his Statement of Financial Condition dated January 31, 2003, and other documents submitted to the Commission, the Commission is not imposing a penalty against Respondent. 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 Respondent provided accurate and complete financial information at the time such representations were made; and (2) seek an order directing payment of the maximum civil penalty allowable under the law.  No other issue shall be considered in connection with this petition other than whether the financial information provided by Respondent was fraudulent, misleading, inaccurate, or incomplete in any material respect. Respondent may not, by way of defense to any such petition: (1) contest the findings in the Order; (2) assert that payment of a penalty should not be ordered; (3) contest the imposition of the maximum penalty allowable under the law; or (4) assert any defense to liability or remedy, including, but not limited to, any statute of limitations defense. 
+      By the Commission. 
+	
+    
+	 Jonathan G. Katz 
+      Secretary
+	 
+     
+
+       1     
+      Rule 102(e)(1)(iii) provides, in relevant part, that:
+
+          The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it to any person who is found...to have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules or regulations thereunder. 
+           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. 
+      
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diff --git a/raw/aaer/2003/AAER-1842.txt b/raw/aaer/2003/AAER-1842.txt
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+    Release No.  48337 / August 14, 2003 
+		
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+    Release No. 1842 / August 14, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+    File No.   3-11218 
+		
+     In the Matter of 
+
+ PETER BROMBERG, CPA, 
+
+ Respondent. 
+  
+ : : : : : : : 
+ 
+ ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS 
+   I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Peter Bromberg ("Respondent" or "Bromberg") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings and the findings contained in Section III.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: 
+    Bromberg was the Chief Financial Officer ("CFO") of Motorcar Parts and Accessories, Inc. ("Motorcar") from 1994 until May 1999.  Bromberg, as Motorcar's CFO and chief accounting officer, was responsible for the preparation of accurate financial statements.  Bromberg signed Motorcar's 1997 and 1998 Form 10-K annual reports in addition to its 1997 Form S-2 registration statement filed with the Commission.  He is a Certified Public Accountant in the State of New York.  He is 38 years old and lives in Wellington, Florida. 
+
+        Motorcar is, and at all relevant times was, a New York corporation with its principal place of business in Torrance, California.  Motorcar remanufactures and sells alternators and starters for the automotive aftermarket industry.  Motorcar's securities are registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 and were traded on the Nasdaq Stock Market until it suspended trading on August 2, 1999.  On September 2, 1999, Nasdaq delisted Motorcar's securities and the securities began trading over-the-counter. 
+
+        On September 18, 2002, the Commission filed a complaint against Bromberg in  SEC v. Motorcar Parts and Accessories, Inc. and Peter Bromberg , in the United States District Court for the Central District of California (the "Court") (Civil Action No. SACV 03-485 JVS (SHx)).  On August 7, 2003, the Court entered a Final Judgment Of Permanent Injunction And Other Relief Against Defendant Peter Bromberg ("Judgment") which (a) permanently enjoins Bromberg from future violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), Sections 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, 13b2-1, and 13b2-2 thereunder; and (b) orders payment of $76,275 in disgorgement plus prejudgment interest but waived all but $50,000 of this amount and does not order a civil penalty based on Bromberg's sworn representations in his Statement of Financial Condition and other documents submitted to the Commission.  Bromberg consented to the entry of the Judgment without admitting or denying any of the allegations in the complaint.  
+
+        The Commission alleged that Motorcar and Bromberg fraudulently inflated Motorcar's earnings in 1997 and 1998.  Specifically, the complaint alleged that by failing to properly reserve for product returns received but not checked in to Motorcar's inventory accounting system, Motorcar overstated earnings for the fiscal year ended March 31, 1997 by $1,067,000, or 18.8%.  Similarly, for the fiscal year ended March 31, 1998, Motorcar overstated earnings by $1,176,000, or 16.3%.  In addition, the complaint alleged that Motorcar overstated reported pretax earnings at March 31, 1997 by $2,324,000, or 41%, by recording reserves for unprocessed customer credits of only $500,000 when the actual reserve required was $2,824,000.  Similarly, for the fiscal year ended March 31, 1998, Motorcar overstated pretax earnings by $2,401,000, or 33.3%, by recording reserves for unprocessed customer credits of only $300,000 when required reserves were $2,800,000.  Motorcar used these false earnings figures in its financial statements included with its 1997 and 1998 Form 10-K annual reports filed with the Commission.  It also included the 1997 false earnings figures in a Form S-2 registration statement filed in October 1997 with the Commission.  Bromberg signed Motorcar's 1997 and 1998 Form 10-K annual reports as well as the Form S-2 registration statement knowing that Motorcar's earnings were overstated.  The complaint also alleged that Bromberg made false representations to Motorcar's auditors in management representation letters.  Finally, the complaint alleged that Bromberg improperly reduced Motorcar's accounts payable during fiscal year 1999. 
+   IV. 
+
+ In view of the foregoing, the Commission deems it appropriate in the public interest to impose the sanction agreed to in Respondent Bromberg's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately that:    
+
+ Bromberg is suspended from appearing or practicing before the Commission as an accountant. 
+
+ By the Commission. 
+	
+    
+	 Jonathan G. Katz 
+      Secretary
+	 
+     
+
+    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. 
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diff --git a/raw/aaer/2003/AAER-1843.txt b/raw/aaer/2003/AAER-1843.txt
new file mode 100644
index 0000000000000000000000000000000000000000..377046fbf5090ee15d80a90421b0f63e0f808437
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@@ -0,0 +1,1470 @@
+
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+     SEC.gov | Gary L. Atnip C.P.A. 
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+              Gary L. Atnip C.P.A.
+           
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+        Gary L. Atnip C.P.A.
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+    Release No.  48341 / August 14, 2003 
+		
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+    Release No.  1843 / August 14, 2003 
+		
+ ADMINISTRATIVE PROCEEDING 
+    File No. 3-11219 
+		
+     In the Matter of 
+
+ GARY L. ATNIP, CPA, 
+
+ Respondent. 
+  
+ : : : : : : :  
+ 
+ ORDER OF SUSPENSION PURSUANT TO RULE 102(e)(2) OF THE COMMISSION'S RULES OF PRACTICE 
+   I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate to issue an order of forthwith suspension of Gary L. Atnip ("Atnip") pursuant to Rule 102(e)(2) of the Commission's Rules of Practice [17 C.F.R. § 200.102(e)(2)].  1   
+
+ II. 
+
+ The Commission finds that: 
+
+ 1. Atnip is a certified public accountant in Tennessee.   
+
+ 2. On June 19, 2003, a judgment of conviction was entered against Atnip in  United States v. Gary L. Atnip , 3:99CR235 (EBB), in the United States District Court for the District of Connecticut, finding him guilty of one count of money laundering in violation of 18 U.S.C. § 1962(d) and one count of racketeering in violation of 18 U.S.C. § 1956(a)(2).  Atnip was convicted based on entering guilty pleas.  In connection with his guilty pleas, Atnip stipulated to the following:  (1) Atnip assisted Martin Frankel ("Frankel") in researching the purchase of Franklin American Corporation ("FAC"), a publicly traded corporation and owner of subsidiary life insurance companies; (2) in October 1991, the Thunor Trust ("Thunor"), a trust Frankel controlled, acquired FAC; (3) following Thunor's acquisition of FAC, Atnip became FAC's Chief Financial Officer and Treasurer; (4) acting at Frankel's direction, Atnip arranged for certain assets that were controlled by FAC and its subsidiary life insurance companies to be liquidated and transferred to Liberty National Securities, Inc. ("LNS"), a registered broker-dealer; (5) Atnip knew that Frankel exercised a significant degree of control over the assets transferred to LNS, but he concealed Frankel's role from federal regulators; and (6) Atnip knew that the identity of the person controlling Thunor was a material fact that should have been disclosed on forms filed with the Commission.  2   
+
+ 3. As a result of this conviction, Atnip was sentenced to 121 months imprisonment in a federal penitentiary and ordered to pay restitution in the amount of $208,000,000. 
+
+ III. 
+
+ In view of the foregoing, the Commission finds that Atnip has been convicted of a felony within the meaning of Rule 102(e)(2) of the Commission's Rules of Practice. 
+
+ Accordingly, IT IS ORDERED, that Gary L. Atnip is forthwith suspended from appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission's Rules of Practice. 
+
+ By the Commission. 
+	
+    
+	 Jonathan G. Katz 
+      Secretary
+	 
+     
+
+      1        Rule 102(e)(2) provides in pertinent part:  "Any ... person who has been convicted of a felony or a misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the Commission."
+
+      2       On February 6, 2001, the Commission filed a complaint alleging, among other things, that Atnip participated in Frankel's fraud.  On March 12, 2002, as a result of the conduct alleged in the Commission's complaint, Atnip was permanently enjoined from violating Sections 10(b), 13(a), 13(b), and 14(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-2 and 14a-9, and barred from acting as a director or officer of a public company.   SEC v. Martin R. Frankel, et al. , 3:00-CV-1778 (EBB) (D. Conn. Mar. 12, 2002).
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diff --git a/raw/aaer/2003/AAER-1844.txt b/raw/aaer/2003/AAER-1844.txt
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+++ b/raw/aaer/2003/AAER-1844.txt
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+ Litigation Release No.   18293 / August 18, 2003 
+
+ Accounting and Auditing Enforcement Release No.  1844 / August 18, 2003 
+
+   SEC SETTLES SARBANES-OXLEY CERTIFICATION CASE  
+
+  SEC v. Rica Foods et. al.,  Civil Action No. 03-22191-Civ-King (S. D. Fla) (filed August 15, 2003) 
+
+ The Securities and Exchange Commission (Commission) announced today that it filed settled civil injunctive actions against Rica Foods, Inc. (Rica Foods), its Chief Executive Officer, Calixto Chaves (Chaves) and its Chief Financial Officer, Gina Sequeira (Sequeira) for violations of the CEO and CFO certification requirements of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley).  Rica Foods, with executive offices in Miami, Florida and its corporate headquarters in Costa Rica, and Chaves and Sequeira, who reside in Costa Rica, consented, without admitting or denying the allegations in the Commission's Complaint, to the entry of a Final Judgment of Permanent Injunction and Other Relief (Final Judgment).    
+
+ According to the Commission's Complaint, on January 13, 2003, Rica Foods filed a Form 10-K annual report with the Commission containing a purported unqualified independent auditor's report from Deloitte & Touche (Deloitte).   The audit report represented that Rica Foods' consolidated financial statements were presented fairly and in conformity with Generally Accepted Accounting Principles.   At the time of the filing, however, Deloitte had not provided Rica Foods with a signed audit report, and Rica Foods' financial statements contained material classification errors.  
+
+ Despite the lack of a signed audit report and the existence of these material errors, Chaves and Sequeira, personally certified in the annual report that the Form 10-K filing fairly and accurately presented Rica Foods' financial condition.   Chaves and Sequeira signed these certifications pursuant to Section 302 of Sarbanes-Oxley, which required the Commission to adopt rules requiring an issuer's principal executive and financial officer each to certify the financial and other information contained in the issuer's quarterly and annual reports.    
+
+ The Final Judgment will permanently enjoin Rica Foods from violating Sections 13(a),13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20 and 13a-1 thereunder, which governs the accuracy of issuer books and records and financial disclosures.   The Final Judgment will also permanently enjoin Chaves and Sequeira from violating Section 13(b)(5) of the Exchange Act and Rule 13a-14 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.   The Final Judgment will further order Chaves to pay $25,000 in civil penalties, but does not impose a penalty against Sequeira based on the sworn financial statements and other financial information she provided to the Commission.   
+
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diff --git a/raw/aaer/2003/AAER-1845.txt b/raw/aaer/2003/AAER-1845.txt
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+              Peregrine Systems, Inc.
+           
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+        Peregrine Systems, Inc.
+       
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+ Litigation Release No. 18290 / August 14, 2003
+
+  Accounting and Auditing Enforcement Release No. 1845
+
+   Securities and Exchange Commission v. Peregrine Systems, Inc. , Civil Action No. 03 CV  1276 (S.D. Cal.) (July 23, 2003)
+
+   FINAL JUDGMENT ENTERED IN SEC'S FINANCIAL FRAUD CASE AGAINST PEREGRINE SYSTEMS, INC. 
+
+  The Securities and Exchange Commission announced that on July 23, 2003, the United States District Court for the Southern District of California entered a final judgment in the Commission's civil action against San Diego-based software company Peregrine Systems, Inc.  
+
+  The final judgment-to which Peregrine consented without admitting or denying the complaint's allegations-permanently enjoined Peregrine from violating certain antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5), and from violating certain reporting, books and records, and internal controls provisions (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 final judgment also directed Peregrine to: (1) comply, on an accelerated basis, with the rules regarding management's report on internal controls, implementing Section 404 of the Sarbanes-Oxley Act of 2002, (2) retain an Internal Auditor to ensure that Peregrine's financial results are accurately reported in Peregrine's public financial statements, (3) appoint a Corporate Compliance Officer to perform an ongoing review of Peregrine's corporate governance policies and practices, (4) commence a training and education program for Peregrine's officers and employees, to prevent violations of the federal securities laws,  and (5) disclose the current condition of Peregrine's internal controls and financial reporting procedure, when a reorganization plan under Chapter 11 of the Bankruptcy Code became effective.  
+
+  The court also approved the Commission's decision not to require Peregrine to pay a civil money penalty or disgorgement in this action.  
+
+  The Commission filed its complaint against Peregrine on June 30, 2003, alleging  that Peregrine-through certain officers, employees, and certain others-committed a massive financial fraud that spanned 11 quarters ( Litigation Release No. 18205A ).  According to the complaint, the purpose of the fraudulent scheme was to inflate the company's revenue and stock price.  To achieve that end, Peregrine filed materially incorrect financial statements with the Commission concerning the quarter ended June 30, 1999, through the quarter ended December 31, 2001.  In 2003 Peregrine restated its financial results for those quarters.  In its restatement, Peregrine reduced previously reported revenue of $1.34 billion by $509 million, of which at least $259 million was reversed because the underlying transactions lacked substance.
+
+  Peregrine filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code on September 22, 2002, approximately four months after its accounting problems were made public.  Peregrine's Plan of Reorganization became effective on August 7, 2003, and on that date Peregrine disclosed the current condition of its internal controls and financial reporting procedure in a Form 8-K filed with the Commission. 
+
+  The Commission's case against Peregrine is the fourth civil action it has filed in this investigation.  In November 2002, the Commission filed a civil injunctive action against Ilse Cappel, the former senior treasury manager at Peregrine ( Litigation Release No. 17859A ).  In April 2003, the Commission filed a civil injunctive action against Matthew C. Gless, Peregrine's former chief financial officer ( Litigation Release No. 18093 ).  In June 2003, the Commission filed a civil injunctive action against Steven S. Spitzer, a former vice president of sales at Peregrine ( Litigation Release No. 18191 ).
+
+  The Commission's investigation of participants in this financial fraud is continuing.
+
+  The Commission thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation in this matter.
+  
+     SEC Complaint in this matter  
+
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+     SEC.gov | Carroll A. Wallace, C.P.A. Rel. No. AAER-1846 See Order 
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+        Carroll A. Wallace, C.P.A. Rel. No. AAER-1846 See Order
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+              SECURITIES EXCHANGE ACT OF 1934 Rel. No. 48372 / August 20, 2003  ACCOUNTING AND AUDITING ENFORCEMENT Rel. No. 1846 / August 20, 2003  Admin. Proc. File No. 3-9862       In the Matter of  CARROLL A. WALLACE, CPA c/o George B. Curtis GIBSON DUNN & CRUTCHER, LLP 1801 California Street, Suite 4100 Denver, Colorado 80202-2641       OPINION OF THE COMMISSION  RULE 102(e) PROCEEDING  Grounds for Remedial Action  Improper Professional Conduct  Partner of accounting firm engaged in improper professional conduct in recklessly failing (1) to plan and supervise adequately two annual audits of an investment company; (2) to maintain an appropriate attitude of professional skepticism regarding management representations; and (3) to obtain sufficient competent evidential material to support statements in the auditors' reports for the two annual audits.  Held , it is in the public interest for the respondent to be denied the privilege of appearing or practicing before the Commission as an accountant for one year.  APPEARANCES:   George B. Curtis , of Gibson, Dunn & Crutcher LLP, and  James D. Goldsmith , of KPMG LLP, for Carroll A. Wallace, CPA.   Robert M. Fusfeld  and  Julie Lutz  for the Division of Enforcement.  Appeal filed: January 29, 2001 Last brief received: June 27, 2001 Oral argument held: August 7, 2003  I.  Carroll A. Wallace, a certified public accountant and a partner in the Denver, Colorado office of KPMG LLP ("KPMG"), appeals from the decision of an administrative law judge. The law judge found that Wallace engaged in improper professional conduct, as defined by Commission Rule of Practice 102(e),  1  by recklessly failing to adhere to applicable standards of professional conduct during the course of the audits by KPMG of the 1994 and 1995 fiscal year-end financial statements of the Rockies Fund ("the Fund"), a closed-end investment company. Wallace was the engagement partner for both audits. Specifi-cally, the law judge found that Wallace failed to plan and supervise the audit, failed to maintain an appropriate attitude of professional skepticism with respect to management representations, and failed to obtain sufficient competent evidential material to support statements in the auditors' reports for the two annual audits. The law judge denied Wallace the privilege of appearing or practicing before the Commission as an accountant for one year.  2  We base our findings on an independent review of the record, except with respect to those findings not challenged on appeal.  II.  A.  Background . The Fund is a business development company ("BDC") that provides venture capital and management assistance to developing companies.  3  In 1994 and 1995, Stephen Calandrella was the Fund's president, chief executive officer, and treasurer. He was also a director of the Fund. The other two directors were not affiliated with Fund management. Calandrella owned over 30 percent of the Fund's common stock. Calandrella was the primary liaison between the audit team supervised by Wallace and the Fund.  4   In 1992, the Fund began investing in the predecessors of a company called Premier Concepts, Inc. ("Premier"), a company distributing inexpensive copies of designer jewelry and accessories. From March through June 1994, Calandrella was president and chief executive officer of Premier. Calandrella was also a member of the Premier board of directors from March 1994 through February 1995. During the period encompassed by this proceeding, Calandrella held a substantial number of Premier shares for his own account.  The Fund acquired most of its Premier shares through private transactions. Although some of the Fund's Premier shares were unrestricted and freely saleable to the public, most of its Premier shares carried restrictions on their sale. By the end of 1994, shares in Premier comprised 28 percent of the Fund's reported total assets and 40 percent of its reported securities portfolio. By the end of 1995, Premier securities constituted 12 percent of the Fund's reported total assets and 19 percent of its reported securities portfolio. The Fund's holdings in Premier constituted 11.5 percent of all outstanding Premier shares at the end of 1995.  B.  Threshold Issues . Wallace challenges on two distinct grounds the Division's allegations that Respondent's conduct with respect to the Fund's 1994 and 1995 fiscal year financial statements was reckless. Because Wallace's threshold challenges to the standards applied to him are questions of law that set the parameters for examining his conduct, we will examine them first. After considering Wallace's challenges to the basis of this proceeding, we then will examine the facts and the law in connection with the specific allegations of audit failures by Wallace.  Wallace contends that use of the recklessness standard codified in the 1998 amendment to Rule 102(e) is an impermissible retroactive application of the Rule to conduct that occurred in 1995 and 1996. Wallace also contends that, even if the recklessness standard contained in Rule 102(e) is applicable here, it requires the Division to show a type of recklessness that approximates an actual intent to aid in the fraud being perpetrated by the audited company.  The application of Rule 102(e) to Wallace's audit of the Fund is not a retroactive application of a new standard of conduct. As we noted in adopting the amended rule and in prior decisions, we have applied a recklessness standard in Rule 102(e) proceedings predating the rule's amendment.  5  The 1998 amendment introduced nothing new with respect to the Commission's longstanding use of that standard. Wallace has no basis for claiming that he was unaware in 1994 that a reckless disregard of professional standards would subject him to liability for improper professional conduct under Rule 102(e) as then in effect.  Wallace contends that, in order to establish that he acted recklessly with respect to the audits of the Fund's financial statements, the Division must show a type of recklessness that approximates an actual intent to aid in the fraud being perpetrated by the audited company. Wallace relies on language in the adopting release for the amendment to Rule 102(e) ("Adopting Release") stating that the term "reckless conduct" as used in Rule 102(e) should mean the same thing as courts have defined recklessness to mean under the antifraud provisions.  6   Wallace misconstrues the discussion in the Adopting Release. We adopted the definition used in Rule 102(e) "for purposes of consistency under the federal securities laws" and to highlight that reckless conduct is not merely a heightened form of ordinary negligence, but rather a lesser form of intent.  7  However, wespecifically noted in the Adopting Release that the standards of professional conduct are not fraud-based.  8   The definition of reckless conduct establishes the mental state that must be shown with respect to conduct that results in a violation of applicable professional standards. The question is not whether an accountant recklessly intended to aid in the fraud committed by the audit client, but rather whether the accountant recklessly violated applicable professional standards.  9  Recklessness, then, can be established by a showing of an extreme departure from the standard of ordinary care for auditors.  The Commission and the investing public rely heavily on accountants to assure disclosure of accurate and reliable financial information as required by the federal securities laws. Adherence to applicable professional auditing standards protects the Commission's processes regardless of whether a fraud has been committed because it ensures that certified financial statements of public companies have been audited appropriately. Requiring proof of a mental state approximating an actual intent to aid in the fraud committed by the audited company would conflict with this purpose and fail to protect the Commission's processes from accountants who lack the requisite professional ability to appear before it.  In light of this analysis, we conclude that application of Rule 102(e) to Wallace's conduct in 1995 and 1996 is not an unconstitutionally retroactive application. We further conclude that recklessness under Rule 102(e) does not require a state of mind approximating an actual intent to aid in a fraud perpetrated by an audited company.  C.  The Audits . The Fund retained KPMG as its outside auditor for the 1994 audit; Wallace was the engagement partner for KPMG's audits of the Fund from 1991 to 1996, and in that position supervised the entire audit process for KPMG. Andrew Young, a New Zealand chartered accountant since 1991, was the engagement manager for the 1994 audit, in charge of the day-to-day aspects of the audit under Wallace's supervision.  10  Young had received a two-day training program regarding SEC-related filings and issues. In 1994, he worked directly under the engagement manager for the 1993 Fund audit. Wallace had personally supervised Young on three or four audits before the 1994 Fund audit. Young was responsible for reviewing the work papers prepared by the audit staff, reviewing the Fund's financial statements and Form 10-K, and managing the audit field work done at the Fund's offices and the audit work done at KPMG's offices. When asked at the hearing how he would evaluate Young's performance on the 1994 Fund audit, Wallace replied that Young's performance on the Fund audit had been "adequate."  Laurel Hammer was the in-charge accountant. She reported directly to Young and was responsible for performing a substantial amount of the audit field work at the Fund's offices, reviewing the Fund's financial statements and Form 10-K, and supervising the work done by Donna Mah, the staff accountant.  11  Hammer gained three years of internal audit experience after graduating from college in 1990 and before joining KPMG in 1993. Before working on the 1994 Fund audit, she received KPMG training including a three-day course on SEC rules, regulations, and reporting requirements.  Apart from Wallace, the audit staff for the 1995 audit was new to the client. Tanya Terrion was the engagement manager. Wendy Traiger was the in-charge accountant. Although Wallace testified that he was familiar with the training and background of Terrion and Traiger, the record does not describe their backgrounds or training. Brian Campbell was the staff accountant. With the exception of Wallace, none of the 1995 audit team accountants testified at the hearing.  1.  The Classification of Premier Securities in the 1994 Financial Statements . It is undisputed that the Fund's 1994 financial statements mistakenly state that all of its Premier shares were unrestricted. In fact, only 750 of 223,250  Premier shares were unrestricted. The audit of the 1994 financial statements did not uncover the misclassification.  The audit plan for the 1994 audit required the auditors to "review client classification of securities for appropriateness" and to perform a 100 percent confirmation of the existence and ownership of all shares of stock listed in the Fund's portfolio. Wallace knew from his experience with the Fund that most of its investments were purchased in private party transactions under circumstances strongly suggesting that most of the shares owned by the fund would be restricted. Wallace and the audit team were also aware of a deficiency letter sent by Commission staff to the Fund at the conclusion of a February 1994 inspection of the Fund ("Deficiency Letter"). The Deficiency Letter addressed, among other issues, recordkeeping failures with respect to classification of restricted securities. In its response to the Deficiency Letter, the Fund undertook to remedy the reported deficiencies. Moreover, after the 1993 audit, KPMG's audit team, of which Wallace was the engagement partner and Young was the in-charge accountant, drafted a letter to Fund management regarding, among other things, deficiencies in the Fund's recordkeeping and internal controls with respect to restricted securities. Although this letter was not given to Fund management, the KPMG audit team discussed it with Fund management after the 1993 audit.  The auditors began their review of securities classification by inquiring as to the remedial steps taken by the Fund in response to the Deficiency Letter. The auditors' review was cursory at best. After consultation with Windy Haddad, a management representative who worked closely with the auditors providing information on the Fund's processes and procedures, Hammer noted in the work papers merely that the Fund "appeared" to be making a "good faith" effort to remedy the noted deficiencies without identifying measures undertaken by the Fund. The audit work papers also reflect that Haddad informed the auditors that TrustCorp, the Fund's custodian (and an affiliate of one of the Fund's shareholders), had custody of all of the Fund's restricted stock.   Accordingly, the auditors asked TrustCorp to provide a report itemizing the number, value, and classification of the shares it held as custodian for the Fund. TrustCorp responded that it held only 750 shares of Premier, all of themunrestricted. This response, together with the knowledge that most of the 223,250 Premier shares owned by the Fund were acquired in private party transactions and that the Fund had a history of recordkeeping failures with respect to securities classification, should have made the auditors skeptical of Haddad's assertion that all restricted Premier shares were held by TrustCorp.  The auditors did not, however, challenge Haddad's assertion. The auditors confirmed the existence of Premier shares securing debts of the Fund and telephonically confirmed with the Fund's General Counsel the existence of Premier shares involved in the settlement of an employment dispute, but they did not inquire of any person other than TrustCorp about the classification of the securities the person held.  12  The auditors did not perform any other audit procedures to test whether any of the Fund's other Premier shares were restricted or unrestricted.  13   2.  The Valuation of Premier Securities .   a. The 1994 Audit.  The Fund's 1994 financial statements valued the Fund's Premier shares at $2.25 per share. This valuation was reached first at a meeting of the Board of Directors ("Board") held on January 11, 1995, the minutes of which state that the Board "ratified, adopted, and approved" a consent resolution valuing the Fund's portfolio as of December 31, 1994.  14  Attached to the consent resolution was a valuation policy statement describing the valuation procedures ("Valuation Policy"). Exhibit A to the Valuation Policy values the Fund's Premier shares at the "quoted" price of $2.25 per share. The record does not provide any information about the January 11 meeting or the approval by the Board of the consent resolution at that meeting.  According to the Valuation Policy, the Board would value unrestricted securities (defined as those that had an availablemarket price and were publicly traded on a stock exchange) at the "available market price," which term it left undefined. With respect to restricted securities (defined as those restricted as to sale or for which a public market price was not otherwise available), the Valuation Policy said the Board would value unrestricted securities at their cost to the Fund until events or conditions indicated that their value had either increased or decreased.  15  The Valuation Policy stated that Board members often played a significant management role in companies whose stock the Fund owned and, consequently, could provide additional insights on the companies' operations and performance.  On February 15, 1995, the entire Board met again to value the portfolio.  16  The February 15 meeting reached the same valuation as the January 11 meeting. The minutes of this meeting memorialize only the action items on the agenda and the action taken. They do not identify the valuation method the Board used, the factors the Board considered, or the documentation on whichthe Board relied. The minutes incorporate by reference an attached schedule of investments and stock valuations. The attachment is not included in the record.  Calandrella testified that, at the February 15 meeting, the Board members discussed every investment position of the Fund, weighing all the available information on each company before agreeing on a valuation. But neither Calandrella nor Cliff Neuman, the Fund's outside counsel who also attended the meeting, could recall the discussions in any detail. The law judge found that their assertions that the Board engaged in detailed analysis of the valuations in the schedule were not credible.  In conducting the 1994 audit, the auditors identified valuation of securities as a critical audit area.  17  This determination, according to the 1994 Audit Planning Memorandum, was based "upon the judgment involved in determining the value of the investments held by the Fund and the lack of an available market price for those investments." Furthermore, the value assigned by the Board to the Fund's holdings of Premier met the 1994 audit materiality gauge of $33,000.  18   The 1994 audit work papers include a document entitled "Audit Approach Document" which sets forth alternate procedures for confirming the Board's valuation. The first was to confirm the market value of investments with a third party source,  i.e.  "broker, Wall Street Journal, etc." However, if the securities at issue were not actively traded and "no broker price [was] available," the auditors were to review the client's valuationmethodology and evaluate the reasonableness of the procedures used.  In performing the audit, the audit staff made no determination as to whether Premier securities were actively traded.  19  However, the staff implemented the first of the two procedures outlined in the Audit Approach Document. They sent letters to TrustCorp and Hanifen Imhoff, Inc. ("Hanifen Imhoff"), a market maker in Premier, asking for confirmation of "the market value" of Premier. The responses from both entities confirmed a "market price" of $2.25 per share. A follow-up conversation with Hanifen Imhoff informed the auditors that the $2.25 price was the bid price on December 31, 1994 in the National Quotation Bureau Inc.'s "pink sheets."  There also appears to have been a minimal, though incomplete, attempt to perform the second procedure. Hammer noted in the work papers that the auditors "examined the support used by the board in determining valuations as considered necessary and available." The work papers do not, however, detail the "support" examined during the audit. As described above, the Board's minutes and valuation consent resolutions do not identify any documents or analysis purportedly used by the Board in reaching its valuation determination. There is nothing in the work papers suggesting that anything else was done to verify the Board's valuation.  20   The auditors reviewed and approved the Fund's 1994 Form 10-K filed with the Commission in an unqualified audit report signed by Wallace stating that the auditors had "reviewed the procedures used by the [Board] in arriving at its estimate of value of such investments [without readily ascertainable market values] and [had] inspected the underlying documentation and, in the circumstances, . . . believe[d] that the procedures [were] reasonable and the documentation appropriate." The report stated that the valuation was in accordance with Generally Accepted Accounting Principles ("GAAP"). The Form 10-K described the four methods for valuing the Fund's securities listed in the Prospectus but did not make any specific mention of discounting restricted securities from the public market price of unrestricted shares.   b. The 1995 Audit.  The 1995 audit plan again identified investment valuation as a critical audit area due to the lack of available market prices and its materiality to the financial statements. All Premier shares were classified as restricted. Because the Fund had declined in value since the 1994 audit, the audit team determined to lower the audit gauge to $30,000.  The preliminary 1995 financial statements that Fund management provided to the audit team classified the Fund's Premier shares as restricted and valued them at $0.75 per share. The basis for that valuation does not appear in the audit work papers. Wallace testified at the hearing that Calandrella told Wallace that the valuation was, in large part, based upon pricing discussions with an investment bank regarding a possible offering of Premier stock in the summer of 1996. As Calandrella described them, the negotiations were preliminary and the underwriting itself was not certain to succeed. Wallace told Calandrella that he was not comfortable with a stock valuation on such a speculative basis.  Calandrella testified at the hearing that, subsequent to Wallace's rejection of the $0.75 valuation, he told Wallace that the Board would approve a valuation at $0.625. Subsequently, the audit team received from the Fund a consent resolution dated February 1, 1996,  21  adopting the Valuation Policy (which wasattached)  22  and an attached schedule valuing Premier stock at $0.625 per share. The Fund did not provide any background material supporting the new, lower, valuation. There was no in-person meeting of the Board to value the portfolio as of December 31, 1995, and there are no other records of the discussions, if any, surrounding the Board's approval of the valuation. On the Form 10-K for 1995, the Premier shares are all listed as restricted and all valued at $0.63 per share. The Form 10-K states that this price is the "quoted market value."  23    There is no Audit Approach Memorandum detailing specific testing procedures for valuation of the Fund's holdings for the 1995 audit. However, the 1995 Planning Analysis memorandum ("the Analysis Memorandum") noted that investments were recorded at "market value." The Analysis Memorandum specifically notes that Premier "was not doing well," and that due to Premier's poor financial condition the value of its stock had decreased from the preceding year.  The audit work papers include two requests for confirmation of the $0.625 per share price of Premier securities, one sent to TrustCorp and the other to Hanifen Imhoff. These requests were identical to the requests made in 1994 to confirm the market price of Premier when the auditors thought the shares were unrestricted. The confirmation received from Hanifen Imhoff stating that $0.625 was "the year end price" and the confirmation from TrustCorp stating that $0.625 was the "market price" for Premier shares should have been relevant only as a starting place for determining the fair value of the restricted Premier shares.  Wallace assumed that the $0.625 price confirmed by Hanifen Imhoff and TrustCorp represented the closing bid price. He took no steps to confirm that fact.  24  He merely noted in the work papers that, although restricted, the Premier shares could besold in a private sale, and that the client had taken the position that the shares should be valued at the quoted bid price "as this is the best indicator of value available." He concluded that this approach did not appear unreasonable "as no better evidence of value exists and because . . . the shares may be sold privately." There is nothing anywhere in the record establishing that the Board made a determination to value the Premier securities at the closing bid price "as the best indicator of value available." The work papers do not identify supporting documents reviewed by Wallace or anyone on his staff pertaining to an analysis of the value of Premier shares.  The 1995 "Completion Memorandum" included in the audit work papers states that the auditors "reviewed and gained an understanding" of the Fund's valuation methodology and noted that valuation "was consistent with prior years." It goes on to state that "unregistered, publicly-held securities" (such as Premier) were "also valued at the quoted bid price, which is consistent with prior years." In fact, use of the quoted bid price for restricted securities is inconsistent with the description in the 1994 Procedures Memorandum, which states that the Board was valuing such securities at cost, unless events including third party transactions (not bid quotes) indicated appreciation in value. The auditors reviewed and approved the 1995 financial statements in an unqualified audit report signed by Wallace stating that, in KPMG's opinion, the valuation policy and the Board's application of that policy were reasonable and in accordance with GAAP.  The Fund's 1995 Form 10-K described the same four valuation methods as described in the Prospectus, but footnote 1(b) noted that, "in the absence of readily ascertainable market values, investments in restricted securities without quoted market prices are carried at estimated fair value . . . [I]nvestments in unrestricted securities and restricted securities with quoted market prices are valued at closing bid price."   25   III.  At issue here is Wallace's professional conduct with respect to the 1994 and 1995 audits of the Fund. The Division alleged and the law judge found that Wallace engaged in improper professional conduct with respect to those audits. Specifically the law judge found that, as alleged, Wallace failed to plan and supervise the audits adequately; failed to maintain an appropriate attitude of professional skepticism regarding management representations; and failed to obtain sufficient competent evidential material to support the statements in the auditors' reports. The Division alleged further that the audits materially overstated the asset value of the Fund contrary to the provisions of GAAP, and the law judge so found.  A.  Failure to Comply With Generally Accepted Auditing Standards . The first standard of auditing field work requires proper planning and supervision of the audit.  26  As the audit engagement partner Wallace was responsible for the overall supervision and conduct of the 1994 and 1995 audits and signed the audit reports. Generally Accepted Accounting Standards ("GAAS") provide that the auditor with final responsibility for the audit is responsible for the supervision of all the accountants working on the audit, which "involves directing the efforts of assistants who are involved in accomplishing the objectives of the audit and determining whether those objectives were accomplished."  27  GAAS specifies that the "[e]lements of supervision include instructing assistants, keeping informed of significant problems encountered, [and] reviewing the work performed."  28  GAAS provides further that "[t]he extent of supervision appropriate in a given instance depends on many factors, including the complexity of the subject matter and thequalifications of persons performing the audit."  29  GAAS required that Wallace review his subordinates' work "to determine whether it was adequately performed and to evaluate whether the results [were] consistent with the conclusions to be presented in the audit report."  30   As explained below, Wallace failed utterly to provide the supervision required under the circumstances of the 1994 and 1995 audits. His supervisory failures resulted in the failure of both audit teams to maintain an attitude of professional skepticism and to exercise due professional care in the performance of the audits,  31  and the consequent failure to obtain sufficient competent evidential matter as required by GAAS.  32   For both audits, Wallace supervised a team that had, for the most part, no prior experience with the client or its business, although Young had worked on the 1993 Fund audit. Young, whose performance on the 1994 audit Wallace rated as "adequate" when he was asked at the hearing, was comparatively inexperienced in the application of U.S. GAAS and GAAP, and had only two days of formal training regarding the Commission's requirements regarding the audit of public companies. Hammer, the in-charge accountant for the 1994 audit was substantially less experienced than Young. The record does not provide the education and background of the accountants on the 1995 audit team. The record does indicate that the accountants on the 1995 team had not worked on previous audits of the Fund. Under these circumstances, Wallace should have exercised heightened supervision of his inexperienced staff. Instead, he spent no more than 10-12 hours on each of the two audits.  Auditors must plan and perform audit tasks with due professional care; that is, auditors must observe the standards of field work and reporting.  33  The exercise of due professional care, furthermore, requires an auditor to exercise professional skepticism which requires an auditor not to presume honesty or dishonesty on the part of management but to consider the competency and sufficiency of the audit evidence gathered throughout the audit.  34  Accepting management representations regarding the custody of restricted shares of Premier stock without adequate testing, and in the face of audit information at least suggesting the inaccuracy of those management representations, is contrary to the exercise of due care or professional skepticism.  Much of the auditor's work consists in obtaining and evaluating evidential matter regarding the assertions made by the audited company in its financial statements.  35  The auditor's objective is to obtain sufficient evidential matter to provide a reasonable basis for forming an opinion regarding the financial statements.  36  Wallace allowed the audit team to stop short of gathering the needed evidential matter regarding the Fund's classification of Premier shares in the 1994 financial statements and regarding the valuation of Premier shares in both the 1994 and 1995 financial statements.  Because the GAAS-related audit failures are closely interrelated, we discuss them in the context of the substantive areas in which the audit failures occurred, rather than separately discussing each failure to meet professional standards.  1.  Audit Failures With Respect To Classification Of Premier Securities In The 1994 Financial Statements.  The audit plan required the auditors to obtain 100% confirmation of the classification of the Fund's Premier securities. The auditors failed to follow their own audit plan. They sought confirmation of classification concerning only TrustCorp's holdings of Premier, even though they sent letters to all the other holders of the Fund's Premier shares. Instead of maintainingprofessional skepticism with respect to management representations, the auditors accepted without question Haddad's assertion that any restricted shares were held by TrustCorp, even though TrustCorp denied that it held any restricted shares.  This failure represented an extreme departure from the standard of ordinary care for auditors. Specifically, the audit team failed to maintain professional skepticism as evidenced by failing to test management representations regarding who had custody of restricted shares. In turn, that failure led to a failure to gather sufficient competent evidential matter. Wallace's supervision was deficient in not detecting the shortcomings of the audit team's work.  Proper supervision by Wallace would have made a difference to the audit because of his experience with the client and the classification issue. Wallace knew from his involvement in the 1993 audit and from the Deficiency Letter that securities classification was a problem area for the Fund. He knew that, because the Premier shares had been acquired in private party transactions, the audit's conclusion that none of the Premier shares were restricted was highly improbable. GAAS required him to review the work performed by his team in reaching the conclusion that no Premier shares were restricted. Had Wallace provided any meaningful review, he would have detected the failure to follow the audit plan.  37  The acceptance by the audit team of Haddad's representation without additional testing, and despite the highly questionable results from TrustCorp, was a failure to maintain professional skepticism for which GAAS holds Wallace, as the engagement partner, responsible.  38   Having accepted as true the Fund's representations regarding restricted shares, the audit team failed to ask other holders of Premier shares to identify the classification of those shares. That failure is a failure to comply with the auditor's GAAS obligation to obtain sufficient competent evidential matter regarding the classification of the Fund's Premier shares. Again, GAAS holds Wallace responsible for the failure of the audit team to comply with GAAS.  2.  Audit Failures With Respect To The Valuation of Premier Securities.  Investment Company Act Section 2(a)(41) requires that, where market quotations cannot reasonably be used to determine market value, the securities should be carried at fair value as determined in good faith by the board of directors.  39  GAAP requires that, regardless of whether securities are restricted or unrestricted, the "independent accountant . . . [must] independently verify all the quotations used by the company at the balance sheet date and satisfy himself that such quotations may properly be used. . . ."  40  GAAP further provides that, where there is a thin market for a security, consideration must be given to whether "market quotations are readily available" within the meaning of Section 2(a)(41) of the Company Act. According to GAAP, "market value" is an inappropriate valuation method for restricted securities.  41   If a board of directors determines that securities must be valued by the fair value method, GAAP requires that the board take "into consideration all indications of value available to them in determining the 'fair value' assigned to a particular security."  42  Having done that, "[t]he information so considered together with, to the extent practicable, judgment factors considered by the board of directors in reaching its decisions should be documented in the minutes of the directors' meeting and the supporting data retained for the inspection of the company's independent accountants."  43   When a board has performed a good faith fair valuation of securities, the auditor "does not function as an appraiser and is not expected to substitute his judgment for that of the company's directors." Rather, he is expected to "review all information considered by the board or analysts reporting to it, read relevant minutes of directors' meetings, and ascertain the procedures followed by the directors."  44   The procedures followed by the auditors with respect to the valuation of the Premier holdings in both the 1994 and 1995 audits did not comport with the dictates of ASR-118. There was never any clear determination as to whether the securities were being valued by the market or fair value method. Wallace knew that the Prospectus conceded that it was "highly probable" that the securities held by the Fund would not have a public market, and the 1994 Audit Planning Memorandum notes the lack of an available market for the Fund's investments. Wallace knew, in fact, that throughout the period under review Premier was thinly traded.  45  These facts indicated that the fair value method should be followed. However, the auditors sent out confirmation request letters in accordance with the procedure in the 1994 Audit Approach Document for securities that were actively traded with an available market price, a method appropriate for determining market value, not fair value.  To the extent any attempt was made to employ a fair valuation methodology, the procedures were inadequate. The relevant minutes of the directors' meetings do not contain or identify any information considered by the Board. They do not detail any analysis performed by the Board in reaching its valuation determination. The valuation methodology attached to the minutes is at odds with that outlined in the Fund's Prospectus, thus creating, at the least, ambiguity as to what methodology the Board was purporting to use in its valuation. There is no indication in the record that the auditors engaged inany discussion with the Board concerning the Board's valuations until late 1995, when the erroneous classification of the Premier shares was discovered.  46  On the basis of this record, the auditors had inadequate information to form a basis for their belief that the procedures used by the Board to determine fair value were "reasonable", as required by ASR-118.  As noted, Wallace spent only 10 to 12 hours on each audit, even though the audit teams were relatively inexperienced regarding the Fund. The audit team failed to apply consistent audit tests of the Board's valuation of the Premier shares and accepted valuations by the Board without the supporting documentation required by ASR-118. It was Wallace's supervisory responsibility under GAAS to catch these errors in the audit team's work. His repeated failures to do so were reckless.  Both the 1994 and the 1995 audit teams accepted without question the Board's unsupported assertion that it had applied appropriate fair-valuation methods to the Fund's Premier shares, despite the absence of supporting documentation. The Board resolution valuing the Premier shares did not reflect the factors used by the Board to value the shares or any other information reflecting the analysis the Board may have used. Yet, without this information mandated by ASR-118, the auditors were allowed by Wallace to conclude that the Board had acted appropriately. This was a reckless failure to comply with the GAAS requirement to maintain skepticism and to "be thorough in his [or her] search for evidential matter and unbiased in its evaluation."  47   Again, as occurred with respect to the classification of the Fund's Premier shares, the auditors' failure to question -- and seek proof for -- management assertions led to the failure to require the Fund to provide documentation substantiating its assertions. That documentation was necessary for the auditors to have a basis for the reported conclusion that "the procedures [were] reasonable and the documentation appropriate."  Wallace argues on appeal that it was appropriate to use the closing bid price (obtained from the confirmation letters) as a valuation of the restricted Premier shares, and that this approach was consistent with Board-approved policies. He argues that use of the closing bid price did not mean that the shares were being valued by the public market method identified in the 1983 prospectus. Since the Valuation Policy defined unrestricted securities as those with an available market price and that were traded on a stock exchange, he reasons that the over-the-counter quotes obtained for Premier were not "public market prices" as contemplated by the public market method in the prospectus.  48   He argues that the market that was the source of the Premier bids was characterized by illiquidity. He then contends that the Fund's Board-approved policies provided different valuation methodologies based on market liquidity rather than classification of securities. He claims that use of the bid quotes from this illiquid market were consistent with the 1983 prospectus' "private party method," requiring the use of actual or proposed transactions. However, Wallace cites to nothing in the record to show that this gloss on the written Board-approved policies was in fact the Board's understanding of how it would apply its valuation procedures.  Wallace then claims that the Board, in valuing the Fund's Premier holdings, "was aware" of various factors concerning Premier's operations, citing to the factors identified in the 1994 Procedures Memorandum such as the competence of Premier's chief executive, that Premier was purportedly developing strong operations and market share "in the second half of 1994 and throughout 1995," and that the Board "chose to consult directlythe third party quotes provided."  49  He concludes that the auditors reviewed the Fund's exercise of judgment and found it reasonable.  Wallace's arguments do not withstand scrutiny. Wallace's assertion on appeal that the auditors considered factors such as Premier's strong operations is belied by the conclusion in the 1995 audit work papers that Premier "was not doing well." Moreover, there is nothing in the record, other than the self-serving testimony of Wallace and Calandrella, to suggest that any of the analysis offered by Wallace in his appeal was done by the auditors at the time of the audit. In any event, the law judge did not credit this testimony by Wallace.  50   Wallace relied almost exclusively on Calandrella for information concerning Premier's operations and viability. As Wallace was aware, Calandrella owned a large block of Premier securities. This created an obvious conflict of interest. GAAS requires independent confirmation of information under such circumstances.  51  Wallace's lack of skepticism with regard to his discussions with Calandrella in connection with the 1995 valuation is striking. The initial valuation of $0.75 was patently too high, and based on an offering that Calandrella hoped would take place some six months in the future. Although Calandrella abandoned the preliminary valuation when Wallace objected to it, Wallace did not even inquire regarding the basis for the reduced, revised valuation with which he was presented shortly thereafter.  B.  Failures To Comply With Generally Accepted Accounting Principles . The Division charged that the Fund's 1994 financial statements materially overstated the Fund's net assets because restricted Premier securities were misclassified by the Fund asunrestricted and valued by the Board on the basis of that misclassification. Correct classification of securities can have a material impact on financial statements.  52  GAAP requires that restricted securities be valued at a discount from the market price of unrestricted shares.  53  Because of the undetected misclassification, this discount was not taken into account, the portfolio was not valued in accordance with GAAP, and the Premier shares were overvalued by a material amount. Because the Premier shares represented 28 percent of the Fund's assets and 40 percent of the Fund's portfolio, the overvaluation of the Premier shares resulted in the Fund's net assets being materially overstated.  The Division charged that the Fund's 1995 financial statements materially overstated the Fund's net assets because restricted Premier securities were not valued in conformity with GAAP. Approximately 431,000 of the Fund's Premier shares were restricted. All of them were valued at $0.625.  54  The two confirmations obtained by the audit team gave the market price at $0.625. Assuming this to be a valid market price, the fair value of restricted shares would have been significantly less.  55  In fact, the only bid on December 29, 1995 (the last day of trading for the year) was $0.25.  56   Wallace also argues, in effect, that the valuation of the Premier shares was covered by the "most unusual situations" language of ASR-113. According to Wallace, that language would apply whenever a BDC must determine the fair value of the stock of one of the companies that it assists with financing or managerial expertise, among other things. Wallace offers no support for the novel proposition that an entire class ofinvestment companies should have their valuation decisions fall within this limited exception to ASR-113, and we have found none. Our cases have recognized a much narrower scope for that exception than that argued by Wallace.  57  The resulting overstatement is material.  IV.  Rule 102(e) provides that the Commission may censure a person or deny a person the privilege of appearing or practicing before it upon a finding that the person has engaged in improper professional conduct. Under all of the circumstances, we believe that the appropriate sanction for Wallace's improper professional conduct is to deny him the privilege of appearing or practicing before the Commission for one year.  Wallace violated fundamental principles of audit work. He failed to plan the audits adequately, failed to supervise his subordinates appropriately, failed to maintain an attitude of professional skepticism, and failed to collect sufficient competent evidential matter to provide a basis for an audit opinion. Overall, he failed to exercise due care in the conduct of the Fund's audits. These significant departures from the standards of his profession establish that the Commission should protect the Commission's processes from the possibility of similar lapses by Wallace in the immediate future.  Wallace did recognize that Calandrella's proffer of a $0.75 per share valuation for the 1995 year-end valuation was excessive and unsupportable. Moreover, as the law judge noted, Wallace's problems on the audits at issue here appear to have more to do with over-commitment outside of his practice rather than dishonesty or irremediable incompetence. In that context, we find that a year's separation from appearing or practicing before the Commission is the appropriate sanction.  An appropriate order shall issue.  58   By the Commission (Chairman DONALDSON and Commissioners GLASSMAN, GOLDSCHMID, ATKINS and CAMPOS).   Jonathan G. Katz Secretary      UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION Washington D.C.  SECURITIES EXCHANGE ACT OF 1934 Rel. No. 48372 / August 20, 2003  ACCOUNTING AND AUDITING ENFORCEMENT Rel. No. 1846 / August 20, 2003  Admin. Proc. File No. 3-9862       In the Matter of  CARROLL A. WALLACE, CPA c/o George B. Curtis GIBSON DUNN & CRUTCHER, LLP 1801 California Street, Suite 4100 Denver, Colorado 80202-2641       ORDER IMPOSING REMEDIAL SANCTIONS  On the basis of the Commission's opinion issued this day, it is  ORDERED that Carroll A. Wallace be temporarily denied the privilege of appearing or practicing before the Commission as an accountant for one year, effective at the opening of business on September 2, 2003.  By the Commission.   Jonathan G. Katz Secretary           1   17 C.F.R. § 201.102(e).     2   The Division of Enforcement sought a permanent bar against Wallace with a proviso that no request for reinstatement could be considered by the Commission before the expiration of three years. The law judge denied this requested sanction, and the Division did not appeal that denial.     3   BDCs are investment companies regulated pursuant to Sections 54-65 of the Investment Company Act of 1940, 17 U.S.C. §§ 80a-54 to -65.     4   Calandrella is a respondent in a pending related proceeding,  The Rockies Fund, Inc. , Admin. Proc. File No. 3-9615.     5   Amendment to Rule 102(e) of the Commission's Rules of Practice, Securities Exchange Act Rel. No. 40567 (Oct. 18, 1998), 68 SEC Docket 707, 709 (hereinafter "Adopting Release");  Russell Ponce , Exchange Act Rel. No. 43235, (Aug. 31, 2000), 73 SEC Docket 442, 467 n.57,  appeal pending , No. 00-71398 (9th Cir.);  Albert Glenn Yesner, CPA , Exchange Act Rel. No. 42030 (Oct. 19, 1999), 70 SEC Docket 2743, 2746-47;  Robert D. Potts, CPA , 53 S.E.C. 187, 203-04 (1997);  Marvin E. Basson , Exchange Act Rel. No. 35840 (June 13, 1995), 59 SEC Docket 1650.     6   Adopting Release, 68 SEC Docket at 710.     7   Adopting Release, 68 SEC Docket at 710, (citing  SEC v. Steadman , 967 F.2d 636, 641 (D.C. Cir. 1992) (quoting  Sundstrand Corp. v. Sun Chemical Corp. , 553 F.2d 1033, 1045 (7th Cir. 1977));  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193-94 n.12 (1976)).     8    Id .     9   For this reason, the cases cited by Wallace in support of his claim that recklessness for the purposes of determining a violation of Rule 102(e) should be defined as approximating actual intent to aid in the fraud perpetrated by the audited company are inapposite.  In re Software Toolworks , 50 F.3d 615, 627 (9th Cir. 1994);  Decker v. Massey-Ferguson, Ltd , 681 F.2d 111, 121 (2d Cir. 1982); and  SEC v. Price Waterhouse , 797 F. Supp. 1217, 1240 (S.D.N.Y. 1992) are all cases involving actions against accountants or others for violations of the antifraud provisions of the federal securities laws.     10   A "chartered accountant" is a professional designation in the United Kingdom, Australia, Canada, and New Zealand equivalent to a certified public accountant.     11   The record has no information regarding Mah's background, credentials, or experience and very little about her assigned duties.     12   None of the responding persons volunteered the classifica-tion of the Premier shares they held.     13   During 1995, the Fund discovered that the Premier restricted shares had been misclassified and disclosed the error. The Fund did not restate its financial reports for 1994. The failure to restate is not at issue in this case.     14   It is undisputed that this Board meeting was not in-person, but the record does not specify how it was conducted.     15   The Valuation Policy differed from the valuation procedures set forth in the Fund's 1983 prospectus ("the Prospectus"). The Prospectus provided that the securities in the Fund's portfolio would be valued at either market value or in good faith at fair value. The Prospectus defined "fair value" as the amount the Fund could expect to realize from the current sale of the securities. The Prospectus described four methods for the valuation of its security portfolios and ranked them in order of preference. The most favored method, the "public market method," used the bid price for those securities traded on a stock exchange. The Board was to value restricted shares at a discount from the market price for unrestricted shares of the same issuer and class. The Prospectus noted that it would be "highly probable" that the securities of many of the portfolio companies would not have a public market. In that event, their valuation was to be based on the "private market method." This method valued the stock on the basis of actual or proposed third-party transactions. The third method, the "appraisal method," used when there were no third-party transactions in the securities, valued shares by an appraisal which was to take into consideration events that occurred since the purchase of the stock. Finally, if no other method was feasible, the Prospectus directed the Board to value the shares at their cost to the Fund.     16   The record provides no explanation for the calling of a second valuation meeting.     17    See  AICPA, Codification of Statements on Auditing Standards, §§ 312.20(a), .20(c), .21 (hereinafter "AICPA, AU"). Hammer testified that a critical audit area requires a greater amount of subjective judgment by management and, as a result, poses a greater risk of misstatement in the financial statements. As used in Generally Accepted Auditing Standards terms, a critical audit area presents a higher inherent audit risk. AICPA, AU § 312.20(a). The existence of this inherent risk obliges an auditor to reduce the chance that any misstatement that might occur would go undetected. AICPA, AU § 312.21. Simply stated, Wallace had a professional obligation to take special care with critical audit areas.     18   The audit gauge establishes the level above which an audit variance will, in most cases, be deemed material to the Fund's financial reports.     19   In fact, they made no such determination with respect to any of the Fund's investments, but there was no charge with respect to this failure.     20    Wallace points to "the extensive detail in the work papers demonstrating the fact that the auditors did indeed document their review" of the Fund's valuation process, citing notations in the work papers that the auditors reviewed several specific documents. Wallace claims that these notations demonstrate the scope of the auditors' review of the Board's valuation of its securities, "most particularly those of Premier."  This argument is disingenuous. None of the documents specifically identified by Wallace relate to Premier. In fact, the omission from the work papers of any supporting documentation with respect to Premier in the face of specific mention of documentation with respect to several of the Fund's other holdings supports our finding that theauditors did not, in fact, review underlying documentation of the value of the Fund's shares of Premier.         21   The consent resolution is erroneously dated February 1,1995.     22   This was the same Valuation Policy attached to the 1994 valuation.     23   As noted below, the 1995 Form 10-K also stated that both restricted and unrestricted securities with quoted market prices were valued at the closing bid price.     24   Wallace contends on appeal that, in fact, the closing bid on the last trading day of 1995 was "most likely" $0.375.      25   Wallace drafted this footnote. There is no indication that the Fund's Board ever approved the valuation procedures in the footnote.     26   AICPA, AU § 311.01. The obligation to plan an audit adequately encompasses the obligation to prepare audit programs and obtain knowledge of the entity's business.     27   AICPA, AU § 311.11     28    Id .     29    Id .     30   AICPA, AU § 311.13.     31   AICPA, AU § 316.16 (audit of financial statements in accordance with GAAS should be planned and performed with an attitude of professional skepticism); AICPA, AU § 150.02 (auditor to exercise due professional care in conduct of audit and preparation of audit report).     32   AICPA, AU § 150.02, Standard of Field Work, ¶ 3 (auditor must obtain "[s]ufficient competent evidential matter . . . through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit").     33   AICPA, AU § 230.02.     34   AICPA, AU § 316.16.     35   AICPA, AU § 326.02.     36   AICPA, AU § 326.22.     37   Wallace argues that the misclassification of the securities made no difference in the financial statements because the securities were so thinly traded. Wallace is in error.  See   Financial Accounting Standards Board Concept Doc. No. 2  ¶ 128(c) (1980). Misclassification makes a portfolio appear more liquid by presenting shares as freely saleable when, in fact, they are not.     38   AICPA, AU § 311.11.     39   15 U.S.C. § 80a-2(a)(41).     40    Accounting for Investment Securities by Registered Investment Companies , Accounting Series Rel. No. 118 at 5 (Dec. 30, 1970) ("ASR-118"). The AICPA  Audit and Accounting Guide: Audits of Investment Companies , (hereinafter "AAG") is the source for GAAP regarding investment companies. The AAG references ASR-118 and  Restricted Securities , Accounting Series Rel. No. 113, at 3 (Oct. 21, 1969) ("ASR-113") as GAAP for valuation of securities for which market quotations are not readily available. AAG § 2.33.     41   ASR-113, at 3.     42   ASR-118 at 5.     43    Id .     44   ASR-118 at 3.     45   Wallace concedes as much by arguing that the difference between the price of restricted and unrestricted shares is insignificant when the shares are as thinly traded as those of Premier in 1994 and 1995.     46   The 1994 Procedures Memorandum states that, for restricted securities, Calandrella indicated that the Board "generally maintains investments at cost" until events such as strong operations, growing market share, or third party transactions indicate appreciated value. The Memorandum concludes that, from its review of the Board minutes and conversations with Calandrella, it appears that the Board "has adequate information to value the portfolio." Since this discussion in the Memorandum pertains to restricted securities, there is no reason to suppose that these purported conversations with Calandrella involved Premier shares, which were classified as unrestricted in 1994. In any event, the 1994 Procedures Memorandum does not specify the information that was deemed "adequate."     47   AICPA, AU § 326.23.     48   Wallace offers no authority for the novel proposition that quotations in the over-the-counter market are less public than those on stock exchanges. Moreover, the $0.625 valuation used for the 1995 financial statement was significantly higher than the only bid on the last day of trading for 1995,  i.e.  $0.25.     49   As noted above, the factors cited in the Procedures Memorandum would not appear to have been applied in the 1994 audit with respect to the Fund's holdings of Premier which were not then classified as restricted securities.     50   We accept a law judge's credibility finding unless substantial evidence suggests that we should not do so.  See   Laurie Jones Canady , Exchange Act Rel. No. 41250 (Apr. 5, 1999), 69 SEC Docket 1468, 1480-81,  aff'd  230 F.3d 362 (D.C. Cir. 2000). Nothing in the record suggests that we not accept the law judge's finding here.     51   AICPA, AU § 316.17.     52    See   Financial Accounting Standards Board Concept Doc. No. 2  ¶ 128(c) (1980).     53   ASR-113, at 3.     54   The financial statements identified all of the shares as restricted.     55   ASR-113, at 3.     56   Several trades of unrestricted shares occurred that day at $0.625 (13,000 shares), $0.65625 (13,000 shares), and $0.6875 (5,000 shares). The last trade before December 29 occurred on December 6, 1995, a sale of 20,000 shares at $0.625 by Hanifen Imhoff.     57    See   Christiana Sec. Co. , 45 S.E.C. 649, 662 n.43 (1974),  aff'd  432 U.S. 46 (1977) (valuation of a restricted "control block" of DuPont stock presents "a most unusual circumstance").     58   We have considered all of the parties' contentions. We have rejected or sustained them to the extent that they are inconsistent or in accord with the views expressed in this opinion.     
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+ Litigation Release No. 18306 /August 25, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1849  /August 25, 2003 
+
+  SECURITIES AND EXCHANGE COMMISSION v. SOLUCORP INDUSTRIES LTD., ET AL ., 99 Civ. 11965 (S.D.N.Y.) (WCC) 
+
+ SOLUCORP INDUSTRIES LTD. EXECUTIVES 
+     FOUND LIABLE FOR FRAUD  
+
+   Two Permanently Barred from Serving as Officers and Directors  
+
+ Company and Three Other Former Officers and/or Directors Settle SEC Claims Against Them and are Permanently Enjoined   
+
+ On July 25, 2003, the United States District Court for the Southern District of New York entered an opinion and order in a civil injunctive action brought by the Securities and Exchange Commission finding that the following three defendants had violated the antifraud provisions of the federal securities laws: Joseph S. Kemprowski, a purported consultant who performed duties on behalf of Solucorp Industries Ltd. analogous to those of an officer; Peter R. Mantia, the company's president; and Victor Herman, the former chief financial officer of Solucorp's principal operating subsidiaries and the preparer of Solucorp's consolidated financial statements.  The Court's opinion and order, which was entered after a full trial on the merits in March 2003, provides for permanent injunctions against Kemprowski and Mantia and a permanent bar on their serving as an officer or director of any publicly traded company.  The opinion and order also provide that Kemprowski, Mantia and Herman shall disgorge their illicit gains from selling Solucorp shares while in possession of material, non-public information about the fraudulent conduct.  The final judgment has yet to be entered.    
+
+ Of the six other defendants named in this action, five--including Solucorp, other former officers and/or directors, Arle Pierro, James G. Spartz, and W. Bryan Fair, and the company's former outside auditor, Glenn R. Ohlhauser--entered into settlements with the Commission prior to the commencement of the six-day trial pursuant to which they consented to the entry of final judgments permanently enjoining them from future violations of the federal securities laws.  
+
+ The Commission's Complaint, filed on December 13, 1999, as amended, alleged that, over a four year period, from mid-1995 through early 1999, Solucorp's senior management, including Kemprowski, who acted as the  de facto  head of Solucorp, claimed in press releases and other publicly disseminated materials to have contracts that either did not exist or were subject to undisclosed material contingencies, or that provided for revenues materially below those announced by the company.  The Complaint also alleged that senior management falsified Solucorp's financial statements by improperly recognizing as revenue license fees that were subject to material contingencies.  Solucorp's improper recognition of license fees resulted in its filing with the Commission periodic, transition and interim reports, including financial statements, on at least five occasions from December 1997 through April 1999, which materially overstated revenue.    See  Lit. Rel. No. 16388 (Dec. 13, 1999).  
+
+ In its July 25, 2003 opinion and order, the Court found that, "[o]ver a number of years, Solucorp and its executives engaged in a course of deception through the issuance of false and misleading press releases and financial statements in which, in a number of cases, they reported that the Company had entered into contracts that did not exist, in one case backdated a contract to increase the accrued revenue recognizable thereunder, and in many other cases reported that the minimum revenues to be derived from such contracts far exceeded the actual minimums."  The Court found that this "pattern of deception was so consistent and pervasive that it cannot logically be attributed to mere negligence."  Accordingly, "the executives responsible for the issuance of these press releases and financial statements, specifically Kemprowski, Mantia and Herman, knowingly and deliberately falsified them with the intention of deceiving shareholders and potential investors or, at the very least, were guilty of reckless disregard for the truth or falsity of the disclosures." 
+
+   The Court found that Kemprowski, Mantia and Herman had violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933 ("Securities Act"), and that Mantia and Herman had knowingly falsified the company's books, records and/or accounts, or were reckless in preparing or certifying them, and circumvented or failed to implement internal controls in violation of Exchange Act Section 13(b)(5) and Rule 13b2-1, and Mantia misinformed the company's outside auditors in violation of Exchange Act Rule 13b2-2.  The Court also found that Kemprowski and Mantia failed to disclose their equity ownership in Solucorp as of February 20, 1998, the effective date of Solucorp's registration of its stock with the Commission, and to timely disclose changes in that ownership, in violation of Exchange Act Section 16(a).    
+
+   Each of the five defendants who settled the Commission's action prior to the commencement of the trial in March 2003 consented, without admitting or denying the Commission's allegations, to the entry of a final judgment providing for the full injunctive relief sought by the Commission.  On March 12, 2003, the Court signed the final judgments against Solucorp, James G. Spartz, a former vice president and a director of Solucorp, Arle Pierro, a former senior vice president and director of Solucorp, and W. Bryan Fair, a former director of Solucorp.  The final judgment against Solucorp permanently enjoined the company from violating the antifraud provisions of Exchange Act Section 10(b) and Rule 10b-5 and Securities Act Section 17(a), the reporting requirements of Exchange Act Section 13(a) and Rules 12b-20, 13a-1, 13a-10 and 13a-13 thereunder, and the books and records and internal controls provisions of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).  The final judgment against Spartz permanently enjoined him from violating the antifraud provisions of Exchange Act Section 10(b) and Rule 10b-5 thereunder, and the insider reporting requirements of Exchange Act Section 16(a) and Rules 16a-2 and 16a-3, but did not impose a civil penalty based on Spartz's sworn representations concerning his financial inability to pay.  The final judgments against Pierro and Fair permanently enjoined them from violating the disclosure rules for insiders, Exchange Act Section 16(a) and Rules 16a-2 and 16a-3 thereunder, and imposed a $10,000 civil penalty on Pierro for allegedly failing to timely disclose her equity ownership in Solucorp and changes in that ownership.   
+
+   On January 16, 2003, the Court entered a final judgment against another settling defendant, the company's former outside auditor, Glenn R. Ohlhauser, that permanently enjoined Ohlhauser from future violations of Exchange Act Section 10A.   See   Lit. Rel. 16785  (October 31, 2000);  Lit. Rel. 17951  (January 27, 2003). 
+
+   In its July 25, 2003 opinion and order, the Court dismissed the claims against Robert Kuhn, a former vice president of Solucorp, on the grounds that the evidence did not establish that he had committed any violation of the federal securities laws.   
+
+
+     SEC Complaint in this matter   -->
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diff --git a/raw/aaer/2003/AAER-1850.txt b/raw/aaer/2003/AAER-1850.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2d82c030ea57faa7020220421124a353370aa00e
--- /dev/null
+++ b/raw/aaer/2003/AAER-1850.txt
@@ -0,0 +1,1368 @@
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+ Litigation Release No. 18327 / September 8, 2003 
+    Accounting and Auditing Enforcement Release No.  1850 / September 8, 2003 
+
+  SECURITIES AND EXCHANGE COMMISSION v. VINCENT STECKLER , United States District Court for the Northern District of California, Civil Action No. C-03-4067 RMW 
+
+   The Securities and Exchange Commission today filed suit in federal district court against Vincent Steckler, a former executive at Logicon, Inc., for his roles in a 1999 financial reporting fraud that caused Legato Systems, Inc.  to overstate its third quarter operating income by more than 146%.  The Commission's district court complaint alleges that Steckler assisted two former Legato sales executives in drafting a side letter in connection with an order by Logicon to purchase Legato software for resale to the U.S. Air Force.  The side letter granted Logicon the right to cancel the transaction, and noted that the cancellation provision could not appear on the face of Logicon's purchase order "because of the impact on revenue recognition."  Unaware of the side letter and the cancellation provision, Legato's finance department caused the company to recognize revenue on the order.  As a result of this transaction, Legato's original Form 10-Q for the Sept 30, 1999, quarter improperly overstated the company's net income by approximately $2 million (146%).  Legato later restated this income, and the transaction was ultimately cancelled following the discovery of the side letter. 
+
+   The complaint charges that Steckler aided and abetted Legato and certain of its former officers in violating the antifraud provisions of the securities laws, (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; provisions prohibiting the circumvention of Legato's internal accounting controls and falsification of its records, (Section 13(b)(5) of the Exchange Act and Rule 13b2-1; and provisions requiring the company to provide accurate periodic reports and make and keep accurate books and records (Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder).  The complaint seeks a permanent injunction against future violations by Steckler, as well as monetary penalties. 
+
+   In May 2002, the Commission sued Legato's former executive vice president of worldwide sales, David Malmstedt, and its former vice president of sales for North America, Mark Huetteman, for securities fraud for their roles in causing Legato to overstate its financial results for fiscal 1999.  At the same time, Legato and its former chief financial officer, Steven Wise, consented to the issuance of a Commission order directing that they cease and desist from violations of the books and records, internal controls and periodic reporting provisions of the federal securities laws. 
+
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diff --git a/raw/aaer/2003/AAER-1851.txt b/raw/aaer/2003/AAER-1851.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ff68bb44d6569626f462e2e8b3711f700870f2b6
--- /dev/null
+++ b/raw/aaer/2003/AAER-1851.txt
@@ -0,0 +1,1370 @@
+
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+ Litigation Release No. 18332 / September 9, 2003  
+
+ Accounting and Auditing Enforcement Release No. 1851 / September 9, 2003 
+
+  SECURITIES AND EXCHANGE COMMISSION V. LAWRENCE BOROWIAK , U.S. District Court for the Northern District of Illinois, Civil Action No. 99 C 6348 (N.D. Ill.  August 22, 2003) 
+
+ The Securities and Exchange Commission announced that a Final Judgment was entered on August 22, 2003 against Lawrence Borowiak, a former Assistant Vice President of Mercury Finance Co. (Mercury), in  Securities and Exchange Commission v. Lawrence Borowiak , Civil Action No. 99 C 6348 (Northern District of Illinois, Eastern Division).  Borowiak consented to entry of the Final Judgment without admitting or denying any of the allegations made against him in the complaint filed by the Commission.  That complaint, filed in September 1999, charges Borowiak with insider trading and participation in a scheme to overstate Mercury's earnings. 
+
+ Among other things, the Commission's complaint alleges that in 1995 and 1996, Borowiak made a series of fraudulent accounting entries that had the effect of overstating Mercury's net earnings by millions of dollars.  The complaint also alleges that in January 1997, Borowiak, knowing that Mercury had overstated its earnings and that Mercury's independent auditors were questioning the earnings information that had been released to the public, sold 45,018 shares of Mercury stock while in possession of this material and non-public information.  By selling his shares on January 27 and 28, 1997, Borowiak avoided losses of over $500,000. 
+
+ The Honorable Blanche M. Manning of the United States District Court for the Northern District of Illinois entered the Final Judgment permanently enjoining Borowiak from further violations of Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Rule 10b-5 thereunder, and Sections 13(b)(2)(A), 13(b)(2), and 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder.  The Judgment against Borowiak required Borowiak to pay disgorgement of $579,736.25 and required payment of $37,000 in disgorgement within 90 days of the entry of the Final Judgment.  The Judgment waived prejudgment interest and did not impose a civil penalty based upon Borowiak's sworn representations regarding his financial condition and credited against the $579,736 disgorgement obligation any restitution paid by Borowiak in  U.S. v. Borowiak , No. 01 CR 1084 (N.D. Ill.).  The Final Judgment also dismissed the claims against relief defendant JoAnne Borowiak with prejudice. 
+
+
+     SEC Complaint in this matter   -->
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diff --git a/raw/aaer/2003/AAER-1852.txt b/raw/aaer/2003/AAER-1852.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fcc3e22165a85e2f1caec7aec991c6a9520fcc58
--- /dev/null
+++ b/raw/aaer/2003/AAER-1852.txt
@@ -0,0 +1,1394 @@
+
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+ 
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+ LITIGATION RELEASE NO. 18335 / September 10, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1852 / September 10, 2003 
+
+  Securities and Exchange Commission v. Ben F. Glisan, Jr. , Case No. H-03-3628   (S.D. Tx.) 
+
+ SEC CHARGES BEN F. GLISAN, JR., ENRON'S FORMER TREASURER, WITH SECURITIES FRAUD 
+ Glisan Consents to Anti-Fraud Injunction and Officer and Director Bar 
+
+ The Securities and Exchange Commission ("Commission") today charged Ben F. Glisan, Jr. with violations of the anti-fraud, lying to auditors, periodic reporting, books and records, and internal controls provisions of the federal securities laws.  The Commission's complaint, filed in U.S. District Court in Houston, alleges that Glisan participated in Enron's manipulation of its reported financial results through a series of fraudulent transactions designed to inflate Enron's earnings and operating cash flows, while at the same time concealing the full extent of its debt.  The fraudulent transactions included the "Raptor" sham hedges used by Enron to avoid earnings write-downs of over $1 billion, the fraudulent "sale" of an interest in Nigerian barges to Merrill Lynch, and "prepay" transactions, which were loans disguised as commodity sales contracts, used by Enron to overstate its cash flows by hundreds of millions of dollars. 
+
+ Simultaneously with the filing of the complaint, Glisan agreed to file a consent and final judgment settling the Commission's action against him.  In the consent, Glisan has agreed, without admitting or denying the allegations of the complaint, to the entry of a final judgment permanently enjoining him from violating, directly or indirectly, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2.  Glisan has also agreed to the entry of an officer and director bar against him.    
+
+ The Commission's complaint alleges that Glisan and others used the Raptors to manipulate Enron's financial statements.  Raptor I was created in April 2000 through an off balance sheet SPE, called Talon LLC.  Enron formed Talon to hedge against potential declines in certain of its mark-to-market investments.  Although Enron provided most of Talon's funding, $30 million of its funding was from LJM2 Co-Investment, L.P. (the entity formed by Enron's former CFO, Andrew Fastow, to transact business with Enron), representing the purported 3% outside equity required for Talon to be off Enron's balance sheet.  Glisan knew that Talon was not properly off Enron's balance sheet because it would not engage in hedging with transactions with Enron until LJM2 was no longer at risk.  Glisan and others removed the risk by Enron and Talon entering into a "put," that is, a transaction that purportedly served to hedge Enron against a decline in its own stock value.  Although it had no true business purpose, Enron purchased the "put" option for $41 million.  The put was designed by Glisan and others as an ostensible reason to make a distribution of $41 million to LJM2, economically providing a return of and return on capital.  Accordingly, Talon failed to meet the minimum equity test as required by the accounting rules for off balance sheet treatment.   
+
+ The Commission's complaint also alleges that, at year-end 1999, Enron sold to Merrill Lynch an interest in certain Nigerian power producing barges.  Merrill Lynch purchased the interest only after Enron orally guaranteed that Merrill Lynch would not lose money, would receive a generous return, and would be taken out of the deal within six months.  The transaction was necessary for Enron to meet year-end reporting requirements, including recognition of $12 million in earnings and $28 million in funds flow.  Glisan was aware of the oral guarantee, as well as of the accounting goals driving the transaction.  He took an active role in making sure that Merrill Lynch was taken out within six months at the promised rate of return, thereby preserving for Enron the accounting benefits previously recognized. 
+
+ Finally, the Commission's complaint alleges that Glisan and others participated in Enron's manipulation of its reported financial results through a series of complex structured-finance transactions, called "prepays," over a period of several years preceding Enron's bankruptcy.  Enron used these transactions to report loans from financial institutions as cash from operating activities.  Indeed, the structural complexity of these transactions had no business purpose aside from masking the fact that, in substance, they were loans to Enron.  (See    SEC v. J.P. Morgan Chase , Civil. Action No. H-03-2877 (S.D.Tex.) and  In the Matter of Citigroup, Inc. , Administrative Proceeding File No. 3-11192 (SEC).)  As a result of the conduct of Glisan and others, Enron materially overstated its reported net cash flow from operating activities, materially understated its reported net cash flow from financing activities, and misrepresented the amount it borrowed. 
+
+ The Commission brought this action in coordination with the U.S. Department of Justice Enron Task Force.  The Commission's investigation is continuing.   
+
+ Please contact Charles Clark (202-942-4731) for more information.   
+
+ For additional information, see: 
+     SEC v. Michael J. Kopper  -  Litigation Release 17692  (Aug. 21, 2002) 
+
+       SEC v. Andrew S. Fastow  -  Litigation Release 17762  (Oct. 2, 2002) 
+
+       SEC v. Kevin A. Howard and Michael W. Krautz  -  Litigation Release 18030  (March 12, 2003) 
+
+       SEC v. Merrill Lynch & Co. Inc., et al.  -  Litigation Release 18038  (March 17, 2003) 
+
+       SEC v. Kevin A. Howard, Michael W. Krautz, Kenneth D. Rice, Joseph Hirko, Kevin P. Hannon, Rex T. Shelby, and F. Scott Yeager  -  Litigation Release 18122  (May 1, 2003) (Amended Complaint) 
+
+       In the Matter of Citigroup, Inc.  - Securities Exchange Act Of 1934 Release No.  Release No. 34-48230; Accounting and Auditing Enforcement Release No. 1821; Administrative Proceeding File No. 3-11192  (July 28, 2003) 
+
+       SEC v. J.P. Morgan Chase  -  Litigation Release 18252  (July 28, 2003) 
+     SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2003/AAER-1853.txt b/raw/aaer/2003/AAER-1853.txt
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index 0000000000000000000000000000000000000000..eef80e8c7927ab8115a65f2b9827d8947fd3b8b3
--- /dev/null
+++ b/raw/aaer/2003/AAER-1853.txt
@@ -0,0 +1,1372 @@
+
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+       
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+ Litigation Release No. 18339 / September 10, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1853 / September 10, 2003 
+
+  Securities and Exchange Commission v. Michael Martin and Malcolm E. McVay,  United States District Court for the Northern District of Alabama, Civil Action No. CV-03-AR-2424-S 
+
+ SEC Sues Former Chief Financial Officers of HealthSouth Corporation 
+
+ On September 3, 2003, the Securities and Exchange Commission filed a complaint against two former Chief Financial Officers ("CFOs") of HealthSouth Corporation, Michael Martin and Malcolm McVay.  HealthSouth was the nation's largest provider of outpatient surgery, diagnostic and rehabilitative healthcare services, owning approximately 1,800 different facilities throughout the United States and abroad.   
+
+ The complaint alleges that Martin and McVay participated in the massive accounting fraud at HealthSouth by signing reports filed with the Commission that they knew contained materially false financial statements.  The complaint further alleges that, while CFO, Martin directed lower level accounting personnel to make false entries to HealthSouth's accounting books and records so that HealthSouth's quarterly and annual earnings would meet or exceed Wall Street expectations.  The complaint further alleges that Martin sold HealthSouth stock while knowing that the share price was inflated artificially due to the materially false financial statements.  
+
+ The complaint alleges that Martin violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted HealthSouth's violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.  The complaint alleges that McVay violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and aided and abetted HealthSouth's violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-13 thereunder.   
+
+ The complaint asks the Court to issue permanent injunctions and to order disgorgement, prejudgment interest thereon and civil penalties against each defendant.  The Commission also seeks orders barring Martin and McVay from serving as officers and directors of publicly-held companies in the future.   
+
+     SEC Complaint in this matter   -->
+
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diff --git a/raw/aaer/2003/AAER-1854.txt b/raw/aaer/2003/AAER-1854.txt
new file mode 100644
index 0000000000000000000000000000000000000000..894855b67a37ddb7e040019d3ef8d27da9115b8d
--- /dev/null
+++ b/raw/aaer/2003/AAER-1854.txt
@@ -0,0 +1,1726 @@
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+              Brightpoint, Inc.
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+        Brightpoint, Inc.
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+              Securities Act of 1933 
+Release No. 8284 / September 11, 2003 
+
+ Securities Exchange Act of 1934 
+Release No. 48474 / September 11, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1854 / September 11, 2003 
+
+ Administrative Proceeding 
+File No. 3-11251 
+
+ 
+	 
+		 
+			 
+			 
+			     
+
+			  
+			In the Matter of 
+			  
+			BRIGHTPOINT, 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 AS TO EXCHANGE ACT OF 1934 AS TO BRIGHTPOINT, INC.  
+		 
+	 
+ 
+
+ I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Brightpoint, Inc. ("Brightpoint" or "the Company") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act"). 
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, Brightpoint 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 contained herein, except as to the Commission's finding of jurisdiction over Brightpoint and the subject matter of this proceeding, which Brightpoint admits, Brightpoint consents to the issuance 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 as to Brightpoint, Inc. ("Order") and to the entry of the findings and imposition of relief set forth below. 
+
+ III. 
+
+ On the basis of the Order and Brightpoint's Offer, the Commission makes the following findings: 1  
+
+ FACTS 
+
+ Summary 
+
+ (1) This case involves Brightpoint's improper use of a purported insurance policy to reduce a $29 million loss by $11.9 million in order to report a much smaller loss. The $29 million loss occurred in connection with the Company's closing of its Trading Division 2  in the United Kingdom ("UK") in 1998. As a result of this deception, Brightpoint's 1998 financial statements, as reported in the 1998 Form 10-K, overstated Brightpoint's actual net income before taxes by 61 percent. The misrepresentation was subsequently republished in registration statements filed in September 1999 and in Forms 10-K filed for 1999 and 2000. 
+
+ (2) On October 2, 1998, Brightpoint publicly announced that in the fourth quarter ending December 31, it would recognize a one-time charge, ranging from $13 million to $18 million (the "One Time Charge"), arising out of losses sustained in connection with the closing of the Trading Division in the UK. However, by December 1998, Brightpoint determined that the UK losses approached $29 million, substantially more than originally thought, and Brightpoint's then corporate controller, John Delaney ("Delaney"), and its then director of risk management, Timothy Harcharik ("Harcharik"), devised a scheme to cover-up these additional, unanticipated losses, rather than disclose them. 3  
+
+ (3) In December 1998, Delaney and Harcharik turned to the Loss Mitigation Unit ("LMU") of American International Group, Inc. ("AIG"), which offered so-called "insurance" products specifically designed to minimize the financial statement impact of losses sustained by AIG clients. Brightpoint and AIG fashioned a $15 million "retroactive" insurance policy (the "AIG Policy") that purported to cover all of the extra UK losses. The "cost" of this $15 million policy to Brightpoint was about $15 million, which Brightpoint was to pay in monthly "premiums" over the prospective three-year life of the policy. The AIG Policy, finalized in January 1999, enabled Brightpoint to record in 1998 an insurance receivable of $11.9 million, which Brightpoint netted against the total UK losses of about $29 million, bringing the net loss to within the previously disclosed $13 to $18 million range. 
+
+ (4) In substance, the AIG Policy was not an insurance policy. It was a mechanism that enabled Brightpoint to deposit money with AIG - in the form of monthly "premiums" - which AIG was then to refund to Brightpoint as purported "insurance claim payments." In drafting the AIG Policy, Delaney and Harcharik took pains to ensure that the "policy" raised no "red flags" for Brightpoint's auditors (the "Auditors"): They created a policy that looked like traditional, non-retroactive indemnity insurance with an effective date of August 1998. Moreover, once the AIG Policy was finalized, Delaney and Harcharik worked with AIG to devise a letter to the Auditors falsely stating that there would be a "probable" "insurance recovery" under the AIG Policy, when they knew that Brightpoint was, in fact, certain to recover its deposits. 
+
+ (5) In October 2001, following an inquiry by the Commission's staff, the Auditors began looking more closely at the AIG Policy and determined that it was not traditional insurance. Although the Auditors questioned whether the policy was insurance at all, the Auditors decided at the very least that the policy provided retroactive coverage and, therefore, that all premium expense associated with it should have been recorded in 1998. On November 13, 2001, Brightpoint announced a restatement, which treated the AIG Policy as real insurance with a retroactive and a prospective component (the "First Restatement"). The First Restatement expensed the full policy "premium" in the fourth quarter of 1998, amounting to $15.3 million. 
+
+ (6) On the day before Brightpoint announced the first restatement, Brightpoint and AIG canceled the retroactive component of the AIG Policy and agreed that AIG would refund to Brightpoint the amount by which the "premiums" Brightpoint had paid exceeded the "insurance claims payments" it received under the policy. When the Auditors subsequently learned the terms of this agreement concerning the refund, they concluded that AIG Policy was not insurance and that a second restatement was necessary to reflect the deposit nature of the arrangement. Consequently, on January 31, 2002, Brightpoint announced that it would further restate its financial statements to reflect that the AIG Policy "premiums" were only deposits with AIG. 
+
+ (7) As a result of the conduct summarized below, which led to misstatements in the 1998 Form 10-K and in a registration statement filed by the Company, Brightpoint violated Section 17(a) of the Securities Act of 1933 (the "Securities Act") and Sections 10(b), 13(a) and 13(b)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 10b-5, 12b-20, 13a-1 and 13b2-1 thereunder. In addition, Brightpoint incorrectly accounted for the 1998 losses in the First Restatement, and, as a result, violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13b2-1 thereunder. 
+
+ The Respondent 
+
+ (8)  Brightpoint  is a Delaware corporation headquartered in Plainfield, Indiana. Brightpoint provides outsourced services such as distribution, fulfillment, customized packaging, prepaid and e-business solutions, and inventory management in the wireless telecommunications and data industry. Brightpoint's securities are registered pursuant to Section 12(g) of the Exchange Act and its common stock is listed on NASDAQ's National Market under the symbol CELL. 
+
+  Other Relevant Individuals and Entities  
+
+ (9)  Delaney , age 37, is a resident of Indianapolis, Indiana. Delaney served as Brightpoint's corporate controller and chief accounting officer from June 1996 until he left Brightpoint in September 2000. In approximately April 2001, Delaney rejoined Brightpoint as executive vice president of its Solutions Development Group and continued in that position until Brightpoint terminated him in February 2002. 
+
+ (10)  Harcharik , age 48, is a resident of Fishers, Indiana. At all relevant times, Harcharik was the president of World Wide Risk Management, a risk management consulting company located in Indianapolis and fifty percent owned by the father of Brightpoint's chief executive officer. Harcharik worked for Brightpoint as an independent contractor, serving as Brightpoint's director of risk management from June 1997 until he was terminated in February 2002. At all relevant times, Harcharik was physically located in Brightpoint's offices and he spent almost all of his time on Brightpoint matters. 
+
+ (11)  AIG  is a Delaware corporation with its principal corporate offices located in New York, New York. AIG is a holding company that, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities in the United States and abroad. AIG's primary activities include both general and life insurance operations. AIG's securities are registered pursuant to Section 12(b) of the Exchange Act and are listed on the New York Stock Exchange. 
+
+ Discussion 
+
+  Brightpoint's UK Losses and the Genesis of the AIG Policy  
+
+ (12) In the spring of 1998, Brightpoint became aware that its UK operation had suffered certain losses related to the loss or devaluation of product within the Company's Trading Division. Delaney directed Harcharik to investigate and determine the amount of loss and evaluate the possible insurance recoveries available to Brightpoint under the policies Brightpoint had at the time (the "Brightpoint Policies"). Based on the information gathered during Harcharik's investigation, Delaney initially estimated the UK losses to total between $13 million and $18 million. 
+
+ (13) By the end of September 1998, given all the Trading Division's problems and its unprofitable history, Brightpoint decided to close the Trading Division in the UK. Brightpoint's Board of Directors approved the closure on October 1, 1998, and the Company issued a press release on October 2, 1998 announcing that it was eliminating the Trading Division and that the Company would recognize in the fourth quarter of 1998 the One Time Charge, which was expected to range from $13 to $18 million. After October 2, 1998, Harcharik continued to investigate the UK losses, and he gathered documentation for the purpose of making claims under the Brightpoint Policies. 
+
+ (14) In early December 1998, it was clear that the amount of the One Time Charge was much greater than the original estimate and that Brightpoint's insurers were disputing coverage for the UK losses making it uncertain that there would be insurance recoveries under the Brightpoint Policies. At this point, Brightpoint was faced with the prospect of recording a much larger loss in the fourth quarter than it had previously disclosed, at least $12 million more. 
+
+ (15) In mid-December, Brightpoint initiated contact with AIG. Harcharik had had some prior familiarity with AIG products designed to cover retroactive losses, and he became the point person in the discussions that ensued. From the very first discussion, Harcharik and Delaney presented Brightpoint's predicament to AIG in stark terms: That Brightpoint had issued a press release in October announcing a very specific range for the estimated loss and was now faced with a much larger loss that it did not want to disclose. Although there was initially some discussion of having AIG actually assume some of Brightpoint's risk, and in that sense issue true retroactive insurance, discussion very quickly shifted to a deposit mechanism because AIG was unwilling to take on any risk associated with Brightpoint's UK losses. 4  In the transaction eventually consummated, AIG bore no insurance risk for retroactive losses covered under the policy; every dollar Brightpoint paid to AIG to cover such losses was to be returned upon Brightpoint's demand. 
+
+  Overview of Relevant Accounting Principles  
+
+ (16) Under generally accepted accounting principles ("GAAP"), when it is "probable" that an insured will realize an "insurance recovery" against a specified loss, the insured is entitled to record a receivable on its balance sheet in the amount of the probable recovery and, for income statement purposes, net the amount of probable recovery against the loss, thereby reducing the loss. 5  
+
+ (17) The recovery must be "probable." If recovery is only possible, the insured must recognize the loss to its full extent, without regard to insurance. Moreover, the recovery must be an "insurance" recovery. A recovery is not an "insurance" recovery for accounting purposes unless the insurance policy transfers some risk from the insured to the insurer. If a policy does not involve risk transfer, GAAP treats it as a financing arrangement, with all premiums to be accounted for as deposits. 6  
+
+ (18) In December 1998, as the Auditors were beginning field work for the year-end audit, Brightpoint presented the Auditors with schedules of the UK losses, which assumed that Brightpoint would be offsetting against those losses at least $11.9 million in anticipated insurance recoveries. To accomplish this offset, Brightpoint needed to satisfy the probability principle outlined above. However, at the time, it had no such coverage available because its insurers were already indicating that coverage under the Brightpoint Policies was doubtful. On December 22, Delaney wrote to Harcharik an e-mail saying: "I need to support for [the Auditors] the recording of an insurance receivable related to the losses in the UK (in the amount of $12MM - Whoa)." 
+
+ (19) Brightpoint eventually used the AIG Policy to satisfy this probability standard. In constructing the AIG Policy, Brightpoint faced two accounting obstacles: First, the policy had to look like insurance. If it looked like a deposit, Brightpoint would not be able to net anticipated recoveries against the loss. Second, the policy could not look like retroactive insurance,  i.e. , insurance designed to cover a loss already quantified and known, because Brightpoint might then be required to expense the full $15 million "premium" immediately. Under GAAP, the insured is obligated to recognize the full premium expense associated with a retroactive policy at the time it recognizes the benefits of the policy. (SFAS No. 113) 
+
+  The AIG Policy  
+
+ (20) The AIG Policy consists of two governing documents: The Binder of Coverage (the "Binder") and the policy itself. The Binder was executed on January 6, 1999, but was dated effective August 1, 1998. The Binder states the policy period to be the three-year period August 1, 1998 to August 1, 2001. The AIG Policy provides two separate limits of coverage: Limit A and Limit B. Limit A has an aggregate limit of $15 million, while Limit B has a per loss limit of $15 million. 
+
+ (21) Although not referred to in the policy as "retroactive," Limit A effectively provides broad retroactive coverage. The policy contains an insuring clause that provides: "The Company shall indemnify the Insured for Loss of Assets unless otherwise excluded by the terms and conditions of this policy." This insuring clause is applicable to both Limit A and Limit B. However, Limit B is subject to a laundry list of exclusions, while Limit A has  no  exclusions. Thus, virtually every "Loss" of "Assets" is covered under Limit A up to an aggregate amount of $15 million. Limit B, on the other hand, essentially provides prospective fidelity insurance coverage, which is severely circumscribed by the exclusions. 
+
+ (22) The Binder reflects a single, indivisible premium applicable to both limits. The total premium is $15,302,400, but this aggregate figure is never set forth. Instead, the Binder provides only a list of the elements constituting the premium: It provides that the premium shall be payable as follows: 
+
+ 
+	 $199,200 due within seven (7) business days from the execution of this Binder agreement; and 
+	 Thirty-two (32) monthly payments of $237,600 commencing January 30, 1999 and ending August 30, 2001; and 
+	 Letter of Credit [] in the amount of $7,500,000 due within seven (7) business days from the execution of this Binder agreement. 
+ 
+
+ (23) Neither the policy nor the Binder states how much of the premium is applicable to Limit A and how much is applicable to Limit B. Because the AIG Policy provides for a single premium applicable to both Limits, and Limit B theoretically provides infinite coverage, i.e., $15 million per loss, the AIG Policy on its face at least appears to involve risk transfer. However, according to the internal AIG deal sheet, which reflected the agreement between Brightpoint and AIG, Limit A was fully pre-funded by Brightpoint: The premium Brightpoint paid for Limit A coverage was $15 million plus a $100,000 fee that AIG charged for putting the deal together. Limit B was intended to provide traditional prospective fidelity coverage. According to the deal sheet, the premium for Limit B was $202,400. 
+
+ (24) The policy specifically provides that it is non-cancelable, and the Binder states that the premium "shall be fully earned as of the date of this binder agreement," meaning that AIG was entitled to be paid the full premium from the very first day of coverage. The policy also contains a clause providing that if claims made under the policy at any point exceeded the dollar amount of premium paid to that point, AIG would not be obligated to pay further claims until Brightpoint paid all remaining premiums due, except for $302,400 - an amount that coincides with the unstated Limit B premium and $100,000 fee. This provision meant that AIG could never be out of pocket under Limit A, the retroactive component of the AIG Policy. 
+
+ (25) The policy contains no express provision granting Brightpoint the right to a refund if Brightpoint ended up paying more in premiums than it was claiming in losses - a scenario that might have occurred, for example, if Brightpoint ultimately succeeded in obtaining some coverage under the Brightpoint Policies. However, there was an oral understanding between AIG and Harcharik that Brightpoint would receive such a refund, and the mechanism for obtaining that refund was to submit a claim under the very broad definition of coverage, which allowed Brightpoint to receive payment for just about any claim submitted under Limit A up to an aggregate maximum of $15 million. 
+
+ (26) Brightpoint accounted for the AIG Policy as if it were prospective fidelity insurance. It expensed the premiums monthly over the three-year life of the AIG Policy, and it netted "probable recoveries" under Limit A against the UK losses, purporting to rely on the probability principle outlined above. 
+
+ (27) Given the true substance of the AIG Policy, Limit A was not insurance because there was no transfer of risk. Limit A was not even a financing arrangement because AIG was not extending credit to Brightpoint. The only money Brightpoint was entitled to receive under the Limit A was money that it first deposited with AIG - deposits on which AIG paid no interest. Accordingly, the premium payments should have been accounted for as deposits. 
+
+  The Negotiations Between Brightpoint and AIG  
+
+ (28) From the first discussions between Brightpoint and AIG, Delaney and Harcharik made clear to AIG that Brightpoint needed a policy to reduce the One Time Charge and that the final policy had to "pass the insurance test" with Brightpoint's auditors. Delaney explained to AIG that Brightpoint needed about $15 million in insurance coverage to bring the One Time Charge within the $13 million to $18 million range previously announced in October 1998. Delaney also told AIG that while Brightpoint expected to receive some recoveries for the UK losses under the Brightpoint Policies, the claims under those policies would not be resolved by the year-end. Thus, the AIG Policy was necessary to establish for the Auditors that there was a probability of sufficient insurance recovery. 
+
+ (29) Harcharik was keenly aware of the accounting issues. At the outset, he proposed that the policy contain both retrospective and prospective components. He wanted a prospective component to be part of the policy because, if Limit A stood alone, it would be too obvious that Brightpoint was paying $15 million in premiums for $15 million of coverage. In the course of the two-week negotiation, Harcharik and Delaney discussed in detail other "red flags" they wanted to avoid so as not to alert the auditors that the policy was not insurance. 
+
+ (30) One such "red flag" was the problem associated with bifurcating the premium on the face of the contract between the retroactive and prospective portions of the policy. Harcharik made clear to AIG that he did not want the premium to be explicitly bifurcated in the contract because that would show that the cost of Limit A was $15 million. Harcharik did not want the total premium amount of $15.3 million even to be tallied in the contract. Instead, Harcharik wanted the premium to be reflected simply as three untallied components, consisting of an initial down payment, 32 monthly payments, and a $7.5 million letter of credit ( "LOC"). Harcharik did not want the $15.3 million sum to be readily apparent to the Auditors because such a substantial premium might have caused the Auditors to question the bona fides of the policy. 
+
+ (31) AIG also counseled Harcharik and Delaney that the AIG Policy should contain "no reference to an experience account" and that all refunds of premium back to Brightpoint should be through loss claim payments. An experience account or commutation provision refers to an insurance mechanism by which the insured is refunded premium at the end of the policy if there were few loss experiences over the course of the contract. AIG advised that such a provision would raise "red flags" with the Auditors. 
+
+ (32) To avoid having an express refund mechanism in the policy for excess premiums paid, Harcharik and AIG reached an oral agreement, not written into the AIG Policy, that AIG would be "extremely flexible" in refunding premiums to Brightpoint through "claim payments," requiring little to no documentation from Brightpoint on the nature of the losses. 7  Harcharik and AIG agreed that the retrospective coverage would be as broad as possible and there would be no exclusions to coverage in the policy for those losses. AIG documented the terms of this oral agreement with Harcharik in an internal AIG memorandum called "Loss Mitigation Unit Deal Sheet" (the "Deal Sheet"). The Deal Sheet, in relevant part, states the following: 
+
+ 
+ ...Brightpoint had already taken a charge for the [trading] division...assuming the $15M of insurance recovery would happen. Brightpoint's auditors, . . . , wanted more evidence that an insurance recovery was possible. Otherwise, Brightpoint would be in a position to possibly restate the charge already taken...The feedback from [the Auditors] was that they wanted a letter from AIG explaining the use of the policy in case there are no proceeds paid by [Brightpoint's other insurer] ...If for some reason [Brightpoint's other insurer] pays the loss or a portion of the loss, the $15M [million] or the balance after a partial loss payment by AIG would have to be returned as well. This would be returned under a future claim submitted by Brightpoint under Sub-Limit A. THUS, SUB-LIMIT A WAS MADE TO BE EXTREMELY BROAD AND ANY PAYMENTS MADE SHOULD ALWAYS BE MADE WITHOUT LIMITATIONS BY COVERAGE; ONLY LIMITATIONS TO PREMIUM RECEIVED. 
+ 
+
+ (Emphasis in original.) Along the same lines, another internal AIG memorandum states: 
+
+ 
+ AIG is not at risk for this arrangement and maintains the benefit of collecting cash without giving interest on the float. There were no specific required timeframes established for AIG's payments under the policy (due to the fact that the policy was purposely constructed so as to  not  appear as a finite risk policy for accounting reasons) and the verbal agreement was that AIG would pay within a  reasonable  time period. 
+ 
+
+ (Emphasis in original.) 
+
+ (33) On January 6, 1999, AIG and Brightpoint executed the AIG Policy by signing the Binder. The original version of the Binder had a date line, indicating that it was signed on January 6, 1999. That same day, Delaney sent Harcharik an email stating: 
+
+ 
+ The binder you signed (I looked at it again) has January 6, 1999 (in one case 1998) all over it. This is not good and that copy must be destroyed and on [sic] with an August date executed. 
+ 
+
+ (34) AIG and Harcharik then executed a second version with only the August 1, 1998 effective date appearing in the document. Later that day, Brightpoint issued a press release stating that the One-Time Charge was "expected to be approximately $17.6 million ... which is consistent with the previously-announced estimate." Both Brightpoint's President 8  and its then Chief Financial Officer approved in advance Brightpoint's purchase of the AIG Policy without adequately reviewing the transaction. 
+
+  AIG's Confirmation to the Auditors  
+
+ (35) In connection with the Auditors' 1998 year-end audit, the Auditors asked Brightpoint to obtain from AIG a letter confirming the probability that Brightpoint would recover at least $11.9 million under the AIG Policy, which was the amount Brightpoint was seeking to offset against the $29 million UK losses. After working through numerous drafts with Harcharik, AIG signed and provided a letter to Harcharik, dated January 27, 1999, which stated "we [AIG] believe it is probable that Brightpoint will recover no less than $11,900,000 in proceeds, net of deductibles, under the Policy." AIG faxed a copy of the letter directly to the Auditors. On the basis of this confirmation, the Auditors approved Brightpoint's accounting for the insurance receivable and allowed Brightpoint to offset the UK losses by $11.9 million in probable insurance recoveries. 
+
+  Brightpoint's Misrepresentations to the Auditors  
+
+ (36) As part of its audit procedures, the Auditors obtained during the 1998 audit a management representation letter from Brightpoint that enabled the Auditors to form an opinion as to whether Brightpoint's financial statements presented fairly, in all material respects, the financial position, results of operations, and cash flow of Brightpoint, in conformity with GAAP. This letter, dated January 26, 1999, falsely represented that the financial statements were fairly presented and that all financial records and significant contracts were made available to the Auditors. Further, the letter falsely stated that no material transactions were improperly recorded in the accounting records underlying the financial statements, that there was no fraud involving management, and that no events or transactions occurred subsequent to December 31, 1998 that would have materially affected the financial statements. 
+
+  Brightpoint's Publication of the Material Misstatements  
+
+ (37) Brightpoint publicly reported the material misrepresentations about its 1998 operating results, stemming from the improper accounting for the AIG Policy, in the Company's 1998 10-K, which was filed with the Commission on March 31, 1999. Subsequently, Brightpoint republished the misrepresentations in a registration statement filed with the Commission on September 27, 1999. The registration statement incorporated by reference the misrepresented operating results in Brightpoint's 1998 10-K. In addition, it republished the 1998 financial data in its Form 10-K filed for 1999 and 2000. 
+
+  The First Restatement  
+
+ (38) In September 2001, the Commission's staff issued a subpoena to the Auditors for its workpapers relating to Brightpoint's 1998 One-Time Charge. The subpoena led the Auditors to reconsider Brightpoint's 1998 accounting for the UK losses. In the course of this review, the Auditors learned for the first time that (1) the AIG Policy had not been executed until January 1999; (2) the policy contained retroactive coverage; and (3) the policy was "non cancelable by either party and the entire premium [was] deemed earned at the inception of the policy," meaning that Brightpoint was obligated to pay the full $15.3 million in the fourth quarter of 1998. 
+
+ (39) At the end of October 2001, the Auditors informed Brightpoint that it had incorrectly accounted for the AIG Policy and would have to restate its 1998 financial statements. However, following meetings with representatives of Brightpoint, including its then Chief Financial Officer, the Auditors determined that Brightpoint needed to restate its 1998 financial statements by expensing the full premium on the AIG Policy, rather than treating the premiums as a deposit. 
+
+ (40) On November 13, 2001, the Company issued a press release announcing the First Restatement. The press release stated that: "Upon further review, the Company and its independent auditors now believe that premium expense should have been accrued at the date the Company entered into the [AIG Policy], rather than over the prospective policy period because the Company could not allocate the costs of the policy between the retroactive and prospective coverage." The First Restatement expensed the full policy "premium" in the fourth quarter of 1998, amounting to $15.3 million, and reversed the monthly premium expense recorded in 1999 through 2001. While the First Restatement essentially corrected Brightpoint's bottom line for 1998, it left intact the $11.9 million in probable insurance recoveries under the AIG Policy as an offset against the $29 million UK loss, in effect treating the AIG Policy as real retroactive insurance. 
+
+  The Second Restatement  
+
+ (41) A few days before Brightpoint's November 13th press release, Brightpoint had told the Auditors that Brightpoint was in negotiations with AIG to terminate the AIG Policy. Brightpoint represented to the Auditors that, under the anticipated termination agreement, Brightpoint would simply "walk away" from the policy without any further exchange of money between AIG and Brightpoint. The November 13 press release addressed the subject of termination, stating that "[t]he Company believes that it will recognize a gain in the fourth quarter of 2001 related to the termination of the retroactive portion of the insurance policy, which will result in the complete reversal of the remaining accrual." 
+
+ (42) The termination agreement was actually executed on November 12, 2001, one day before the November 13 press release. However, Brightpoint did not notify the Auditors that the agreement had been finalized. The executed agreement essentially provided for full rescission of the Limit A part of the AIG Policy. Under the agreement, Limit A was terminated, with Brightpoint to receive a refund of about $2.3 million - just about the amount of premiums it had paid in excess of claims recovered. The agreement also provided that Limit B would continue in force for an annual premium of $97,000. 
+
+ (43) The Auditors did not learn until mid-December 2001 that the Company had received some cash back under Limit A. Upon learning of the refund, the Auditors asked to see the termination agreement, which they were given on January 14, 2002. After reviewing the termination agreement, the Auditors determined that Limit A was not real insurance and that Brightpoint had to restate its restatement, using the deposit method. 
+
+ (44) On January 31, 2002, Brightpoint announced that "the Company has now determined that the appropriate accounting method for the agreement is deposit accounting... Deposit accounting requires treating the Company's payments under this agreement as deposits rather than as premiums and the Company's receipts under the agreement as withdrawals rather than claims paid by the insurance company...." 
+
+ LEGAL DISCUSSION 
+
+ Brightpoint Violated Section 10(b) And Rule 10b-5 Of the Exchange Act 
+
+ (45) Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibits fraud in connection with the purchase or sale of a security. In particular, Rule 10b-5 prohibits any person 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. A misstatement or omission is material if there is a substantial likelihood that it would have been viewed by a reasonable investor as "having significantly altered the `total mix' of information made available."  TSC Indus., Inc. v. Northway, Inc. , 426 U.S. 438, 449 (1976).  See   also   Basic, Inc. v. Levinson , 485 U.S. 224, 231-32 (1988). 
+
+ (46) To violate Section 10(b) and Rule 10b-5, a person must also act with scienter,  Aaron v. SEC , 446 U.S. 680, 701-02 (1980), which is "a mental state embracing intent to deceive, manipulate, or defraud,"  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 (1976), and which can be shown by proof of intentional or reckless conduct.  Novak v. Kasaks , 216 F.3d 300, 312 (2d Cir. 2000),  cert. denied , 531 U.S. 1012 (2000);  Press v. Chem. Inv. Serv. Corp. , 166 F.3d 529, 537-38 (2d Cir. 1999). Knowledge, or reckless disregard, of the fraudulent scheme or the undisclosed information will also satisfy the scienter requirement.  See ,  e.g. ,  McDonald v. Alan Bush Brokerage Co. , 863 F.2d 809, 814 (11th Cir. 1989);  Woods v. Barnett Bank of Fort Lauderdale , 765 F.2d 1004, 1010 (11th Cir. 1985);  IIT v. Cornfeld , 619 F.2d 909, 923 (2d Cir. 1980). 
+
+ (47) Reckless conduct is conduct "which is `highly unreasonable' and which represents an `extreme departure from the standards of ordinary care . . . to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it."  Rolf v. Blyth, Eastman Dillon & Co. , 570 F.2d 38, 47 (2d Cir. 1978). Such recklessness may be demonstrated through "defendants' knowledge of facts or access to information contradicting their public statements."  Novak , 216 F.3d at 308. Proof of scienter can be inferred from circumstantial evidence.  Herman & MacLean v. Huddleston , 459 U.S. 375, 390-91 n.30 (1983). 
+
+ (48) Brightpoint violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by knowingly or recklessly engaging in conduct resulting in material misstatements in Brightpoint's Forms 10-K for the years ended December 31, 1998, 1999 and 2000. As described above, Delaney and Harcharik planned and executed a fraud that involved entering into a transaction with AIG for the sole purpose of misrepresenting Brightpoint's losses as insured losses. Brightpoint further participated in the scheme by filing periodic reports containing material misrepresentations and omissions. An issuer may violate the antifraud provisions if it makes misstatements or omissions of material fact in periodic reports or other public reports to investors.  SEC v. Koenig , 469 F.2d 198 (2d Cir. 1972);  SEC v. Great American Industries, Inc. , 407 F.2d 453 (2d. Cir 1967), cert. denied, 395 U.S. 920 (1969);  see   SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833 (2d Cir. 1968) (en banc), cert. denied, 394 U.S. 976, 89 S.Ct. 1454 (1969). 
+
+ (49) In reports filed with the Commission, Brightpoint grossly overstated its operating results by 61% for the year ended 1998. It is well established that information concerning the financial condition of a company is presumptively material.  Elkind v. Liggett & Myers, Inc. , 635 F.2d 156, 167 (2d Cir. 1980);  see   also   SEC v. Blavin , 557 F. Supp. 1304, 1313 (E.D. Mich. 1983), aff'd, 760 F.2d 706 (6th Cir. 1985). Materiality judgments involve both quantitative and qualitative considerations.  See   Statement on Auditing Standards ("SAS") No. 47, Audit Risk and Materiality in Conducting an Audit , ¶¶ 6 and 7; Staff Accounting Bulletin ("SAB") No. 99, 64 Fed. Reg. 45150 (1999);  see also   Ganino v. Citizens Utilities Co. , 228 F.3d 154, 163 (2d Cir. 2000) (adopting SAB No. 99 as useful guidance on materiality issues). One qualitative factor that weighs heavily in the finding of materiality is whether senior management knew of or took part in the financial statement fraud.  See   Appendix to SAS No. 53, The Auditor's Responsibility to Detect and Report Errors and Irregularities , at ¶ 3;  SAS No. 19, Client Representations , ¶ 5. In light of the fact that these accounting improprieties were committed by Brightpoint's then controller and Chief Accounting Officer, it is substantially likely that a reasonable investor would have viewed the misstatement as significantly altering the total mix of information made available when purchasing Brightpoint securities. 
+
+ (50) Brightpoint acted with scienter because the conduct and knowledge of its officer is attributed to the Company.  See ,  e.g. ,  Sharp v. Coopers & Lybrand , 649 F.2d 175, 182 n.8 (3d Cir. 1981),  cert. denied , 455 U.S. 938 (1982) (affirming liability of accounting firm for its employee's conduct);  SEC v. Management Dynamics, Inc. , 515 F.2d 801, 811-13 (2d Cir. 1975) (affirming an antifraud injunction against a company based on the conduct of an officer acting within the scope of his authority);  In re Sunbeam Securities Litigation , 89 F. Supp. 2d 1326, 1340 (S.D. Fla. 1999) (scienter of officers is properly imputed to the corporation). The scienter of Brightpoint's then controller and Chief Accounting Officer demonstrates the company's scienter: Delaney knowingly planned and directed a scheme to defraud public investors. Delaney entered into a transaction with AIG whereby Brightpoint deposited money with AIG and obtained the right to later withdraw the money as needed. Delaney worked together with AIG to conceal the true nature of the transaction by manipulating the language of the contract so that it would appear as a real insurance policy and not as a deposit-withdrawal transaction. Delaney used this transaction to mislead Brightpoint's auditors and obtain the desired accounting objective, allowing Brightpoint to offset its losses by $11.9 million in "insurance proceeds" from this transaction. Delaney also arranged for the signing and filing of public reports that he knew contained misrepresentations concerning the true nature of this transaction and the true extent of Brightpoint's losses. 
+
+ (51) The final element necessary to establish a violation of the antifraud provisions is that the violative activity occur in connection with the purchase or sale of a security. This requirement is construed broadly.  Superintendent of Ins. of State of N.Y. v. Bankers Life and Casualty Co. , 404 U.S. 6, 12 (1971). Material misrepresentations or omissions contained in annual and quarterly reports and press releases are made in connection with an order, purchase, or sale of securities.  See   SEC v. Benson , 657 F. Supp. 1122, 1131 (S.D.N.Y. 1987);  SEC v. Jos. Schlitz Brewing Co. , 452 F. Supp. 824, 829 (E.D. Wis. 1978);  Softpoint , 958 F. Supp. 846, 862-863,  aff'd  159 F.3d 1348 (2d Cir. 1998). The material misstatements and omissions described above were contained in annual reports filed with the Commission, as well as in Brightpoint's press releases and registration statement. Accordingly, these material misrepresentations and omissions were in connection with the purchase or sale of Brightpoint's securities. Brightpoint thus violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. 
+
+ Brightpoint Violated Section 17(a) of the Securities Act 
+
+ (52) Section 17(a) of the Securities Act is violated when, in the offer or sale of securities, a person makes material misrepresentations or omits to state material facts that are necessary to prevent statements that are made from being misleading. Information is "material" if there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision or if the information would significantly alter the total mix of available information.  Basic, Inc. v. Levinson , 485 U.S. 224, 231-32 (1988). To establish liability for violations of Section 17(a)(1) of the Securities Act, the Commission must show that the defendant acted with scienter.  Ernst & Ernst v. Hochfelder, et al. , 425 U.S. 185, 201 (1976). 9  In the Second Circuit, reckless conduct satisfies the scienter requirement.  In re Complete Management, Inc. , 2001 WL 314631, at *8 (S.D.N.Y. 2001);  Sirota v. Solitron Devices, Inc. , 673 F.2d 566, 573 (2d Cir.),  cert.   denied , 459 U.S. 838 (1982). 
+
+ (53) Here, the registration statement filed by Brightpoint in September 1999 contained false and misleading statements regarding Brightpoint's operating results for the year ended 1998. Further, the misstatements were material because, as a result of the fraudulent conduct of its then senior accounting officer, the Company grossly overstated its net income by 61 percent, and it is substantially likely that a reasonable investor would view this information as altering the total mix of information made available when purchasing Brightpoint securities. Delaney acted with scienter because he knew about the material misstatements and omissions contained in Brightpoint's registration statement. As discussed above, Delaney's scienter establishes the Company's scienter. Therefore, Brightpoint violated section 17(a) of the Securities Act. 
+
+ Brightpoint Violated Sections 13(a) and 13(b)(2) and Rules 12b-20 and 13a-1 of the Exchange Act 
+
+ (54) At all relevant times, Brightpoint was a reporting company and subject to the provisions of Section 13(a) of the Exchange Act. Section 13(a) and Rule 13a-1 require issuers to file periodic reports with the Commission and to keep this information current. Rule 12b-20, which applies to all reports filed pursuant to Section 13 of the Exchange Act, requires disclosure of such additional information as may be necessary to make the required statements not misleading. Implicit in these provisions is the requirement that the information reported be true, correct and complete.  See   United States v. Bilzerian , 926 F.2d 1285, 1298 (2d Cir.),  cert. denied , 502 U.S. 813, 112 S. Ct. 63 (1991);  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979). No showing of scienter is necessary to establish an issuer's violation of the corporate reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1.  See   SEC v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978). Consequently, an issuer violates the reporting provisions if it files materially false or misleading reports or omits information necessary to render the statements made not misleading.  See   SEC v. Koenig , 469 F.2d 198, 200 (2d Cir. 1972);  see   also   Kaufman & Broad, Inc. v. Belzberg , 522 F. Supp. 35, 42 (S.D.N.Y. 1981)(Rule 12b-20). 
+
+ (55) As described above, Brightpoint's annual reports contained material misrepresentations and omissions concerning the UK losses and the insurance available for those losses. Moreover, Brightpoint's First Restatement contained further misrepresentations and omissions concerning the accounting treatment for the AIG Policy. Accordingly, Brightpoint violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+ (56) 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. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain an adequate system of internal accounting controls. Scienter and materiality are not elements of primary violations of either provision.  See   SEC v. McNulty , 137 F.3d 732, 740-741 (2d Cir. 1998);  SEC v. WorldWide Coin Investments, Ltd. , 567 F.Supp. 724, 749 (N.D. Ga. 1983). Brightpoint 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 its transaction with AIG, which included inaccurate entries relating to the First Restatement. Moreover, Brightpoint 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 accordance with GAAP, thereby violating Section 13(b)(2)(B) of the Exchange Act. The Company's internal controls were not sufficient to prevent numerous false accounting entries to be recorded without proper basis or support. 
+
+ Brightpoint Violated Rule 13b2-1 of the Exchange Act 
+
+ (57) Rule 13b2-1 prohibits any person from directly or indirectly falsifying, or causing to be falsified, any book or record subject to Section 13(b)(2)(A). Scienter is not an element of a violation of Rule 13b2-1.  McNulty , 137 F.3d at 740-741. 
+
+ (58) As described above, Brightpoint's then Chief Accounting Officer knowingly falsified or caused others to falsify Brightpoint's books, records, and accounts, which were subject to the requirement by Section 13(b)(2)(A) of the Exchange Act that such books, records, and accounts be accurate. Brightpoint's then Chief Accounting Officer prepared, caused others to prepare, or gave substantial assistance in the preparation of falsified financial records that understated Brightpoint's true expenses on the income statement, overstated the Company's assets on the balance sheet and failed to properly account for the AIG Policy. Further, the then Chief Accounting Officer circumvented whatever internal accounting controls did exist at the Company. Moreover, both Brightpoint's President and its then Chief Financial Officer approved the AIG transaction without adequately reviewing a transaction that had a substantial impact on the Company's financial statements. Thus, Brightpoint violated Rule 13b2-1. 
+
+ UNDERTAKINGS 
+
+ Brightpoint has undertaken and agreed to cooperate fully with the Commission in any and all investigations, litigations or other proceedings relating to or arising from the matters described in the Offer. In connection with such cooperation, Brightpoint has undertaken: 
+
+ 1. To produce, without service of a notice or subpoena, any and all documents and other information requested by the Commission's staff; 
+
+ 2. To be interviewed by the Commission's staff at such times as the staff reasonably may direct; 
+
+ 3. Upon the request of the Commission's staff, to waive any applicable privilege with respect to Brightpoint's internal investigation concerning the matters addressed in this Offer; 
+
+ 4. To appear and testify truthfully and completely without service of a notice or subpoena in such investigations, depositions, hearings or trials as may be requested by the Commission's staff; and 
+
+ 5. That in connection with any testimony of Brightpoint to be conducted at deposition, hearing or trial pursuant to a notice or subpoena, Brightpoint: 
+
+ a. Agrees that any such notice or subpoena for Brightpoint's appearance and testimony may be addressed to its attorney, Alan Lieberman, Esq., Blank Rome LLP, 405 Lexington Avenue, New York, NY 10174-0208, and served by regular mail with a copy to Robert J. Mittman, Esq. Blank Rome LLP, 405 Lexington Avenue, New York, NY 10174-0208; and 
+
+ b. Agrees that any such notice or subpoena for Brightpoint's appearance and testimony in an action pending in a United States District Court may be served, and may require testimony, beyond the territorial limits imposed by the Federal Rules of Civil Procedure. 
+
+ In determining whether to accept the Offer, the Commission has considered these undertakings. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to by Brightpoint in its Offer.  10  
+
+ Accordingly, it is hereby ORDERED that: 
+
+ Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Brightpoint shall cease and desist from committing or causing any violations, or committing or causing any future violations, 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 and 13b2-1 thereunder. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+  
+
+ __________________ 
+
+  1  The findings herein are made pursuant to Brightpoint's Offer and are not binding on any other person or entity in this or any other proceeding. 
+
+  2  The Trading Division was involved in the purchase of wireless handsets from sources other than manufacturers or network operators and in the sale of those handsets to other trading companies dealing in the secondary market. 
+
+  3  Brightpoint terminated Delaney and Harcharik in February 2002, after the Commission's investigation was underway. 
+
+  4  In this respect, Harcharik proposed that AIG and Brightpoint share in the litigation risk associated with Brightpoint's anticipated insurance coverage litigation under the Brightpoint Policies, with both AIG and Brightpoint splitting the proceeds if the litigation was successful. However, AIG viewed this proposal as a losing proposition. 
+
+  5  Statement of Financial Accounting Standards ("SFAS") No. 5; Emerging Issues Task Force ("EITF") No. 93-5 (concerning environmental insurance); Statement of Position ("SOP") 96-1 (concerning environmental insurance). 
+
+  6  When a policy affords retroactive coverage, it is not regarded as insurance for accounting purposes unless there is either an underwriting risk or a timing risk associated with the policy. When a loss has occurred and is known at the time the policy is written, there can be underwriting risk if the dollar amount of the loss is not fully known. Alternatively, if at the time the policy is written the dollar amount is both known and fixed, there can still be a timing risk if the actual payout may be delayed for many years. In such circumstances, the insurer might set the premium on the assumption that it will not have to pay for ten or twenty years. The risk is that payment may actually become due at an earlier time. 
+
+  7  Over the life of the policy, Brightpoint's "claims" were paid upon the submission of a letter, saying simply that a loss had been sustained. AIG paid the claims without requiring further documentation. 
+
+  8  Brightpoint's President was also its Chief Operating Officer. 
+
+  9  The Commission need not show scienter to establish violations of Sections 17(a)(2) and (3) of the Securities Act.  Aaron v. SEC , 446 U.S. 680, 697 (1980). 
+
+  10  Brightpoint has agreed to pay a $450,000 civil penalty in a parallel civil action. 
+ 
+ 
+ Footnotes 
+footnotes header optional
+
+  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.  -->
+ 
+      
+                                   
+               
+     
+
+       
+
+
+
+   
+
+   
+
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diff --git a/raw/aaer/2003/AAER-1855.txt b/raw/aaer/2003/AAER-1855.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cce7bdcb289e86a9281612066f91951551f3bb79
--- /dev/null
+++ b/raw/aaer/2003/AAER-1855.txt
@@ -0,0 +1,1616 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+ 
+ 
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+     SEC.gov | Phillip Bounsall 
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+        Phillip Bounsall
+       
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+
+ Securities Exchange Act of 1934 
+Release No.   48475 / September 11, 2003            
+
+ Accounting and Auditing Enforcement 
+Release No.   1855 / September 11, 2003            
+
+ Administrative Proceeding  
+File No.     3-11252          
+
+        
+
+In the Matter of 
+  
+PHILLIP BOUNSALL,      
+  
+
+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 AS TO PHILLIP BOUNSALL      I. 
+
+   The Securities and Exchange Commission ("Commission") deems it appropriate that ceast-and-desist proceedings be, and hereby are, instituted against Phillip Bounsall ("Bounsall") pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act"). 
+
+ II. 
+
+   In anticipation of the institution of these administrative proceedings, Bounsall 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 as to the Commission's finding of jurisdiction over Bounsall and the subject matter of this proceeding, which Bounsall admits, Bounsall consents to the issuance 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 as to Phillip Bounsall ("Order") and to the entry of the findings and imposition of relief set forth below. 
+
+ III. 
+
+   On the basis of this Order and Bounsall's Offer, the Commission makes the following findings: 1  
+
+ Facts  
+
+ (1) This case involves the improper use of a purported "insurance policy" to reduce a $29 million loss sustained in 1998 by Brightpoint, Inc. ("Brightpoint" or "the Company"), by $11.9 million in order to report a much smaller loss.  Brightpoint is a public company in the business of distributing wireless voice and data products in the global wireless telecommunications industry.  Bounsall was Brightpoint's chief financial officer and treasurer.  He was ultimately responsible for the accuracy of Brightpoint's financial statements. 
+
+ (2) As a result of Brightpoint's conduct, its 1998 financial statements, as reported in the 1998 Form 10-K, overstated Brightpoint's actual net income before taxes by 61 percent.  The misrepresentation was subsequently republished in a registration statement filed in September 1999 and in Forms 10-K filed for 1999 and 2000.   
+
+
+ Summary 
+
+ (3) In October 1998, Brightpoint publicly announced that in the fourth quarter ending December 31, it would recognize a one-time charge, ranging from $13 million to $18 million, arising out of losses sustained by one of its divisions in the United Kingdom ("UK").  However, by December 1998, the UK losses had mushroomed to about $29 million, and Brightpoint's corporate controller, John Delaney ("Delaney"), and its director of risk management, Timothy Harcharik ("Harcharik"), devised a scheme to cover-up these additional, unanticipated losses, rather than disclose them.  Bounsall was Delaney's immediate supervisor, and, as Brightpoint's Chief Financial Officer, Bounsall was ultimately responsible for the accounting for the UK losses.   
+
+ (4) In December 1998, Delaney and Harcharik turned to the Loss Mitigation Unit ("LMU") of American International Group, Inc. ("AIG"), which offered so-called "insurance" products specifically designed to minimize the financial statement impact of losses sustained by AIG clients.  Brightpoint and AIG fashioned a $15 million "retroactive" insurance policy (the "AIG Policy") that purported to cover all of the extra UK losses.  The "cost" of this $15 million policy to Brightpoint was about $15 million, which Brightpoint was to pay in monthly "premiums" over the prospective three-year life of the policy.  The AIG Policy, finalized in January 1999, enabled Brightpoint to record in 1998 an insurance receivable of $11.9 million, which Brightpoint netted against the total UK losses of about $29 million, bringing the net loss to within the previously disclosed $13 million to $18 million range.   
+
+ (5) Following the October 1998 press release, Delaney kept Bounsall apprised of the increasing magnitude of estimated UK losses.  Delaney also informed Bounsall that (i) he and Harcharik were negotiating with AIG for the AIG Policy; (ii) the AIG Policy was primarily intended to cover the UK losses on a retroactive basis; and (iii) Delaney wanted to use anticipated insurance recoveries under the retroactive AIG Policy to reduce the UK losses for accounting purposes.  Bounsall knew that the policy premium was very substantial.  Without reviewing any written documentation or examining the binder or any drafts of the binder, Bounsall authorized Brightpoint's purchase of the AIG Policy, and he knew Delaney intended to account for the AIG Policy by allowing Brightpoint to net the $11.9 million "insurance" receivable against the UK losses. 
+
+ (6) The retroactive portion of the AIG Policy in fact was not insurance.  It was only a mechanism for Brightpoint to deposit money with AIG - in the form of monthly "premiums" - which AIG was then to refund to Brightpoint as purported "insurance claim payments."  In drafting the AIG Policy, Delaney and Harcharik took pains to ensure that the "policy" raised no "red flags" for Brightpoint's auditors (the "Auditors").  Moreover, once the AIG Policy was finalized, Delaney and Harcharik worked with AIG to devise a letter to the Auditors falsely stating that there would be an "insurance" recovery under the AIG Policy, when they knew that was not the case.   
+
+ (7) In October 2001, after an inquiry from the Commission's staff, the Auditors began looking more closely at the AIG Policy and determined that it was not traditional insurance.  Although the Auditors questioned whether the policy was insurance at all, they decided at the very least that the policy provided retroactive coverage and, therefore, that all premium expense associated with it should have been recorded in 1998.  On November 13, 2001, Brightpoint announced a restatement, which treated the AIG Policy as real, but retroactive, insurance (the "First Restatement").  The First Restatement expensed the full policy "premium" in the fourth quarter of 1998, amounting to $15.3 million. 
+
+ (8) On January 31, 2002, Brightpoint announced that it would further restate its financial statements to reflect that the AIG Policy "premiums" were nothing but deposits with AIG.  This second restatement came about when the Auditors learned that one day before the Company announced the first restatement, it had "cancelled" the AIG Policy and obtained from AIG a refund in the full amount of premiums Brightpoint had paid over and above the "insurance claim payments" made to it by AIG with respect to the retroactive portion of the policy.  The cancellation transaction exposed the true nature of the AIG Policy.  As a result of the conduct summarized below, Bounsall violated Section 13(b)(2)(B) and Rule 13b2-1 of the Exchange Act.   
+
+ The Respondent 
+
+ (9)  Bounsall , age 42, resides in Carmel, Indiana.  Bounsall served as Brightpoint's executive vice president, chief financial officer, and treasurer from October 1996.  In April 2002, Bounsall resigned from these positions at Brightpoint.  Prior to joining Brightpoint, Bounsall worked as an auditor at an accounting firm for twelve years.  Bounsall is a CPA and was licensed by the State of Illinois from 1983 to 1986. 
+
+   Other Relevant Individuals and Entities 
+
+ (10)  Brightpoint  is a Delaware corporation headquartered in Plainfield, Indiana.  Brightpoint provides outsourced services such as distribution, fulfillment, customized packaging, prepaid and e-business solutions, and inventory management in the wireless telecommunications and data industry.  Brightpoint's securities are registered pursuant to Section 12(g) of the Exchange Act and its common stock is listed on NASDAQ's National Market under the symbol CELL.   
+
+ (11)  AIG  is a Delaware corporation with its principle corporate offices located in New York, New York.  AIG is a holding company that, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities in the United States and abroad.  AIG's primary activities include both general and life insurance operations.  LMU is part of National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"), one of AIG's principal general insurance company subsidiaries.  AIG's securities are registered pursuant to Section 12(b) of the Exchange Act and are listed on the New York Stock Exchange.   
+
+   Discussion 
+
+  Brightpoint's UK Losses and the Genesis of the AIG Policy  
+
+ (12) In the spring of 1998, Brightpoint became aware that its UK operation had suffered certain losses related to the loss or devaluation of product within the Company's trading division. 2   Bounsall tasked Delaney with supervising an investigation to determine the amount of the UK loss and evaluate the possible insurance recoveries available under the policies Brightpoint had at the time (the "Brightpoint Policies").  Based on the information gathered during the investigation, Delaney initially estimated the UK losses to total between $13 million and $18 million.   
+
+ (13) By the end of September 1998, given all of its problems and its unprofitable history, Brightpoint decided to close the trading division in the UK.  Brightpoint's Board of Directors approved the closure on October 1, 1998, and the Company issued a press release on October 2, 1998 announcing that it was eliminating the division and that the Company would recognize in the fourth quarter of 1998 a one-time charge expected to range from $13 million to $18 million relating to the closure ("One-Time Charge").  Bounsall prepared the initial draft of this press release based on the information provided to him by Delaney.  After October 2, 1998, Delaney and Harcharik continued to investigate the UK losses and to gather documentation for the purpose of making claims under the Brightpoint Policies.   
+
+ (14) As the investigation proceeded, Delaney kept Bounsall informed about the mounting UK losses and that Brightpoint's insurers were disputing coverage under the Brightpoint Policies.  In December 1998, Bounsall prepared various financial analyses of Brightpoint's 1998 fourth quarter results, each explicitly assuming a sizable insurance receivable sufficient to bring the One-Time Charge within the previously announced $13 million to $18 million range.  In mid-December 1998, it was clear to Bounsall that the amount of the One-Time Charge was much greater than the original estimate and that it was very uncertain that there would be sufficient insurance recoveries from Brightpoint's insurers to offset these losses.  At this point, Brightpoint was faced with the prospect of recording a much larger loss in the fourth quarter than it had previously disclosed.   
+
+ (15) In mid-December, Harcharik and Delaney initiated contact with AIG.  From the very first discussion, they presented Brightpoint's predicament to AIG in stark terms:  That Brightpoint had issued a press release in October announcing a very specific range for the estimated loss and was now faced with a much larger loss that it did not want to disclose.  In the transaction eventually consummated, AIG bore no insurance risk for retroactive losses covered under the policy; every dollar Brightpoint paid to AIG was Brightpoint's money to be returned upon its demand.  
+
+  Overview of Relevant Accounting Principles  
+
+ (16) Under generally accepted accounting principles ("GAAP"), when it is "probable" that an insured will recover from "insurance" a certain amount against a specified loss, the insured is entitled to record a receivable on its balance sheet in the amount of the probable recovery and, for income statement purposes, net the amount of probable recovery against the loss, thereby reducing the loss. 3    
+
+ (17) The recovery must be "probable."  If recovery is only possible, the insured must recognize the loss to its full extent, without regard to insurance.  Moreover, the recovery must be an "insurance" recovery.  A recovery is not an "insurance" recovery for accounting purposes unless the insurance policy transfers some risk from the insured to the insurer.  If a policy does not involve risk transfer, GAAP treats it as a financing arrangement, with all premiums to be accounted for as deposits. 4    
+
+ (18) In December 1998, as the Auditors were beginning field work for the year-end audit, Brightpoint presented the Auditors with schedules of the UK losses, which assumed that Brightpoint would be offsetting against those losses at least $11.9 million in anticipated insurance recoveries.  To accomplish this offset, Brightpoint needed to satisfy the probability principle outlined above.  However, at the time, it had no such coverage available because Brightpoint's insurers were already indicating that coverage under the Brightpoint Policies was doubtful.   
+
+ (19) Brightpoint eventually used the AIG Policy to satisfy this probability standard.  In constructing the AIG policy, Brightpoint faced two accounting obstacles:  First, the policy had to look like insurance.  If it looked like a deposit, Brightpoint would not be able to net anticipated recoveries against the loss.  Second, the policy could not look like retroactive insurance,  i.e. , insurance designed to cover a loss already quantified and known, because Brightpoint might then be required to expense the full $15 million "premium" immediately.  Under GAAP, the insured is obligated to recognize the full premium expense associated with a retroactive policy at the time it recognizes the benefits of the policy.  (SFAS No. 113)   
+
+  The AIG Policy  
+
+ (20) The AIG Policy consists of two governing documents:  The Binder of Coverage (the "Binder") and the policy itself.  The Binder was executed on January 6, 1999, but was dated effective August 1, 1998.  The Binder states the policy period to be the three-year period August 1, 1998 to August 1, 2001.  The policy provides two separate limits of coverage:  Limit A and Limit B.  Limit A has an aggregate limit of $15 million, while Limit B has a per loss limit of $15 million.   
+
+ (21) Although not referred to in the policy as "retroactive," Limit A effectively provides broad retroactive coverage.  The policy contains an insuring clause that provides:  "The Company shall indemnify the Insured for Loss of Assets unless otherwise excluded by the terms and conditions of this policy."  This insuring clause is applicable to both Limit A and Limit B.  However, Limit B is subject to a laundry list of exclusions, while Limit A has  no  exclusions.  Thus, virtually every "Loss" of "Assets" is covered under Limit A up to an aggregate amount of $15 million.  Limit B, on the other hand, essentially provides prospective fidelity insurance coverage, which is circumscribed by exclusions. 
+
+ (22) The Binder reflects a single, indivisible premium applicable to both limits.  The total premium is $15,302,400, but this aggregate figure is never set forth.  Instead, the Binder provides only a list of the elements constituting the premium:  It provides that the premium shall be payable as follows:   
+
+  $199,200 due within seven (7) business days from the execution of this Binder agreement; and
+
+  Thirty-two (32) monthly payments of $237,600 commencing January 30, 1999 and ending August 30, 2001; and
+
+  Letter of Credit [] in the amount of $7,500,000 due within seven (7) business days from the execution of this Binder agreement. 5  
+   (23) Neither the policy nor the Binder states how much of the premium is applicable to Limit A and how much is applicable to Limit B.  Because the policy provides for a single premium applicable to both Limits, and Limit B theoretically provides infinite coverage, i.e., $15 million per loss, the policy on its face at least appears to involve significant risk transfer.  However, according to an internal AIG deal sheet, which reflected the agreement between Brightpoint and AIG, Limit A was fully pre-funded by Brightpoint:  The premium Brightpoint paid for Limit A coverage was $15 million plus a $100,000 fee that AIG charged for putting the deal together.  Limit B was intended to provide traditional prospective fidelity coverage.  According to the deal sheet, the premium for Limit B was $202,400. 
+
+ (24) The policy specifically provides that it is non-cancelable, and the Binder states that the premium "shall be fully earned as of the date of this binder agreement," meaning that AIG was entitled to be paid the full premium from the very first day of coverage.  The policy also contains an acceleration clause providing that if claims made under the policy at any point exceeded the dollar amount of premium paid to that point, AIG would not be obligated to pay further claims until Brightpoint paid all remaining premiums due, except for $302,400 - an amount that coincides with the unstated Limit B premium and $100,000 fee.  The acceleration provision meant that AIG could never be out of pocket under Limit A.  
+
+ (25) The policy contains no express provision granting Brightpoint the right to a refund if Brightpoint ended up paying more in premiums than it was claiming in losses - a scenario that might have occurred, for example, if Brightpoint ultimately succeeded in obtaining some coverage from Brightpoint's insurers under the Brightpoint Policies.  However, there was an oral understanding between AIG and Harcharik that Brightpoint would receive such a refund, and the policy mechanism for obtaining that refund was to submit a claim under the very broad definition of coverage, which allowed Brightpoint to receive payment for just about any claim submitted under Limit A up to an aggregate maximum of $15 million.   
+
+ (26) Brightpoint accounted for the AIG Policy as if it were prospective fidelity insurance.  It expensed the premiums monthly over the three-year life of the policy, and it netted "probable recoveries" under Limit A against the UK losses, purporting to rely on the probability principle outlined above.   
+
+ (27) Given the true substance of the AIG Policy, Limit A was not insurance because there was no risk transfer.  Limit A was not even a financing arrangement because AIG was not extending credit to Brightpoint.  The only money Brightpoint was entitled to receive under the policy was money that it first deposited with AIG - deposits on which AIG paid no interest.  Accordingly, the premium payments should have been accounted for as deposits. 
+
+  Bounsall's Approval of the AIG Policy and the Accounting  
+
+ (28) Delaney did not have the authority to procure the AIG Policy without Bounsall's approval.  Prior to Bounsall's authorizing the purchase, Delaney told him that the AIG Policy provided coverage for the UK losses on a retrospective basis and that the premiums were "expensive."  Bounsall did not review any drafts of the binder, policy or any other written documentation, or investigate why AIG would insure already-liquidated losses on a retrospective basis.  Bounsall approved Brightpoint's purchase of the AIG Policy and obtained the approval of Brightpoint's Chief Operating Officer for the policy.  Bounsall also permitted the accounting for the AIG Policy, which allowed Brightpoint to net the $11.9 million insurance receivable against the approximate $29 million UK losses in Brightpoint's 1998 year-end financial statements.  On January 6, 1999, the day the AIG Policy was executed, Bounsall prepared the initial draft of a press release announcing that the One-Time Charge was "expected to be approximately $17.6 million ... which is consistent with the previously-announced estimate."   
+
+  AIG's Confirmation to the Auditors  
+
+ (29) In connection with the Auditors' 1998 year-end audit, the Auditors asked Delaney to obtain from AIG a letter confirming the probability that Brightpoint would recover at least $11.9 million under the AIG Policy, which was the amount Brightpoint was seeking to offset against the $29 million UK losses.  After working through numerous drafts with Harcharik, AIG signed and provided a letter to Harcharik, dated January 27, 1999, which stated "we [AIG] believe it is probable that Brightpoint will recover no less than $11,900,000 in proceeds, net of deductibles, under the Policy."  AIG faxed a copy of the letter directly to the Auditors.  On the basis of this confirmation, the Auditors approved Brightpoint's accounting for the insurance receivable and allowed Brightpoint to offset the UK losses by $11.9 million in probable insurance recoveries. 
+
+  The Management Representation Letter  
+
+ (30) As part of its audit procedures, the Auditors obtained during the 1998 audit a management representation letter from Brightpoint, signed by Bounsall, Delaney and others, that enabled the Auditors to form an opinion as to whether Brightpoint's financial statements presented fairly, in all material respects, the financial position, results of operations, and cash flow of Brightpoint, in conformity with generally accepted accounting principles.  This letter, dated January 26, 1999, represented that to the best of the knowledge of the signatories the financial statements were fairly presented in conformity with generally accepted accounting principles and that all financial records and significant contracts were made available to the Auditors.  Further, the letter stated that no material transactions were improperly recorded in the accounting records underlying the financial statements, that there was no fraud involving management, and that no events or transactions occurred subsequent to December 31, 1998 that would have materially affected the financial statements.  In light of the facts regarding the "insurance policy" between Brightpoint and AIG, these representations were not true. 
+
+  Brightpoint's Publication of the Material Misstatements  
+
+ (31) Brightpoint publicly reported the material misrepresentations about its 1998 operating results, stemming from the improper accounting for the AIG Policy, in the Company's 1998 10-K, which was filed with the Commission on March 31, 1999.  Subsequently, Brightpoint republished the misrepresentations in a registration statement filed with the Commission on September 27, 1999.  The registration statement incorporated by reference the misrepresented operating results in Brightpoint's 1998 10-K.   
+
+  The First Restatement  
+
+ (32) In September 2001, the Commission's staff issued a subpoena to the Auditors for its workpapers relating to Brightpoint's 1998 One-Time Charge.  The subpoena led the Auditors to reconsider Brightpoint's 1998 accounting for the UK losses.  In the course of this review, the Auditors learned for the first time that (1) the AIG Policy had not been executed until January 1999; (2) the policy contained retroactive coverage; (3) the premium for the policy was $15.3 million; and (4) the policy was "non cancelable by either party and the entire premium [was] deemed earned at the inception of the policy," meaning that Brightpoint was obligated to pay the full $15.3 million in the fourth quarter of 1998.   
+
+ (33) At the end of October 2001, the Auditors informed Brightpoint that it had incorrectly accounted for the AIG Policy and would have to restate its 1998 financial statements.  However, because Brightpoint persuaded the Auditors that there was substantial risk transfer under Limit B, the Auditors determined that Brightpoint needed to restate its 1998 financial statements by expensing the full premium on the AIG Policy, rather than treating the premiums as a deposit.   
+
+ (34) On November 13, 2001, the Company issued a press release announcing the First Restatement.  The press release stated that:  "Upon further review, the Company and its independent auditors now believe that premium expense should have been accrued at the date the Company entered into the [AIG Policy], rather than over the prospective policy period because the Company could not allocate the costs of the policy between the retroactive and prospective coverage."  The First Restatement expensed the full policy "premium" in the fourth quarter of 1998, amounting to $15.3 million, and reversed the monthly premium expense recorded in 1999 through 2001.  While the First Restatement essentially corrected Brightpoint's bottom line for 1998, it left intact the $11.9 million in probable insurance recoveries under the AIG Policy as an offset against the $29 million UK loss, in effect treating the AIG Policy as real retroactive insurance.   
+
+  The Second Restatement  
+
+ (35) A few days before Brightpoint's November 13th press release, Bounsall had told the Auditors that Brightpoint was in negotiations with AIG to terminate the AIG Policy.  Bounsall represented to the Auditors that, under the anticipated termination agreement, Brightpoint and AIG would simply "walk away" from the policy.  The November 13 press release addressed the subject of termination, stating that "[t]he Company believes that it will recognize a gain in the fourth quarter of 2001 related to the termination of the retroactive portion of the insurance policy, which will result in the complete reversal of the remaining accrual."  The press release did not give any particulars and was consistent with the Auditors' understanding. 
+
+ (36) The termination agreement, signed by Bounsall on behalf of Brightpoint, was actually executed on November 12, 2001, one day before the November 13 press release.  However, neither Bounsall nor anyone else at Brightpoint notified the Auditors of the actual agreement prior to the issuance of the press release.  The executed agreement essentially provided for full rescission of the Limit A part of the AIG Policy.  Under the agreement, Limit A was terminated, with Brightpoint to receive a refund of about $2.3 million - just about the amount of premiums it had paid in excess of claims recovered.  The agreement also provided that Limit B would continue in force for an annual premium of $97,000.   
+
+ (37) The Auditors did not learn the precise terms of the termination agreement until January 14, 2002 in the course of its 2001 year-end audit of Brightpoint.  Upon learning the terms, the Auditors determined that Limit A was not real insurance and that Brightpoint had to restate its restatement, using the deposit method.   
+
+ (38) Two weeks later, on January 31, 2002, Brightpoint announced that "the Company has now determined that the appropriate accounting method for the agreement is deposit accounting...  Deposit accounting requires treating the Company's payments under this agreement as deposits rather than as premiums and the Company's receipts under the agreement as withdrawals rather than claims paid by the insurance company...."   
+
+ Legal Discussion 
+
+  Bounsall Is Liable For Causing Brightpoint's Violation of Section 13(b)(2)(B) of the Exchange Act  
+
+ (39) Section 13(b)(2)(B) of the Exchange Act requires issuers such as Brightpoint to devise and maintain an adequate system of internal accounting controls.  Scienter and materiality are not elements of a violation of this provision.   See   SEC v. McNulty , 137 F.3d 732, 740-741 (2d Cir. 1998);  SEC v. WorldWide Coin Investments, Ltd. , 567 F. Supp. 724, 749 (N.D. Ga. 1983).  Bounsall is liable for causing Brightpoint to violate Section 13(b)(2)(B) by failing to ensure, as the senior financial officer of the Company, that Brightpoint devised and maintained a system of internal accounting controls sufficient to provide reasonable assurances that transactions were recorded as necessary to permit preparation of financial statements in accordance with GAAP.  Brightpoint's internal controls were not sufficient to prevent numerous false accounting entries relating to the AIG Policy to be recorded without proper basis or support.   
+
+  Bounsall Violated Rule 13b2-1 of the Exchange Act  
+
+ (40) Rule 13b2-1 prohibits any person from directly or indirectly falsifying, or causing to be falsified, any book or record subject to Section 13(b)(2)(A).  Section 13(b)(2)(A) of the Exchange Act requires issuers, such as Brightpoint, to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets.  Scienter is not an element of a violation of Rule 13b2-1.   McNulty , 137 F.3d at 740-741. 
+
+ (41) As described above, as Brightpoint's senior financial officer, Bounsall was ultimately responsible for the books and records of the Company.  He gave substantial assistance in the preparation of financial records subject to Section 13(b)(2)(A) that were materially false because, among other things, they understated Brightpoint's true expenses, overstated the Company's assets and failed properly to account for the AIG Policy. 
+
+ IV. 
+
+  In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to by Bounsall in his Offer. 6   
+
+   Accordingly, IT IS ORDERED that: 
+
+   Pursuant to Section 21C of the Exchange Act, Bounsall shall cease and desist from committing or causing any violations, or committing or causing any future violations of Section 13(b)(2)(B) and Rule 13b2-1 of the Exchange Act. 
+
+By the Commission.
+
+ Jonathan G. Katz 
+Secretary 
+
+ 
+ 
+
+  __________________
+   1   The findings herein are made pursuant to Bounsall's Offer and are not binding on any other person or entity in this or any other proceeding. 
+
+  2   The trading division was involved in the purchase of wireless handsets from sources other than manufacturers or network operators and in the sale of those handsets to other trading companies dealing in the secondary market.  
+
+  3   Statement of Financial Accounting Standards ("SFAS") No. 5; Emerging Issues Task Force ("EITF") No. 93-5 (concerning environmental insurance); Statement of Position ("SOP") 96-1 (concerning environmental insurance). 
+
+  4   When a policy affords retroactive coverage, it is not regarded as insurance for accounting purposes unless there is either an underwriting risk or a timing risk associated with the policy.  For example, where a loss has occurred and is known at the time the policy is written, there can nonetheless be underwriting risk if the dollar amount of the loss is not fully known.  Alternatively, if at the time the policy is written the dollar amount is both known and fixed, there can still be a timing risk if the actual payout may be delayed for many years.  In such circumstances, the insurer might set the premium on the assumption that it will not have to pay for ten or twenty years.   The risk is that payment may actually become due at an earlier time. 
+
+  5   In the investigation, Bounsall contended that the amount of the premium was ambiguous because of a later reference to the letter of credit as security.  However, the Commission does not find that the Binder was ambiguous on this point.  
+
+  6    Bounsall has agreed to pay a $45,000 civil penalty in a related federal civil action. 
+
+
+ 
+ 
+ Footnotes 
+footnotes header optional
+
+  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.  -->
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diff --git a/raw/aaer/2003/AAER-1856.txt b/raw/aaer/2003/AAER-1856.txt
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+
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+     
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+     SEC.gov | Louis Lucullo 
+     
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+              Louis Lucullo
+           
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+        Louis Lucullo
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+              Securities Exchange Act of 1934 
+Release No. 48476 /September 11,2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1856 / September 11, 2003 
+
+ Administrative Proceeding 
+File No. 3-11253 
+
+ 
+	 
+		 
+			 
+			 
+			    
+			In the Matter of 
+			  
+			LOUIS LUCULLO,      
+			  
+			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 AS TO LOUIS LUCULLO  
+		 
+	 
+ 
+
+ I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Louis Lucullo ("Lucullo") pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act"). 
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, Lucullo 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 contained herein, except as to the Commission's finding of jurisdiction over Lucullo and the subject matter of this proceeding, which Lucullo admits, Lucullo consents to the issuance 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 as to Louis Lucullo ("Order") and to the entry of the findings and imposition of relief set forth below. 
+
+ III. 
+
+ On the basis of this Order and Lucullo's Offer, the Commission makes the following findings: 1  
+
+ FACTS 
+
+  Summary  
+
+ (1) This case involves the issuance of a purported insurance policy by American International Group, Inc. ("AIG") to Brightpoint, Inc. ("Brightpoint" or "the Company") for the purpose of assisting Brightpoint to conceal $11.9 million in losses the Company sustained in 1998. As a result, Brightpoint's 1998 financial statements, as reported in the 1998 Form 10-K, overstated Brightpoint's actual net income before taxes by 61 percent. As set forth in separate orders issued today, the Commission has found that both Brightpoint and AIG violated Section 10(b) and Rule 10b-5 of the Exchange Act, among other provisions, by engaging in the conduct that is the subject of this Order. 
+
+ (2) Lucullo was an assistant vice president of AIG's Loss Mitigation Unit ("LMU"), and he was AIG's principal agent in structuring the insurance policy that allowed Brightpoint to conceal the losses. In the course of the Commission's investigation, and from his first opportunity, Lucullo forthrightly provided extensive testimony under oath about the development of this policy, including his own role in structuring it. In determining to accept Lucullo's offer of settlement, the Commission has taken into consideration Lucullo's cooperation in the investigation and his undertaking, contained in the Offer, to cooperate with the Commission staff in connection with any judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party that is related to the subject matter of this Order. For the reasons set forth below, the Commission finds that Lucullo was a cause of Brightpoint's violations of Section 13(a) and Rules 12b-20 and 13a-1 of the Exchange Act. 
+
+  The Respondent  
+
+ (3)  Lucullo , age 32, is a resident of New York, New York. Lucullo is the senior vice president of the LMU, a division created in 1997 within one of AIG's principal general insurance company subsidiaries. Lucullo joined the LMU in February 1998 as assistant vice president and served in that position until June 1999, at which time he became vice president of the LMU. 
+
+  Other Relevant Individuals and Entities  
+
+ (4)  AIG  is a Delaware corporation with its principal corporate offices located in New York, New York. AIG is a holding company that, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities in the United States and abroad. AIG's primary activities include both general and life insurance operations. AIG's securities are registered pursuant to Section 12(b) of the Exchange Act and are listed on the New York Stock Exchange. 
+
+ (5)  Brightpoint  is a Delaware corporation headquartered in Plainfield, Indiana. Brightpoint provides outsourced services such as distribution, fulfillment, customized packaging, prepaid and e-business solutions, and inventory management in the wireless telecommunications and data industry. Brightpoint's securities are registered pursuant to Section 12(g) of the Exchange Act and its common stock is listed on NASDAQ's National Market under the symbol CELL. 
+
+  Discussion  
+
+ (6) In October 1998, Brightpoint publicly announced that in the fourth quarter ending December 31, it would recognize a one-time charge, ranging from $13 million to $18 million, arising out of losses sustained by one of its divisions in the United Kingdom ("UK"). However, by December 1998, the UK losses were approaching $29 million, and Brightpoint's corporate controller, John Delaney ("Delaney"), and its director of risk management, Timothy Harcharik ("Harcharik"), devised a scheme to cover-up these additional, unanticipated losses, rather than disclose them. 
+
+ (7) In December 1998, Delaney and Harcharik turned to AIG's LMU, which offered so-called "insurance" products specifically designed to minimize the financial statement impact of losses sustained by AIG clients. With Lucullo's assistance, Brightpoint and AIG fashioned an insurance policy (the "AIG Policy") with two parts. The first part purported to cover retroactively all of the extra UK losses up to $15 million in return for a $15 million premium that Brightpoint was to pay over the prospective three-year life of the policy. The second part of the policy provided prospective fidelity coverage for the three year period going forward for a premium of $202,400. The AIG Policy, finalized in January 1999, enabled Brightpoint to record in 1998 an insurance receivable of $11.9 million, which Brightpoint netted against the total UK losses of about $29 million, bringing the net loss to within the previously disclosed $13 million to $18 million range. 
+
+ (8) In fact, the retroactive portion of the AIG Policy was not insurance. It was a mechanism for Brightpoint to deposit money with AIG - in the form of monthly "premiums" - which AIG was then to return to Brightpoint as purported "insurance claim payments." To minimize scrutiny by Brightpoint's auditors (the "Auditors"), Delaney, Harcharik and Lucullo designed both parts of the policy to look like a traditional, non-retroactive indemnity insurance contract that shifted risk to the insurer and they gave the policy an effective date of August 1998. Once the AIG Policy was finalized, Lucullo issued a letter to the Auditors, at Harcharik's request, stating that there would be a "probable" "insurance recovery" under the AIG Policy, even though Brightpoint was, in fact, certain to recover its deposits. 
+
+ (9) In October 2001, as a result of the Commission's investigation, the Auditors began looking more closely at the AIG Policy and determined that it was not traditional insurance. Although the Auditors questioned whether the policy was insurance at all, they decided at the very least that the policy provided retroactive coverage and, therefore, that all premium expense associated with it should have been recorded in 1998. On November 13, 2001, Brightpoint announced a restatement, which treated the AIG Policy as real, but retroactive, insurance. The first restatement expensed the full policy "premium" in the fourth quarter of 1998, amounting to $15.3 million. 
+
+ (10) On January 31, 2002, Brightpoint announced that it would further restate its financial statements to reflect that the AIG Policy "premiums" were nothing but deposits with AIG. This second restatement came about when the Auditors learned that, one day before Brightpoint announced the first restatement, it had "cancelled" the retroactive component of the AIG Policy and obtained from AIG a refund in the full amount of premiums Brightpoint had paid over and above the "insurance claim payments" made to it by AIG. The cancellation transaction essentially left no doubt about the true nature of the AIG Policy. 
+
+ LEGAL DISCUSSION 
+
+ (11) At all relevant times, Brightpoint was a reporting company and subject to the provisions of Section 13(a) of the Exchange Act. Section 13(a) and Rule 13a-1 thereunder require issuers to file periodic reports with the Commission and to keep this information current. Rule 12b-20, which applies to all reports filed pursuant to Section 13 of the Exchange Act, requires disclosure of such additional information as may be necessary to make the required statements not misleading. Implicit in these provisions is the requirement that the information reported be true, correct and complete.  See   United States v. Bilzerian , 926 F.2d 1285, 1298 (2d Cir.),  cert.   denied , 502 U.S. 813, 112 S. Ct. 63 (1991);  SEC v. Savoy Indus. , Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert.   denied , 440 U.S. 913 (1979). No showing of scienter is necessary to establish an issuer's violation of the corporate reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1.  See   SEC v. Wills , 472 F. Supp. 1250, 1268 (D.D.C. 1978). Consequently, an issuer violates the reporting provisions if it files materially false or misleading reports or omits information necessary to render the statements made not misleading.  See   SEC v. Koenig , 469 F.2d 198, 200 (2d Cir. 1972);  see   also   Kaufman & Broad, Inc. v. Belzberg , 522 F. Supp. 35, 42 (S.D.N.Y. 1981) (Rule 12b-20). 
+
+ (12) As described above, Brightpoint's annual reports contained material misrepresentations and omissions concerning the UK losses and the insurance available for those losses. By structuring the AIG Policy to aid Brightpoint in concealing losses, and by issuing a letter to the Auditors stating that there would be a "probable" "insurance recovery" under the AIG Policy when Lucullo knew that Brightpoint was certain to recover its deposits, Lucullo was a cause of Brightpoint's violations of Section 13(a) and Rules 12b-20 and 13a-1 of the Exchange Act. 
+
+ UNDERTAKINGS 
+
+ Lucullo has undertaken and agreed to cooperate fully with the Commission in any and all investigations, litigations or other proceedings relating to or arising from the matters described in the Offer. In connection with such cooperation, Lucullo has agreed and undertaken: 
+
+ 1. To produce, without service of a notice or subpoena, any and all documents and other information requested by the Commission's staff; 
+
+ 2. To be interviewed by the Commission's staff at such times as the staff reasonably may direct; 
+
+ 3. To appear and testify truthfully and completely without service of a notice or subpoena in such investigations, depositions, hearings or trials as may be requested by the Commission's staff; and 
+
+ 4. That in connection with any testimony of Lucullo to be conducted at deposition, hearing or trial pursuant to a notice or subpoena, Lucullo: 
+
+ a. Agrees that any such notice or subpoena for Lucullo's appearance and testimony may be addressed to his attorney, Ralph C. Ferrara, Esq., Debevoise & Plimpton, 555 13th Street, N.W., Washington, D.C. 20004, and served by regular mail; and 
+
+ b. Agrees that any such notice or subpoena for Lucullo's appearance and testimony in an action pending in a United States District Court may be served, and may require testimony, beyond the territorial limits imposed by the Federal Rules of Civil Procedure. 
+
+ In determining whether to accept the Offer, the Commission has considered these undertakings. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to by Lucullo in the Offer. 
+
+ Accordingly, IT IS ORDERED that pursuant to Section 21C of the Exchange Act, Lucullo shall cease and desist from causing any violations or any future violations of Section 13(a) and Rules 12b-20 and 13a-1 of the Exchange Act. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+  
+
+  1  The findings herein are made pursuant to Lucullo's Offer and are not binding on any other person or entity in this or any other proceeding. 
+ 
+ 
+ Footnotes 
+footnotes header optional
+
+  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 
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diff --git a/raw/aaer/2003/AAER-1857.txt b/raw/aaer/2003/AAER-1857.txt
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+++ b/raw/aaer/2003/AAER-1857.txt
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+              American International Group, Inc.
+           
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+        American International Group, Inc.
+       
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+              Securities Exchange Act of 1934 
+Release No. 48477 / September 11, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1857 / September 11, 2003 
+
+ Administrative Proceeding 
+File No. 3-11254 
+
+ 
+	 
+		 
+			 
+			 
+			     
+
+			  
+			In the Matter of 
+			  
+			AMERICAN INTERNATIONAL,      
+			GROUP, INC.,  
+			  
+			Respondent 
+			 
+			  
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER INSTITUTING 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 AS TO AMERICAN INTERNATIONAL GROUP, INC.  
+		 
+	 
+ 
+
+ I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against American International Group, Inc. ("AIG") pursuant to Section 21C of the Securities Exchange Act of 1934 (the "Exchange Act"). 
+
+ II. 
+
+ In anticipation of the institution of these administrative proceedings, AIG 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 contained herein, except as to the Commission's finding of jurisdiction over AIG and the subject matter of this proceeding, which AIG admits, AIG consents to the issuance of this Order Instituting 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 as to American International Group, Inc. ("Order") and to the entry of the findings and imposition of relief set forth below. 
+
+ III. 
+
+ On the basis of this Order and AIG's Offer, the Commission makes the following findings: 1  
+
+ FACTS 
+
+ Summary 
+
+ (1) This case involves AIG's issuance of a purported insurance policy to Brightpoint, Inc. ("Brightpoint" or "the Company") for the purpose of assisting Brightpoint to conceal $11.9 million in losses the Company sustained in 1998. As a result of this concealment, Brightpoint's 1998 financial statements, as reported in the 1998 Form 10-K, overstated Brightpoint's actual net income before taxes by 61 percent. 
+
+ (2) In October 1998, Brightpoint publicly announced that in the fourth quarter ending December 31, it would recognize a one-time charge, ranging from $13 million to $18 million, arising out of losses sustained by one of its divisions in the United Kingdom ("UK"). However, by December 1998, the UK losses had mushroomed to about $29 million, and Brightpoint's corporate controller, John Delaney ("Delaney"), and its director of risk management, Timothy Harcharik ("Harcharik"), devised a scheme to cover-up these additional, unanticipated losses, rather than disclose them. 
+
+ (3) In December 1998, Delaney and Harcharik turned to the Loss Mitigation Unit ("LMU") of National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"), one of AIG's principal general insurance company subsidiaries. LMU offered "insurance" products specifically designed to "smooth" the financial statement impact of losses sustained by AIG clients. Brightpoint and AIG negotiated the terms of a $15 million "retroactive" insurance policy that covered all of the extra UK losses. The parties agreed to combine this "retroactive coverage" with prospective fidelity coverage (together, the "Policy") in an effort to avoid scrutiny from Brightpoint's Auditors (the "Auditors"). The "cost" of the $15 million "retroactive coverage" to Brightpoint was about $15 million, which Brightpoint was to pay in monthly "premiums" over the prospective three-year term of the policy. The Policy, finalized in January 1999, enabled Brightpoint to record in 1998 an insurance receivable of $11.9 million, which Brightpoint netted against the total UK losses of about $29 million, bringing the net loss to within the previously disclosed $13 million to $18 million range. 
+
+ (4) In fact, the "retroactive coverage" should not have been accounted for as insurance. 2  It was only a mechanism for Brightpoint to deposit money with AIG - in the form of monthly "premiums" - which AIG was then to refund to Brightpoint as purported "insurance claim payments." In drafting the Policy, Delaney, Harcharik and AIG took pains to ensure that the " retroactive coverage" raised no "red flags" for the Auditors: They created a blended fidelity coverage and retroactive policy that was designed to look like traditional, non-retroactive indemnity insurance and they gave the policy an effective date of August 1998. Moreover, once the Policy was finalized, AIG issued a letter to the Auditors, which misleadingly stated that there would be a "probable" recovery under the Policy, when AIG knew that Brightpoint was, in fact, certain to recover its deposits. 
+
+ (5) In October 2001, following an inquiry by the Commission's staff, the Auditors began looking more closely at the Policy and determined that it was not traditional insurance. Although the Auditors questioned whether the policy was insurance at all, they decided at the very least that the policy provided retroactive coverage and, therefore, that all premium expense associated with it should have been recorded in 1998. On November 13, 2001, Brightpoint announced a restatement, which treated the Policy as real, but retroactive, insurance (the "First Restatement"). The First Restatement expensed the full policy "premium" in the fourth quarter of 1998, amounting to $15.3 million. 
+
+ (6) On January 31, 2002, Brightpoint announced that it would further restate its financial statements to reflect that the "premiums" for the "retroactive coverage" under the Policy were nothing but deposits with AIG. This second restatement came about when the Auditors learned that, one day before Brightpoint announced the first restatement, it had "cancelled" the "retroactive coverage" and obtained from AIG a refund in the full amount of premiums Brightpoint had paid over and above the "insurance claim payments" made to it by AIG under the "retroactive coverage." The cancellation transaction essentially exposed the fraud, leaving no doubt that the "retroactive coverage" was not insurance at all. As a result of the conduct summarized below, AIG violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and caused violations of Rule 13b2-2 thereunder. 
+
+  The Respondent  
+
+ (7)  AIG  is a Delaware corporation with its principal corporate offices located in New York, New York. AIG is a holding company that, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities in the United States and abroad. AIG's primary activities include both general and life insurance operations. AIG's securities are registered pursuant to Section 12(b) of the Exchange Act and are listed on the New York Stock Exchange. 
+
+  Other Relevant Individuals and Entities  
+
+ (8)  Brightpoint  is a Delaware corporation headquartered in Plainfield, Indiana. Brightpoint provides outsourced services such as distribution, fulfillment, customized packaging, prepaid and e-business solutions, and inventory management in the wireless telecommunications and data industry. Brightpoint's securities are registered pursuant to Section 12(g) of the Exchange Act and its common stock is listed on NASDAQ's National Market under the symbol CELL. 
+
+ Discussion 
+
+  AIG's Development and Marketing of LMU Products  
+
+ (9) In 1997, AIG developed a so-called "non-traditional" insurance product to be underwritten by a new unit called Loss Mitigation Unit, or LMU. The "LMU White Paper," which an LMU founding member distributed to 32 management level AIG and National Union employees in October 1997, including National Union's president, the President of AIG's Financial Lines Claims Division and two other senior officers, provided a guide on how to treat accounting and regulatory issues in LMU products designed to "smooth" corporate earnings. According to the transmittal memorandum, the White Paper was to be used as a general reference document for structuring LMU transactions and to provide information to assist AIG personnel when addressing "general questions" "posed by the brokerage community and clients regarding LMU deals."  3  The accounting discussion in the White Paper was written by an AIG accountant who was employed in AIG's controller's office to work on special projects. 
+
+ (10) According to the White Paper, one of the principal "attributes" of non-traditional insurance was "[i]ncome statement smoothing,"  i.e. , retroactive "insurance" could be structured to enable the "insured" to recognize losses over several reporting periods, rather than all at once in the period in which the loss occurred. This smoothing effect could be accomplished, for example, by having the retroactive "insurance" policy pay a known loss in the first year of the policy, while allowing the "insured" to reimburse the insurer over several years through "premium" payments that were, in actuality, loan repayments. Under this scenario, the insured would record only the "premium" expense as it paid the premiums over several years, rather than record the entire loss in one period. 
+
+ (11) The White Paper openly acknowledged that the accounting rules were specifically designed to avoid this "income smoothing" effect. In the White Paper's own words, new accounting rules were "specifically introduced in response to abuse by insureds who did not recognize loss events as they occurred but rather as they were paid via financing arrangements." Nonetheless, the White Paper went on to set forth ways to avoid these "unintended accounting . . . consequences," most notably by  not  including in the insurance contract terms that might suggest the true nature of the underlying "insurance." What the White Paper proposed instead, and among other things, was that the parties rely on their "relationship" for contractual terms that, if disclosed, would require the loss to be immediately recognized. In other words, the White Paper proposed that these essential terms be contained only in an oral side agreement. 
+
+ (12) AIG marketed LMU's "income smoothing" products - in those terms - to AIG's various divisions and regions on a large scale. LMU staff made at least forty-six power point presentations to various AIG divisions and regions, for the purpose of marketing the product to those divisions so that the divisions would market the product externally. 
+
+ (13) AIG also marketed LMU's product directly to third parties. These third party marketing efforts were made not only by LMU staff, but also by the President of National Union, the Marketing President of National Union and eleven "field marketing representatives for LMU." 
+
+ (14) AIG's internal and external marketing materials touted the following benefits of the LMU product: 
+
+ 
+	 Smoothing of expenses over several operating quarters, allowing a company to avoid a one-time charge resulting in the dilution of earnings[; and] 
+	 Favorable disclosure or potential elimination of disclosure requirement, which can mitigate or even eliminate potential lawsuits. 
+ 
+
+ (15) In other promotional documents, AIG noted Commission regulations for public disclosure of material events and that "[s]uch a disclosure if resulting from an insured event would include the probable loss amount  NET  of expected insurance recoveries" (emphasis in original). In the same document, AIG also presented a flow chart showing exactly how a client could pre-fund its own insurance recoveries for the "advantage [of] income statement protection in the period liability actually occurred." As will be discussed below, the LMU policy that AIG sold to Brightpoint precisely followed the blueprint described in the White Paper and in LMU marketing materials. 
+
+  Brightpoint's UK Losses and the Genesis of the Policy  
+
+ (16) In the spring of 1998, Brightpoint became aware that its UK operation had suffered certain losses related to the loss or devaluation of product within the Company's trading division. 4  Delaney directed Harcharik to investigate and determine the amount of loss and evaluate the possible insurance recoveries available to Brightpoint under the policies Brightpoint had at the time (the "Brightpoint Policies"). Based on the information gathered during Harcharik's investigation, Delaney initially estimated the UK losses to total between $13 million and $18 million. 
+
+ (17) By the end of September 1998, given all of its problems and its unprofitable history, Brightpoint decided to close the trading division in the UK. Brightpoint's Board of Directors approved the closure on October 1, 1998, and the Company issued a press release on October 2, 1998 announcing that it was eliminating the division and that the Company would recognize in the fourth quarter of 1998 a one-time charge expected to range from $13 million to $18 million relating to the closure ("One-Time Charge"). After October 2, 1998, Brightpoint continued to investigate the UK losses and gathered documentation for the purpose of making claims under the Brightpoint Policies. 
+
+ (18) In early December 1998, it was clear that the amount of the One-Time Charge would be much greater than the original estimate and that Brightpoint's insurers were disputing coverage for the UK losses making it uncertain that there would be insurance recoveries under the Brightpoint Policies. At this point, Brightpoint was faced with the prospect of recording a much larger loss in the fourth quarter than it had previously disclosed, at least $12 million more. 
+
+ (19) In mid-December, Brightpoint initiated contact with AIG. Harcharik had had some prior familiarity with LMU-type products designed to cover retroactive losses, and he became the point person in the discussions that ensued. From the very first discussion, Harcharik and Delaney presented Brightpoint's predicament to AIG in stark terms: That Brightpoint had issued a press release in October announcing a very specific range for the estimated loss and was now faced with a much larger loss that it did not want to disclose. Although there was initially some discussion of having AIG actually assume some of Brightpoint's risk of non-recovery under the Brightpoint Policies, and in that sense issue true retroactive insurance, discussion very quickly shifted to a deposit mechanism because AIG was unwilling to take on any risk associated with Brightpoint's UK losses. 5  In the transaction eventually consummated, AIG bore no insurance risk with respect to retroactive losses; every dollar Brightpoint paid to AIG with respect to such losses was Brightpoint's money to be returned upon its demand. 
+
+  Overview of Relevant Accounting Principles  
+
+ (20) Under generally accepted accounting principles ("GAAP"), when it is "probable" that an insured will realize an "insurance recovery" against a specified loss, the insured is entitled to record a receivable on its balance sheet in the amount of the probable recovery and, for income statement purposes, net the amount of probable recovery against the loss, thereby reducing the loss. 6  
+
+ (21) In order for the insured to net an expected recovery from reportable losses, the recovery must be "probable." If recovery is only possible, the insured must recognize the loss to its full extent, without regard to insurance. Moreover, the recovery must be an "insurance" recovery. A recovery is not an "insurance" recovery for accounting purposes unless the insurance policy transfers some risk from the insured to the insurer. If a policy does not involve risk transfer, GAAP treats it as a financing arrangement, with all premiums to be accounted for as deposits. 7  
+
+ (22) In December 1998, as the Auditors were beginning field work for the year-end audit, Brightpoint presented the Auditors with schedules of the UK losses, which assumed that Brightpoint would be offsetting against those losses at least $11.9 million in anticipated insurance recoveries. To accomplish this offset, Brightpoint needed to satisfy the probability principle outlined above. However, at the time, it had no such coverage available because its insurers were already indicating that coverage under the Brightpoint Policies was doubtful. 
+
+ (23) Brightpoint eventually used the Policy to satisfy this probability standard. In constructing the Policy, Brightpoint faced two accounting obstacles: First, the policy had to look like insurance. If it looked like a deposit, Brightpoint would not be able to net anticipated recoveries against the loss. Second, the policy could not look like retroactive insurance,  i.e. , insurance designed to cover a loss already quantified and known, because Brightpoint might then be required to expense the full $15 million "premium" immediately. (EITF No. 93-6, 93-14) Under GAAP, the insured is obligated to recognize the full premium expense associated with a retroactive policy at the time it recognizes the benefits of the policy. (SFAS No. 113) 
+
+  The Policy  
+
+ (24) The Policy consists of two governing documents: The Binder of Coverage (the "Binder") and the policy itself. The Binder was executed on January 6, 1999, but was backdated to August 1, 1998. The Binder states the policy period to be the three-year period August 1, 1998 to August 1, 2001. The policy provides two separate limits of coverage: Limit A and Limit B. Limit A has an aggregate limit of $15 million, while Limit B has a per loss limit of $15 million. 8  
+
+ (25) Although not referred to in the policy as "retroactive," Limit A effectively provides broad retroactive coverage. The policy contains an insuring clause that provides: "The Company shall indemnify the Insured for Loss of Assets unless otherwise excluded by the terms and conditions of this policy." This insuring clause is applicable to both Limit A and Limit B. However, Limit B is subject to a laundry list of exclusions, while Limit A has  no  exclusions. Thus, virtually every "Loss" of "Assets" is covered under Limit A up to an aggregate amount of $15 million. Limit B, on the other hand, essentially provides prospective fidelity insurance coverage, which is severely circumscribed by the exclusions. 
+
+ (26) The Binder reflects a single, indivisible premium applicable to both limits. The total premium is $15,302,400, but this aggregate figure is never set forth. Instead, the Binder provides only a list of the elements constituting the premium: It provides that the premium shall be payable as follows: 
+
+ 
+	 $199,200 due within seven (7) business days from the execution of this Binder agreement; and 
+	 Thirty-two (32) monthly payments of $237,600 commencing January 30, 1999 and ending August 30, 2001; and 
+	 Letter of Credit [] in the amount of $7,500,000 due within seven (7) business days from the execution of this Binder agreement. 
+ 
+
+ (27) Neither the policy nor the Binder states how much of the premium is applicable to Limit A and how much is applicable to Limit B. Because the policy provides for a single premium applicable to both Limits, and Limit B theoretically provides infinite coverage,  i.e.,  $15 million per loss, the policy on its face at least appears to involve significant risk transfer. However, according to the internal LMU deal sheet, which reflected the agreement between Brightpoint and AIG, Limit A was fully pre-funded by Brightpoint: The premium Brightpoint paid for Limit A coverage was $15 million plus a $100,000 fee that AIG charged for putting the deal together. Limit B was intended to provide traditional prospective fidelity coverage. According to the deal sheet, the premium for Limit B was $202,400. 
+
+ (28) The policy specifically provides that it is non-cancelable, and the Binder states that the premium "shall be fully earned as of the date of this binder agreement," meaning that AIG was entitled to be paid the full premium from the very first day of coverage. The policy also contains an acceleration clause providing that if claims made under the policy at any point exceeded the dollar amount of premium paid to that point, AIG would not be obligated to pay further claims until Brightpoint paid all remaining premiums due, except for $302,400 - an amount that coincides with the unstated Limit B premium and $100,000 fee. The acceleration provision meant that AIG could never be out of pocket under Limit A. 
+
+ (29) The policy contains no express provision granting Brightpoint the right to a refund if Brightpoint ended up paying more in premiums than it was claiming in losses - a scenario that might have occurred, for example, if Brightpoint ultimately succeeded in obtaining some coverage under the Brightpoint Policies. However, there was an oral understanding between LMU and Harcharik that Brightpoint would receive such a refund, and the policy mechanism for obtaining that refund was to submit a claim under the very broad definition of coverage, which allowed Brightpoint to receive payment for just about any claim submitted under Limit A up to an aggregate maximum of $15 million. 
+
+ (30) Brightpoint accounted for the Policy as if it were prospective fidelity insurance. It expensed the premiums monthly over the three-year life of the policy, and it netted "probable recoveries" under Limit A against the UK losses, purporting to rely on the probability principle outlined above. 
+
+ (31) Given the true substance of the Policy, the premium attributable to Limit A should not have been accounted for as an insurance premium because there was no transfer of risk. Limit A was not even a financing arrangement because AIG was not extending credit to Brightpoint. The only money Brightpoint was entitled to receive under Limit A was money that it first deposited with AIG - deposits on which AIG paid no interest. Accordingly, the premium payments under Limit A should have been accounted for as deposits. 
+
+  The Negotiations Between Brightpoint and AIG  
+
+ (32) From the first discussions between Brightpoint and LMU, Delaney and Harcharik made clear to LMU that Brightpoint needed a policy to offset the One-Time Charge and that the final policy had to "pass the insurance test" with Brightpoint's auditors. Delaney explained to LMU that Brightpoint needed about $15 million in insurance coverage to bring the UK losses within the $13 million to $18 million range previously announced in October 1998. Delaney also told LMU that while Brightpoint expected to receive some recoveries for the UK losses under the Brightpoint Policies, the claims under those policies would not be resolved by the year-end. Thus, the Policy was necessary to establish for the Auditors that there was a probability of sufficient insurance recovery. 
+
+ (33) Harcharik was keenly aware of the accounting issues. At the outset, he proposed to LMU that the policy contain both retrospective and prospective components. He wanted a prospective component to be part of the policy because, if Limit A stood alone, it would be too obvious that Brightpoint was paying $15 million in premiums for $15 million of coverage. In the course of the two-week negotiation, Harcharik and Delaney discussed in detail with LMU other "red flags" they wanted to avoid so as not to alert the auditors that Brightpoint should not treat the policy as insurance. 
+
+ (34) One such "red flag" was the problem associated with bifurcating the premium on the face of the contract between the retroactive and prospective portions of the policy. Harcharik made clear to LMU that he did not want the premium to be explicitly bifurcated in the contract because that would show that the cost of Limit A was $15 million. Harcharik did not want the total premium amount of $15.3 million even to be tallied in the contract. Instead, Harcharik wanted the premium to be reflected simply as three untallied components, consisting of an initial down payment, 32 monthly payments, and a $7.5 million letter of credit. Harcharik did not want the $15.3 million sum to be readily apparent to the Auditors because such a substantial premium might have caused the Auditors to question the bona fides of the policy. LMU accommodated Harcharik's requests, knowing that Harcharik's purpose was to deceive the Auditors. 
+
+ (35) To help structure the Brightpoint deal, LMU brought into the discussions the AIG accountant who had written the accounting guidance contained in the White Paper. This AIG employee was frequently brought in to speak with potential LMU clients about accounting issues relating to potential LMU policies. In the case of Brightpoint, the AIG employee counseled Harcharik and Delaney that the policy should contain "no reference to an experience account" and that all refunds of premium back to Brightpoint should be through loss claim payments. An experience account or commutation provision refers to an insurance mechanism by which the insured is refunded premium at the end of the policy if there were few loss experiences over the course of the contract. The AIG employee advised that such a provision would raise "red flags" with the auditors. The employee's advice was consistent with what he wrote in the White Paper. 
+
+ (36) To avoid having an express refund mechanism in the policy for excess premiums paid, Harcharik and LMU reached an oral agreement, not written into the Policy, that AIG would be "extremely flexible" in refunding premiums to Brightpoint through "claim payments," requiring little to no documentation from Brightpoint on the nature of the losses. 9  This type of oral side agreement is precisely what the White Paper recommended. Harcharik and AIG agreed that the retrospective coverage would be as broad as possible and there would be no exclusions to coverage in the policy for those losses. LMU documented the terms of this oral agreement with Harcharik in an internal AIG memorandum called "Loss Mitigation Unit Deal Sheet" (the "Deal Sheet"). 
+
+ (37) The Deal Sheet, in relevant part, states the following: 
+
+ 
+ ...Brightpoint had already taken a charge for the [trading] division...assuming the $15M of insurance recovery would happen. Brightpoint's auditors, . . . , wanted more evidence that an insurance recovery was possible. Otherwise, Brightpoint would be in a position to possibly restate the charge already taken...The feedback from [the Auditors] was that they wanted a letter from AIG explaining the use of the policy in case there are no proceeds paid by [Brightpoint's other insurer] ...If for some reason [Brightpoint's other insurer] pays the loss or a portion of the loss, the $15M [million] or the balance after a partial loss payment by AIG would have to be returned as well. This would be returned under a future claim submitted by Brightpoint under Sub-Limit A. THUS, SUB-LIMIT A WAS MADE TO BE EXTREMELY BROAD AND ANY PAYMENTS MADE SHOULD ALWAYS BE MADE WITHOUT LIMITATIONS BY COVERAGE; ONLY LIMITATIONS TO PREMIUM RECEIVED. 
+
+ 
+
+ (Emphasis in original.) Along the same lines, another internal AIG memorandum to the President of AIG's Financial Lines Claims Division states: 
+
+ 
+ AIG is not at risk for this arrangement and maintains the benefit of collecting cash without giving interest on the float. There were no specific required timeframes established for AIG's payments under the policy (due to the fact that the policy was purposely constructed so as to  not  appear as a finite risk policy for accounting reasons) and the verbal agreement was that AIG would pay within a  reasonable  time period. 
+ 
+
+ (Emphasis in original.) 
+
+ (38) January 6, 1999, AIG and Brightpoint executed the Policy by signing the Binder. The original version of the Binder had a date line, indicating that it was signed on January 6, 1999. That same day, Delaney sent Harcharik an email stating: 
+
+ 
+ The binder you signed (I looked at it again) has January 6, 1999 (in one case 1998) all over it. This is not good and that copy must be destroyed and on [sic] with an August date executed. 
+ 
+
+ (39) AIG and Harcharik then executed a second version with only the August 1, 1998 effective date appearing in the document. Later that day, Brightpoint issued a press release stating that the One-Time Charge was "expected to be approximately $17.6 million ... which is consistent with the previously-announced estimate." 
+
+  AIG's Confirmation to the Auditors  
+
+ (40) In connection with the Auditors' 1998 year-end audit, the Auditors asked Brightpoint to obtain from AIG a letter confirming the probability that Brightpoint would recover at least $11.9 million under the Policy, which was the amount Brightpoint was seeking to offset against the $29 million UK losses. After working through numerous drafts with Harcharik, AIG signed and provided a letter to Harcharik, dated January 27, 1999, which stated that "if [the insurer on the Brightpoint Policies] denies coverage or does not pay at least $11,900,000 in proceeds for the Claims...we believe it is probable that Brightpoint will recover no less than $11,900,000, net of deductibles, under the Policy, or, no less than $11,900,000 in combination of proceeds from the [Brightpoint Policies] and this Policy." LMU faxed a copy of the letter directly to the Auditors, knowing that the letter was going to be used by the Auditors as audit evidence. On the basis of this confirmation, just as Delaney, Harcharik and LMU anticipated, the Auditors approved Brightpoint's accounting for the insurance receivable and allowed Brightpoint to offset the UK losses by $11.9 million in probable insurance recoveries. 
+
+  The First Restatement  
+
+ (41) In September 2001, the Commission's staff issued a subpoena to the Auditors for its workpapers relating to Brightpoint's 1998 One-Time Charge. The subpoena led the Auditors to reconsider Brightpoint's 1998 accounting for the UK losses. In the course of this review, the Auditors learned for the first time that (1) the Policy had not been executed until January 1999; (2) the policy contained retroactive coverage; and (3) the policy was "non cancelable by either party and the entire premium [was] deemed earned at the inception of the policy," meaning that Brightpoint was obligated to pay the full $15.3 million in the fourth quarter of 1998. 
+
+ (42) At the end of October 2001, the Auditors informed Brightpoint that Brightpoint had incorrectly accounted for the Policy and would have to restate its 1998 financial statements. However, because Brightpoint's Chief Financial Officer and its outside counsel persuaded the Auditors that there was substantial risk transfer under Limit B, the Auditors determined that Brightpoint needed to restate its 1998 financial statements by expensing the full premium on the Policy, rather than treating the premiums as a deposit. 
+
+ (43) On November 13, 2001, the Company issued a press release announcing the First Restatement. The press release stated that: "Upon further review, the Company and its independent auditors now believe that premium expense should have been accrued at the date the Company entered into the [Policy], rather than over the prospective policy period because the Company could not allocate the costs of the policy between the retroactive and prospective coverage." The First Restatement expensed the full policy "premium" in the fourth quarter of 1998, amounting to $15.3 million, and reversed the monthly premium expense recorded in 1999 through 2001. While the First Restatement essentially corrected Brightpoint's bottom line for 1998, it left intact the $11.9 million in probable insurance recoveries under the Policy as an offset against the $29 million UK loss, in effect treating the Policy as real retroactive insurance. 
+
+  The Second Restatement  
+
+ (44) A few days before Brightpoint's November 13th press release, Brightpoint had told the Auditors that Brightpoint was in negotiations with AIG to terminate the Policy. Brightpoint represented to the Auditors that, under the anticipated termination agreement, Brightpoint would simply "walk away" from the policy without any further exchange of money between AIG and Brightpoint. The November 13 press release addressed the subject of termination, stating that "[t]he Company believes that it will recognize a gain in the fourth quarter of 2001 related to the termination of the retroactive portion of the insurance policy, which will result in the complete reversal of the remaining accrual." 
+
+ (45) The termination agreement was actually executed on November 12, 2001, one day before the November 13 press release. However, Brightpoint did not notify the Auditors that the agreement had been finalized. The executed agreement essentially provided for full rescission of the Limit A part of the Policy. Under the agreement, Limit A was terminated, and AIG agreed to pay Brightpoint a refund of about $2.3 million - just about the amount of premiums Brightpoint had paid in excess of claims recovered. The agreement also provided that Limit B would continue in force for an annual premium of $97,000. 
+
+ (46) The Auditors did not learn these facts until January 14, 2002 in the course of their 2001 year-end audit of Brightpoint. Upon learning of the termination agreement, the Auditors determined that Limit A was not real insurance and that Brightpoint had to restate its restatement, using the deposit method. 
+
+ (47) Two weeks later on January 31, 2002, Brightpoint announced that "the Company has now determined that the appropriate accounting method for the agreement is deposit accounting... Deposit accounting requires treating the Company's payments under this agreement as deposits rather than as premiums and the Company's receipts under the agreement as withdrawals rather than claims paid by the insurance company...." 
+
+  AIG's Conduct During the SEC Investigation  
+
+ (48) The need for relief in this case is also affected by the manner in which AIG conducted itself during the Commission's investigation. Beginning in July 2000, the Commission's staff issued to AIG two voluntary requests and, beginning in November 2001, the Commission's staff issued various subpoenas for documents. On November 1, 2002, at the Commission's staff's request, AIG provided a sworn certification that AIG's production pursuant to all Commission subpoenas was complete. The Commission believes the certification was substantially erroneous. 
+
+ (49) After AIG provided this sworn certification, the Commission's staff made various further inquiries, which led to the production of a large quantity of documents, many of which should have been produced before the certification was made. The Commission now understands that AIG's document search prior to its sworn certification did not include the files of the former LMU president or other key individuals associated with the LMU and other locations in which responsive documents were likely to be found. Nor did AIG conduct an adequate search of the LMU computer drive prior to its certification. As a result, documents that were relevant to the investigation and called for under an October 2000 voluntary request and later subpoenas were not produced until December 2002 and January 2003. 
+
+ (50) AIG also had not produced the White Paper until October 29, 2002, even though the White Paper was directly relevant to a position AIG took in a Wells meeting prior to that date and in its Wells Submission in September 2002, namely, that the conduct at issue here was the result of inadequate training and support for the employee who dealt with Brightpoint. At the time AIG made these representations to the Commission's staff, AIG was aware of, but had never produced, the White Paper.  10  The White Paper demonstrates that the conduct of its employee was consistent with the guidance given in the White Paper - a document that itself had had wide circulation among management ranks. 
+
+ (51) The Commission believes that AIG should have produced the White Paper in response to the voluntary requests and subpoenas. AIG disputes this point. In any event, the Commission believes that AIG should have produced the White Paper before a Wells meeting in which the subject matter of the document was put directly in issue by AIG. 
+
+ LEGAL DISCUSSION 
+
+  AIG Violated Section 10(b) and Rule 10b-5 of the Exchange Act  
+
+ (52) Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibits fraud in connection with the purchase or sale of a security. In particular, Rule 10b-5 prohibits any person 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. A misstatement or omission is material if there is a substantial likelihood that it would have been viewed by a reasonable investor as "having significantly altered the `total mix' of information made available."  TSC Indus., Inc. v. Northway, Inc. , 426 U.S. 438, 449 (1976).  See also   Basic, Inc. v. Levinson , 485 U.S. 224, 231-32 (1988). 
+
+ (53) To violate Section 10(b) and Rule 10b-5, a person must also act with scienter,  Aaron v. SEC , 446 U.S. 680, 701-02 (1980), which is "a mental state embracing intent to deceive, manipulate, or defraud,"  Ernst & Ernst v. Hochfelder , 425 U.S. 185, 193 (1976), and which can be shown by proof of intentional or reckless conduct.  Novak v. Kasaks , 216 F.3d 300, 312 (2d Cir. 2000),  cert. denied , 531 U.S. 1012 (2000);  Press v. Chem. Inv. Serv. Corp. , 166 F.3d 529, 537-38 (2d Cir. 1999). Knowledge, or reckless disregard, of the fraudulent scheme or the undisclosed information will also satisfy the scienter requirement.  See ,  e.g. ,  McDonald v. Alan Bush Brokerage Co. , 863 F.2d 809, 814 (11th Cir. 1989);  Woods v. Barnett Bank of Fort Lauderdale , 765 F.2d 1004, 1010 (11th Cir. 1985);  IIT v. Cornfeld , 619 F.2d 909, 923 (2d Cir. 1980). 
+
+ (54) AIG violated Section 10(b) of the Exchange Act and Rule 10b-5 by negotiating a purported insurance policy with Brightpoint, knowing that the primary purpose of the policy was to provide Brightpoint with a means for misrepresenting its losses as insured losses and for making material misstatements in its public filings. AIG further participated in the fraudulent scheme by sending a letter to the Auditors stating that there would be a "probable" "insurance recovery" under the Policy, when AIG knew that the recoveries under the policy would be merely a refund of the money that Brightpoint previously had deposited with AIG. Violations of the antifraud provisions can be based on misstatements or omissions of material fact in periodic reports or other public reports to investors.  SEC v. Koenig , 469 F.2d 198 (2d Cir. 1972);  SEC v. Great American Industries, Inc. , 407 F.2d 453 (2d. Cir 1967), cert. denied, 395 U.S. 920 (1969);  see   SEC v. Texas Gulf Sulphur Co. , 401 F.2d 833 (2d Cir. 1968) (en banc), cert. denied, 394 U.S. 976, 89 S.Ct. 1454 (1969). 
+
+ (55) In reports filed with the Commission, Brightpoint grossly overstated its operating results by 61% for the year ended 1998. It is well established that information concerning the financial condition of a company is presumptively material.  Elkind v. Liggett & Myers, Inc. , 635 F.2d 156, 167 (2d Cir. 1980);  see   also   SEC v. Blavin , 557 F. Supp. 1304, 1313 (E.D. Mich. 1983), aff'd, 760 F.2d 706 (6th Cir. 1985). Materiality judgments involve both quantitative and qualitative considerations.  See   Statement on Auditing Standards ("SAS") No. 47, Audit Risk and Materiality in Conducting an Audit , ¶¶ 6 and 7; Staff Accounting Bulletin ("SAB") No. 99, 64 Fed. Reg. 45150 (1999);  see also   Ganino v. Citizens Utilities Co. , 228 F.3d 154, 163 (2d Cir. 2000) (adopting SAB No. 99 as useful guidance on materiality issues). 
+
+ (56) The final element necessary to establish a violation of the antifraud provisions is that the violative activity occur in connection with the purchase or sale of a security. This requirement is construed broadly.  Superintendent of Ins. of State of N.Y. v. Bankers Life and Casualty Co. , 404 U.S. 6, 12 (1971). Material misrepresentations or omissions contained in annual and quarterly reports and press releases are made in connection with an order, purchase, or sale of securities.  See   SEC v. Benson , 657 F. Supp. 1122, 1131 (S.D.N.Y. 1987);  SEC v. Jos. Schlitz Brewing Co. , 452 F. Supp. 824, 829 (E.D. Wis. 1978);  Softpoint , 958 F. Supp. 846, 862-863,  aff'd,  159 F.3d 1348 (2d Cir. 1998). The material misstatements and omissions described above were contained in annual reports filed with the Commission, as well as in Brightpoint's press releases and registration statement. Accordingly, these material misrepresentations and omissions were in connection with the purchase or sale of Brightpoint's securities. 
+
+ (57) As discussed above, Delaney, Harcharik and AIG implemented a scheme to defraud Brightpoint's investors by employing an insurance contract to hide losses and by misleading Brightpoint's auditors. AIG was aware that Brightpoint needed to provide evidence of insurance to its auditors or it would be required to restate its previously announced estimate for the UK Losses. AIG worked with Delaney and Harcharik to alter the language of the contract so that certain accounting "red flags" would be eliminated or minimized. AIG knew that these red flags pertained to potential concerns of Brightpoint auditors. AIG orally agreed with Harcharik that AIG would return all monies paid under the contract to Brightpoint. Further, AIG signed and faxed a letter to the Auditors confirming that Brightpoint was entitled to receive these "insurance proceeds" from AIG. AIG was aware that the letter served as audit evidence for the Auditors and was aware of Delaney's and Harcharik's desired accounting objectives for the transaction. AIG thus violated Section 10(b) and Rule 10b-5 of the Exchange Act. 
+
+  AIG Was a Cause of Delaney's Violation of Rule 13b2-2 of the Exchange Act  
+
+ (58) Rule 13b2-2 of the Exchange Act prohibits a director or officer of a public company from making, or causing to be made, materially false or misleading statements or omissions to an auditor. Delaney was an officer of Brightpoint, a public company. Delaney made, or directed others to do so, materially false and misleading statements to Brightpoint's auditors regarding the $11.9 million offset from the UK losses based upon the Policy. Delaney also failed to state material facts to Brightpoint's auditors by failing to disclose that Brightpoint did not have insurance recoveries for the UK losses and that any payments made or received by Brightpoint under the AIG transaction were merely deposits or withdrawals of money. AIG was a cause of Delaney's violation of Rule 13b2-2 by conspiring with Delaney and negotiating a sham insurance policy specifically tailored to deceive Brightpoint's auditors and by sending a confirmation letter to the auditors falsely stating that there would be a "probable" "insurance recovery" under the Policy. 
+
+ UNDERTAKINGS 
+
+  AIG shall comply with the following undertakings:  
+
+ 1. Within 30 days of the date of this Order, AIG shall employ an independent consultant ("Independent Consultant") acceptable to the Commission staff and knowledgeable in all aspects of commercial lines insurance, including, but not limited to, the products and services offered and sold by AIG's Domestic Brokerage Group, to conduct a comprehensive review of, and report on, the internal controls, policies, practices and procedures that AIG's Domestic Brokerage Group has put in place to ensure that Insurance Products will not be structured to facilitate violations of the federal securities laws. For purposes of this Order, Insurance Products shall mean "structured," "finite," or "funded" policies and any other commercial lines product, under which coverage is being provided, in whole or in part, for a loss, claim or litigation sustained by or asserted against the insured prior to the date on which the insured purchased the policy. Such Independent Consultant will also recommend any revised or additional internal controls, policies, practices or procedures that the Independent Consultant believes are reasonably necessary. 
+
+ 2. AIG shall require the Independent Consultant to enter into an agreement that provides that for the period of the engagement and for a period of two (2) years from the completion of the engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with AIG, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity as such. Any firm with which the Independent Consultant is affiliated or of which he or she is a member, and any person engaged to assist the Independent Consultant in the performance of his or her duties under the Order shall not, without prior written consent of the Commission's staff, enter into any employment, consultant, attorney-client, auditing or other professional relationship with AIG, or any of its present or former affiliates, directors, officers, employees, or agents in their capacity as such for the period of the engagement and for a period of two (2) years after the engagement. 
+
+ 3. AIG shall promptly provide the Independent Consultant with any and all requested documents and other information pertaining to AIG's Insurance Products, and permit the Independent Consultant to meet with and interview any officer, agent, and employee of AIG or any of its divisions or subsidiaries. 
+
+ 4. No later than six months from the date that AIG employs the Independent Consultant, the Independent Consultant will submit, in writing, to AIG, with a copy to the staff of the Commission, his or her report detailing his or her findings regarding AIG's internal controls, policies, practices and procedures as described above, and his or her recommendations, if any, for revised or additional measures. 
+
+ 5. Upon good cause being shown, the staff of the Commission may grant the Independent Consultant such additional time as the staff deems necessary to submit his or her report regarding AIG's internal controls, policies, practices and procedures, and his or her recommendations, if any, for revised or additional measures. 
+
+ 6. Within 30 days after the date of the issuance of the Independent Consultant's report, AIG shall remedy any deficiencies in its internal controls, policies, practices or procedures identified by the Independent Consultant and adopt, implement, and maintain any revised or additional measures recommended by the Independent Consultant, or alternatives recommended in writing by AIG and accepted in writing by the Independent Consultant or the staff of the Commission. 
+
+ 7. No later than 30 days from the date of the issuance of the Independent Consultant's report, AIG, through an officer, shall submit an affidavit to the staff of the Commission stating that AIG has remedied any deficiencies in its internal controls, policies, practices and procedures identified by the Independent Consultant (stating the means by which such remedy has been accomplished), and stating further that AIG has adopted, implemented and will maintain any revised or additional internal controls, policies, practices or procedures recommended in the Independent Consultant's report, or alternatives acceptable to the Independent Consultant or the staff of the Commission. Upon written request and good cause being shown, the staff of the Commission may grant AIG such additional time as the staff deems necessary to submit such affidavit. 
+
+ 8. If, after 30 days from the date of the issuance of the Independent Consultant's report, or such additional time as allowed by the staff in writing, AIG fails to remedy the deficiencies in its internal controls, policies, practices and procedures identified by the Independent Consultant, or such alternatives recommended in writing by AIG and accepted in writing by the Independent Consultant or the staff of the Commission, the Commission may move to enforce this Order. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to by AIG in its Offer. 11  
+
+ Accordingly, it is hereby ORDERED: 
+
+ A. Pursuant to Section 21C of the Exchange Act, AIG shall cease and desist from committing or causing any violations, or committing or causing any future violations, of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and from causing any violations or any future violations of Exchange Act Rule 13b2-2. 
+
+ B. IT IS FURTHERED ORDERED that AIG shall, within 10 days of the entry of the Order, pay disgorgement in the amount of $100,000 and prejudgment interest in the amount of $37,535.47 to the United States Treasury. 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 Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Stop 0-3, VA 22312; and (4) submitted under cover letter that identifies AIG 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 Mark K. Schonfeld, Associate Regional Director, Securities and Exchange Commission, 233 Broadway, New York, NY 10279. 
+
+ C. IT IS FURTHER ORDERED that AIG shall comply with the undertakings enumerated in Section III. above. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+ __________________ 
+
+  1  The findings herein are made pursuant to AIG's Offer and are not binding on any other person or entity in this or any other proceeding. 
+
+  2  For state law insurance regulatory and other purposes, the entirety of a contract that transfers risk (as the prospective fidelity coverage did here) may be regarded as a single insurance policy, even though the proper accounting treatment or financial reporting obligation of the insured may require the insured to treat the contract in part or in whole as creating a depository relationship. 
+
+  3  Organizationally, the LMU is a unit within National Union. However, LMU products were marketed by various AIG divisions and subsidiaries. 
+
+  4  The trading division was involved in the purchase of wireless handsets from sources other than manufacturers or network operators and in the sale of those handsets to other trading companies dealing in the secondary market. 
+
+  5  In this respect, Harcharik proposed that AIG and Brightpoint share in the litigation risk associated with Brightpoint's anticipated insurance coverage litigation under the Brightpoint Policies, with both AIG and Brightpoint splitting the proceeds if the litigation was successful. However, AIG was unwilling to pursue this proposal. 
+
+  6  Statement of Financial Accounting Standards ("SFAS") No. 5; Emerging Issues Task Force ("EITF") No. 93-5 (concerning environmental insurance); Statement of Position ("SOP") 96-1 (concerning environmental insurance). 
+
+  7  When a policy affords retroactive coverage, it is not regarded as insurance for the policyholder's accounting purposes unless there is either an underwriting risk or a timing risk associated with the policy. When a loss has occurred and is known at the time the policy is written, there can be underwriting risk if the dollar amount of the loss is not fully known. Alternatively, if at the time the policy is written the dollar amount is both known and fixed, there can still be a timing risk if the actual payout may be delayed for many years. In such circumstances, the insurer might set the premium on the assumption that it will not have to pay for ten or twenty years. The risk is that payment may actually become due at an earlier time. 
+
+  8  The insurer identified in the Binder and the policy is American International Specialty Lines Insurance Company, which is 70% owned by National Union and 30% owned by two other AIG subsidiaries: Birmingham Fire Insurance Company of Pennsylvania and the Insurance Company of the State of Pennsylvania. The Binder is written on the letterhead of "American International Companies" and the "AIG" logo appears in the bottom right-hand corner of each page. The Binder was executed by the LMU officer who negotiated the Brightpoint transaction. He signed it in his capacity as "Assistant Vice President" of "American International Companies." American International Companies is a brand name used by AIG's general insurance subsidiaries. 
+
+  9  Over the life of the policy, Brightpoint's "claims" were paid upon the submission of a letter, saying simply that a loss had been sustained. AIG paid the claims without requiring further documentation. 
+
+  10  AIG admittedly was aware of the White Paper in the fall of 2000. 
+
+  11  AIG has agreed to pay a $10 million civil penalty in a parallel civil action. 
+ 
+ 
+ Footnotes 
+footnotes header optional
+
+  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.  -->
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diff --git a/raw/aaer/2003/AAER-1858.txt b/raw/aaer/2003/AAER-1858.txt
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+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Brightpoint, Inc., American International Group, Inc., Phillip Bounsall, John Delaney and Timothy Harcharik 
+     
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+              Brightpoint, Inc., American International Group, Inc., Phillip Bounsall, John Delaney and Timothy Harcharik
+           
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+        Brightpoint, Inc., American International Group, Inc., Phillip Bounsall, John Delaney and Timothy Harcharik
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+ Litigation Release No. 18340 / September 11, 2003 
+
+ Accounting and Auditing Enforcement Release No.  1858 
+
+  Securities and Exchange Commission v. Brightpoint, Inc., American International Group, Inc., Phillip Bounsall, John Delaney and Timothy Harcharik  (S.D.N.Y. Civ. 03 CV 7045 (HB) 
+
+ SEC Sues AIG, Brightpoint and Three Individuals in Accounting Fraud Case 
+AIG Settles Action and Agrees to Pay $10 Million Penalty 
+
+ Washington - The Securities and Exchange Commission announced today that it filed a civil accounting fraud action in federal district court in the Southern District of New York against American International Group, Inc. (AIG), Brightpoint, Inc. (Brightpoint) and two former officers and a former employee of Brightpoint, respectively, Phillip Bounsall (Bounsall), John Delaney (Delaney) and Timothy Harcharik (Harcharik).  All of the defendants except Harcharik have consented to the entry of final judgments in settlement of this matter.  The Commission also announced today that it instituted separate settled cease-and-desist proceedings against Brightpoint, AIG, Bounsall and an AIG employee.   
+
+ The civil and administrative actions involve the role played by AIG, one of the world's largest insurance underwriters, in enabling Brightpoint, a public reporting company, to commit securities fraud.  As a sophisticated financial services provider, AIG played an indispensable part in the fraudulent transaction by selling Brightpoint a new "insurance" product that AIG had developed and marketed for the specific purpose of helping issuers to report false financial information to the public.   
+
+ Beginning in 1997, AIG developed and marketed a so-called "non-traditional" insurance product for the stated purpose of "income statement smoothing,"  i.e. , enabling a public reporting company to spread the recognition of known and quantified one-time losses over several future reporting periods.  The key to achieving the desired accounting result was to create the appearance of "insurance,"  i.e. , that the "insured" (Brightpoint) was paying premiums in return for an assumption of risk by AIG, when, in fact, Brightpoint was merely depositing cash with AIG that AIG refunded to Brightpoint.   
+
+ In this case, AIG issued such a purported insurance policy to Brightpoint for the purpose of assisting Brightpoint to conceal $11.9 million in losses that Brightpoint sustained in 1998.  Brightpoint's chief accounting officer, Delaney, and its director of risk management, Harcharik, negotiated the purported policy with an AIG assistant vice president.  Brightpoint's chief financial officer, Bounsall, approved the insurance transaction without adequately reviewing it.  As a result of the transaction, Brightpoint's 1998 financial statements, as reported in the 1998 Form 10-K, overstated Brightpoint's actual net income before taxes by 61 percent.  The misrepresentation was subsequently republished in a registration statement filed in September 1999 and in Forms 10-K for 1999 and 2000. 
+
+ Specifically, the Commission alleged in the civil action that:  
+
+  In October 1998, Brightpoint publicly announced that in the fourth quarter ending December 31, it would recognize a one-time charge, ranging from $13 million to $18 million, arising out of losses sustained by one of its divisions in the United Kingdom (UK).  However, by December 1998, the UK losses had mushroomed to about $29 million, and Brightpoint's corporate controller, defendant Delaney, and its director of risk management, defendant Harcharik, devised a scheme to cover-up these additional, unanticipated losses, rather than disclose them.   
+
+ In December 1998, Delaney and Harcharik turned to the Loss Mitigation Unit (LMU) of National Union Fire Insurance Company of Pittsburgh, Pa., one of defendant AIG's principal general insurance company subsidiaries.  LMU offered "insurance" products specifically designed to "smooth" the financial statement impact of losses sustained by AIG clients.  Brightpoint and AIG negotiated the terms of a $15 million "retroactive" insurance policy that covered all of the extra UK losses.  The parties agreed to combine this "retroactive coverage" with prospective fidelity coverage (together, the Policy) in an effort to avoid scrutiny from Brightpoint's Auditors (the Auditors).  The "cost" of the $15 million "retroactive coverage" to Brightpoint was about $15 million, which Brightpoint was to pay in monthly "premiums" over the prospective three-year term of the policy.  The Policy, finalized in January 1999, enabled Brightpoint to record in 1998 an insurance receivable of $11.9 million, which Brightpoint netted against the total UK losses of about $29 million, bringing the net loss to within the previously disclosed $13 million to $18 million range.   
+
+ In fact, the "retroactive coverage" should not have been accounted for as insurance.  It was merely a "round-trip" of cash - a mechanism for Brightpoint to deposit money with AIG, in the form of monthly "premiums," which AIG was then to refund to Brightpoint as purported "insurance claim payments."  In drafting the Policy, Delaney and Harcharik took pains to ensure that the "retroactive coverage" raised no "red flags" for the Auditors:  They created a blended fidelity coverage and retroactive policy that was designed to look like traditional, non-retroactive indemnity insurance and they gave the policy an effective date of August 1998.   
+
+ In October 2001, following an inquiry by the Commission's staff, the Auditors began looking more closely at the Policy and determined that it was not traditional insurance.  Although the Auditors questioned whether the policy was insurance at all, they decided at the very least that the policy provided retroactive coverage and, therefore, that all premium expense associated with it should have been recorded in 1998.  On November 13, 2001, Brightpoint announced a restatement, which treated the Policy as real, but retroactive, insurance (the First Restatement). The First Restatement expensed the full policy "premium" in the fourth quarter of 1998, amounting to $15.3 million.   
+
+ On January 31, 2002, Brightpoint announced that it would further restate its financial statements to reflect that the "premiums" for the "retroactive coverage" under the Policy were only deposits with AIG.  This second restatement came about when the Auditors learned that, one day before Brightpoint announced the First Restatement, it had "cancelled" the "retroactive coverage" and obtained from AIG a refund in the full amount of premiums Brightpoint had paid over and above the "insurance claim payments" made to it by AIG under the "retroactive coverage."  The cancellation transaction left no doubt that the "retroactive coverage" was not insurance.  
+
+Based on the facts alleged, in the civil action the Commission charged:
+
+  Brightpoint with securities fraud in violation of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (Exchange Act) and with violating the reporting, books-and-records, and internal controls provisions of Exchange Act Sections 13(a) and 13(b)(2) and Exchange Act Rules 12b-20, 13a-1 and 13b2-1.   
+
+ AIG with securities fraud in violation of Section 10(b) of the Exchange Act and Rules 10b-5 and aiding and abetting violations of Exchange Act Rule 13b2-2 for making materially false statements to the Auditors.   
+
+ Delaney with securities fraud in violation of Section 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Exchange Act, with violating the reporting, books-and-records, and internal controls provisions of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1 and with violating Exchange Act Rule 13b2-2 for making materially false statements to the Auditors; Delaney was also alleged to be liable as a control person of Brightpoint, pursuant to Section 20(a) of the Exchange Act, for Brightpoint's books-and-records violations under Exchange Act Section 13(a) and Exchange Act Rules 12b-20 and 13a-1.   
+
+ Harcharik with securities fraud in violation of Section 10(b) of the Exchange Act and Rules 10b-5 and with aiding and abetting violations of Exchange Act Section 13(b)(5) (internal controls and books-and-records provision) and Exchange Act Rules 13b2-1 (books-and-records provision) and 13b2-2 (making materially false statements to the Auditors).   
+
+ Bounsall with violating the books-and-records provisions of Rule 13b2-1 of the Exchange Act.   Without admitting or denying the allegations in the Commission's complaint, all of the defendants except Harcharik have agreed to settle the Commission's charges.  In connection with the settlements, AIG agreed to pay a civil penalty of $10 million, Brightpoint agreed to pay a civil penalty of $450,000, Delaney agreed to pay a civil penalty of $100,000 and consented to the entry of a Final Judgment that permanently enjoins him from future violations of the federal securities laws and permanently bars him from serving as an officer or director of any public company, and Bounsall agreed to pay a civil penalty of $45,000. 
+
+ With regard to Harcharik, the Commission's complaint seeks the entry of a final judgment permanently enjoining him from future violations of the federal securities laws and ordering him to pay civil penalties. 
+
+ Without admitting or denying the facts set forth in their respective administrative orders, AIG, Brightpoint and Bounsall also consented to the issuance of separate cease-and-desist orders.  Specifically, AIG and Brightpoint consented to the issuance of separate orders (i) finding that each violated the antifraud provisions of the Exchange Act and, in the case of Brightpoint, the antifraud provisions of the Securities Act and the reporting provisions of the Exchange Act, and (ii) directing that AIG and Brightpoint, respectively, cease and desist from further violating those provisions.  In addition, AIG consented to pay $100,000 in disgorgement and to retain an independent consultant to make recommendations to ensure that AIG's insurance products will not be used in the future to violate the securities laws.  Bounsall consented to the issuance of a separate order (i) finding that he was a cause of Brightpoint's violation of the books-and-records provisions of Rule 13b2-1 of the Exchange Act and (ii) directing him to cease and desist from further violating that provision.   
+
+ Brightpoint is a Delaware corporation headquartered in Plainfield, Indiana that provides outsourced services such as distribution, fulfillment, customized packaging, prepaid and e-business solutions, and inventory management in the wireless telecommunications and data industry.  AIG is a Delaware corporation with its principal corporate offices located in New York, New York and is a holding company that, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities in the United States and abroad.   
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1860.txt b/raw/aaer/2003/AAER-1860.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3b0549537d12242c5611d5e5d68fc44bff5139f7
--- /dev/null
+++ b/raw/aaer/2003/AAER-1860.txt
@@ -0,0 +1,1376 @@
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+     SEC.gov | Christine B. Hoberg 
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+              Christine B. Hoberg
+           
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+        Christine B. Hoberg
+       
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+
+ Litigation Release No.  18343 / September 11, 2003 
+
+ Auditing and Accounting Enforcement Release No.  1860 / September 11, 2003 
+
+  Securities and Exchange Commission v. Christine B. Hoberg,  United States District Court for the Northern District of California, Civil Action No. C 03-04135 HRL 
+
+ The United States Securities and Exchange Commission announced today the filing of financial reporting fraud charges against Christine B. Hoberg, former chief financial officer of Nvidia Corporation, alleging that she purposefully failed to record $3.3 million in expenses relating to a deal with a supplier.  As a result of that transaction, the complaint alleges, Nvidia materially overstated its gross profit and income for the quarter ended April 30, 2000. 
+
+ Hoberg, 48, of Los Altos, California, was charged in a complaint filed in the U.S. District Court for the Northern District of California.  Simultaneous with the filing of the complaint, and without admitting or denying the allegations, Hoberg consented to a court order directing her to pay $671,694.99 (including $596,694.99 in disgorgement of ill-gotten gains and prejudgment interest and $75,000 in penalties), prohibiting her from serving as an officer or director of any public company for five years, and enjoining her from violations of the antifraud and other provisions of the securities laws. 
+
+ According to the complaint against Hoberg, in early 2000 Nvidia was lagging behind expectations for its financial performance for the quarter ended April 30, 2000.  In order to meet those expectations, Nvidia entered into an agreement with a supplier in which the supplier granted Nvidia $3.3 million in cost reduction credits for the April 30 quarter.  In exchange, though, Nvidia agreed to repay the supplier this same amount by paying artificially higher prices on purchases later in the year. 
+
+ Under generally accepted accounting principles ("GAAP"), Nvidia's explicit agreement to repay the costs to its supplier created a liability that Nvidia was required to record in its accounting records.  Thus, under GAAP, Nvidia should have recorded both the cost reductions and an offsetting liability for its agreement to repay the costs in the future. 
+
+ Instead, Hoberg directed that Nvidia record only the cost reductions portion of the transaction on its books for the April 30 quarter.  By failing to record the offsetting $3.3 million liability for the second portion of the deal, Hoberg led Nvidia to overstate its gross profit and income for the quarter by 6.4% and 15.3%, respectively. 
+
+ To facilitate the fraud, Hoberg directed that Nvidia document the deal in two separate agreements, with the cost reductions described in one agreement, and Nvidia's promise to repay described in another.  During a subsequent review of Nvidia's quarterly results by its outside auditors, Hoberg provided the auditors with the agreement relating to Nvidia's cost reductions, but withheld the agreement that described Nvidia's promise to repay the costs in the future. 
+
+ The complaint charges Hoberg with financial reporting fraud (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder), withholding material facts from auditors (Rule 13b2-2 under the Exchange Act), and falsifying Nvidia's books and records (Section 13(b)(5) of the Exchange Act an Rule 13b2-1 thereunder).  Simultaneous with the filing of the complaint, Hoberg agreed, without admitting or denying the allegations, to a judgment permanently enjoining her from violations of these provisions and to the other relief described above. 
+
+     SEC Complaint in this matter   -->
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diff --git a/raw/aaer/2003/AAER-1862.txt b/raw/aaer/2003/AAER-1862.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7ba9995f21ddb32499146d00eb4ddd1e10a0b5f9
--- /dev/null
+++ b/raw/aaer/2003/AAER-1862.txt
@@ -0,0 +1,1371 @@
+
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+     SEC.gov | Stephen D. Price 
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+       
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+
+ Litigation Release No. 18345 / September 11, 2003 
+
+ Accounting and Auditing Enforcement Release No.  1862 
+
+  Securities and Exchange Commission v. Stephen D. Price,  United States District Court for the District of Columbia, Civil Action No. 1:03cv01905 
+
+ SEC BRINGS SETTLED ACCOUNTING FRAUD CASE AGAINST STEPHEN D. PRICE 
+
+ The Commission announced today that it has instituted a settled cease-and-desist proceeding against Stephen D. Price, of Bronxville, New York, a former Vice-President for Business Development at CAIS Internet, Inc., now known as Ardent Communications, Inc.  The Commission also filed a complaint in federal court seeking a civil penalty against Price.  Without admitting or denying the Commission's findings, or the allegations in the complaint, Price consented to the issuance of a cease-and-desist order, and a judgment ordering him to pay a $20,000 penalty.  The Commission's Order finds that Price violated the federal securities laws by concealing information about a significant sale from CAIS's management and accountants, which led CAIS to file materially false and misleading financial statements with the Commission. 
+
+ The Order finds that in September 2000, Price agreed to sell more than $1 million of Internet kiosks to a private company, subject to an oral side agreement requiring CAIS to make a multi-million dollar investment in the private company.  According to the Order, Price knew that the customer would return the kiosks to CAIS if the promised investment was not made.  The Order finds that Price concealed details about the investment from CAIS's management and accountants, and that his conduct led CAIS to file materially false financial statements for the quarter ended September 30, 2000.  The Order finds that Price violated the antifraud provisions of the federal securities laws because he knew that CAIS would record the sale as revenue in the third quarter and overstate its results.  The Order also finds that, due to his misconduct, Price was a cause of CAIS's violations of the reporting and recordkeeping provisions of the federal securities laws. 
+
+ The Commission found that Price violated 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 was a cause of CAIS's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  The Commission also ordered Price to 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, 13b2-1 and 13b2-2 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 and 13a-13 thereunder.  ( Rel. No. 34-48485; AAE Rel. 1861; File No. 3-11257 ).  
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1863.txt b/raw/aaer/2003/AAER-1863.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9756e3b000c97c50fcfdbd249d34e12d872d7e86
--- /dev/null
+++ b/raw/aaer/2003/AAER-1863.txt
@@ -0,0 +1,1498 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+ 
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+     
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+     SEC.gov | Jeffrey A. Conway, CPA 
+     
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+              Jeffrey A. Conway, CPA
+           
+     
+ 
+
+   
+
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+      
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+        Jeffrey A. Conway, CPA
+       
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+                        
+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48492 / September 16, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1863 / September 16, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11260 
+
+ 
+	 
+		 
+			 
+			 
+			    
+			In the Matter of 
+			  
+			JEFFREY A. CONWAY, CPA,    
+			  
+			Respondent 
+			   
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS  
+		 
+	 
+ 
+
+ I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Jeffrey A. Conway ("Respondent" or "Conway") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.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. Conway, age 45, is and has been a certified public accountant. He was formerly licensed to practice in the States of Florida and Oklahoma only. His licenses in those states have since lapsed. He served as Chief Financial Officer of Rent-Way, Inc. ("Rent-Way") from February 1992 until September 1999. He also served as President and Chief Operating Officer of Rent-Way from September 1999 until December 2000 and as a Director from February 2000 until December 2000. 
+
+ 2. Rent-Way was, at all relevant times, a Pennsylvania Corporation with its principal place of business in Erie, Pennsylvania. At all relevant times, Rent-Way's common stock was registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act"). 
+
+ 3. On July 22, 2003, the Commission filed a complaint against Conway and others in  SEC v. Rent-Way, Inc. et al.,  Civil Action No. 03-CV-231E (W.D.Pa.). The Commission alleged, among other things, that Conway (i) directed the Company's controller to limit artificially Rent-Way's expenses between December 1998 and October 2000 in order to meet the Company's earnings targets that Conway set, and (ii) directed the Company's senior operating officer to defer artificially the recording of operating losses at the end of fiscal years 1999 and 2000. The Commission further alleged that, as a result of the fraud, the Company's forms 10-Q for 1999 and 2000 and its form 10-K for 1999 understated expenses improperly by approximately $60 million. 
+
+ 4. On July 23, 2003, the court entered an order permanently enjoining Conway, by consent, from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder; from controlling any person who violates Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and under Section 21(d)(2) of the Exchange Act from serving as an officer or director of a public company. Conway was also ordered to pay $129,350 in disgorgement of profits from his sale of stock, and $30,067 in prejudgment interest; and a $200,000 civil money penalty. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+
+ A. Conway is suspended from appearing or practicing before the Commission as an accountant. 
+
+ By the Commission. 
+
+ Jonathan G. Katz 
+Secretary 
+
+  
+
+ 
+   1    Rule 102(e)(3)(i) provides, in relevant part, that: 
+
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diff --git a/raw/aaer/2003/AAER-1864.txt b/raw/aaer/2003/AAER-1864.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f5611066143f8ca07d9cd8ec1fec0742206b9668
--- /dev/null
+++ b/raw/aaer/2003/AAER-1864.txt
@@ -0,0 +1,1414 @@
+
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+ SEC files charges against five former Homestore executives and the former CEO and CFO of a Homestore vendor for engaging in fraudulent round-trip transactions 
+
+ Three former Homestore executives to plead guilty to criminal charges  
+
+ The United States Securities and Exchange Commission, the United States Attorney's Office for the Central District of California, and the Federal Bureau of Investigation today jointly announced the filing of civil and criminal charges against former executives of Homestore, Inc., the Westlake Village, Calif., company that provides real estate listings and related services on the Internet.  The SEC also announced the filing of civil charges against the former CEO and CFO of a Homestore vendor for assisting in the fraudulent scheme at Homestore.  All of the defendants have agreed to settle the Commission's lawsuit and to cooperate with the government in its ongoing investigation.  Additionally, three of them have agreed to plead guilty to criminal charges. 
+
+ With these charges, the SEC has now charged a total of 11 individuals for their roles in a financial fraud scheme at Homestore, 7 of whom have been criminally charged by the United States Attorney in Los Angeles. 
+
+ The civil and criminal actions allege that the defendants structured and negotiated fraudulent "round-trip" transactions for the purpose of artificially inflating Homestore's on-line advertising revenues to exceed Wall Street analysts' expectations, even though these transactions had no economic substance.  In these round-trip transactions, Homestore paid inflated sums to various vendors for services or products, and, in turn, the vendors used these funds to buy advertising from two media companies.  The media companies then bought advertising from Homestore, and Homestore improperly recorded the money it received from the sale of such advertising as revenue in its financial statements.  The essence of these transactions was a circular flow of money by which Homestore recognized its own cash as revenue. 
+
+ All of the Homestore employees charged today were directly involved in setting up these illegal round-trip transactions.  These defendants also participated in misleading Homestore's outside auditors to prevent discovery of the true nature of the round-trip transactions.  This included altering websites and press releases of vendor companies to eliminate incriminating information, preparing and backdating documents, and using false addresses for related businesses.  In addition, several salespeople charged today personally profited from the illegal transactions by accepting "kickbacks" from vendors or by engaging in insider trading in Homestore's stock.  In one case, a former Homestore salesperson routed payment of a kickback through offshore bank accounts in Lebanon and Uganda in an effort to avoid detection. 
+
+ The Civil and Criminal Charges 
+
+ The SEC's civil complaint and the United States Attorney's criminal information, filed today in United States District Court in Los Angeles, charges the following three defendants.   
+
+   Thomas Vo , 29, of Westwood, Calif., was a manager in Homestore's Strategic Alliances Group (SAG) from January 2001 until January 2002.   
+
+  Sailesh Patel , 36, of Los Angeles, Calif., was a Director of Business Development at Homestore from August 2000 until October 2001.    
+
+  Jessica McLellan , 29, of San Francisco, Calif., was a manager in Homestore's SAG from January 2001 through April 2002.    In addition, the SEC's civil complaint also charges the following four defendants. 
+
+   Sophia M. Kabler , 37, of Mill Valley, Calif., was Homestore's Senior Vice President of Advertising Sales throughout 2001.   
+
+  Adam S. Richards , 34, of Oak Park, Calif., was Homestore's Manager of Financial Planning from February 2001 through January 2002.  Richards is a certified public accountant licensed by the State of California.   
+
+  David Slayton , 34, of Waunakee, Wis., who was the chief financial officer and a director of NameProtect, Inc., a private company headquartered in Madison, Wis., that provides trademark research, brand protection, and brand monitoring services.  According to the SEC's complaint, NameProtect was one of the vendors that participated in the round-trip transactions.   
+
+  Brian Wiegand , 34, of Waunakee, Wis., was the chief executive officer and is a director of NameProtect.   The SEC charged the defendants variously with violating or aiding and abetting violations of numerous provisions of the federal securities laws, including the antifraud provisions, 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; reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; record-keeping provisions, Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder; internal controls provisions, Section 13(b)(5) of the Exchange Act; and lying to the auditors provisions, Rule 13b2-2 under the Exchange Act. 
+
+ The Justice Department's criminal action charges Thomas Vo and Sailesh Patel with one count of wire fraud, in violation of Title 18, United States Code, Section 1343, and Jessica McLellan with one count of securities fraud, in violation of Title 15, United States Code, Sections 78j(b) and 78ff, and Title 17, Code of Federal Regulations, Section 240.10b-5. 
+
+ The Settlements and Guilty Pleas 
+
+ Vo, Patel and McLellan have agreed to settle the SEC's lawsuit, to plead guilty to the criminal charges, and to cooperate with the government in its ongoing investigations.  Kabler, Richards, Slayton and Weigand, who were not charged in the criminal case, have also agreed to settle the SEC's lawsuit.  All seven individuals settled the SEC lawsuit without admitting or denying the allegations, simultaneously with the filing of the complaint.  Vo, Patel and McLellan are expected to appear in court on the criminal charges in October 2003. 
+
+ In the SEC case, Kabler will be enjoined from committing future violations of the charged federal securities laws, will repay $530,119 in profits from her exercise of Homestore stock options and commissions she earned during the fraud, plus interest, and will pay a $120,000 civil penalty.  Kabler will also be permanently barred from serving as an officer or director of a public company. 
+
+ In the SEC case, Vo will be enjoined from committing future violations of the charged federal securities laws; and will pay $31,377 representing profits from trading in Homestore stock, commissions, an improper kickback from a customer, interest and a civil penalty.  In the criminal case, Vo faces up to five years in prison and a $250,000 fine. 
+
+ As part of his SEC settlement, Patel will be enjoined from committing future violations of the charged federal securities laws and will pay $170,806, consisting of improper kickbacks he received from customers, interest and a civil penalty.  In the criminal case, Patel faces up to five years in prison and a $250,000 fine. 
+
+ In her SEC settlement, McLellan will be enjoined from committing future violations of the charged federal securities laws and will pay $38,160, representing her profits from trading in Homestore stock, commissions, interest and a civil penalty.  In the criminal case, McLellan faces up to ten years in prison and a $1 million fine.     
+
+ In his SEC settlement, Richards will be enjoined from committing future violations of the charged federal securities laws and will pay $11,894, representing his profits from trading in Homestore stock, interest and a civil penalty.  Richards will also be suspended from appearing or practicing before the SEC as an accountant. 
+
+ Slayton settled the SEC's action by consenting to the entry of an administrative cease-and-desist order prohibiting him from committing or causing future violations of the charged federal securities laws.  He also consented to the entry of a district court judgment ordering him to pay $35,001 in civil penalties and disgorgement. 
+
+ Weigand also settled the SEC's action by consenting to the entry of an administrative cease-and-desist order prohibiting him from committing or causing future violations of the charged federal securities laws.  He also consented to the entry of a district court judgment ordering him to pay $35,001 in civil penalties and disgorgement. 
+
+ The civil penalties and disgorgement will be paid by the defendants to a distribution fund established for the benefit of defrauded Homestore shareholders pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002. 
+
+ Previously in this matter, Homestore's former Chief Operating Officer, John Giesecke, its former Chief Financial Officer, Joseph Shew, its former Vice President of Transactions, John DeSimone, and its former Finance Department Manager, Jeffrey Kalina, pleaded guilty to criminal charges brought by the Department of Justice and settled SEC actions. 
+
+ The civil case is the product of an ongoing investigation by the SEC.  The criminal investigation by the Federal Bureau of Investigation is also ongoing. 
+
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diff --git a/raw/aaer/2003/AAER-1867.txt b/raw/aaer/2003/AAER-1867.txt
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@@ -0,0 +1,1366 @@
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+ U.S. v. Richard I. Berger and Bonnie K. Metz, CR 00-994 (A)-RMT 
+
+ The United States Attorney for the Central District of California announced that on September 4, 2003, after a two-month jury trial in federal district court in Los Angeles, Richard I. Berger, the former president, chief executive officer, and chairman of the board of directors of Craig Consumer Electronics, Inc., was found guilty of twelve felony counts, including conspiracy, bank fraud, falsifying corporate books and records, and making false statements in filings with the Securities and Exchange Commission.  Craig sold consumer electronics to retailers such as Best Buy and Circuit City, and was based in Cerritos, California. 
+
+ A federal grand jury indictment alleged that in 1996 and 1997, Berger fraudulently enabled Craig to borrow significantly more from its line of credit than was allowed under the terms of its credit agreement with a consortium of four banks.  The indictment further  alleged that Berger fraudulently overstated Craig's inventory and accounts receivable.  Craig's reported inventory and accounts receivable established the amount of Craig's borrowing availability from the bank.  By fraudulently transferring defective inventory to a refurbished inventory category, and by overstating Craig's accounts receivable through the creation of bogus shipments and by shipping product early, Berger defrauded the bank into loaning Craig more than allowable under Craig's borrowing agreement.  The bank consortium ultimately lost approximately $8 million and many investors lost their entire investment in the company. 
+
+ The jury deadlocked on other counts against Berger and on counts against Bonnie K. Metz, Berger's co-defendant and Craig's former vice president of international sales.  Donna Richardson, Craig's former chief financial officer, earlier pled guilty to three criminal counts of bank fraud.  Sentencing for both Berger and Richardson is pending. 
+
+ Previously, on September 27, 2000, the Commission filed a civil complaint against Berger and Richardson in federal district court in Los Angeles for misleading investors through false disclosure and financial reporting in filings with the Commission.  Simultaneous with the filing of the complaint, Berger consented to the issuance of a permanent injunction, without admitting or denying the allegations contained in the Commission's complaint, agreed to pay a civil penalty, and be barred from serving as an officer or director of a public company for five years.  See  Litigation Release No. 16731  (Sept. 27, 2000).  In August 2001, Richardson consented to a permanent injunction, without admitting or denying the allegations contained in the Commission's complaint.  See  Litigation Release No. 17100  (Aug. 13, 2001).  The Commission's actions against Berger and Richardson involved primarily the same conduct as charged in the criminal case. 
+
+ In an administrative proceeding, Metz, agreed, without admitting or denying the Commission's findings, to cease and desist from knowingly circumventing internal controls and falsifying books and records.  See  Administrative Proceeding No. 3-10316  (Sept. 27, 2000).  In another administrative proceeding, on December 13, 2000, the Honorable Brenda P. Murray, chief administrative law judge, revoked the registration of the common stock of Craig Consumer Electronics, Inc., pursuant to Section 12(g) of the Exchange Act.  See  Exchange Act Release No. 43715  (December 13, 2000). 
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diff --git a/raw/aaer/2003/AAER-1868.txt b/raw/aaer/2003/AAER-1868.txt
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@@ -0,0 +1,1382 @@
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+ Litigation Release No.18358 / September 23, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1868 / September 23, 2003 
+
+  Securities and Exchange Commission v. Jeffrey R. Anderson , No. CA-03-1203-A (E.D. Va) 
+
+  Securities and Exchange Commission v. Scott H. Miller , No. CA-03-1202-A (E.D. Va) 
+
+ SEC Files Accounting Fraud Charges Against Two Former Officers of PurchasePro.com, Inc. 
+
+ On September 23, 2003, the Commission filed accounting fraud charges in the United States District Court for the Eastern District of Virginia against Jeffrey R. Anderson and Scott H. Miller, both of whom are former officers of PurchasePro.com, Inc., a Las Vegas-based internet company now known as Pro-After, Inc.  Both Anderson and Miller settled the charges without admitting or denying the Commission's allegations. 
+
+ The Commission's complaint against Anderson alleges that from October 2000 through April 2001, while he was PurchasePro's Senior Vice President of Sales and Strategic Development, Anderson knowingly or recklessly participated in a series of acts and transactions designed to inflate PurchasePro's revenues in contravention of generally accepted accounting principles ("GAAP").  In particular, the complaint alleges, Anderson negotiated or otherwise had reason to know about side agreements with several customers that induced them to buy marketplace licenses from PurchasePro during both the fourth quarter of PurchasePro's 2000 fiscal year ("Q4 2000") and the first quarter of its 2001 fiscal year ("Q1 2001"), thereby materially inflating PurchasePro's publicly announced and reported revenues for those quarters.  According to the complaint, Anderson also concealed these side agreements from PurchasePro's auditors, and falsely represented to PurchasePro's auditors that there were no such side agreements.   
+
+ The complaint further charges that Anderson knowingly falsified PurchasePro's accounting books and records and thereby caused PurchasePro to overstate the amount of revenue that was referred to it by its most important strategic partner, America Online, Inc., and that he directed a subordinate to create an inaccurate spreadsheet as support for the inflated AOL referrals.  Next, the complaint alleges that, during Q1 2001, Anderson participated in PurchasePro's improper recognition of $3.7 million in revenue from a purported agreement with AOL called a "Statement of Work," which Anderson knew or was reckless in not knowing was improper because, among other things, the parties never reached an agreement with respect to the services at issue and because the services were not performed as stated in the agreement.  Finally, the complaint alleges that, during April 2001, Anderson received a $100,000 retention bonus from PurchasePro and requested that his e-mail messages relating to the first week of that month be deleted.  
+
+ In its complaint against Miller, the Commission alleged that Miller, while serving as PurchasePro's Senior Vice President of Finance and Chief Accounting Officer, knew or was reckless in not knowing that PurchasePro's recognition of revenue from the "Statement of Work" agreement with AOL was improper under GAAP.  The complaint further alleges that Miller misled the company's outside auditors in connection with the auditors' review of PurchasePro's financial statements for Q1 2001 by, among other things, failing to provide the auditors with material facts that called into question the authenticity and performance of the "Statement of Work."  In addition, the complaint charges Miller with knowingly circumventing PurchasePro's internal accounting controls by, among other things, recording revenue from the "Statement of Work" without adequate documentary support, signing blank checks for use by PurchasePro's former chief executive officer, and causing PurchasePro to pay a higher bonus to the company's then senior vice-president of sales than the company's compensation committee had authorized.  According to the complaint, Miller himself received a $100,000 bonus during the same time frame.  Finally, the complaint alleges that in February 2003, after being served with an SEC subpoena requiring that he produce documents relevant to the matters described above, Miller withheld, destroyed, and attempted to destroy several documents and electronic files that were subject to the subpoena. 
+
+ Based on these factual allegations, the Commission charged both Anderson and Miller with violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the "Exchange Act") and Exchange Act Rules 10b-5 and 13b2-2.  The Commission also charged Anderson with violating Exchange Act Rule 13b2-1 and with aiding and abetting PurchasePro's violations of Exchange Act Section 13(a) and Exchange Act Rule 13a-1.   Without admitting or denying the Commission's allegations, both Anderson and Miller consented to final judgments that would permanently enjoin them from violating the foregoing securities law provisions, permanently bar them from acting as officers or directors of any public company, and order each of them to disgorge $100,000 in bonuses they received during the period in question (plus prejudgment interest), but waive payment of these amounts based on their sworn representations concerning their financial condition. 
+
+ In a related matter, the U.S. Department of Justice and the United States Attorney's Office for the Eastern District of Virginia filed criminal charges against both Anderson and Miller.  Anderson was charged with conspiracy to commit wire fraud, and Miller was charged with obstruction of justice.  The Commission acknowledges the assistance of the Department of Justice, the United States Attorney's Office, and the Federal Bureau of Investigation in the investigation of this matter.  
+
+ The Commission's investigation is continuing. 
+
+   SEC Complaint in this matter  
+
+   Second SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2003/AAER-1869.txt b/raw/aaer/2003/AAER-1869.txt
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+              Christine B. Hoberg
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+        Christine B. Hoberg
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+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48536 / September 24, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1869 / September 24, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11267 
+
+ 
+	 
+		 
+			 
+			 
+			    
+			In the Matter of 
+			  
+			CHRISTINE B. HOBERG, CPA,    
+			  
+			Respondent. 
+			   
+
+			  
+
+			  
+			 
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			  ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS  
+		 
+	 
+ 
+
+ I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Christine B. Hoberg ("Respondent" or "Hoberg") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over her and the subject matter of these proceedings and the findings contained in Section III.3 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that: 
+
+ 1. Hoberg, age 48, is and has been a certified public accountant licensed to practice in the State of California. She served as Chief Financial Officer of Nvidia Corporation ("Nvidia") from 1998 until April 2002. 
+
+ 2. Nvidia was, at all relevant times, a Delaware corporation headquartered in Santa Clara, California. Nvidia is engaged in the business of developing and marketing graphics processors and media and communications devices. At all relevant times, Nvidia's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and is traded on the NASDAQ National Market. 
+
+ 3. On September 11, 2003, the Commission filed a complaint against Hoberg in  SEC v. Christine Hoberg  (Civil Action No. 03-04135 HRL). On September 18, 2003, the court entered an order permanently enjoining Hoberg, by consent, from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder. Hoberg was also ordered to pay $494,332.84 in disgorgement of ill-gotten gains, and $102,362.15 in prejudgment interest. She was also ordered to pay a $75,000 civil money penalty. 
+
+ 4. The Commission's complaint alleged, among other things, that Hoberg engaged in actions that resulted in Nvidia filing a materially false financial statement in the Company's Form 10-Q for the quarter ended April 30, 2000. The Complaint alleged that Hoberg engaged in improper accounting practices that materially increased Nvidia's gross profit, net income and earnings per share for the quarter in a departure from generally accepted accounting principles. As alleged, these practices included participating in structuring a transaction to conceal Nvidia's obligation to repay certain cost reductions from a supplier in future periods. In addition, the complaint alleged that Hoberg failed to disclose material information regarding Nvidia's books and records to Nvidia'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 Hoberg's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+
+ A. Hoberg is suspended from appearing or practicing before the Commission as an accountant. 
+
+ B. After five years from the date of this order, Respondent may request that the Commission consider her reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as: 
+
+ 1. a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Respondent's work in her practice before the Commission will be reviewed either by the independent audit committee of the public company for which she works or in some other acceptable manner, as long as she practices before the Commission in this capacity; and/or 
+
+ 2. an independent accountant. Such an application must satisfy the Commission that: 
+
+ (a) Respondent, or the firm with which she 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+ (b) Respondent, 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 or equivalent organization; and 
+
+ (c) As long as Respondent appears or practices before the Commission as an independent accountant she will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+ 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 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. 
+
+ Jonathan G. Katz 
+Secretary 
+
+  
+
+ 
+   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. 
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diff --git a/raw/aaer/2003/AAER-1870.txt b/raw/aaer/2003/AAER-1870.txt
new file mode 100644
index 0000000000000000000000000000000000000000..87be50d8771a42abe27d18bc2c9fff41360a70d5
--- /dev/null
+++ b/raw/aaer/2003/AAER-1870.txt
@@ -0,0 +1,1480 @@
+
+
+ 
+ 
+   
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+     SEC.gov | Stephen Scott Lowber, CPA 
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+ Securities Exchange Act of 1934 
+Release No. 48537 / September 25, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1870 / September 25, 2003 
+
+ Administrative Proceeding 
+File No. 3-11268 
+
+     In the Matter of 
+
+ Stephen Scott Lowber, CPA, 
+
+ Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Stephen Scott Lowber ("Lowber" or "Respondent") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that: 
+
+ 1. Lowber, age 52, is a certified public accountant who has been licensed to practice in the State of Washington.  He is currently a certificate holder but not actively licensed in the State of Washington.  He served as Chief Financial Officer of Cutter & Buck Inc. ("Cutter" or the "Company") from 1997 until August 2002. 
+
+ 2. Cutter is a Washington corporation headquartered in Seattle, Washington.  The Company designs and distributes upscale sportswear.  The Company's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and has been quoted on the Nasdaq Stock Market since the Company's 1995 initial public offering. 
+
+ 3. On August 7, 2003, the Commission filed a complaint against Lowber in  SEC v. David Andrew Hilton and Stephen Scott Lowber  (Civil Action No. C 03-2511-Z).  On August 29, 2003, the court entered an order permanently enjoining Lowber, by consent, from future 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, 13b2-1 and 13b2-2 thereunder.  Lowber was also ordered to pay a $50,000 civil money penalty and prohibited from serving as an officer or director of a public company. 
+
+ 4. The Commission's complaint alleged, among other things, that Lowber engaged in actions that resulted in Cutter filing materially false financial statements for the fiscal years ended April 30, 2000 and April 30, 2001.  The Complaint alleged that, at the end of the 2000 fiscal year, Cutter shipped $5.7 million in products to three distributors who had no obligation to pay for the goods unless Cutter found customers for the goods, improperly recognizing revenue in violation of Generally Accepted Accounting Principles ("GAAP").   According to the Complaint, Lowber knew or was reckless in not knowing that the distributors did not have the financial ability to pay for the products.  The Complaint further alleged that, when the distributors subsequently returned the products to Cutter, Lowber directed Cutter personnel to record the returns in a manner that would conceal them from the Company'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 Lowber's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+
+ Lowber is suspended from appearing or practicing before the Commission as an accountant. 
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   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. 
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diff --git a/raw/aaer/2003/AAER-1871.txt b/raw/aaer/2003/AAER-1871.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fb287e32c862fd16c533bc7cb696fa4a7748d501
--- /dev/null
+++ b/raw/aaer/2003/AAER-1871.txt
@@ -0,0 +1,1529 @@
+
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+ Securities Exchange Act of 1934 
+Release No. 48542 / September 25, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1871 / September 25, 2003 
+
+ Administrative Proceeding 
+File No. 3-11269 
+
+     In the Matter of 
+
+ OLIVER FLANAGAN, 
+ Chartered Accountant 
+
+ 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 Oliver Flanagan, Chartered Accountant, ("Respondent" or "Flanagan") 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.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds  2   that:  
+
+ A. Respondent 
+
+ Oliver Flanagan, 34, is a resident of Ireland, and has been a Chartered Accountant since 1996.  Flanagan worked for Ernst & Young ("E&Y") between July 1997 and April 1999 in their Luton, England and London, England offices.  After a brief period working for a bank, Flanagan rejoined E&Y in April 2000 and worked in E&Y's San Francisco, California office until early 2002.  During this period, Flanagan was a member of the audit team for NextCard, Inc. ("NextCard").  Beginning in early 2002, Flanagan worked for Ernst & Young Chartered Accountants, in Dublin, Ireland.  Flanagan resigned from Ernst & Young Chartered Accountants in 2003. 
+
+ B. Other Relevant Persons 
+
+ 1. The "Audit Partner" became the audit partner responsible for E&Y'S NextCard audits in October 2000 and was at all relevant times after that date the E&Y partner in charge of the audit team for NextCard. 
+
+ 2. The "Other Audit Manager" was another E&Y employee who worked on the NextCard audit team beginning in mid-2001.   
+
+ C. Facts 
+
+ 1. NextCard was an internet-based credit card issuer located in San Francisco, California and incorporated in Delaware.  During the relevant period, NextCard's stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was listed on the NASDAQ National Market. 
+
+ 2. NextCard wholly owned NextBank, N.A., a chartered bank that funded the credit card loans.  NextBank was subject to regulation by the Office of the Comptroller of the Currency. 
+
+ 3. NextCard retained E&Y to audit its financial statements for the year ended December 31, 2000 (the "2000 audit").  The Audit Partner was assigned to head the engagement.  Flanagan was assigned to the audit as senior manager.  Acting at the Audit Partner's direction, E&Y accountants conducted an audit of NextCard's financial statements in December 2000 and January 2001.  The fact gathering phase of this work, known as "field work," was memorialized in documents called "working papers."  On or about March 14, 2001, the Audit Partner and Flanagan reviewed some or all of the working papers and the Audit Partner approved E&Y's issuance of an auditor's report containing an unqualified opinion on NextCard's financial statements.  E&Y's report was dated January 23, 2001, the date that E&Y's field work was concluded.  The Other Audit Manager joined the NextCard audit team as a manager in approximately June 2001 during additional E&Y work. 
+
+ 4. In the summer of 2001, the Office of the Comptroller of the Currency asked E&Y for a portion of its audit working papers regarding E&Y's audit of NextCard.  The Audit Partner was notified of this request. 
+
+ 5. On October 31, 2001, NextCard announced in a press release that the Office of the Comptroller of the Currency had asked the company to make certain changes regarding NextBank's accounting practices, including changes regarding the classification of losses on credit cards.  The company also announced that it intended to sell NextBank because it was unable to raise sufficient capital to meet bank regulatory requirements after, among other issues, the Office of the Comptroller of the Currency called for NextBank to reclassify certain losses. 
+
+ 6. Following the company's press release on October 31, 2001, the trading price of its common stock declined by approximately 84 percent.   
+
+ 7. In the first few days of November 2001, the Audit Partner became concerned that E&Y's audit work would be examined by regulatory agencies or others.  The Audit Partner instructed Flanagan to gather together the working papers for the NextCard 2000 audit (both hard copy files and those electronically archived) and have them ready for revisions during a Saturday meeting.     
+
+ 8. Also at this time, the Audit Partner began to investigate how to manipulate E&Y's computer system so that he could alter electronically archived working papers without being discovered.  The Audit Partner asked the Other Audit Manager to find out how to de-archive an audit in order to revise and re-archive the working papers.  On or about November 2, 2001, the Other Audit Manager obtained information on this subject from another E&Y employee and forwarded that information to the Audit Partner and Flanagan.   
+
+ 9. On a Saturday in November 2001, the Audit Partner and Flanagan met in E&Y's San Francisco office and altered portions of E&Y's electronic working papers for the NextCard 2000 audit.  These alterations consisted of both additions and deletions to the working papers.  Specifically, the Audit Partner altered the Summary Review Memorandum ("SRM") as well as memoranda regarding the audit of NextCard's allowance for loan and lease losses and securitizations of receivables.  The Audit Partner marked up printed versions of the documents and gave them to Flanagan for Flanagan to input using Flanagan's laptop computer.  In order to ensure that the revised documents appeared to have been created as part of the original working papers, the Audit Partner instructed Flanagan to reset the date on his computer so that any documents bearing computer-generated dates would reflect a date in early 2001.  Some documents went through more than one edit, as Flanagan input the Audit Partner's changes and then printed out the revised version for the Audit Partner's further review. 
+
+ 10. Later in November 2001, the Audit Partner asked Flanagan and the Other Audit Manager to assist him in making additional alterations to the working papers for the NextCard 2000 audit.  The Audit Partner, Flanagan and the Other Audit Manager met and made additional alterations to these working papers, using the Other Audit Manager's laptop computer.  Flanagan showed the Other Audit Manager how to change the date setting on his computer to make it appear as though the altered workpapers were created earlier in the year at the time the original audit work had been performed.  The Audit Partner marked up printed versions of the memoranda he was revising and then the Other Audit Manager input the changes.  At the Audit Partner's direction, the Other Audit Manager deleted charts, portions of tables, and discussion sections that indicated problems with NextCard's charge-off numbers and trends.  The Audit Partner also added information and altered the tone of certain sections.  One of the documents altered during this meeting was a memorandum entitled "Analysis for Loan Losses."  Flanagan remained involved in the process by proofreading the Other Audit Manager's work to ensure that all of the Audit Partner's changes were made. 
+
+ 11. The Audit Partner's purpose in altering E&Y's working papers was to make it appear that there was a more satisfactory basis for E&Y's audit conclusions. 
+
+ 12. In or about November 2001, after altering the working papers, the Audit Partner instructed Flanagan to scour his hard drive and delete documents or emails inconsistent with the altered versions of the working papers.  Flanagan complied and deleted documents. 
+
+ D. VIOLATION 
+
+ 13. As a result of the conduct described above, Flanagan engaged in unethical and improper professional conduct by engaging in intentional or knowing conduct, including reckless conduct, that resulted in a violation of applicable professional standards.  He violated professional auditing standards governing the creation and retention of working papers as well as those establishing the standards for ethical conduct by auditors.  Statements on Auditing Standards are cited in the "AU" section of the AICPA's Professional Standards.  AU Section 339 addresses the preparation and maintenance of working papers.  AU 339.01 states that the information contained in working papers constitutes the principal record of the work that the auditor has done and the conclusions he has reached concerning significant matters.  AU 339.08 requires the auditor to "adopt reasonable procedures for safe custody of his working papers and retain them for a period sufficient to satisfy any pertinent legal requirements of records retention."  The AICPA Code of Professional Conduct, specifically ET Sections 51-54 and 56, provides additional professional standards for auditors.  These sections require a high level of professional ethics and integrity from public accountants.   Flanagan's intentional alteration and destruction of portions of the working papers for the NextCard 2000 audit violated these professional standards.     
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Flanagan's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that :  
+
+ A. Flanagan is denied the privilege of appearing or practicing before the Commission. 
+
+ B. 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 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+ (b).   Respondent, 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 or equivalent organization; and  
+
+ (c).   As long as Respondent 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+ D. The Commission will consider an application by Respondent to resume appearing or practicing before the Commission as an accountant provided that his accountant status is current and he has resolved any disciplinary issues with the applicable board of accountancy.  However, if the resolution of any disciplinary action by a board of accountancy is dependent on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Respondent's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   1    Rule 102(e)(1)(ii) provides, in relevant part, that: 
+
+ The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found . . . to be lacking in character or integrity or to have engaged in unethical or improper professional conduct. 
+
+   2     The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.   
+
+ 
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diff --git a/raw/aaer/2003/AAER-1873.txt b/raw/aaer/2003/AAER-1873.txt
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+              Akorn, Inc.
+           
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+        Akorn, Inc.
+       
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48546 / September 25, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1873 / September 25, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11272 
+
+        
+
+In the Matter of 
+  
+AKORN, INC.,      
+  
+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 Akorn, Inc.  ("Akorn" 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, Akorn 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 it and over the matters set forth herein, Respondent has consented to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings and Imposing a 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  1   that: 
+
+  Respondent  
+
+ 1. Akorn, a Louisiana corporation headquartered in Buffalo Grove, Illinois, manufactures and markets diagnostic and therapeutic pharmaceuticals, surgical instruments and related products and provides contract manufacturing services.  Akorn files reports with the Commission pursuant to Section 13(a) of the Exchange Act.  During the relevant time period and through June 25, 2002, Akorn's stock traded on the Nasdaq National Market System ("Nasdaq").  2   
+
+  Background  
+
+ 2. In its 2000 Form 10-K, Akorn issued audited financial statements that were not accurate or in accordance with generally accepted accounting principles.  Specifically, Akorn carried on its books at least $7 million in accounts receivable which were impaired or uncollectable.  Although Akorn subsequently created a reserve for these uncollectable accounts in its first quarter 2001, it claimed that the reserve was only the result of a "change in estimate" based on new information, rather than properly disclosing that the reserve was the result of ongoing, serious problems with the company's books and records and internal controls.   
+
+ 3. Beginning in at least 2000, Akorn failed to promptly and completely record and reconcile cash and credit remittances, including from its top five customers, to invoices posted in its accounts receivable sub-ledger.  These top five customers, wholesale drug distributors, comprised forty-three percent of Akorn's sales and sixty percent of its accounts receivable during 2000.  Akorn's problems resulted from numerous internal control and books and records deficiencies that prevented the company from accurately recording, reconciling and aging its receivables.  Akorn's contractual relationships with its top five wholesale customers provided for an array of complicated credits in the form of rebates and chargebacks.  The wholesaler's purchasing practices combined with Akorn's complicated credit system created a confusing accounting environment for Akorn.  Often, the wholesalers deferred paying individual Akorn invoices upon receipt.  Instead, the wholesalers periodically made lump-sum payments applicable to numerous invoices and simultaneously withheld claimed credits.  In addition, when Akorn failed to timely act on credits to which customers thought they were entitled, the customers took the credit themselves and reduced payment on their next remittance to Akorn.  Computer problems, rapid growth, heavy staff turnover, and unsupervised and inexperienced accounts receivable staff further contributed to Akorn's reconciliation difficulties.  Accordingly, many remittances from Akorn's top five customers were not timely reconciled, i.e., payments and credits received were not timely applied to the corresponding, individual open invoices.  Indeed, Akorn frequently recorded payments as a separate entry in its systems without making any offsetting entries with respect to the corresponding individual invoices.  Akorn was also aware that problems with its computer systems often caused invoices that had been at least partially paid to be shown open in full.  
+
+ 4. At an April 20, 2000 meeting, Akorn's audit committee discussed that the company's accounts receivable aging had "deteriorated further" from the previous quarter.  During the meeting, Akorn's auditors "noted that if substantial improvement is not seen over the course of the next quarter, the company will have to begin establishing a reserve for aged accounts."  Shortly thereafter, Akorn's auditors reiterated their concern about Akorn's accounts receivable.  In their management letter dated February 25, 2000, Akorn's auditors described management's failures during 1999 to review accounts receivable aging in detail, to reconcile accounts receivable timely, and to collect outstanding balances effectively and efficiently, and further noted the misapplication of credits and payments.   
+
+ 5. On October 20, 2000, the audit committee found that accounts receivable aging had slightly deteriorated again.  In its last meeting of the year on November 30, 2000, the board of directors "expressed strong concern about the company's receivables...[and] discussed a number of exposure areas, including receivables."     
+
+ 6. During the latter part of 2000, Akorn undertook certain efforts to reconcile and collect aged open invoices from non-top five, end-use customers, mainly dated 1997 through 1999, but including some dated 1994.  By January 2001, Akorn was able to collect only approximately $200,000 of the approximately $700,000 open invoices.  Some customers refused to pay the remaining invoices because of the age of the invoices and Akorn's inability to provide proof of delivery.  Subsequently, in a memo dated January 31, 2001, the accounts receivable manager concluded that Akorn's failure to reconcile invoices "significantly affected the accounts receivable collectibles."  She concluded that, with respect to both wholesaler and end-use customer accounts, there was "no evidence indicating prior implementation regarding credit and collections efforts [had] been effective thus far." 
+
+ 7. By early 2001, Akorn began to have serious cash flow problems, and it violated certain loan covenants with its primary lender.  As a result, the company thereafter focused on reconciling and collecting its accounts receivable balance.  In late February 2001, two months before Akorn filed its 2000 Form 10-K, Akorn's auditors prepared a detailed summary of Akorn's unreconciled accounts receivable as of September 30, 2000, in furtherance of its end of the year audit for 2000.  Using Akorn's accounts receivable data base, Akorn's auditors created an aging report that contained a category of unreconciled invoices dated prior to 1999.  Akorn's auditor's aging report showed that Akorn's unreconciled accounts receivable from its top five customers included 1999 invoices totaling $3.2 million and pre-1999 invoices totaling $2.45 million, and that Akorn's accounts receivable from its remaining customers included 1999 invoices totaling $1 million and pre-1999 invoices totaling $.65 million.  Thus, according to Akorn's auditor's analysis, of the roughly $26 million in gross accounts receivable, Akorn had approximately $7.23 million in purportedly open unreconciled invoices dated 1999 and older in its accounts receivable portfolio.  Akorn's auditors recognized that some portion of these purportedly open invoices may in fact have been paid but not reconciled and closed out, however. Akorn's auditors discussed the results of the analysis with the company prior to Akorn's filing of its 2000 Form 10-K.   
+
+ 8. On March 7, 2001, Akorn's chairman of the board directed:  "All receivables will be analyzed thoroughly and a determination will be made on accuracy and any write-offs necessary. . . . A report will be presented before the end of March on any potential write-offs."   
+
+ 9. On March 15, 2001, a consultant hired by Akorn drafted a report to the chairman of the board concluding that he could not determine the collectibility of Akorn's accounts receivable and the magnitude of a potential write-off: 
+
+  Given the problems and issues involved, I regret that I cannot provide an assessment of what is collectible and what the magnitude of write-offs might be.  A determination on the collectibility will require a substantial amount of time (months) and work. . . . One could easily jump to the conclusion that it should be relatively easy to collect on those five [top wholesaler] accounts and achieve the quick infusion of cash that we are looking for.   However, the wholesaler accounts have never been worked .  We are talking about an accumulation of problems over a  3 or 4 year period .... No management reports exist that trend sales, cash, A/R aging, reserves, unbilled or DSO.  Therefore, the A/R could not have been properly monitored.  (Emphasis in original.)     
+
+ Akorn's accounts receivable consultant discussed the problems and issues raised in the memo with the company, including his belief that it was "likely" that some receivables would be written off.   
+
+ 10. By March 2001, Akorn was aware that there was a substantial discrepancy regarding the amount owed by its largest customer.  In February, this customer provided Akorn with its accounts payable aging summary.  Akorn's open accounts receivable balance showed that the customer owed Akorn approximately $4 million, while the customer's open accounts payable balance showed Akorn actually owed it approximately $800,000.  Moreover, by mid March, Akorn learned that this customer had taken approximately $1 million in rebate credits that Akorn believed were improper, but to which the customer believed it was entitled. 
+
+ 11. By mid April, prior to Akorn's filing of its 2000 Form 10-K, Akorn had  reconciled additional portions of its largest customer account sufficiently to send letters to the customer requesting payment on what it believed were unpaid open invoices for 2000 and 1999, totaling approximately $2 million.   
+
+ 12. On April 17, 2001, Akorn filed its Form 10-K for the year ended December 31, 2000, reporting annual net sales of $66.9 million and net income of $2.2 million or $0.11 per share.  Akorn reported year end accounts receivable totaling $24.1 million, its largest asset.  Despite its substantial problems with properly recording, reconciling and collecting its accounts receivable throughout 2000 and first quarter 2001, Akorn did not establish a reserve for any of its accounts receivable for its top five wholesale customers during fiscal year 2000, nor did it disclose any impairment of those receivables.  Although Akorn did record $801,000 in its doubtful accounts reserve (roughly one fourth of which was carried over from 1999), that amount was comprised solely of accounts for its non-top five, end-use customers.  Had Akorn appropriately recorded a reserve for its doubtful accounts, it would have posted a $2 million loss for its fiscal year ended December 31, 2000, rather than the $2 million profit it claimed in its 2000 Form 10-K. 
+
+ 13. On May 16, 2001, one month after filing its 2000 Form 10-K, Akorn issued a press release announcing that it was evaluating the extent to which it would need to make changes to its financial reserves, including its bad debt reserve, and that the changes would have a significant and adverse impact on earnings.  The price of Akorn common stock dropped from $3.0937 to $1.7343 per share the day of the announcement, while the volume increased from an average of 70,280 shares per day in the prior five trading days to 1,092,500 shares on May 16, 2001. 
+
+ 14. In its first quarter Form 10-Q, filed on May 22, 2001, Akorn increased its reserve for doubtful accounts by $7.5 million or 10 percent of reported net sales for fiscal year 2000 and 126 percent of reported net sales for the first quarter 2001.  The per share impact for the quarter was ($0.39).  Following Akorn's filing, the price of Akorn's common stock declined further to close at $1.0937 on May 22, 2001, and $1.125 on May 23, 2001.  3    Akorn explained the increase in its accounts receivable reserve as resulting from a change in estimate "[b]ased upon its recent unsuccessful efforts to collect past due balances."  Akorn did not disclose anything about its lack of internal controls or its failure to accurately compute, age and monitor its accounts receivable. 
+
+  Violations  
+
+ 15. As a result of the conduct described above, Akorn violated Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder which require every issuer of a security registered pursuant to Section 12 of the Exchange Act to file with the Commission, in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security, such quarterly and annual reports as the Commission may prescribe.  Akorn's 2000 Form 10-K and first quarter 2001 Form 10-Q materially misstated its accounts receivable balance or, alternatively, failed to disclose the impairment to its accounts receivable.  Akorn's first quarter 2001 Form 10-Q inaccurately attributed the increased accounts receivable reserve just to a change in estimate based on recent collection efforts, rather than an error caused in large part by books and records and internal control problems. 
+
+ 16. As a result of the conduct described above, Akorn violated 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.  Akorn failed to keep accurate books and records regarding its accounts receivable.   
+
+ 17. As a result of the conduct described above, Akorn violated Section 13(b)(2)(B) of the Exchange Act which requires public companies to devise and maintain a system of adequate internal accounting controls sufficient to provide reasonable assurance that, among other things, transactions were recorded as necessary to permit preparation of financial statements in conformity with Generally Accepted Accounting Principles and to maintain accountability of assets.  Akorn failed to devise and maintain a system of adequate internal accounting controls sufficient to ensure that its accounts receivable was properly recorded. 
+
+  Remedial Acts  
+
+ 18. In determining to accept Akorn's offer, the Commission considered remedial acts promptly undertaken by Respondent. 
+
+  Undertakings  
+
+ 19. Respondent has undertaken to: 
+
+ A.  Appoint a special committee comprised entirely of outside directors that, within 30 days after the entry of the Order, shall retain a qualified independent consultant ("Consultant") acceptable to the staff of the Commission to perform a review of Akorn's material internal accounting controls, practices, and policies related to accounts receivable.  Within 180 days after appointment, the Consultant shall complete its review and submit to the committee a report fully documenting the findings of its review and recommending improvements or changes to Akorn's internal accounting controls practices, and policies.  Within 20 days after receipt of the Consultant's report, the committee shall submit the report to Akorn's Board of Directors, as well as to the staff of the Commission to the attention of Katherine S. Addleman, Assistant Regional Director, Central Regional Office, U.S. Securities and Exchange Commission, 1801 California St., Suite 1500, Denver, CO  80202.  Within 30 days of the receipt of the Consultant's report by the special committee, Akorn may propose to the Consultant alternative procedures designed to achieve the same purpose as any recommendation with which Akorn disagrees.  The Consultant shall evaluate such alternative procedure.  However, Akorn shall abide by the Consultant's final determination with regard thereto and adopt those recommendations that the Consultant determines are appropriate.  Within 60 days after receipt of the Consultant's report by the special committee, the Board of Directors shall report to the Consultant and to the staff of the Commission the decisions made and/or taken as a result of the consultant's proposed recommendations. 
+
+ B. Require the Independent Consultant to enter into an agreement that provides that for the period of the engagement and for a period of two (2) years from the completion of the engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with Akorn, or any of their present or former affiliates, directors, officers, employees, or agents acting in their capacity as such.  The agreement shall provide that any firm with which the Independent Consultant is affiliated or of which he or she is a member, and any person engaged to assist the Independent Consultant in the performance of his or her duties under the Order shall not, without prior written consent of the Commission's staff, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Akorn, or any of their present or former affiliates, directors, officers, employees, or agents in their capacity as such for the period of the engagement and for a period of two (2) years after the engagement. 
+
+ III. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Respondent.  Accordingly, it is hereby ordered that: 
+
+ A. Pursuant to Section 21C of the Exchange Act that Respondent 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. 
+
+ B. Respondent shall comply with the undertakings enumerated in Section II. above. 
+
+
+By the Commission.
+
+ Jonathan G. Katz 
+Secretary 
+
+ 
+ 
+
+ 
+    1     The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. 
+
+   2      On June 25, 2002, Akorn's stock was delisted from Nasdaq based on the company's failure to provide audited financial statements in its 2001 Form10-K, filed on April 16, 2002.   
+
+   3     Akorn did not disclose the composition of its reserve account in its Form 10-Q.  The reserve was calculated based upon 100 percent of Akorn's entire accounts receivable for the years 1999 and prior and 50 percent of its entire accounts receivable for 2000. 
+
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diff --git a/raw/aaer/2003/AAER-1877.txt b/raw/aaer/2003/AAER-1877.txt
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+              Sport-Haley, Inc., Robert G. Tomlinson, and Steve S. Auger
+           
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+        Sport-Haley, Inc., Robert G. Tomlinson, and Steve S. Auger
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+ Litigation Release No. 18371 / September 29, 2003
+  Accounting and Auditing Enforcement Release No. 1877 / September 29, 2001
+   SEC v. Sport-Haley, Inc., Robert G. Tomlinson, and Steve S. Auger,
+ Civ. Action No. 03-Z-1917(CBS)
+(District of Colorado)
+
+  On Friday, September 26, 2003, the Securities and Exchange Commission ("Commission") filed suit in the United States District Court for the District of Colorado against Sport-Haley, Inc. ("Sport-Haley"), its chairman of the board, and former controller for violations of the antifraud, periodic reporting, record keeping, and internal controls provisions of the federal securities laws.  Sport-Haley, located in Denver, Colorado, designs, markets, and contracts for the manufacture of golf apparel and outerwear under the Haley-Registered Trademark label.  According to the Complaint, Sport-Haley materially misstated inventory, improperly capitalized period costs and materially misstated losses on the sale of headwear equipment in its quarterly and annual 1998, 1999, and 2000 financial statements.
+
+  Named as defendants in the Complaint are Sport-Haley, R.G. Tomlinson of Scottsdale, Arizona, the current chairman and former chief executive officer, and Steve S. Auger of Morrison, Colorado, the former controller of Sport-Haley.  
+
+  The Commission asserts that Sport-Haley materially overstated inventory in its financial statements during its 1998 and 1999 fiscal years.  According to the Complaint, Tomlinson and Auger knowingly concealed that inventory was materially overstated by $1.2 million at June 30, 1999 and agreed to eliminate the overstated inventory by writing the inventory off at the rate of $100,000 per month during its 2000 fiscal year.  The Commission alleges Sport-Haley failed to disclose the inventory overstatement or the company's elaborate measures to adjust the financial statements for the overstatement.  The Complaint asserts that Sport-Haley materially understated expenses related to period costs in financial statements filed with the Commission during its 1998 and 1999 fiscal years and first three quarters of 2000.  The Commission also alleges that Tomlinson and Auger knowingly or recklessly allowed the company to materially misstate losses on the sale of headwear equipment in Sport-Haley's 1999 year-end financial statements and quarterly financial statements during the first three quarters of its 2000 fiscal year.  The Complaint asserts that Tomlinson and Auger reviewed and signed filings with the Commission that they knew or were reckless in not knowing contained false financial statements.  
+
+  According to the Complaint,
+     as a result of these and other accounting errors, Sport-Haley filed with the Commission materially incorrect financial statements that overstated the company's 1998 fiscal year income by $1.5 million or 41 percent and its 1999 fiscal year income by $311,000 or 22 percent.
+
+  As a result of the conduct described in the Complaint, the Commission charged Sport-Haley, Tomlinson, and Auger with violations of Sections 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act"), Exchange Act Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933 ("Securities Act") (antifraud provisions).  The company is also charged with violating Section 13(b)(2) and Section 15(d) of the Exchange Act and Exchange Act Rules 12b-20, 15d-1, and 15d-13 thereunder (issuer reporting, books and records, and internal control provisions).  Tomlinson and Auger are charged with aiding and abetting the company's violations of Section 15(d) of the Exchange Act and Exchange Act Rules 12b-20, 15d-1 and 15d-13 thereunder.  In addition, Tomlinson and Auger are charged with aiding and abetting the company's violation of Section 13(b)(2) of the Exchange Act.  Finally, Tomlinson and Auger are also 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) and violating Exchange Act Rule 13b2-1 (issuer books and records and internal accounting controls provisions).
+
+  The Commission's Complaint sought injunctive relief and civil penalties from Sport-Haley, Tomlinson, and Auger.  According to the Complaint, the Commission also seeks an officer and director bar against Tomlinson and Auger as well as disgorgement from the company, Tomlinson, and Auger.  
+  
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diff --git a/raw/aaer/2003/AAER-1878.txt b/raw/aaer/2003/AAER-1878.txt
new file mode 100644
index 0000000000000000000000000000000000000000..75533d19f49357ded1406be030f01ed03004892a
--- /dev/null
+++ b/raw/aaer/2003/AAER-1878.txt
@@ -0,0 +1,1372 @@
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+ Litigation Release No. 18374 / September 29, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1878 / September 29, 2003 
+
+  SEC v. Loren D. Pfau,  Civil Action No. 03-D-1925 (MJW) (D. Colo.) 
+
+ Today, the Securities and Exchange Commission (the "Commission") instituted, and simultaneously settled, a cease-and-desist proceeding against Loren D. Pfau, a resident of Evergreen, Colorado and former employee of Qwest Communications International, Inc. ("Qwest").  In addition, the Commission filed a related action for civil penalties against Pfau in the United States District Court for the District of Colorado.   
+
+ In the Order,  In the Matter of Loren D. Pfau  [ 33-8295 ], the Commission found that in the final days of each quarter from December 2000 through June 2001, Qwest used Indefeasible Right of Use ("IRU") agreements to sell fiber-optic cable from its telecommunications network as a means to meet aggressive revenue targets.  An IRU is an irrevocable right to use a specific amount of fiber for a specified time period.  Qwest accounted for IRUs as sales-type leases and recognized nearly the entire amount of the IRU revenue "up-front" at the time of contract execution, rather than over the life of the IRU agreement.  Qwest employees and management commonly referred to IRU sales as "gap fillers," in other words, a means to make up the shortfall between the aggressive revenue projections as publicly announced by Qwest and the actual revenue earned.   
+
+ Specifically, the Commission found that in three IRU transactions executed between December 2000 and June 2001, Pfau, then a Qwest sales manager, along with Qwest senior management, provided secret side agreements allowing the purchasers of fiber-optic cable to exchange (or "port") the fiber purchased for different fiber at a later date.  The explicit purpose of making the side agreements secret was to conceal from Qwest's accountants and outside auditors the purchasers' ability to port, since such exchange rights would have defeated, under generally accepted accounting principles, the up-front revenue recognition sought by Qwest.  According to the Commission's findings, Qwest improperly recognized from the three IRU transactions $26.6 million of revenue in the first and second quarters of 2001.  As a result, Qwest's quarterly reports for the first and second quarters of 2001, and its annual report for 2001, contained materially false information.   
+
+ Without admitting or denying the findings in the Commission's Order, Pfau has agreed to settle the Commission's claims by consenting to the entry of an administrative order requiring him to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 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.   
+
+ The Commission's complaint in the district court action alleges the same conduct referenced above, and Pfau, without admitting or denying the allegations in the complaint, has consented to the entry of judgment by the U.S. District Court requiring him to pay a civil penalty of $25,000.  In settling for a $25,000 penalty, the Commission considered Pfau's cooperation in connection with the Commission's ongoing investigation of this matter 
+
+     SEC Complaint in this matter   -->
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diff --git a/raw/aaer/2003/AAER-1882.txt b/raw/aaer/2003/AAER-1882.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f4eacc4347d3de48918d25045f04e93dccdab4bd
--- /dev/null
+++ b/raw/aaer/2003/AAER-1882.txt
@@ -0,0 +1,1486 @@
+
+
+ 
+ 
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+ SECURITIES ACT OF 1933 
+Release No. 8296 / September 30, 2003 
+
+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48575 / September 30, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1882 / September 30, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11289 
+
+        
+
+In the Matter of 
+  
+TIMOTHY McCOOL,      
+  
+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 they 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 Timothy McCool ("McCool" 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 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 Respondent's Offer, the Commission finds  1   that:  
+
+ 1. Respondent Timothy McCool of Portland, Oregon, was the Director of Sales for the North American division of one of the largest vendors of merchandise (the "Vendor") to Just for Feet, Inc. ("Just for Feet" or the "Company") during 1998 and 1999.  
+
+ 2. Just for Feet, a Delaware corporation based in Birmingham, Alabama, was a national retailer of athletic and outdoor footwear and apparel.  Its stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was traded on the NASDAQ National Market System.  Just for Feet filed for protection in November of 1999 under Chapter 11 of the Bankruptcy Code.  This was later converted to a Chapter 7 liquidation proceeding in 2000. 
+
+ 3. Just for Feet incurred large amounts of advertising expenses.  Most of its vendors offered financial assistance through unwritten agreements to Just for Feet to help pay for these advertising expenses.  This assistance was termed "advertising co-op" or "vendor allowances."  When Just for Feet promoted a particular vendor's products in one of its advertisements, that vendor might agree to offer advertising co-op to the Company to share the costs of the advertisement.  Just for Feet often deducted these amounts as credits against future payments it made to its vendors for merchandise. 
+
+ 4. McCool, the Director of Sales for the North American subsidiary of the Vendor, signed on April 20, 1999, an audit confirmation letter sent to him by a Just for Feet officer, confirming that his company owed approximately $2.27 million in advertising co-op receivables to Just for Feet, and then sent it to Just for Feet's auditors.    The letter clearly stated that the confirmation was in connection with the audit of Just for Feet's financial statements.   
+
+ 5. In fact, the Vendor owed no advertising co-op receivables to Just for Feet as of January 30, 1999.  McCool knew this, but nonetheless signed and submitted the confirmation letter. 
+
+ 6. Also on April 20, 1999, McCool sent a "Disclaimer" to the Just for Feet officer who had sent the audit confirmation to him, stating, in effect, that the audit confirmation would become void if Just for Feet attempted to collect, based solely on the confirmation, any of the credits contained in the $2.27 million in receivables purportedly owed to it by the Vendor. 
+
+ 7. The $2.27 million in fictitious receivables confirmed by McCool increased the income and/or assets reported in Just for Feet's fiscal 1998 Form 10-K, filed with the Commission on April 30, 1999, Forms 10-Q for the first and second quarters of fiscal 1999, filed on June 14, 1999, and September 27, 1999, respectively, a registration statement on Form S-8 filed on May 3, 1999 and a registration statement on Form S-4 filed on June 14, 1999.  The amount confirmed by McCool was a material part of the financial statements included in these filings. 
+
+ 8. By the acts and practices described above, McCool caused Just for Feet to violate Section 17(a) of the Securities Act, which prohibits fraudulent conduct in the offer and sale of securities, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of securities.  McCool also caused Just for Feet to violate Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, which require that issuers of securities file annual and quarterly reports with the Commission prepared in conformity with the requirements of the Commission's rules and regulations and containing such other information as is necessary to ensure that the statements made in those reports are not, under the circumstances, materially misleading.   
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent's Offer. 
+
+ Accordingly, it is hereby ORDERED that Respondent McCool 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) 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, 13a-1 and 13a-13 thereunder.   
+
+By the Commission.
+
+ Jonathan G. Katz 
+Secretary 
+
+    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.   
+
+   
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diff --git a/raw/aaer/2003/AAER-1883.txt b/raw/aaer/2003/AAER-1883.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0b1f5dcd92cf08c3ff275f1b3de812f497409caf
--- /dev/null
+++ b/raw/aaer/2003/AAER-1883.txt
@@ -0,0 +1,1377 @@
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+ 
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+              Greg Waring and Craig Treloar
+           
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+       
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+ Litigation Release No. 18382 / October 1, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1883 / October 1, 2003 
+
+ Securities and Exchange Commission v. Greg Waring and Craig Treloar, United States District Court for the Northern District of Ohio, Civil Action No. 1:03 CV 2030  
+
+ The Securities and Exchange Commission announced the filing of a civil complaint against two Australian citizens who were senior officers of the Australian subsidiary of CorrPro Companies, Inc. (CorrPro), a U.S. public corporation based in Medina, Ohio.  The Commission's complaint alleges that from at least October 2000 through February 2002, Greg Waring, the former managing director and Craig Treloar, the former financial accountant of the subsidiary, CorrPro Companies Australia Pty., Ltd. (CorrPro Australia), falsified the accounting records of the subsidiary, CorrPro Australia, in order to inflate its net income and its net assets.  The complaint seeks injunctive relief against Waring and Treloar as well as the imposition of an officer and director bar. 
+
+ The complaint alleges that Waring and Treloar falsified CorrPro Australia's financial records so that CorrPro Australia would meet financial performance targets set by managers at the parent company.  The complaint alleges that as a result, CorrPro misstated its financial statements after incorporating the false numbers from CorrPro Australia. 
+
+ The complaint alleges that beginning in at least October 2000, Waring, and Treloar at Waring's direction, began entering journal entries to CorrPro Australia's general ledger that increased profit and net assets.  The complaint also alleges that Waring and Treloar falsified invoices and credit notes, and made false entries to subledgers including accounts payable, accounts receivable, costs of goods sold and inventory, and falsified reporting packages sent to CorrPro.  The complaint further alleges that Treloar and Waring recorded fictitious invoices in CorrPro's computerized accounting records and later printed physical copies of the false invoices.  In addition, the complaint alleges that they falsified credit notes from suppliers, and accordingly, the accounts payable ledger, to make it look like CorrPro Australia owed less money than it did. 
+
+ The complaint goes on to allege that Waring and Treloar took steps to fabricate documents to be reviewed by the company's independent auditors.  The complaint further alleges that in November 2001 before an expected audit, Treloar e-mailed Waring two versions of a spreadsheet summarizing monthly results from April 2001 through September 2001.  The complaint alleges that in order to ensure that the auditors would review general ledger balances that matched those previously sent to CorrPro, Waring recorded false entries to the general ledger to increase profit in each month. 
+
+ The Commission's complaint alleges that Waring and Treloar committed fraud in connection with the purchase and sale of securities, in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.  The complaint also alleges that Waring and Treloar violated Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder. 
+
+ The Australian Commonwealth Director of Public Prosecution in Melbourne in the State of Victoria, Australia, has issued summons to Craig Treloar for criminal violations of various sections of the Australian Corporations Act, and of the Crimes Act of the State of Victoria, in connection with the same conduct described in the Commission's complaint.  Treloar must appear in Magistrate's Court in Melbourne, Australia on October 2, 2003 for the first hearing of the case. 
+
+ The Commission acknowledges the assistance of the Australian Securities and Investments Commission in this investigation. 
+
+   SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2003/AAER-1884.txt b/raw/aaer/2003/AAER-1884.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1e8a2d89d8a7fda5e48a75c248ab02ba31216695
--- /dev/null
+++ b/raw/aaer/2003/AAER-1884.txt
@@ -0,0 +1,1514 @@
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+              Richard Fiedelman, CPA
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+        Richard Fiedelman, CPA
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+ Securities Exchange Act of 1934 
+Release No.  48578 / October 1, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No.  1884 / October 1, 2003 
+
+ Administrative Proceeding 
+File No.  3-11290 
+
+     In the Matter of 
+
+ RICHARD FIEDELMAN, CPA, 
+
+ Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Richard Fiedelman, CPA, ("Respondent" or "Fiedelman") 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, and the findings contained in Section III.3   below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds  2   that:  
+
+ 1. Richard Fiedelman, CPA, age 60, was a certified public accountant licensed in the State of California  3   at the time of the events described below and is a recently retired partner of Deloitte & Touche LLP ("Deloitte").  During the period from 1997 through March 1999, he was the advisory partner for The North Face, Inc.  Fiedelman was also in charge of Deloitte's Northern California consumer retail group. 
+
+ 2. In late December 1997, The North Face  4   entered into a barter transaction in which it sold $5.15 million of product for $3.51 million in cash and $1.64 million in trade credits.  The 1997 Deloitte audit partner concluded that The North Face could recognize income from the cash portion of the transaction, but not the trade credit portion.  However, The North Face recognized its full normal profit margin on both the cash and trade credit portions.  The 1997 audit partner proposed an adjustment to reverse the income from the trade credit portion.  The North Face declined to make the adjustment and the 1997 audit partner passed on the proposed adjustment, concluding that the amount was immaterial.  Fiedelman knew, or was reckless in not knowing, of the 1997 audit conclusion regarding the barter transaction. 
+
+ 3. In April of 1998, the 1997 audit partner was reassigned.  A new audit partner was selected in May of 1998.  Fiedelman was the advisory partner throughout the relevant time period and also functioned as the audit partner until the new audit partner took over that responsibility after Deloitte's review of The North Face's financial statements for the quarter-ended March 31, 1998. 
+
+ 4. After the 1997 audit partner had been reassigned, but prior to completion of Deloitte's review of The North Face's financial statements for the quarter ended March 31, 1998, Fiedelman learned that, in January 1998, The North Face had entered into a second barter transaction with the same company.  The January barter transaction was for $2.65 million, all of which was paid in trade credits.  The North Face once again recognized its full profit margin on the sale, despite Deloitte's conclusion during the 1997 audit that this was improper.  The income recognized from this transaction was material to The North Face's March 31, 1998 financial statements.  Despite the foregoing, Fiedelman did not question The North Face's recognition of income on the 1998 barter transaction in its financial statements included in its March 31, 1998 Form 10-Q. 
+
+ 5. In the Fall of 1998, the newly appointed audit partner began planning the 1998 audit.  As part of his preparation, he reviewed the 1997 audit working papers and saw the 1997 audit conclusion and proposed adjustment as documented in a summary memorandum and a proposed adjustments schedule.  The new audit partner raised the issue with Fiedelman.  Fiedelman told him that he believed the conclusion in the 1997 working papers was wrong and that he believed the 1997 audit team had concluded it was not improper for The North Face to recognize income on the trade credit portion of the barter transaction.  Fiedelman then began the process of documenting this revised conclusion in the 1997 working papers.  The audit staff, acting upon their understanding of Fiedelman's directions, and after performing additional audit research, prepared a new summary memorandum and adjustments schedule reflecting the revised conclusion about profit recognition, and replaced the original 1997 working papers with these newly-created working papers.  This was done without any documentation or indication that the original working papers were being modified.  In the end, the 1997 working papers, as revised, did not indicate that the 1997 audit team had originally reached a different conclusion concerning the company's accounting for the 1997 barter transaction.  Although Fiedelman did not give explicit instructions to the audit staff regarding documenting the revised conclusion, Fiedelman knew, or was reckless in not knowing, that the audit staff had modified, rather than supplemented, the 1997 audit working papers. 
+
+ 6. The new audit partner accepted the revised conclusion and continued the 1998 audit under the assumption that income from the trade credit portion of the 1998 barter transaction could properly be recognized.  In early 1999, during the concurring review process, the concurring partner, who had been the concurring partner for the 1997 audit, questioned the revised conclusion.  Based on his questions prior to the issuance of its 1998 audit report, Deloitte sought more information from The North Face.  Deloitte's request ultimately resulted in the restatement of various North Face financial statements, including the March 31, 1998 quarterly financial statements. 
+
+ 7. Based on the foregoing, the Commission finds that Fiedelman engaged in intentional or reckless conduct that resulted in violations of generally accepted accounting principles ("GAAP") and generally accepted auditing standards ("GAAS").  The North Face's recognition of profit margin on the second barter transaction violated GAAP and, as a result The North Face's March 31, 1998 financial statements were materially misstated.  The GAAS violations include the general GAAS standard concerning due professional care, AU Sections 150 and 230, the standard of field work relating to sufficient competent evidential matter, AU Sections 150 and 326, and the standard of field work relating to working papers, AU Section 338.  5   
+
+ 8. The information contained in the working papers constitutes the principal record of the work that the auditor has done and the conclusions that he has reached concerning significant matters.  AU Section 338.01.  The auditor's working papers provide the principal support for the auditor's report, including his representation regarding the observance of the standards of field work, which is implicit in the reference in his report to generally accepted auditing standards.  AU Section 338.02.  It therefore follows that any addition, deletion, or modification to the working papers after they had 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.   
+
+ 9. The modifications to the 1997 working papers were not properly documented because there was no indication in the 1997 working papers that the original conclusion had been changed after the completion of the audit.  More specifically, the original memorandum and adjustments schedule were not preserved in the working papers and the new memorandum and adjustments schedule did not indicate when they were prepared and did not clearly indicate that they superseded original working papers.  Fiedelman was the partner in charge of the process of documenting the changed 1997 audit conclusion and was responsible for ensuring that the process was carried out in accordance with GAAS.  Fiedelman failed to exercise due professional care in discharging this responsibility. 
+
+ 10. Fiedelman also failed to exercise due professional care in connection with the review of The North Face's March 31, 1998 quarterly financial statements.  The North Face recorded the 1998 barter transaction directly contrary to the conclusion reached by Deloitte in its 1997 year-end audit, and yet Fiedelman failed to take steps to reconcile the 1997 conclusion with the company's treatment of the 1998 transaction. 
+
+ 11. Based on the foregoing, the Commission finds that Fiedelman engaged in improper professional conduct within the meaning of 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 sanction agreed to in Respondent Fiedelman's Offer. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that :  
+
+ A. Fiedelman 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, 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 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+ (b) Respondent, 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 or equivalent organization; and  
+
+ (c) As long as Respondent 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.  
+
+ 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. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   1    Rule 102(e)(1)(ii) provides, in relevant part, that the Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it to any person who is found to have engaged in improper professional conduct. 
+
+   2    The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.   
+
+   3     As of May 31, 2003, Fiedelman had retired and elected not to pay the public accountancy license renewal fee, thereby terminating his right to practice public accountancy for nonpayment of the renewal fee.  Under California rules, his failure to renew his license for a period of 5 years will result in his license being cancelled. 
+
+   4    The North Face had a December 31 fiscal year-end. 
+
+   5    Former AU Section 338 was amended in January 2002, by Statement on Auditing Standards No. 96,  Audit Documentation , which is codified as AU Section 339.  For the purposes of this Offer and the Order, there is no material difference between AU Sections 338 and 339. 
+
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diff --git a/raw/aaer/2003/AAER-1885.txt b/raw/aaer/2003/AAER-1885.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b5f68781b7792c8254a938738e4bc23540b7a44c
--- /dev/null
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@@ -0,0 +1,1479 @@
+
+
+ 
+ 
+   
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+     
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+     SEC.gov | Laurence M. Simon, CPA 
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+              Laurence M. Simon, CPA
+           
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+        Laurence M. Simon, CPA
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48580 / October 1, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1885 / October 1, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11291 
+
+        
+
+In the Matter of 
+  
+LAURENCE M. SIMON, CPA,      
+  
+Respondent.   
+
+     
+    : : : : : : : : : :   
+
+   ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS      I. 
+
+   The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Laurence M. Simon, CPA ("Respondent" or "Simon") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1     
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III. 3 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that:  
+
+   1. Laurence M. Simon, age 38, was, at all relevant times, a certified public accountant licensed to practice in the State of New Jersey.  He served as Chief Financial Officer of Medi-Hut Company, Inc. ("Medi-Hut") from 2001 until his termination in March 2003. 
+
+   2. Medi-Hut was, at all relevant times, a Nevada corporation with its principal place of business in Lakewood, New Jersey, and later, Wall Township, New Jersey.  Medi-Hut was engaged in the business of wholesaling pharmaceutical drugs and medical supplies.  At all relevant times, Medi-Hut'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 Small Cap Market until March 28, 2003, when it was delisted. 
+
+   3. On August 19, 2003, the Commission filed a complaint against Simon in  SEC v. Medi-Hut Co., Inc. et al.  (Civil Action No. 03-3921) (D.N.J. 2003).  On August 27, 2003, the Court entered an order permanently enjoining Simon, by consent, from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from violating or aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder.  The Court also prohibited Simon from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act. 
+
+ 4. The Commission's complaint alleged, among other things, the following: Simon, along with Medi-Hut's former Chief Executive Officer and its former Vice President of Sales, inflated Medi-Hut's revenues and earnings through fictitious period-end invoices and other accounting irregularities.  In addition, Simon knew or was reckless in not knowing that Medi-Hut's Vice President of Sales secretly owned and controlled one of Medi-Hut's largest customers and failed to disclose that fact to the investing public.  Simon created false records and took steps to conceal the accounting irregularities and the Vice President of Sales' control of the customer from Medi-Hut's auditors.  These accounting and disclosure violations enabled Medi-Hut to falsely report revenue growth and caused Medi-Hut's Form 10-K for the fiscal year ended October 31, 2001, and three Forms 10-Q for the fiscal year ended October 31, 2002, to be materially false and misleading.  
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Simon's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that Simon is suspended from appearing or practicing before the Commission as an accountant.   
+
+By the Commission.
+
+ Jonathan G. Katz 
+Secretary 
+
+ 
+ 
+
+ 
+    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. 
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diff --git a/raw/aaer/2003/AAER-1886.txt b/raw/aaer/2003/AAER-1886.txt
new file mode 100644
index 0000000000000000000000000000000000000000..90a9fcfb6a99b2311dc8490f8bdf68da43cf1973
--- /dev/null
+++ b/raw/aaer/2003/AAER-1886.txt
@@ -0,0 +1,1365 @@
+
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+   
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+     SEC.gov | Sidney V. Corder, Randal J. Sage and Brian J. Yates 
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+              Sidney V. Corder, Randal J. Sage and Brian J. Yates
+           
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+        Sidney V. Corder, Randal J. Sage and Brian J. Yates
+       
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+             
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+
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+    
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+
+ On October 1, 2003, the U.S. Securities and Exchange Commission (SEC) filed a complaint in the United States District Court for the Southern District of Indiana against Sidney V. Corder, age 61, of Zionsville, Indiana, Randal J. Sage, age 46, of Carmel, Indiana and Brian J. Yates, age 39, of Colorado Springs, Colorado, former officers of Analytical Surveys, Inc. (ASI), a Colorado corporation that provides computerized maps to customers under long-term contracts.  During the relevant time period, Corder was ASI's President, Chairman and CEO, Sage was ASI's Chief Operations Officer, and Yates was ASI's Controller.   
+
+ According to the complaint, Corder, Sage, and Yates engaged in a fraudulent scheme that caused ASI's 1999 fiscal year revenue and net earnings to be materially inflated in press releases and periodic reports filed with the SEC through the use of several improper accounting methods.  The SEC alleges that Sage caused ASI to improperly recognize revenue on long-term contracts by directing employees to: (1) "finish contracts on indirect," where employees misallocated direct costs properly attributable to contracts to indirect, or overhead, accounts; (2) engage in "cost-shifting," where employees improperly shifted future direct costs from one contract to another, when the work performed related to the first contract and did not reflect progress on the second contract; and (3) improperly lower estimates of total direct costs on certain contracts or not increase cost estimates as necessary.  All of these methods were impermissible under the percentage of completion method for recognizing revenue used by ASI.  Generally accepted accounting principles (GAAP) require that, under the percentage of completion method, estimated contract costs be periodically reviewed and revised to reflect accurate information.  The SEC further alleges that Corder: (1) knew or was reckless in not knowing that Sage and other employees had engaged in these fraudulent accounting practices; and (2) directed employees to, among other things, finish contracts on indirect to avoid reducing revenue.  Finally, the SEC alleges that Yates: (1) also knew or was reckless in not knowing about this conduct described above; and (2) approved or acquiesced in finishing contracts on indirect, including Corder's direction to employees to finish contracts on indirect. 
+
+ The SEC alleges that defendants' fraudulent conduct caused ASI's revenue and earnings to be materially overstated in ASI's 1999 Forms 10-Q by approximately: 5% and 60% for the 1st quarter; 7% and 89% for the 2nd quarter; and 5% and 51% for the 3rd quarter and in ASI's 1999 Form 10-K by 10% and 232%.  ASI's inflated revenue and earnings figures were also included in press releases issued to the public.  Thus, the SEC alleges that defendants violated the antifraud, periodic reporting, record keeping, internal controls and lying to the auditors provisions of the federal securities laws and seeks a Court order to permanently enjoin (1) defendants 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 thereunder; and (2) Corder and Yates from violating Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder and Sage from aiding and abetting violations of these provisions.  The SEC also seeks an order against defendants imposing civil monetary penalties, disgorgement of ill-gotten gains and bars from serving as officers and directors of any public company.   
+
+ In a related administrative proceeding, on September 26, 2003, the SEC ordered ASI to cease and desist from committing violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder (reporting, books and records and internal controls provisions of the federal securities laws).  ASI consented to the entry of the Order without admitting or denying the findings of the SEC.  In the Order, the SEC found that ASI violated reporting, books and records, and internal controls provisions of the federal securities laws.   
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1887.txt b/raw/aaer/2003/AAER-1887.txt
new file mode 100644
index 0000000000000000000000000000000000000000..92abd9e2db1375d409f75381e9665a60c664abfa
--- /dev/null
+++ b/raw/aaer/2003/AAER-1887.txt
@@ -0,0 +1,1363 @@
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+              Dennis A. Bakal, Susan P. Dial and William S. Cole
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+        Dennis A. Bakal, Susan P. Dial and William S. Cole
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No.   18388 /  October 2, 2003 
+Accounting and Auditing Enforcement Release No.  1887 / October 2, 2003   Securities and Exchange Commission v. Dennis A. Bakal, Susan P. Dial and William S. Cole  Civil Action No.  1:03-CV-2909 (NDGA September 26, 2003) 
+
+ The Securities and Exchange Commission ("Commission") filed a complaint on September 26, 2003, in the United States District Court for the Northern District of Georgia against Dennis A. Bakal ("Bakal"), Susan P. Dial ("Dial") and William S. Cole ("Cole"), all residing in metropolitan Atlanta, Georgia. 
+ The complaint alleges that during the first three quarters of calendar year 1999, Bakal,  President and Chief Executive Officer of Professional Transportation Group, Ltd., Inc. ("Professional Transportation"), a trucking business headquartered in Marietta, Georgia, along with Dial, the company's Chief Financial Officer, orchestrated a scheme to inflate the company's net income by recording fictitious sales on the accounting records of the primary operating subsidiary of the company.  The scheme caused Professional Transportation to fraudulently report a cumulative net profit of $402,000 for the nine months ended September 30, 1999, instead of a net loss of $1.7 million.    Additionally, during the first two quarters of 2000, Bakal, Dial, and Cole, the company's controller, engaged in a second scheme to inflate the company's net income by recording sales and receivables actually earned by another trucking entity controlled by Professional Transportation's majority shareholder.  This scheme caused the company to fraudulently report a cumulative net profit of $1.4 million for the six months ended June 30, 2000, instead of a net loss of $1.7 million. 
+ The complaint seeks permanent injunctions enjoining defendants Bakal, Dial and Cole  from further violations or aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder; and Bakal and Dial from further violations or aiding and abetting violations of Section 17(a) of the Securities Act of 1933 and Rules 13a-1 and 13b2-2 thereunder.  The Commission further seeks the disgorgement of all ill-gotten gains with prejudgment interest, the imposition of civil penalties against the defendants, and an officer or director bar against Bakal and Dial. 
+
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+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1889.txt b/raw/aaer/2003/AAER-1889.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1204a016734b387918e5034be7077776d773cd4f
--- /dev/null
+++ b/raw/aaer/2003/AAER-1889.txt
@@ -0,0 +1,1501 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Jeffrey S. Schneider 
+     
+     
+     
+     
+     
+     
+     
+         !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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+              Jeffrey S. Schneider
+           
+     
+ 
+
+   
+
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+      
+             
+        Jeffrey S. Schneider
+       
+
+             
+   
+
+
+        
+                   
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+  
+    
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+
+   
+
+             
+                        
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+
+ Securities Act of 1933 
+Release No. 8300 / October 6, 2003 
+
+ Securities Exchange Act of 1934 
+Release No. 48594 / October 6, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1889 / October 6, 2003 
+
+ Administrative Proceeding  
+File No. 3-11295 
+
+     In the Matter of 
+
+ Jeffrey J. Schneider, CPA, 
+
+ Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER INSTITUTING A PUBLIC ADMINISTRATIVE PROCEEDING 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 a public administrative proceeding be, and hereby is, instituted against Jeffrey J. Schneider ("Schneider") pursuant to Rule 102(e) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+     In anticipation of the institution of this public administrative proceeding, Schneider 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, except that he admits the entry of the injunction set forth in paragraph III.2, and further admits the Commission's jurisdiction over him and over the subject matter of this proceeding, Schneider consents to the entry of this Order Instituting a Public Administrative Proceeding Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions. ("Order").   
+
+ III. 
+
+     On the basis of this Order and Schneider's Offer, the Commission makes the following findings:  2   
+
+ 1. Schneider is a certified public accountant licensed in New York.  From November 1998 through June 2000, Schneider was employed as a manager at Werblin Casuccio & Moses, P.C. (the "Werblin Firm"), a public accounting firm located in Syosset, New York.  Schneider served as the audit manager in connection with the Werblin Firm's audit of AppOnline.com, Inc. ("AppOnline"), then known as IMN Financial Corp., for 1998 and as an internal auditor with respect to AppOnline's 1999 audit.  
+
+ 2. On September 4, 2003, the United States District Court for the Eastern District of New York entered a final judgment permanently enjoining Schneider from (i) violating 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 (ii) 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.   SEC v. Paul Skulsky, et al. , No. 02-CV-1524 (DRH).    
+
+ 3.   In its complaint in  SEC v. Paul Skulsky, et al. , the Commission, among other things, alleges: 
+
+ a.   AppOnline misappropriated funds that warehouse banks had advanced to close mortgage loans, and used these funds to pay, among other things, its operating expenses.  In order to conceal its misappropriation of funds, AppOnline materially misrepresented its financial condition.  Among other things, AppOnline created a phantom payable on its books and records to a related party, the Skulsky Trust.  This liability to the Skulsky Trust generally reflected the amount of funds that AppOnline had misappropriated from the warehouse banks. In fact, AppOnline did not owe the Skulsky Trust any funds.  Because this sham liability to the Skulsky Trust became too large, AppOnline also improperly netted unrelated receivables to reduce the amount of the supposed liability. As of December 31, 1999, AppOnline had misappropriated approximately $47 million from its warehouse banks.  
+
+ b.   The Werblin Firm caused the issuance of an audit report containing an unqualified opinion stating that the audit was conducted in accordance with Generally Accepted Auditing Standards ("GAAS") and that the financial statements had been prepared in conformity with Generally Accepted Accounting Principles ("GAAP").  Schneider knew, or was reckless in not knowing, that these representations were false.   
+
+ 4. Based on the foregoing, the Commission finds that: (i) Schneider has been permanently enjoined within the meaning of Rule 102(e)(3)(i) of the Commission's Rules of Practice "by ... [a] 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;" and (ii) Schneider 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.  Specifically, Schneider 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 13b2-1, 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.   
+
+ IV. 
+
+     In view of the foregoing, the Commission deems it appropriate to accept the Offer and impose the relief agreed to therein. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+
+ A. Schneider is suspended from appearing or practicing before the Commission as an accountant. 
+
+ B. After five years from the date of this order, Schneider 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 Schneider'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)   Schneider, 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+ (b)   Schneider, 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 or equivalent organization; and  
+
+ (c)   As long as Schneider 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 or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+ C. The Commission will consider an application by Schneider 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 Schneider's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary      
+
+ Endnotes 
+
+   1      Rule 102(e)(3)(i) of the Commission's Rules of Practice provides, in relevant part, that:  [t]he Commission, with due regard to the public interest and without preliminary hearing may ... suspend from appearing or practicing before it any ... accountant ... who has been by name: (A) [p]ermanently enjoined by any court of competent jurisdiction, by reason of his or her conduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder. Paragraph 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 Schneider'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/2003/AAER-1890.txt b/raw/aaer/2003/AAER-1890.txt
new file mode 100644
index 0000000000000000000000000000000000000000..586dac9972227e6443e3d14f16e8e61dffccd243
--- /dev/null
+++ b/raw/aaer/2003/AAER-1890.txt
@@ -0,0 +1,1371 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Jeffrey S. Schneider 
+     
+     
+     
+     
+     
+     
+     
+         !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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+ Litigation Release No. 18395 / October 7, 2003 
+
+ Accounting and Auditing Release No. 1890 / October 7, 2003 
+
+  SEC v. Paul Skulsky, et al. , No. CV-02-1524 (DRH) (E.D.N.Y.) 
+
+ SEC Settles Civil Fraud Case Against Jeffrey Schneider, Former Auditor For AppOnline.com, Inc. 
+
+ The Commission today announced that on September 4, 2003, the Honorable Denis R. Hurley, United States District Judge, Eastern District of New York, entered a final judgment of permanent injunction and other relief as to defendant Jeffrey S. Schneider.  The final judgment permanently enjoins Schneider from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1, and (ii) aiding or abetting violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13.  Schneider consented to the final judgment. 
+
+ The allegations in the Commission's complaint filed on March 12, 2002, concern Schneider's role in a financial fraud at AppOnline.com, Inc. ("AppOnline"), a now-bankrupt Melville, New York-based mortgage banker.  The Commission's complaint alleged that beginning in approximately May 1997, AppOnline, formerly known as IMN Financial Corp., suffered a cash shortage.  To address this shortage, officers of AppOnline misappropriated at least $60 million AppOnline's lenders had advanced to fund specific mortgage loans, and used those funds to make different mortgage loans and to pay AppOnline's operating expenses.  To conceal the misappropriation, AppOnline prepared materially false and misleading financial statements, which were contained in its annual and quarterly reports filed with the Commission.  Thus, AppOnline's filings on Form 10-KSB for December 31, 1998, and on Form 10-K for December 31, 1999 misrepresented, among other things, that the funds AppOnline had misappropriated from its lenders was a debt owed to a related party.  The complaint alleged that Schneider served as an auditor during the audit of AppOnline's December 31, 1998 financial statements, and that the firm he was associated with issued an audit opinion that falsely represented that AppOnline's financial statements had been prepared in conformity with generally accepted accounting principles and that the audit had been conducted in accordance with generally accepted auditing standards.  The complaint also alleged that during 1999 and 2000 Schneider worked as an internal accountant at AppOnline and helped to prepare its falsified December 31, 1999 financial statements. 
+
+ The Commission also announced that it simultaneously instituted and settled administrative proceedings against Schneider.  Schneider consented to an Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with the right to seek reinstatement in five years. Release Nos.  34-48594 , AAER-1889; File No. 3-11295).  For additional information, see Litigation Release Nos.  17794  (October 21, 2002),  17407  (March 12, 2002).   
+
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diff --git a/raw/aaer/2003/AAER-1891.txt b/raw/aaer/2003/AAER-1891.txt
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1891.txt
@@ -0,0 +1,1375 @@
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+ Litigation Release No. 18394 / October 6, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1891 
+
+  SEC v. Richard P. Vatcher , Civil Action No. 02-CV-11245 (REK) (D. Mass.) 
+
+  United States v. Richard P. Vatcher , Crim. Action No. 03-CR-10270 (RCL) (D. Mass.) 
+
+ Former Inso Corp. Vice President Pleads Guilty To Securities Fraud In Connection With Accounting Scheme 
+
+   The Commission announced today that, on September 30, 2003, Richard P. Vatcher pleaded guilty to five counts of securities fraud and causing false reports to be filed with the Commission in connection with charges brought by the United States Attorney for the District of Massachusetts.  Vatcher, a former officer of Inso Corporation, Inc., later known as eBT International, Inc., a now defunct software company headquartered in Boston, Massachusetts, is scheduled to be sentenced on January 12, 2004.  Vatcher faces a maximum penalty of 10 years in prison, followed by a 3 year term of supervised release, and a $1,000,000 fine on each count. 
+
+   Vatcher, of Framingham, Massachusetts, was vice president of international sales at Inso. Vatcher admitted during his plea hearing before a Massachusetts federal court that on multiple occasions in or about 1998, he made, and caused others to make, false and misleading reports that his sales group had completed certain agreements for the sale of Inso products valued at more than $3.6 million.  In fact, Vatcher admitted that he had provided customers with side agreements that gave the purported customers the right to cancel or modify sales.  Because the customers had the right to cancel the sales, the revenue from these transactions should not have been included in Inso's reported financial results.  Vatcher further admitted to deliberately concealing the side agreements from Inso's finance department with the intention of causing Inso to recognize revenue for the phony sales.  As a result of Vatcher's actions, Inso materially overstated its revenues for the quarters ended March 31, 1998, June 30, 1998, and September 30, 1998 in press releases and in Forms 10-Q filed with the Commission. 
+
+   Previously, on June 21, 2002, the Commission filed a civil enforcement action against Vatcher in the United States District Court for the District of Massachusetts based on the same conduct.  Simultaneous with the filing of the complaint, Vatcher consented, without admitting or denying the allegations in the complaint, to entry of a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act, 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, and 13b2-1 thereunder and ordering him to pay a $25,000 civil penalty. 
+
+   For more information see  Litigation Release No. 17578  (June 21, 2002). 
+
+
+     SEC Complaint in this matter   -->
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diff --git a/raw/aaer/2003/AAER-1892.txt b/raw/aaer/2003/AAER-1892.txt
new file mode 100644
index 0000000000000000000000000000000000000000..13e964d2a1868478915091a9fce874dfb5b93f62
--- /dev/null
+++ b/raw/aaer/2003/AAER-1892.txt
@@ -0,0 +1,1564 @@
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+ 
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+     SEC.gov | NCI Building Systems, Inc. 
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+              NCI Building Systems, Inc.
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+        NCI Building Systems, Inc.
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+ Securities Exchange Act of 1934 
+Release No. 48608 / October 9, 2003 
+
+ Accounting & Auditing Enforcement 
+Release No. 1892 / October 9, 2003 
+
+ Administrative Proceeding 
+File No. 11296 
+
+     In the Matter of 
+
+ NCI BUILDING SYSTEMS, 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 NCI Building Systems, Inc. ("NCI" 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  1   that:  
+
+ A. The Respondent  
+
+ NCI, a Delaware corporation with its headquarters in Houston, Texas, is principally engaged in the manufacture and distribution of metal building components and engineered building systems.  NCI's common stock is registered with the Commission under Section 12(b) of the Exchange Act and is traded on the New York Stock Exchange.  As of May 3, 2003, NCI had 18,774,554 shares of common stock outstanding. 
+
+ B. Summary 
+
+ On April 12, 2001, NCI announced that, due to accounting errors at its metal building components division, the Company's audited financial statements for the fiscal year ended October 31, 2000 and the quarter ended January 31, 2001 would have to be restated.  On June 8, 2001, following an investigation led by its independent auditors, NCI filed with the Commission a Form 10-K/A, restating its financial statements for both fiscal 1999 and fiscal 2000 and a Form 10-Q/A, restating its financial statements for the first quarter of fiscal 2001.  According to these filings, NCI overstated net earnings by $1.3 million for fiscal 1999 (2.8 percent), $7.5 million for fiscal 2000 (14.5 percent) and $1.2 million for the first quarter of fiscal 2001 (29 percent).    
+
+ During the investigation, NCI and its auditors discovered a number of accounting errors at NCI's Components Division that had resulted in material misstatement of NCI's financial statements over the course of the relevant accounting periods.  The errors resulted primarily from:  (1) NCI's failure to update standard costs and scrap metal factors following NCI's migration to a new management information system (the "MIS system") in May 1999, and (2) failed attempts by NCI accounting personnel to manually correct (via unsupported journal entries) for MIS problems in a key inventory liability account.   
+
+ C. NCI's New MIS System 
+
+ In May 1998, NCI, a manufacturer and distributor of engineered building systems, purchased Metal Building Components, Inc. ("MBCI"), a manufacturer and distributor of metal building components.  The acquisition effectively doubled the size of NCI.  At the time of its acquisition, MBCI was in the process of implementing a new information system.  An Implementation Team of members selected from different areas of the company worked on the project with outside consultants and reported on the status of the implementation to a Steering Committee comprised of senior executives.  After some delay, the new system became operational on May 1, 1999.  Users experienced numerous problems with the system.  In addition, consultants remained on-site assisting with system problems for nearly two years following the installation.   
+
+ D. NCI Commences an Investigation That Leads to Restatements 
+
+ In approximately November 2000, NCI senior management began questioning the Components Division about high levels of inventory on the books.  The purchasing department was instructed to halt immediately all purchases of steel.  Despite these efforts, inventory levels at the Components Division did not decrease as expected.  Senior management continued to press the purchasing department on this issue, but was unable to obtain an explanation as to why inventory levels were not decreasing more quickly. 
+
+ In approximately January or February 2001, senior management approached members of the Components Division accounting department on at least two occasions in an effort to determine the cause of the elevated inventory levels.  Senior management approached the accounting department to determine whether the company had paid for inventory twice, or had paid for inventory that was not in the system.  Unable to produce reliable perpetual inventory reports from the Components Division's MIS system in response to the queries from senior management, NCI scheduled full physical inventory counts at all Components Division locations for March 8 and 9, 2001. 
+
+ On or about March 22, 2001, following reconciliation and testing of the inventory counts, accounting department personnel determined that there was a large variance between the book and physical inventory numbers.  The following day, on March 23, 2001, NCI's corporate controller reported to senior management that the Components Division book inventory was approximately $15-18 million over the physical inventory.  The controller admitted that he had been aware since at least August 2000 that the book inventory was incorrect and that the MIS system, used at the Components Division since May 1999, was not recording certain transactions properly.   
+
+ After learning of the inventory variance, NCI management moved aggressively to address the problem.  The company retained its independent auditors to conduct an investigation into NCI's inventory, accounting methods and management, personnel and MIS system.  During the investigation, senior management questioned accounting personnel about their knowledge of the inventory problems.  As a result of the interviews and investigation, management learned that certain accounting employees had been aware of problems with inventory accounting and the MIS system since at least March 2000. 
+
+ E. The Errors 
+
+ 1. MIS System Errors Resulted in the Use of Unsupported Manual Entries 
+
+ Errors in the implementation of the new MIS system following the merger caused balances that should have appeared in MBCI's inventory accounts to appear erroneously in an offsetting liability account (the "021090 account"), resulting in understated liabilities related to inventory.  When an outside consultant was unable to fix these errors in the new MIS system, an accounting employee attempted to correct the MIS system problems by making manual journal entries that increased the balance in the 021090 account and increased the inventory balance, thus masking the fact that there was a problem with the 021090 account.  These problems were further complicated by certain control issues within the accounting organization, such as unavailability of perpetual inventory records that required the company to rely upon annual physical counts and related reconciliation and "systems" issues, including ineffective use of the MIS system controls and excessive software customization. 
+
+ 2. Erroneous $2.6 Million Entry in August 2000 
+
+ In July 2000, NCI's Components Division conducted annual physical inventory counts at each components plant.  At the conclusion of the physical counts, the Components Division account manager reconciled and analyzed the results.  The account manager initially notified NCI's corporate controller that the physical inventory resulted in a "pick-up," as the preliminary results showed that physical inventory was higher than book inventory.  It was initially determined that the pick-up should be recorded as a $2.6 million debit to inventory with a $2.6 million credit to cost of goods sold ("COGS").  Soon after, however, the accounting manager informed the controller that the accrued liability account, not COGS, should have been credited. 
+
+ Nonetheless, the controller recorded an inventory pick-up of $2.6 million, consistent with the initial analysis.  This erroneous entry had the effect of understating COGS by approximately $2.6 million.  This misstatement remained on the company's books until it was discovered during NCI's 2001 investigation into accounting irregularities, resulting in material misstatement of NCI's third quarter fiscal 2000 and year-end fiscal 2000 financial statements. 
+
+ 3. Other Accounting Problems At the Company 
+
+ On May 29, 2001, NCI's auditors completed a written report ("the report") setting forth their conclusions regarding the causes for the accounting errors found at NCI's Components Division. The report identified the following categories of errors and their cumulative, pre-tax effects on the company's financial statements. 
+
+   Source of Error 
+ Cumulative Effect ($ millions)    Inadequate scrap factor in standard costs 
+    7.6    Scrap yield systemic issues 
+     2.4    Standard cost revision errors 
+     1.4    Erroneous book-to-physical adjustment 
+     2.6    Improper valuation of "secondary" coils 
+     1.1    Metal Prep inadequate inventory accrual 
+     1.4    Other 
+       .3                                          Total  
+  $ 16.8     a. Inadequate Scrap Factor in Standard Costs 
+
+ The majority of errors resulted from the manner in which the new MIS system incorrectly treated scrap metal that was generated from the large rolls, or coils, of steel used during the components manufacturing process.  According to the auditors, $7.6 million of the restatement was caused by improper calculation of the cost of this scrap metal resulting from initial programming errors in the MIS system.  NCI intended to calculate a "scrap factor" as part of its inventory standard costs to account for scrap metal that was generated during manufacture.  However, the scrap factors that were programmed into the new MIS system were inadequate to account for all of the scrap that was generated during manufacture, thus causing the system to understate the scrap expense that resulted from manufacturing processes.  Because the cost of scrap was not properly accounted for during manufacture, the value of the scrap metal remained on the books erroneously as usable inventory, causing the book inventory to become overstated.   
+
+ b. Scrap Yield Systemic Issues 
+
+ Another $2.4 million of the errors resulted from the failure of the MIS system to expense scrap for an entire coil of steel in certain situations.  This problem caused understatement of scrap expense (because the system was not accounting for the scrap generated by the use of the entire coil) and an overstatement of inventory because the value of the scrap remained on NCI's books as inventory.  These errors affected the accounting periods from the third quarter of fiscal 1999 (when the MIS system was installed) through the first quarter of 2001.   
+
+ c. Standard Cost Revision Errors 
+
+ In late 2000, when NCI attempted to lower its standard costs within the new MIS system, the change was not successfully integrated into the general ledger function of the MIS system.   This misstatement of standard costs resulted in a $1.4 million overstatement of book inventory, solely affecting the fourth quarter of fiscal 2000.   
+
+ d. Erroneous Book-to-Physical Adjustment 
+
+ The erroneous $2.6 million adjustment, as described above, resulted in an approximate $4.6 million error attributable to fiscal 2000.   
+
+ e. Improper Valuation of Secondary Coils 
+
+ The auditors also uncovered a $1.1 million error resulting from employee failure to "downgrade," or decrease, the inventory value of certain products in the new MIS system when the steel was deemed sub-prime or "secondary" and shipped to another location for sale at a discount.  The failure of NCI Components Division personnel to properly downgrade this inventory resulted in an overstatement of inventory on the general ledger, as the cost of downgrading of the steel was not expensed.  This error was cumulative and affected the accounting periods from the third quarter of fiscal 1999 through the first quarter of fiscal 2001. 
+
+ f. Metal Prep Inadequate Inventory Accrual 
+
+ A $1.4 million error was discovered at Metal Prep, an NCI subsidiary that was not using the new MIS system.  Accounting personnel at Metal Prep plant locations were using improper weights to account for inventory resulting in an overstatement of back inventory and associated liabilities.  This error was discovered when a physical inventory count conducted in April 2001 determined that the book inventory at Metal Prep exceeded the physical count by $1.4 million.  Following an examination of the Metal Prep books, the auditors determined that $1.1 million of the difference resulted from an unexplained "holding of invoices" by NCI accounting department personnel during the end of fiscal 2000 and that an adjustment should have been recorded at that time.  This error was attributed entirely to the fourth quarter of fiscal 2001. 
+
+ F. NCI Undertook Corrective Action 
+
+ At the conclusion of its investigation, the auditors provided NCI management with a list of recommended changes designed to ensure that the errors that necessitated the restatement, as well as other minor issues uncovered during the investigative process, would not recur.  Significant among the proposed recommendations were changes to the MIS system software, the development of a reliable and accurate 021090 liability account, re-evaluation of scrap yields and expenses, monthly physical inventories, and the implementation of an appropriate system of executive approval for all manual journal entries greater than $10,000.  NCI adopted and implemented each of the recommended remedial measures. 
+
+ IV. 
+
+ As a result of the conduct described above, NCI violated Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 thereunder.  
+
+ Because NCI improperly recorded its inventory, its books, records and accounts did not, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets. 
+
+ In addition, NCI failed to implement internal accounting controls relating to its inventory and liability accounts which were sufficient to provide reasonable assurances that these accounts were accurately stated in accordance with generally accepted accounting principles.       
+
+ As a result of the conduct described above, NCI violated Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets.  
+
+ Lastly, as a result of the conduct described above, NCI violated Section 13(b)(2)(B) of the Exchange Act, which require all reporting companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles.  
+
+ V. 
+NCI's Remedial Efforts 
+
+ In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff.  In particular, NCI responded immediately upon learning of the errors and moved quickly to self-correct its financial statements.  NCI also implemented significant remedial measures to prevent future errors and terminated the employment of accounting personnel responsible for concealing the errors from senior management and the company's auditors. 
+
+ VI. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent NCI's Offer. 
+
+ Accordingly, it is hereby ORDERED that: 
+
+ Respondent NCI 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. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   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.   
+
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diff --git a/raw/aaer/2003/AAER-1893.txt b/raw/aaer/2003/AAER-1893.txt
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+
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+     SEC.gov | Gregory L. English AAER-1893 
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+              Gregory L. English AAER-1893
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+        Gregory L. English AAER-1893
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+ A.	The English Complaint 
+ The U.S. Securities and Exchange Commission today filed a settled civil enforcement action in U.S. District Court for the District of Columbia against Gregory L. English, former corporate controller of NCI Building Systems, Inc. (NCI), a Houston-based manufacturer of metal products for the non-residential building industry.  The complaint alleges: 
+	  On June 8, 2001, NCI filed with the Commission a Form 10-K/A, restating its financial statements for fiscal 1999 and 2000 and a Form 10-Q/A, restating its financial statements for the first quarter of fiscal year 2001.  According to these filings, NCI overstated net earnings by $1.3 million during the third and fourth quarters of fiscal 1999, $7.5 million for fiscal 2000 and $1.2 million for the first quarter of fiscal 2001.   
+	 A number of accounting errors at NCI's Components Division had resulted in material misstatement of NCI's financial statements.  The errors resulted primarily from:  (1) NCI's failure to update standard costs and scrap metal factors following NCI's migration to a new management information system (the "MIS system") in May 1999, and (2) failed attempts by NCI accounting personnel to manually correct (via unsupported journal entries) for MIS problems in a key inventory liability account.   
+	 In July 2000, following an annual physical inventory at the company's components division, an accounting employee informed English that a probable "pick-up" of approximately $2.6 million would be made on the books, resulting in an increase in recorded book inventory. 
+	 Soon after, the employee retracted this initial conclusion and informed English that book inventory exceeded the physical counts by more than $2 million, requiring that English decrease the book inventory number.  Despite this information, in August 2000, English proceeded to authorize the erroneous $2.6 million entry. 
+	 As NCI's corporate controller, English knew, or was reckless in not knowing, that the inventory overstatement would have a material effect on NCI's financial statements.  In addition, English knew or should have known of errors with NCI's new MIS system and failed to correct them.  
+	  Without admitting or denying the allegations in the complaint, English consented to the entry of a Final Judgment permanently enjoining him from future violations of (or aiding and abetting violations of) 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 Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1.  The Final Judgment also imposes a $25,000 civil penalty and prohibits English from serving as an officer or director of a public company for five years. 
+ B.	The Cease-and-Desist Order Against NCI 
+ The Commission also issued a settled cease-and-desist order today (the "Order") against NCI.  The findings in the Order involved a number of accounting errors at the company, many of which were caused by the implementation of the MIS system in May 1999.  The Order notes that the Commission took into account remedial acts promptly undertaken by the respondent and cooperation afforded the Commission staff. 
+ NCI neither admitted nor denied the findings in the Order.  In the Order, the Commission Ordered that NCI 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.  NCI common stock trades on the New York Stock Exchange under the symbol NCS. 
+
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+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2003/AAER-1894.txt b/raw/aaer/2003/AAER-1894.txt
new file mode 100644
index 0000000000000000000000000000000000000000..083c22308c76ea02e9931bde4c463b627b3023ac
--- /dev/null
+++ b/raw/aaer/2003/AAER-1894.txt
@@ -0,0 +1,1376 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+ 
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+     SEC.gov | Wesley H. Colwell AAER-1894 
+     
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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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+              Wesley H. Colwell AAER-1894
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+        Wesley H. Colwell AAER-1894
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+ Defendant Barred From Serving As Officer Or Director 
+of Public Company and Ordered to Pay $500,000; 
+Will Cooperate With Government Investigations 
+
+ 
+The Securities and Exchange Commission today charged Wesley H. Colwell, the former Chief Accounting Officer of Enron North America, with violating the antifraud provisions of the federal securities laws.  Without admitting or denying the allegations of the Complaint, Colwell has agreed to be enjoined permanently from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5 and 13b2-1, and aiding and abetting the violation of Sections 13(a), and 13(b)(2)(A) and (B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-13.  In addition, Colwell has agreed to be barred from acting as an officer or director of a public company, and will pay $300,000 in disgorgement and prejudgment interest and a civil penalty of  $200,000.  As part of this settlement, Colwell will continue to cooperate with on-going investigations into Enron Corp. by the Securities and Exchange Commission and the U.S. Department of Justice Enron Task Force. 
+ 
+As alleged in the Complaint, Colwell, along with others at Enron, engaged in a wide ranging scheme to defraud by manipulating Enron's publicly reported earnings through a variety of devices designed to produce materially false and misleading financial results.  This scheme included the misuse of reserve accounts, concealment of losses, inflation of asset values, and deliberate use of improper accounting treatment for transactions.  For example, for year 2000, Colwell and others are alleged to have deferred over $400 million in earnings into reserve accounts within Enron North America (ENA).  Subsequently, during first and second quarter 2001, it is alleged that Colwell and others used reserve accounts within ENA to mask over $1 billion in losses associated with Enron's retail energy business, Enron Energy Services (EES).  It is further alleged that when Enron needed earnings in third quarter 2001, Colwell and others released from ENA reserve accounts over $200 million of previously deferred trading profits.  The Complaint also alleges that Colwell and others manipulated the value of Enron's largest private merchant asset, Mariner Energy Inc., and improperly avoided a write-down associated with the disposition of its subsidiary, Houston Pipeline Co. 
+ 
+Specifically, the Commission's Complaint alleges as follows: 
+   Improper Use of Reserves To Manage Earnings:    Colwell and others deliberately manipulated Enron reserve accounts to smooth the volatility of earnings of its wholesale energy trading business; to conceal losses of its retail energy business; and generally to enable Enron to announce that it had met or exceeded performance expectations.  For example, when ENA generated trading profits in the third and fourth quarters of 2000 that greatly exceeded Enron's internal targets, Enron placed earnings into a previously established reserve known as "Schedule C."  In these quarters and others, Colwell and others improperly used amounts placed into Schedule C as necessary to fulfill internal targets and satisfy external earnings expectations.  Earnings improperly reserved and improperly released by Colwell and others significantly affected Enron's financial reporting and related public disclosures.  By the end of 2000, over $400 million in earnings were improperly withheld from Enron's reported earnings.  When Enron later needed earnings in the third quarter of 2001, it released over $200 million from Schedule C.  Colwell and others knew that Enron's use of Schedule C to manipulate reported earnings was improper and did not comply with applicable accounting standards.   
+
+  Hiding Losses Of Enron's Retail Business:     Enron used reserve accounts within ENA to hide hundreds of millions of losses associated with EES, Enron's heavily touted retail energy trading business.  By various means, Colwell and others concealed within ENA a significant portion of EES losses, which materially affected the first and second quarter 2001 operating results of EES and of Enron's largest business segment, Enron Wholesale Services (Wholesale).  These means included transferring uncollectible EES receivables to ENA, which then would establish the necessary reserves, and by moving EES' "risk management activities" into ENA so that significant EES contract write-downs and other EES related losses would be charged against Enron's Wholesale business segment.  In first quarter 2001, EES losses hidden in ENA exceeded $700 million.  In second quarter 2001, additional EES losses of over $300 million were hidden in ENA.   
+
+  Fraudulently Inflating Mariner Energy, Inc.:    Enron, through Colwell and others, fraudulently inflated the value of its largest private "merchant" asset, Mariner Energy, Inc., an oil and gas exploration company.  In the fourth quarter of 2000, Enron needed an additional $100 million of earnings to achieve budget targets that formed the basis of its earnings-per-share objective for that quarter.  To meet this need, Colwell and others fraudulently increased the recorded value of Mariner by approximately $100 million.  Colwell and others knew that Mariner's fourth quarter 2000 valuation was an amount arbitrarily selected to generate fictitious mark-to-market earnings sufficient to meet Enron's targets.   
+
+  Improper Avoidance of Write-Down of Houston Pipeline Asset:    In the second quarter of 2001, Enron failed to recognize a material loss relating to the impairment of assets of its subsidiary, Houston Pipeline Company (HPL).  As early as the summer of 2000, Enron knew that HPL's assets were significantly impaired, i.e., their market value was significantly below their recorded value in Enron's financial statements.  In these circumstances, a conventional sale of HPL by Enron would result in a significant loss.  To avoid recognizing such a loss, Enron structured a transaction with a third party buyer such that certain HPL assets would be leased rather than sold.  However, before executing the lease, Enron agreed to accept a single up-front prepayment rather than annual payments for the initial lease term.  This change lowered the total amount of the cash payments due under the lease, reducing the lease's future cash flows to a level insufficient to allow Enron to recover the recorded value of the HPL assets.  Needing to justify not recognizing an impairment loss caused by the change in the lease payments, Colwell and others employed an impairment test using a series of future "deemed" cash flows that were, in fact, never to be received.  If the actual cash flows as specified in the lease had been used in the impairment test, Enron would have recorded an impairment loss of approximately $1.4 billion. 
+  
+In agreeing to this settlement, the Commission took into account Colwell's continuing cooperation in the on-going investigations being conducted by the Commission and the U.S. Department of Justice Enron Task Force. 
+
+   SEC Complaint in this matter 
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diff --git a/raw/aaer/2003/AAER-1896.txt b/raw/aaer/2003/AAER-1896.txt
new file mode 100644
index 0000000000000000000000000000000000000000..369a765f452c80bf00e3cc9565c3be3be5b7c370
--- /dev/null
+++ b/raw/aaer/2003/AAER-1896.txt
@@ -0,0 +1,1370 @@
+
+
+ 
+ 
+   
+     
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+     SEC.gov | Dale Peterson et al. 
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+  The Securities and Exchange Commission (ACommission@) announced today that on June 26, 2003, the Honorable Patricia V. Trumbull, of the United States District Court for the Northern District of California,  entered final judgments against seven former senior officers of Signal Technology Corp., a Danvers, Massachusetts defense contractor formerly located in Sunnyvale, California.  The Court entered injunctions against all defendants, ordered that six of the seven defendants pay civil monetary penalties, and barred the four defendants who had been the most senior officers of the company from serving as officers or directors of public companies.  The defendants consented to the judgments, without admitting or denying the allegations in the Commission=s lawsuit. 
+ In the suit, the Commission alleged that defendants caused Signal Tech to inflate its reported earnings by over $9 million from January 1996 through June 1998.  According to the Complaint, each of the individual defendants personally directed or participated in the company's improper accounting practices at its Florida-based Keltec division, when it failed to record known losses on major contracts, prematurely recognized revenue, and failed to write off worthless inventory.  As a result of the defendants= accounting fraud, the Complaint alleged, Signal Tech misstated its net income by amounts ranging from 8% to 294% in financial statements filed for reporting periods during January 1996 through March 1998 and reported a profit, rather than its actual loss, for the year 1997.  The Commission alleged that the defendants' conduct violated the antifraud, periodic reporting, record keeping, internal controls and lying to auditors provisions of the federal securities laws.  
+ The final judgments ordered the following relief from the defendants:  
+  Dale Peterson, Signal Tech's Chief Executive Officer and Chairman of the Board from 1994 to mid-1998, was ordered to pay a civil monetary penalty of $100,000, was barred from serving as an officer or director of a public company, and was permanently enjoined from violating  Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 (AExchange Act@) and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2. 
+  Russell Kinsch, Signal Tech's Chief Financial Officer from February 1996 through June 1997, was ordered to pay a civil monetary penalty of $50,000, was barred from serving as an officer or director of a public company, and was permanently enjoined from violating  Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2. 
+  James Walsh, president of Signal Tech from May 1993 until August 1997 and vice chairman and chief technical officer from August 1997 until December 1997, who also served as Keltec's de facto president during the third quarter of 1997, was ordered to pay a civil monetary penalty of $75,000, was barred from serving as an officer or director of a public company, and was permanently enjoined from violating  Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1.  
+  Richard Nabozny,  vice president of operations of Signal Tech from 1992 through June 1998 and Keltec's president from January through June 1998, was ordered to pay a civil monetary penalty of $75,000, was barred from serving as an officer or director of a public company, and was permanently enjoined from violating  Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1. 
+  Michael Smith, president of the company's Keltec division from February 1996 until March 1997, was ordered to pay a civil monetary penalty of $50,000 and was permanently enjoined from violating  Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1.   
+  Charles Balentine, controller of the Keltec division from February 1996 to March 1998, was permanently enjoined from violating  Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1.  
+  Wayne Armstrong, president of Keltec from March 1997 through December 1997,  was ordered to pay a civil monetary penalty of $25,000 and was permanently enjoined from violating  Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1. 
+
+ See also,  Litigation Release No. 17439  (March 27, 2002). 
+
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+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2003/AAER-1897.txt b/raw/aaer/2003/AAER-1897.txt
new file mode 100644
index 0000000000000000000000000000000000000000..851ff66d77e2027365fdb45412d16ef8e06fe14d
--- /dev/null
+++ b/raw/aaer/2003/AAER-1897.txt
@@ -0,0 +1,1518 @@
+
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+
+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48629 / October 15, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 1897 / October 15, 2003 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11298 
+
+        
+
+In the Matter of 
+  
+VANTAGEMED 
+CORPORATION,      
+  
+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 VantageMed Corporation ("VantageMed" 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  1   that:  
+
+ A. Respondent 
+
+ VantageMed is a Delaware corporation, headquartered in Rancho Cordova, California, and is a national provider of healthcare information systems and services.  VantageMed's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is traded on the over-the-counter bulletin board.  
+
+ B. Summary 
+
+ This matter involves misleading financial reporting by former officers of VantageMed, a Rancho Cordova, California, healthcare information systems and services provider.   In May 2002, VantageMed restated its financial results for the third quarter of its fiscal year ending December 31, 2001 (the quarter ended September 30, 2001).  The restatement revealed that VantageMed had understated its operating costs and expenses by $399,000 (4.9%), its net loss by $429,000 (20.5%), and diluted loss per share by $0.05 (20.8%) for the quarter ended September 30, 2001.   
+
+ VantageMed issued the restatement because it had improperly recognized a gain on the sale of a business line (the "DentalMate" business).  The gain on the sale of the DentalMate business should not have been recognized in the Company's Form 10-Q for the quarter ended September 30, 2001, because by the time the Form 10-Q was filed it was uncertain the buyers of the DentalMate business would be able to pay.  By recording the gain on the sale, VantageMed improperly improved its results for that quarter.  
+
+ C. The DentalMate Sale and VantageMed's Earnings Release for the Quarter Ended September 30, 2001  
+
+ On September 28, 2001, the Company executed an agreement to sell the DentalMate business to third parties. The agreement provided for a total sales price of $425,000, of which  $250,000 was to be paid by the sooner of November 12, 2001, or financing by the buyer's initial funding source.  The balance of $175,000 was evidenced by two promissory notes from the buyer, with payments due through March 2004.  The promissory notes were secured by a security agreement and personal guarantees from the principals of the buyer, with the first note being due March 30, 2002. 
+
+ On October 11, 2001, VantageMed issued an earnings release for the September 30, 2001 quarter that included a gain on the DentalMate sale.  The Company's Form 10-Q for the quarter was due to be filed on November 14, 2001.  
+
+ D. Prior to Filing its Form 10-Q, Certain Former Officers Learned of Additional Facts that Made it Improper to Record a Gain on the DentalMate Sale 
+
+ Beginning in late September 2001 and continuing in October and November of that year, VantageMed, through certain former officers, became aware of problems with the DentalMate purchaser. In late September 2001, VantageMed learned that the principals of the purchaser of the DentalMate business had limited financial resources. This weakened their personal guarantees. In late October 2001, several former officers learned that the buyer's expected initial financing for the DentalMate transaction had fallen through; over the course of several weeks in October and November, the buyers were unable to obtain replacement financing.  In early November 2001, VantageMed's then-chief financial officer entered into an additional agreement with the buyer that effectively extended the due date for the $250,000 initial payment until December 15, 2001. 
+
+ Based on guidance provided by certain members of VantageMed's outside auditors, by early November 2001, former VantageMed officers knew, or were reckless in not knowing, that the above facts made it improper to record a gain on the DentalMate sale in VantageMed's financial statements for the September 30, 2001 quarter.  Despite this, on November 14, 2001, the Company filed its Form 10-Q for the quarter ended September 30, 2001, which included a gain on the DentalMate sale.  Prior to filing its Form 10-Q, certain of VantageMed's former officers failed to inform the Company's outside auditors of the issues discussed above. 
+
+ E. VantageMed's Outside Auditor Resigned 
+
+ In January 2002, prior to its year-end audit work, VantageMed's outside auditor learned of the problems with the DentalMate transaction described in Section D, above.  Several weeks later, they determined that VantageMed had improperly included the gain on the DentalMate sale in its Form 10-Q for the September 30, 2001 quarter.  The auditors also elected to resign from the VantageMed account on February 8, 2002.  The Company's Form 8-K/A, filed on February 27, 2002, attached the auditors resignation letter, which stated in part:       
+
+  We informed the audit committee that we were resigning as the Company's auditor because we could no longer rely upon management's representations on important matters affecting the financial statements.  At the time the Form 10-Q for the third quarter ended September 30, 2001 was filed, we believe management did not inform us of material facts it had that would have changed our conclusion on the accounting treatment of the dental care [sic] transaction.  Based on these facts, which we now have, we believe the Company should not have recognized the $30,000 of revenue previously deferred and the $391,000 gain in connection with the sale of its dental business in the third quarter ended September 30, 2001.  
+
+ F. VantageMed Restated its Results for the September 30, 2001 Quarter 
+
+ In February 2002, following the default by the buyer of the DentalMate business under the terms of the asset sale agreement, VantageMed regained possession of that business.  On May 8, 2002, following an internal investigation by its audit committee, VantageMed restated its financial results for the quarter ended September 30, 2001.  The previously recognized $391,000 gain on the sale and $30,000 of previously deferred revenue was reversed, and an additional $8,000 of bad debt expense was recorded. The restatement revealed that as originally reported, VantageMed's operating costs and expenses were understated by $399,000 (4.9%), its net loss by $429,000 (20.5%), and diluted loss per share by $0.05 (20.8%). 
+
+ G. Legal Conclusions  
+
+   As described in Parts III (B) through (F) above, for the third quarter of fiscal year 2001, VantageMed engaged in conduct that improperly reduced its expenses, net loss and diluted loss per share.  As a result of this conduct, VantageMed's Form 10-Q for the period ended September 30, 2001 (which was filed with the Commission and disseminated to investors) was materially false and misleading.  In addition, the Company failed to maintain books, records and accounts that, in reasonable detail, accurately and fairly reflected its transactions and dispositions of assets.   
+
+ Based on the foregoing, the Commission concludes that the Company violated Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 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 appropriate to impose the sanctions specified in Respondent VantageMed's Offer. 
+
+   Accordingly, it is hereby ORDERED that: 
+
+ Respondent VantageMed shall cease and desist from committing or causing any violation and any future violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 12b-20 and 13a-13 thereunder. 
+
+By the Commission.
+
+ Jonathan G. Katz 
+Secretary 
+
+ 
+ 
+ 
+
+   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. 
+
+ 
+ 
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+     SEC.gov | Arabian American Development Company and Hatem El-Khalidi 
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+              Arabian American Development Company and Hatem El-Khalidi
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+        Arabian American Development Company and Hatem El-Khalidi
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+ Securities Exchange Act of 1934 
+Release No. 48638 / October 16, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1898 / October 16, 2003 
+
+ Administrative Proceedings 
+File No. 3-11301 
+
+       In the Matter of  
+ Arabian American 
+Development Company 
+and 
+Hatem El-Khalidi 
+       Respondents. 
+   
+  : : : : : : : : : : :  
+  ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER, PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934   
+    I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), against Arabian American Development Company ("Arabian" or "company") and Hatem El-Khalidi ("El-Khalidi") (collectively "Respondents"). 
+ II. 
+ In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order, Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below. 
+ III. 
+ On the basis of this Order and Respondents' Offer, the Commission finds that: 
+ RESPONDENTS 
+ 1.  Arabian , a Delaware corporation based in Dallas, Texas, is in the business of refining petrochemical products and developing mining operations in Saudi Arabia and the United States.  Arabian maintains an office in Jeddah, Saudi Arabia to manage its Saudi Arabian operations.  Arabian's common stock is registered under Section 12(g) of the Exchange Act, and is quoted on the Pink Sheets.  Arabian is delinquent in filing its December 31, 2002, Form 10-K and March 31, 2003, Form 10-Q. 
+ 2.  El-Khalidi , age 78, a United States citizen and resident of Jeddah, Saudi Arabia, helped found Arabian in 1967, and served as the Chief Executive Officer, the President and a director of Arabian during the relevant period.  El-Khalidi continues to serve in these positions today. 
+ ARABIAN AND EL-KHALIDI FAILED TO DISCLOSE MATERIAL INFORMATION  
+ 3.	In 1993, Arabian obtained a thirty-year lease from the Saudi Arabian government to mine zinc, lead and gold in the Al Masane area of Saudi Arabia (the "Al Masane Project" or "lease").  The Al Masane lease is Arabian's largest asset, accounting for approximately $36 million (65%) of Arabian's $56 million in total assets.  The lease agreement requires Arabian to build the mine, and begin mining operations, pursuant to a work schedule, and if Arabian fails to comply with the work schedule, the Saudi government may have the right to terminate the lease. 
+ 4.	In the late 1990's, an economic crisis in Southeast Asia caused a sharp drop in mineral prices, making it uneconomical for Arabian to comply with the work schedule set forth in the lease. As a result, in May 1999, El-Khalidi, on behalf of Arabian, petitioned the Ministry for Petroleum and Mineral Resources of Saudi Arabia (the "Ministry"), an agency of the Saudi Arabian government, for permission to delay implementation of the Al Masane Project.  El-Khalidi maintained that the drop in mineral prices constituted a "force majeure" under the lease agreement, and that Arabian was not obligated to implement the Al Masane Project while the force majeure persisted. 
+ 5.	In May 2000, the Ministry notified Arabian, via correspondence sent to El-Khalidi in Saudi Arabia, that Arabian must implement the Al Masane Project, as required by the lease agreement, and if Arabian failed to do so, the Ministry would begin procedures to terminate the lease.  Between June 2000 and November 2002, El-Khalidi continued to receive correspondence from the Saudi government, informing Arabian that:  (1) it must proceed with positive steps to implement the Al Masane Project; and (2) failure to do so could result in termination of the lease.  1    
+ 6.	Not withstanding the foregoing, in April 2002, El-Khalidi signed a letter to Grant Thornton, Arabian's outside auditor, representing, among other things:  (1) Arabian has complied with all aspects of contractual agreements that would have a material effect on the company's financial statements in the event of non-compliance; (2) no events have occurred which would impair the company's ability to recover its investment in the Al Masane Project and other interests in Saudi Arabia; and (3) there is no impairment of the company's investment in the Al Masane Project. 
+ 7.	In late November 2002, El-Khalidi disclosed to Arabian's Treasurer that the Saudi government was threatening to terminate the Al Masane lease.  The Treasurer promptly informed Arabian's other officers and directors and, on December 23, 2002, Arabian filed a Form 8-K that publicly disclosed for the first time that the Saudi government was threatening to terminate Arabian's lease.  The Treasurer also informed the company's outside auditor, which subsequently withdrew its audit reports for Arabian's 2000 and 2001 financial statements and resigned as Arabian's outside auditor.   
+ 8.	Between June 30, 2000 and September 30, 2002, Arabian omitted material information about the possible termination of the Al Masane lease from quarterly and annual reports that Arabian filed with the Commission.  El-Khalidi caused those omissions by failing to disclose the material information to Arabian.  In addition, El-Khalidi certified the accuracy of Arabian's Form 10-Q for the quarter ended September 30, 2002, even though he knew that that 10-Q failed to disclose material information about the possibility of termination of the Al Masane lease.   
+ 9.	Arabian failed, and El-Khalidi caused it to fail, properly to keep records relating to the disposition of the Al Masane lease, and, as a result, Arabian's books, records and accounts did not, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets. 
+ 10.	Arabian failed, and El-Khalidi caused it to fail, to devise and maintain a system of internal accounting controls that were sufficient to provide reasonable assurances that Arabian's transactions were recorded as necessary to permit preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") and to maintain accountability for assets.  For example, Arabian did not have written internal accounting controls requiring important documents, such as contracts and agreements, located in Arabian's Jeddah office, to be copied, translated from Arabic to English, and delivered to Arabian's headquarters in Dallas. 
+ 11.	El-Khalidi knowingly circumvented Arabian's system of internal accounting controls by withholding information and documents relating to the Al Masane Project from Arabian and Grant Thornton.  
+ FEDERAL SECURITIES LAW VIOLATIONS 
+ 12.	As a result of the conduct described above, Arabian violated, and El-Khalidi caused Arabian to violate, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, which required Arabian to file annual and quarterly reports, as prescribed by the Commission, and to include in those reports any material information that might be necessary to make the required statements in those reports not misleading, in light of the circumstances under which the statements were made. 
+ 13.	As a result of the conduct described above, Arabian violated, and El-Khalidi caused Arabian to violate, Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets.  
+ 14.	As a result of the conduct described above, Arabian violated, and El-Khalidi caused Arabian to violate, Section 13(b)(2)(B) of the Exchange Act, which requires all reporting companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets.  
+ 15.	As a result of the conduct described above, El-Khalidi violated Section 13(b)(5) of the Exchange Act by knowingly circumventing Arabian's system of internal accounting controls. 
+ 16.	As a result of the conduct described above, El-Khalidi violated Exchange Act Rule 13a-14 by certifying Arabian's September 30, 2002 Form 10-Q, when he knew the Form 10-Q contained an untrue statement of material fact or omitted to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading.  
+ 17.	As a result of the conduct described above, El-Khalidi violated Exchange Act Rule 13b2-2, which prohibits a director or officer of an issuer from, directly or indirectly, making or causing to be made a materially false or misleading statement, or omitting to state any material fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with an audit or examination of the issuer's financial statements.   
+ UNDERTAKINGS 
+ Respondent Arabian has undertaken:
+  18.	Within 30 days of the date of this order, to hire an outside examiner: (i) to review Arabian's record keeping procedures and its internal accounting controls; and (ii) to propose improvements thereto. 
+ 19.	Within 45 days of the date of this order, to provide written notification to the Commission's enforcement staff (the "Staff") of the identity, including name, business affiliation and contact information, of the outside examiner retained by Arabian. 
+ 20.	Within 90 days of the date of this order, to provide written notification to the Staff of the outside examiner's recommendations. 
+ 21.	Within 120 days of the date of this order, to implement the outside examiner's recommendations. 
+ 22.	Within 150 days of the date of this order, to submit an affidavit to the Staff stating that Arabian has complied with all of the recommendations of the outside examiner. 
+ 23.	To file its delinquent annual and quarterly reports as soon as reasonably possible.       
+  IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondents' Offer. 
+ Accordingly, it is hereby ORDERED that: 
+	 
+	 A.	Respondent Arabian 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. 
+	 B.	Respondent Arabian comply with the undertakings enumerated in Section III paragraphs 18-23 above. 
+	 C.	Respondent El-Khalidi 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; and cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Rules 13a-14 and 13b2-2 thereunder. 
+	  By the Commission. 
+	 
+
+
+ 
+
+ Jonathan G. Katz
+ Secretary 
+
+     1   To date, the Saudi government has not terminated Arabian's Al Masane lease. 
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diff --git a/raw/aaer/2003/AAER-1900.txt b/raw/aaer/2003/AAER-1900.txt
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+              Peter C. Ferraro and William G. Stayduhar
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+        Peter C. Ferraro and William G. Stayduhar
+       
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+ Securities Exchange Act of 1934 
+Release No. 48655 / October 17, 2003 
+
+ Accounting and Auditing Enforcement  
+Release No.  1900 / October 17, 2003 
+
+ Administrative Proceedings 
+File No. 3-9045 
+
+       In the Matter of  
+ William G. Stayduhar, CPA, 
+       Respondent. 
+   
+  : : : : : : : :  
+  ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND 
+PRACTICE BEFORE THE COMMISSION 
+AS AN ACCOUNTANT  
+    On July 24, 1996, William C. Stayduhar, CPA ("Stayduhar"), was denied the privilege of appearing or practicing before the Commission as an accountant for one year as a result of settled public administrative proceedings instituted by the Commission against Ferraro pursuant to Rule 102(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 independent accountant and as an accountant responsible for the preparation or review of financial statements required to be filed with the Commission. 
+ Stayduhar, a CPA in the state of Pennsylvania, performed audit work leading to the issuance of an unqualified audit report on the fiscal year 1991 and 1992 financial statements of Sulcus Computer Corporation ("Sulcus").  Stayduhar was the audit manager on the Sulcus audits.  The original order alleged that Stayduhar engaged in improper professional conduct by failing to conduct the 1991 and 1992 Sulcus audits in accordance with GAAS.  Specifically, he failed to obtain sufficient competent evidential matter to afford a reasonable basis for his firm's opinions on Sulcus' financial statements, failed to assess properly whether the company's financial statements were fairly presented in conformity with GAAP, and failed to exercise due professional care in the performance of the audits.  The original order alleged that Sulcus failed to comply with GAAP, in that it overstated its financial results by improperly accounting for a series of acquisitions completed during 1991 and 1992. 
+ In his capacity as an independent accountant, Stayduhar has undertaken to remain either a member or associated with a member firm of, the SEC Practice Section of the American Institute of Certified Public Accountants ("AICPA") or equivalent organization, and to comply with all applicable SEC Practice Section or equivalent organization requirements.  In connection with any service as an accountant responsible for the preparation or review of financial statements of a public company to be filed by the Commission, Stayduhar has undertaken to have his work reviewed by the independent audit committee of any registrant for which he works or in some other manner acceptable to the Commission while practicing before the Commission in this manner.   
+ On the basis of information supplied, representations made, and undertakings agreed to by Stayduhar, it appears that (1) Stayduhar has complied with the terms of the July 24, 1996 order denying him the privilege of appearing or practicing before the Commission as an accountant, (2) 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 Stayduhar pursuant to Rule 102(e) of the Commission's Rules of Practice, and (3) Stayduhar'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 William G. Stayduhar, CPA, is hereby reinstated to appear and practice before the Commission as an accountant. 
+
+ 
+
+ By the Commission. 
+
+  Jonathan G. Katz
+ Secretary  
+
+     1   See Accounting and Auditing Enforcement Rel. No. 804,  In the Matter of Peter C. Ferraro, CPA and William G. Stayduhar, CPA , July 24, 1996. 
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diff --git a/raw/aaer/2003/AAER-1901.txt b/raw/aaer/2003/AAER-1901.txt
new file mode 100644
index 0000000000000000000000000000000000000000..641e29de4546e0d3d7fc15f41694480b202e8284
--- /dev/null
+++ b/raw/aaer/2003/AAER-1901.txt
@@ -0,0 +1,1367 @@
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+              Ronald J. Hottovy
+           
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+       
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+ Litigation Release No. 18417 / October 17, 2003 
+
+ Accounting and Auditing Enforcement Release No. 1901 / October 17, 2003 
+
+  SEC v. Ronald J. Hottovy et al. , Civ. Action No. 98-RB-1636 (MJW) (D. Colorado)(filed July 30, 1998) 
+
+ Ronald J. Hottovy Permanently Enjoined 
+
+ On January 10, 2003, following a 10-day jury trial and a remedies hearing on September 6, 2002, Judge Robert Blackburn of the United States District Court for the District of Colorado entered a Final Judgment of Permanent Injunction and Prohibition against Ronald J. Hottovy.  The judgment (a) permanently enjoins Hottovy from future violations of Sections 17(a)(1) and (3) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, 13b2-2 thereunder, and (b) prohibits Hottovy for a period of two years from acting as an officer or director of any issuer that has a class of securities registered pursuant to 15 U.S.C. §781 or that is required to file reports pursuant to 15 U.S.C. §87o(d). 
+
+ The complaint alleged that in 1992 through 1995, SSI materially overstated its revenue and earnings by backdating or misdating contracts, booking revenue without contracts, overaccruing project revenues, and providing confidential side letters modifying payment obligations, and that Hottovy willfully violated the federal securities laws by causing SSI to materially overstate its revenue and earnings.  The complaint further alleged that, as a result of these practices, SSI reported false and misleading information in its Annual Reports for fiscal years 1992, 1993, and 1994, its Quarterly Reports for the first three quarters of fiscal year 1994 and the first quarter of fiscal year 1995.  The complaint further alleged, and the jury found, that Hottovy participated in SSI's material misstatements and concealed them from SSI's independent auditors by manipulating SSI's accounting records, withholding documents, and making false statements to the auditors.  The jury found that by engaging in such conduct, Hottovy 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. 
+
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diff --git a/raw/aaer/2003/AAER-1902.txt b/raw/aaer/2003/AAER-1902.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9f16effb54e22ba37617cc2043c3ac67c2b6fbb4
--- /dev/null
+++ b/raw/aaer/2003/AAER-1902.txt
@@ -0,0 +1,1363 @@
+
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+              Arabian American Development Company and Hatem El-Khalidi
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+        Arabian American Development Company and Hatem El-Khalidi
+       
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+ The Securities and Exchange Commission filed a civil action in the United States District Court for the Northern District of Texas against Hatem El-Khalidi, the CEO of Arabian American Development Company ("AADC"), a Dallas-based oil refining and mining company.  El-Khalidi, who resides in Saudi Arabia, has agreed, without admitting or denying the SEC's claims, to pay a $25,000 penalty to settle the SEC's civil case.  In a related action, the SEC also announced today the issuance of a settled cease-and-desist order against El-Khalidi and AADC.  Both actions are based on violations by El-Khalidi or AADC of the reporting, books and records, and internal controls provisions of the federal securities laws.   
+
+ The SEC's civil complaint alleges, and the SEC's cease-and-desist order finds, that El-Khalidi failed to disclose to AADC's shareholders, auditor, and other officers and directors that AADC's largest asset, a mining lease located in Saudi Arabia, which AADC obtained from the Saudi Arabian government, was at risk of being terminated.  According to the SEC, between May 2000 and November 2002, the Saudi Arabian government repeatedly notified AADC, via correspondence sent to El-Khalidi in Saudi Arabia, that AADC was not in compliance with the work schedule set forth in its lease agreement, and that if AADC failed to comply promptly, the lease could be terminated.  The SEC alleges and finds that El-Khalidi withheld this information until approximately December 2002, when he disclosed the actual status of the mining lease to AADC's shareholders, auditor, and other officers and directors.  According to the SEC, as a result of El-Khalidi's actions, AADC's books and records were inaccurate and AADC omitted material information from its SEC filings, including AADC's September 30, 2002 Form 10-Q, which El-Khalidi improperly certified as true and correct.  In addition, the SEC alleges and finds that AADC's internal accounting controls, which failed to detect the situation, were inadequate. 
+
+ Without admitting or denying the allegations in the SEC's complaint, El-Khalidi has agreed to pay a $25,000 civil penalty in the U.S. district court action.  Without admitting or denying the findings in the SEC's administrative order:  (1) AADC has agreed to cease and desist from violating 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 comply with certain undertakings designed to improve AADC's reporting and record keeping practices and enhance its internal accounting controls; and (2) El-Khalidi has agreed to cease and desist from violating Section 13(b)(5) of the Exchange Act and Rules 13a-14 and 13b2-2 thereunder, and causing AADC's violations of Sections 13(a) and 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1903.txt b/raw/aaer/2003/AAER-1903.txt
new file mode 100644
index 0000000000000000000000000000000000000000..acf149b8082f1d80a750d99994571f46a9e45f10
--- /dev/null
+++ b/raw/aaer/2003/AAER-1903.txt
@@ -0,0 +1,1364 @@
+
+
+ 
+ 
+   
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+ 
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+     SEC.gov | Gerald H. Levine and Marie A. Levine 
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+  Former CEO Gerald H. Levine and Principal Financial Officer Marie A. Levine Found Liable On All Counts After 5 Day Trial  
+
+ On October 16, 2003, following a five-day trial, a jury in the U.S. District Court for the District of Columbia found Gerald H. Levine and Marie A. Levine liable for financial fraud based on their overstating the assets of C.E.C. Industries Corporation (CEC).  Gerald Levine, age 70, was CEC's chief executive officer; his wife Marie, age 56, was CEC's secretary-treasurer, the company's principal financial officer.  The jury found that the Levines violated the antifraud provisions of the Securities Exchange Act of 1934 ("Exchange Act") and the Securities Act of 1933 ("Securities Act"):  Exchange Act Section 10(b) and Rule 10b-5, and Securities Act Sections 17(a)(1), (2), and (3).  The Levines were also found to have violated Exchange Act Section 13(b)(5) and Rule 13b2-1, which prohibit the falsification of a public company's books and records. 
+ The Commission's complaint, filed on September 28, 1999, alleged that the Levines overstated CEC's assets in reports that they filed with the Commission for CEC's fiscal years 1996 and 1997.  The complaint also alleged that the Levines, acting through another corporate entity, Wire to Wire Inc., profited from their fraud by selling CEC stock while they knew that they had overstated CEC's assets.  In particular, the complaint alleged that the Levines overstated the value of two purported corporate assets (1) a 9,000-acre tract of land in Tennessee that they claimed held 52 million tons of coal and substantial timber assets; and (2) forty-one paintings by "Sky Jones," which they claimed had a value of $1.7 million.  The Commission proved at trial that CEC (and its corporate affiliates) did not even own the land and that the paintings were worth no more than $10,350.  
+ The Court has not yet determined the sanctions against the Levines.  The Commission's complaint seeks bars permanently prohibiting them from serving as officers or directors of any publicly traded company, a permanent injunction against future violations of the securities laws, disgorgement of illicit profits from sales of CEC stock, and civil penalties.  Previously, on September 11, 2001, CEC settled the Commission's financial fraud charges against the company, without admitting or denying the allegations, by consenting to the entry of a final judgment that included a permanent injunction. 
+ The Commission acknowledges the valuable assistance provided by several CEC shareholders, who brought to the Commission's attention many salient facts related to this matter.  For further background information, please see Litigation Release No. 17139 (September 19, 2001) and Litigation Release No. 16299 (September 28, 1999). 
+
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diff --git a/raw/aaer/2003/AAER-1904.txt b/raw/aaer/2003/AAER-1904.txt
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+++ b/raw/aaer/2003/AAER-1904.txt
@@ -0,0 +1,1369 @@
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+ The Securities and Exchange Commission ("Commission") today filed a settled civil injunctive action in the United States District Court for the Southern District of Texas against two former Waste Management, Inc. ("WMI") officers, Rodney R. Proto ("Proto") and Earl E. DeFrates ("DeFrates").  The Commission's Complaint charges Proto and DeFrates with insider trading in WMI stock, and with making public statements to Wall Street analysts, investment bankers, and investors, while employed by the company in May and June 1999, which they knew, or were reckless in not knowing, were materially false or misleading.  At the time of their actions, Proto was WMI's President, Chief Operating Officer, and a member of the WMI Board of Directors, and DeFrates was WMI's Chief Financial Officer. 
+ The Commission also filed a separate civil injunctive action in the United States District Court for the Southern District of Texas against WMI's former Chief Accounting Officer, Bruce E. Snyder, Jr. ("Snyder").  The Commission's Complaint against Snyder, which is not settled, charges him with insider trading in WMI stock and preparing, reviewing, and signing a materially false or misleading Form 10-Q that WMI filed with the Commission for the first quarter of its fiscal year ended December 31, 1999.   
+ The Commission's Complaint against Proto and DeFrates alleges that each sold WMI stock in May and/or June 1999, while in possession of material, nonpublic information that WMI's reported pretax income for the first quarter of fiscal year 1999 included tens of millions of dollars of undisclosed, non-recurring income items that inflated WMI's first quarter earnings per share ("EPS") by $0.09 or 17%.  The Complaint also alleges that Proto and DeFrates presented a materially false or misleading picture of the Company's first quarter operations to Wall Street analysts and investors by failing to disclose in a May 6, 1999 press release they approved, and in a public conference call they held with Wall Street analysts, that WMI's reported first quarter pretax income and EPS figures included a material amount of non-recurring items.  The Complaint alleges that if Proto and DeFrates had properly disclosed the non-recurring items, the investing public would have learned, among other things, that the company's reported quarterly earnings from normal operations were $0.52 per share, $0.09 per share lower than its first quarter 1999 EPS guidance and lower than its fourth quarter 1998 EPS. 
+ The Commission's Complaint against Proto and DeFrates further alleges that they made additional materially false or misleading statements in June and July 1999, about WMI's ability to meet its previously announced second quarter 1999 earnings guidance of $0.78 to $0.82 per share.  The Complaint alleges that between June 7 and July 2, 1999, on at least six separate occasions, Proto and/or DeFrates confirmed the company's second quarter 1999 EPS guidance in conversations with Wall Street analysts, investment bankers, and members of the public, even though they knew, or were reckless in not knowing, that WMI would fall well short of this previously stated earnings guidance.  
+ The Commission's Complaint against Snyder alleges that he prepared, reviewed, and signed a materially false or misleading Form 10-Q that WMI filed with the Commission for the first quarter ended March 31, 1999, even though he knew, or was reckless in not knowing, that it failed to disclose that WMI's reported pretax income for that quarter included tens of millions of dollars of non-recurring income items.  The undisclosed income items inflated WMI's EPS by approximately $0.09 or 17%.  The Commission's Complaint further alleges that Snyder sold WMI stock on May 17, 1999, while in possession of the material, nonpublic information that WMI's reported pretax income for the first quarter of fiscal year 1999 included tens of millions of dollars of undisclosed, non-recurring income items.  In addition, the Complaint against Snyder alleges that he sold WMI stock on June 9, 1999, while in possession of material nonpublic information indicating, among other things, WMI's internal earnings projections showed a large shortfall against its second quarter 1999 EPS guidance provided to the investing public.   
+ According to each of the Commission's Complaints, on July 6, 1999, WMI issued a press release warning that the company had substantially lowered its earnings expectations for the second quarter of 1999 due to a $250 million shortfall in revenues.  The company stated that it expected second quarter earnings per share to be in the range of $0.67 to $0.70, compared to its previous earnings per share guidance of $0.78 to $0.82.  The Complaint alleges that, in reaction to this news, WMI's stock price dropped 37% from $53.56 per share to $33.94 per share.   
+ Proto and DeFrates, without admitting or denying the allegations in the Commission's Complaint, each consented to an order permanently enjoining him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rule 10b-5.  In addition, Proto and DeFrates consented to an order barring each of them, respectively, from serving as an officer or director of a public company for a period of five years.   
+ Proto has consented to pay a total of $3,721,177.  This amount represents:  (1) $1,503,670 in disgorgement of his illegal insider trading losses avoided, plus prejudgment interest of $513,837; (2) a civil penalty equal to his illegal insider trading losses avoided of $1,503,670; and (3) a $200,000 civil penalty for making materially false or misleading statements regarding WMI's first quarter 1999 earnings and WMI's ability to meet its previously announced second quarter 1999 earnings guidance.  DeFrates has consented to pay a total of $482,779.  This amount represents:  (1) $121,217 in disgorgement of his illegal insider trading losses avoided, plus prejudgment interest of $40,345; (2) a civil penalty equal to his losses avoided of $121,217; and (3) a $200,000 civil penalty for making materially false or misleading statements regarding WMI's first quarter 1999 earnings and WMI's ability to meet its previously announced second quarter 1999 earnings guidance.    
+ The Commission's Complaint against Snyder seeks an order enjoining him from further violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Exchange Act Rule 10b-5, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-13.  The Commission also seeks an order barring him from serving as an officer or director of a public company.  The Commission's Complaint further seeks disgorgement of Snyder's illegal insider trading losses avoided, plus prejudgment interest, and civil penalties for insider trading and for the fraudulent financial reporting. 
+
+
+The SEC's complaint in SEC v. Bruce E. Snyder, Jr. can be found on the SEC's web site at: 
+
+
+   SEC's complaint in SEC v. Rodney R. Proto and Earl E. DeFrates  
+   SEC's complaint in SEC v. Bruce E. Snyder, Jr.  
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diff --git a/raw/aaer/2003/AAER-1905.txt b/raw/aaer/2003/AAER-1905.txt
new file mode 100644
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1905.txt
@@ -0,0 +1,1494 @@
+
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+     SEC.gov | Anne H. Long, CPA 
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+        Anne H. Long, CPA
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+ Securities Exchange Act of 1934 
+Release No. 48679 / October 22, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1905 / October 22, 2003 
+
+ Administrative Proceeding 
+File No. 3-11306 
+
+     In the Matter of 
+
+ ANNE H. LONG, CPA 
+
+ Respondent. 
+  
+ : : : : : : : : : : 
+ 
+ ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Anne H. Long ("Respondent" or "Long") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over her and the subject matter of these proceedings and the findings contained in Section III.3 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.   
+
+ III. 
+
+ On the basis of this Order and Respondent's Offer, the Commission finds that:  
+
+ 1. Long, age 45, is and has been a certified public accountant ("CPA") licensed to practice in the State of California.  Her CPA license is currently inactive. She served as Chief Accounting Officer of VantageMed Corporation ("VantageMed") from October 2001 until February 2002. Long had previously been VantageMed's Controller since October of 1999. 
+
+ 2. VantageMed is, at all relevant times, a Delaware corporation headquartered in Rancho Cordova, California.  VantageMed is a national provider of healthcare information systems and services. At all relevant times, VantageMed's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and is traded on the over-the-counter Bulletin Board.   
+
+ 3. On October 15, 2003, the Commission filed a complaint in United States District Court for the Eastern District of California, against Long in  SEC v. Joel M. Harris and Anne H. Long  (Civil Action No.S-03-2169 MCE (PAL).  On October 17, 2003, the court entered an order permanently enjoining Long, by consent, from future violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  Further, Long was ordered to pay a $35,000 civil money penalty.    
+
+ 4.  The Commission's complaint alleged, among other things, that Long engaged in actions that resulted in VantageMed filing a materially false financial statement on the Company's Form 10-Q for the quarter ended September 30, 2001. The complaint alleged that Long engaged in improper accounting practices that materially underreported VantageMed's, operating costs and expenses, net loss and loss per share for the quarter in a departure from generally accepted accounting principles ("GAAP").  As alleged, these practices included participating in the recording of a transaction which Long knew, or was reckless in not knowing, did not comply GAAP.  In addition, the complaint alleged that Long failed to disclose material information regarding VantageMed's books and records to VantageMed'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 Long's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+
+ A. Long is suspended from appearing or practicing before the Commission as an accountant.   
+
+ B. After two years from the date of this order, Respondent may request that the Commission consider her reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as: 
+
+ 1. a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Respondent's work in her practice before the Commission will be reviewed either by the independent audit committee of the public company for which she works or in some other acceptable manner, as long as she practices before the Commission in this capacity; and/or 
+
+ 2.    an independent accountant.  Such an application must satisfy the Commission that: 
+
+ (a)   Respondent, or the firm with which she 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") or an organization providing equivalent oversight and quality control functions ("equivalent organization"); 
+
+ (b)   Respondent, 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 or equivalent organization; and  
+
+ (c)   As long as Respondent appears or practices before the Commission as an independent accountant she will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education. 
+
+ 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 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. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   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. 
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diff --git a/raw/aaer/2003/AAER-1906.txt b/raw/aaer/2003/AAER-1906.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f1030f146a14568c15c30d4baa498e8e1bdb1c66
--- /dev/null
+++ b/raw/aaer/2003/AAER-1906.txt
@@ -0,0 +1,1468 @@
+
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+ 
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+     SEC.gov | Victor Herman, CPA 
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+ Securities Exchange Act of 1934 
+Release No.  48682 / October 23, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No.  1906 / October 23, 2003 
+
+ Administrative Proceedings 
+File No. 3-11314 
+
+       In the Matter of  
+ VICTOR HERMAN, CPA, 
+       Respondent. 
+   
+  : : : : : : : :  
+  ORDER INSTITUTING PUBLIC ADMINISTRATIVE PROCEEDINGS, MAKING FINDINGS, AND IMPOSING AN 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 that public administrative proceedings be, and hereby are, instituted against Victor Herman ("Respondent" or "Herman") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice [17 C.F.R. § 201.102(e)(3)].  1   
+ II. 
+ In anticipation of the institution of these proceedings, Herman 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, Herman consents to the issuance of this Order and to the entry of the findings and imposition of the remedial sanction set forth below, without admitting or denying the Commission's findings, except that Herman admits that the Commission has jurisdiction over him and over the subject matter of this proceeding, and admits the Commission's findings in Section IV relating to his having been found by a court of competent jurisdiction to have violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1 thereunder. 
+ III. 
+ On the basis of this Order and the Respondent's Offer, the Commission finds that: 
+ A.	Herman has been licensed as a certified public accountant in the State of New York, since 1970.  Herman was the chief financial officer of the principal operating subsidiaries of Solucorp Industries Ltd. ("Solucorp") from September 1995 until his resignation in early 1999.  Herman, age 61, is a resident of Florida.   
+ B.	Solucorp is a Yukon Territory corporation headquartered in West Nyack, New York.  It is engaged in environmental remediation, including developing and licensing of products for use in environmental cleanups.  Solucorp registered its securities with the Commission under Exchange Act Section 12(g) effective February 20, 1998.  The company filed a Form 15, certification and notice of termination of registration under Exchange Act Section 12(g), on September 8, 2003.  
+ C.	On December 13, 1999, the Commission brought an action in federal district court against Herman and others alleging that Herman had violated Securities Act Section 17(a) and Exchange Act Sections 10(b) and 13(b)(5), and Rules 10b-5 and 13b2-1 thereunder.  SEC v. Solucorp Industries Ltd., Joseph S. Kemprowski, Peter R. Mantia, James G. Spartz, Robert Kuhn, Victor Herman, Arle Pierro, W. Bryan Fair and Glenn R. Ohlhauser, 99 Civ. 11965 (S.D.N.Y.) (WCC).    
+ D.	A six-day bench trial was held from March 17 through March 25, 2003.  On July 28, 2003, the Court entered its opinion and order which set forth its findings of fact and conclusions of law.  The Court found, among other things, that Herman had violated Securities Act Section 17(a) and Exchange Act Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1 thereunder.  
+ E.	In reaching this decision, the Court found that Herman was responsible for preparing the financial statements of Solucorp for reporting periods December 31, 1995 through 1998, and signed the quarterly filings with the Commission in 1998 as Solucorp's chief financial officer and principal accounting officer.  The Court further found that Herman made materially false and misleading statements in various of the filings prepared by him.  One such statement, incorporated by Herman in 1996 into three quarterly filings with the British Columbia Securities Commission and an Annual Report, was that another company had included Solucorp in a $50 million contract.  The Court found that these materials were disseminated to shareholders, including those in the United States.  The Court further found that Herman acknowledged in testimony that at the time he drafted these filings in 1996, he did not believe that the existing documentation between the parties constituted a contract, and that he had been told by a company senior vice president that the contract was still under negotiation.  The Court further found that the company materially overstated its revenues in financial statements prepared by Herman and filed with the Commission in 1997 and 1998.  This was done by, among other things, recognizing revenue based upon a contract that the Court found, ". . . Herman knew, or was reckless in not knowing, was not finalized and was backdated to support improper revenue recognition."    
+ F.	With regard to the foregoing, the Court found that Herman, "knowingly and deliberately falsified [statements] with the intention of deceiving shareholders and potential investors or, at the very least, [was] guilty of reckless disregard for the truth or falsity of the disclosures," in violation of Securities Act Section 17(a) and Exchange Act Section 10(b) and Rule 10b-5 thereunder.  
+ G.	The Court further found that, "Herman, through [his] role in [Solucorp's] financial fraud, knowingly falsified Solucorp's books, records, and/or accounts or [was] reckless in preparing or certifying them [and] . . . either circumvented or failed to implement a system of internal accounting controls for Solucorp," in violation of Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder.  
+ IV. 
+ FINDINGS 
+ On the basis of this Order and the Respondent's Offer, the Commission finds that, on July 28, 2003, in an action brought by the Commission, the United States District Court for the Southern District of New York entered an opinion and order finding that Herman had violated Securities Act Section 17(a) and Exchange Act Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1 thereunder. 
+ V. 
+ ORDER 
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+ Herman is permanently suspended from appearing or practicing before the Commission as an accountant.  
+
+
+ 
+
+ By the Commission. 
+
+	 Jonathan G. Katz 
+	Secretary 
+
+     1   Rule 102(e)(3) of the Commission's Rules of Practice provides in pertinent part that: 
+ (i)	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: . . .  
+ (B) found by any court of competent jurisdiction in an action brought by the Commission to which he or she is a party . . . to have violated (unless the violation was found not to have been willful) . . . any provision of the Federal securities laws or of the rules and regulations thereunder. 
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diff --git a/raw/aaer/2003/AAER-1907.txt b/raw/aaer/2003/AAER-1907.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8ceb37e69be9aeb43de279759a0147ef2d51efe5
--- /dev/null
+++ b/raw/aaer/2003/AAER-1907.txt
@@ -0,0 +1,1372 @@
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+ Defendant Barred From Serving as Officer or Director
+of Public Company and Ordered To Pay $3.74 Million;
+Will Cooperate With Government Investigations 
+
+ 
+The Securities and Exchange Commission today charged David W. Delainey, the former Chief Executive Officer of Enron North America and Enron Energy Services, with violating the antifraud provisions of the federal securities laws.  Without admitting or denying the allegations of the Complaint, Delainey has agreed to be enjoined permanently from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5 and 13b2-1, and aiding and abetting the violation of Sections 13(a), and 13(b)(2)(A) and (B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1 and 13a-13, and to be barred from acting as an officer or director of a public company.  As part of the settlement agreement, which is subject to the approval of the U.S. District Court, Delainey will pay nominal disgorgement of $100 and a civil penalty of approximately $3.74 million.  The Commission brought this action in coordination with the U.S. Department of Justice Enron Task Force, which filed a related criminal charge against Delainey.  Delainey agreed to enter a guilty plea in connection with that charge, forfeit approximately $4.26 million in unlawful proceeds, and cooperate with the government's continuing investigation. 
+ 
+As alleged in the Complaint, Delainey, along with others at Enron, engaged in a wide-ranging scheme to manipulate Enron's publicly reported earnings through a variety of devices designed to produce materially false and misleading financial results.  This scheme included, among other things, the manipulation of reserve accounts, concealment of losses, improper inflation of asset values and use of fraudulent devices designed to "hedge," or lock-in, inflated asset values, and use of improper accounting techniques to achieve earnings objectives and avoid large losses.  The Complaint also alleges that Delainey, while in possession of material non-public information, namely, that Enron management was scheming to manipulate Enron's reported financial results, sold large amounts of Enron stock at inflated prices and reaped millions of dollars in profits. 
+ 
+Specifically, the Commission's Complaint alleges as follows: 
+   Manipulation of Reserves To Manage Earnings:    During 2000, Enron's wholesale energy trading business, primarily its ENA business, began generating extraordinary trading profits as a result of rapidly rising energy prices in the western United States, especially in California.  Beginning in the first quarter of 2000 and continuing in increasing scope and size throughout 2000 and 2001, Enron improperly reserved (in a ledger designated "Schedule C") hundreds of millions of dollars of earnings, primarily within the ENA business unit, to conceal volatility in its energy trading profits and to use large amounts of those reserves to cover-up losses in ENA's "merchant" asset portfolio and from other business units such as EES.   
+  Concealment of Uncollectible EES Receivables and Losses:   Enron also used reserves to conceal huge receivables that California public utilities owed to Enron, incurred during the energy crisis in California, and that Enron believed it would not collect.  By December 2000, these uncollectible receivables were valued in the hundreds of millions of dollars.  In the fourth quarter of 2000 and again in the first quarter of 2001, Enron and ENA senior commercial and accounting managers concealed the existence of these bad debts by booking them as reserves on the unreported "Schedule C" within ENA, even though they were in fact owed to EES.  In the first quarter of 2001, Enron's senior management also concealed huge losses associated with inflated valuations of EES contracts which, if recognized as required, would have wiped out EES's profits and revealed EES to have been a failing business.   
+  Fraudulent Valuation of "Merchant" Assets:   During the fourth quarter of 2000, senior Enron and ENA accounting and commercial managers artificially increased the value of ENA's largest merchant asset, Mariner Energy Inc., by approximately $100 million to help cover an earnings shortfall facing the Company that quarter of approximately $200 million.  In the third quarter of 2000, other ENA "merchant" assets were similarly manipulated in value before being inserted into an elaborate hedging mechanism known as the "Raptors."  This Raptor mechanism was not a legitimate hedge.   
+  Other Manipulative Devices:   In 1998, Enron fraudulently avoided a loss in the hundreds of millions of dollars associated with an energy supply contract with the Tennessee Valley Authority ("TVA") by summarily removing the TVA contract from its mark-to-market accounting books.  After avoiding immediate disclosure of the TVA loss, senior Enron commercial and accounting managers devised a plan to avoid later disclosure of the loss, which involved the purchase of power-plant turbines and the construction of "peaker" power plants to be used to satisfy Enron's obligations to the TVA.  At year-end 1999, Enron entered into back-to-back energy trades with Merrill Lynch & Co., Inc., to sell and then repurchase energy generated from the "peaker" plants.  This transaction allowed Enron to meet its year-end earnings targets.  Early in the second quarter of 2000 and before any energy was exchanged between Enron and Merrill Lynch, Enron completely "unwound," or reversed, its energy trading positions with Merrill Lynch.  (See SEC v. Merrill Lynch & Co., Inc., et.al., Civil Action No. H-03-0946 (S.D. Tex.) (filed March 17, 2003).   
+  Insider Trading:   Delainey, through his participation in the fraudulent accounting scheme at Enron, knew that Enron's management was manipulating Enron's reported financial results.  While in possession of this material non-public information, Delainey sold a large amount of Enron stock, reaping millions of dollars in profits. 
+  
+The Commission brought this action in coordination with the U.S. Department of Justice Enron Task Force.  The Commission's investigation is continuing. 
+ 
+  SEC Complaint in this matter  
+ 
+ 
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diff --git a/raw/aaer/2003/AAER-1908.txt b/raw/aaer/2003/AAER-1908.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1b9fffe5a68f70c28938813b5b4c9eba7bd229be
--- /dev/null
+++ b/raw/aaer/2003/AAER-1908.txt
@@ -0,0 +1,1366 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
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+     
+     
+     SEC.gov | Sport-Haley, Inc., Robert G. Tomlinson, Steve S. Auger, Kenneth R. LeCrone 
+     
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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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+              Sport-Haley, Inc., Robert G. Tomlinson, Steve S. Auger, Kenneth R. LeCrone
+           
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+        Sport-Haley, Inc., Robert G. Tomlinson, Steve S. Auger, Kenneth R. LeCrone
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 18437 / October 30, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1908 / October 30, 2003 
+
+  SEC v. Sport-Haley, Inc., Robert G. Tomlinson, Steve S. Auger, Kenneth R. LeCrone,  Civ. Action No. 03-N-1917 (CBS) (District of Colorado) 
+
+ The Securities and Exchange Commission ("Commission") announced the filing of an Amended Complaint in the United States District Court for the District of Colorado against Kenneth R. LeCrone, former auditor of Sport-Haley, Inc., for violations of the antifraud and periodic reporting provisions of the federal securities laws.  Sport-Haley, located in Denver, Colorado, designs, markets, and contracts for the manufacture of golf apparel and outerwear under the Haley-Registered Trademark label.  According to the Amended Complaint, LeCrone, a certified public accountant formerly employed by the audit firm of Levine, Hughes, and Mithuen, Inc. ("LHM"), supervised LHM's 1998 and 1999 audits of Sport-Haley, serving as the "in-charge" staff accountant in 1998 and senior manager in 1999.  The Commission alleges that LeCrone permitted LHM to issue unqualified audit opinions on Sport-Haley's financial statements even though he knew or was reckless in not knowing that the company's quarterly and annual 1998, 1999, and first quarter 2000 financial statements materially misstated work-in-process ("WIP") inventory, improperly capitalize period costs and materially misstated losses on the sale of headwear equipment. 
+ The Commission's complaint alleges that Sport-Haley materially overstated WIP inventory in its financial statements during its 1998 and 1999 fiscal years.  The complaint further alleges that LeCrone knew or was reckless in not knowing that LHM failed to perform sufficient audit procedures on the company's 1998 and 1999 WIP inventory accounts.  According to the Amended Complaint, LeCrone agreed with Sport-Haley management to a solution to adjust the overstated WIP inventory account that minimized the impact on the company's gross margin, kept the 1998 financial statements intact, and ratably eliminated $1.2 million of overstated WIP inventory during the company's 2000 fiscal year.  The Commission alleges that Sport-Haley failed to disclose the WIP inventory overstatement or the company's measures to adjust the financial statements for the overstatement.  According to the Amended Complaint, LeCrone also recklessly allowed Sport-Haley to improperly capitalize period costs in financial statements filed with the Commission during its 1998 and 1999 fiscal years.  In addition, the Commission alleges that LeCrone knowingly or recklessly allowed the company to materially misstate losses on the sale of headwear equipment in Sport-Haley's 1999 year-end financial statements.  The Complaint asserts that LeCrone knew or was reckless in not knowing that Sport-Haley's financial statements were materially false or misleading, did not comply with generally accepted accounting principles, and that the audits were not performed in accordance with generally accepted auditing standards.     
+ According to the Complaint, as a result of these and other accounting errors, Sport-Haley filed with the Commission materially incorrect financial statements that overstated the company's 1998 fiscal year income by $1.5 million or 41 percent and its 1999 fiscal year income by $311,000 or 22 percent. 
+ As a result of the conduct described in the Complaint, the Commission charged LeCrone with violations of Sections 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act"), Exchange Act Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933 ("Securities Act") (antifraud provisions).  LeCrone is also charged with aiding and abetting Sport-Haley's violations of Section 15(d) of the Exchange Act and Exchange Act Rules 12b-20, 15d-1, and 15d-13 thereunder (reporting provisions).  The Commission's Complaint seeks injunctive relief and civil penalties from LeCrone.   
+ On September 26, 2003, the Commission filed suit in the United States District Court for the District of Colorado against Sport-Haley, its chairman of the board, and former controller for violations of the antifraud, periodic reporting, record keeping, and internal controls provisions of the federal securities laws in connection with the company's materially misstated financial statements.   
+
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diff --git a/raw/aaer/2003/AAER-1911.txt b/raw/aaer/2003/AAER-1911.txt
new file mode 100644
index 0000000000000000000000000000000000000000..275c334f5f8c6ea9202f8bfc5d356fbffc566701
--- /dev/null
+++ b/raw/aaer/2003/AAER-1911.txt
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+ SECURITIES ACT OF 1933 
+Release No.  8338 / November 13, 2003 
+
+ Securities Exchange Act of 1934 
+Release No.  48778 / November 13, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  1911 / November 13, 2003 
+
+ Administrative Proceedings 
+File No. 3-11333 
+
+
+ 
+     In the Matter of 
+ GATEWAY, INC. 
+ Respondent.    
+  
+ : : : : : : : :  
+  ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING CEASE-AND-DESIST ORDER 
+    I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Gateway, Inc. ("Respondent" or "Gateway"). 
+ 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, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Cease-and-Desist Order, as set forth below. 
+ III. 
+ On the basis of this Order and Respondent's Offer, the Commission finds  1   that: 
+ Respondent 
+ 1.	 Gateway, Inc.  ("Gateway" or the "Company") is incorporated in Delaware and headquartered in San Diego, California.  Gateway is a direct marketer of personal computers ("PCs") and related products.  Its stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and trades on the New York Stock Exchange.  On April 30,1999, Gateway registered a shelf offering with the Commission on a Form S?3 registration statement, pursuant to which it issued and sold 30,000 shares of its common stock to a software developer for $3,000,000 on September 15, 2000. 
+ Summary 
+ 2.	This case involves misleading disclosure and false financial information reported by Gateway to meet or exceed Wall Street analysts' expectations in 2000.  Through its second and third quarter Forms 10?Q and press releases, Gateway gave the impression that it, unlike its competitors, was resilient to decreased PC sales in an increasingly saturated market.  Gateway also misrepresented or failed to disclose significant trends in its business, such as the facts that PC sales growth was declining; that, by the end of the third quarter, only a small percentage of net income was associated with PC sales; and that revenue and earnings included various "one-offs," or nonrecurring items.  In addition, Gateway employed improper accounting actions that inflated Gateway's reported revenue by 6.5% and pre?tax income by as much as 30% during the third quarter of 2000.  Before Gateway filed its Form 10?K for the period ended December 31, 2000, it amended its 2000 Forms 10?Q to restate its financial statements. 
+ Background 
+ 3.	In 1999, Gateway took steps to diversify its revenue stream beyond sales of traditional PCs by offering other products and services, such as software, peripherals, Internet access services, and training and support programs.  Gateway called these non?PC products and services "beyond-the-box." As part of this strategy, Gateway expanded into the business of financing consumer loans. 
+ 4.	By the end of 1999, beyond-the-box income made up 20% of Gateway's total pre?tax income.  During a conference call with analysts announcing its fourth quarter 1999 earnings, Gateway noted that the beyond-the-box strategy was an "indicator of [Gateway's] ability to continue delivering consistent results," but that its "bread and butter [had] long been the PC," which accounted for "the lion's share of [Gateway's] revenue and income stream."  Gateway also announced that at year?end 1999, for every PC sold to a consumer, an average of three non?PC items were attached to the sale. 
+ Undisclosed Consumer Financing Program 
+ 5.	In December 1999, Gateway initiated an "outbound" program to contact applicants who had been previously declined for credit and to offer them a pre?approved loan to purchase a Gateway PC.  Consumer loans made in the outbound program were distinguished from the customary "inbound" loans generated when a potential customer contacted Gateway and subsequently was offered credit. 
+ 6.	In the second quarter of 2000, Gateway undertook an aggressive outbound financing program directed to customers whose applications for credit in Gateway's inbound program had been rejected.  Although Gateway initially commenced the second quarter program as a test, with the intention of financing only $10 million of such high?risk credits, as sales results began to slip in the quarter, Gateway continued the program and took on a substantial amount of these high?risk customers to bolster sales. 
+ 7.	On May 25, 2000, employees from Gateway's subsidiary bank delivered a presentation to Gateway management, in which they estimated the loan losses for a $5 to $10 million test program at 38% (which was approximately equivalent to the profit margin on the PC package included in the program).  The bank employees told Gateway management that there were inherent risks in any new sub?prime consumer loan program, and that management should expect variations from the loss estimates, which could be as high as 50%. 
+ 8.	By June 8, 2000, Gateway had generated $10 million in outbound loans.  It continued the outbound program with the revised goal of originating $20 million of these high?risk loans.  On June 10, 2000, Gateway considered whether to continue the campaign beyond $20 million.  Gateway management inquired whether one of the division heads could meet his revenue target of $975 million without the incremental revenue from the outbound campaign.  The division head replied that he was counting on $30 million from the outbound program to meet his revenue target.  Accordingly, Gateway management instructed the consumer finance team to continue the campaign to $30 million. 
+ 9.	On June 16, 2000, a "scoresheet" circulated within Gateway, indicating that Gateway could miss consensus analysts' expectations for revenue by as much as $80 million.  The outbound program was therefore continued throughout the end of the quarter.  This decision was made by Gateway management based on Gateway's need to achieve more revenue in the quarter.  Ultimately, the outbound program generated $112 million, or 5%, of Gateway's second quarter revenue of $2.14 billion. 
+ 10.	Gateway's second quarter of 2000 Form 10?Q and July 13, 2000 press release were misleading because they failed to disclose the percentage of its sales generated by the high?risk outbound campaign.  Investors were not informed that Gateway's revenue and growth would have been significantly lower without the inclusion of the financing to high?risk customers.  Gateway announced that its consumer sales in the second quarter had increased 32% over 1999, giving the false impression that Gateway's revenue was increasing via sales to the same credit class of customers who had purchased PCs in prior periods.  By the end of the second quarter 2000, the sub?prime loans amounted to $153 million, or 32% of Gateway's total portfolio, compared to 0% at the end of the second quarter 1999.  Gateway's failure to disclose these facts obscured a material negative trend in consumer demand.  See Regulation S-K, Items 303(a)(3)(ii) and (b)(2) (registrant required to disclose known trends or uncertainties it believes will have material unfavorable impact on income from continuing operations).  Gateway also failed to make certain disclosures required under Regulation S-X, including the balance of its consumer finance receivables, the amount of its loan loss provision, its loan loss reserve, and its reserve methodology. 
+ Improper Gain on Sale of Loans to Gateway's Loan Service Provider 
+ 11.	Besides making sales through the outbound program, Gateway management searched for other avenues to improve Gateway's second quarter 2000 results.  On June 3, 2000, Gateway management instructed its staff to investigate a potential sale of $50 million of Gateway's high quality consumer loans receivable to the lending entity that serviced Gateway's consumer loans.  Management indicated that Gateway would need the sale "for the quarter." 
+ 12.	On June 30, 2000 Gateway sold the $50 million in high quality loans receivable to its loan service provider, but only after loaning the provider $50 million at a below?market interest rate.  Without the loan from Gateway, the loan service provider would not have agreed to the deal.  The loan service provider's payment to Gateway for the loans was made by wire transfer on June 30, simultaneous with Gateway's remission of the $50 million to the provider. 
+ 13.	Gateway's sale of the loans receivable made no business sense; it was economically disadvantageous.  Internal Gateway e-mail indicates that the purpose of the sale was to generate a gain in the quarter.  Moreover, while Gateway made only $4.3 million on the loan sale (without taking into account the financial effect of the loan Gateway provided to the lending entity), it would have realized an additional $10 million in income (based on present value) had it kept the loans.  Put otherwise, Gateway sold its future stream of income at less than its present value in order to realize instant income.          
+ 14.	Gateway treated the sale of the loans receivable and the loan to the loan service provider as separate unrelated transactions.  However, the interrelationship of the transactions was evident.  To properly record the transaction under Generally Accepted Accounting Principles ("GAAP"), Gateway should have allocated a sufficient portion of the amounts received from the loan service provider to the loan receivable to permit recognition of interest income on the loan receivable at market interest rate over the life of the loan.  Accounting Principles Board Opinion ("APB") No. 21, "Interest on Receivables and Payables" ¶ 7 (unstated rights or privileges).  Gateway did not do so.  Rather, Gateway recorded a gain of $4.3 million on the sale.  The gain on the sale of the loans resulted in an increase to earnings per share ("EPS") of over a penny.  Had the transaction been recorded in conformity with GAAP, there would have been no gain on the sale in the second quarter.  Moreover, Gateway should have disclosed that the sale was a one?time event affecting quarterly earnings.  Regulation S?K, Item 303(a)(3)(1) and (b)(2). 
+ 15.	In April 2003, Gateway filed an amended Form 10-K for the year ended December 31, 2002, in which Gateway restated its financial results for 2000 and 2001 to reflect the appropriate accounting for this transaction. 
+ Second Quarter Reported Financial Results 
+ 16.	With the assistance of the PC sales made through high?risk consumer loans and the sale of the portfolio to the loan service provider, on July 13, 2000, Gateway announced quarterly EPS of $.37 per share, 32% over the second quarter 1999 and exceeding consensus analysts' estimates by a penny.  Gateway further announced revenue of $2.14 billion, 12% over the second quarter 1999 - missing expectations for revenue by just $8 million.  Gateway also reported that consumer PC revenue grew 32%, and unit sales grew 39% year-over-year.  Finally, Gateway reported that beyond-the-box income made up 40% of overall income, meeting its "previously stated goal for the fourth quarter a half?year ahead of schedule."  These misleading revenue, earnings, and growth claims were later incorporated in Gateway's Form 10?Q for the second quarter. 
+ Third Quarter Market Pressures Drive Gateway to More Aggressive Measures to Increase Revenue and Earnings 
+ Gateway and Industry Trends 
+ 17.	In the third quarter of 2000, Gateway faced a larger gap between true operating results and expected results.  As early as May 2000, Gateway's market research group projected that, based on current trends in demand, the Company's third and fourth quarter forecasts were "extremely aggressive and [would] require additional efforts to achieve."   As of July 2000, the market research group predicted a gap of 21.8% between the Company's initial forecast and projected results based on current demand trends.  In early August, Gateway executive staff met to discuss the Company's financial results for July and the third quarter projections.  In that meeting, participants received a presentation indicating that, for the month of July, sales growth over the prior year was 9%.  One meeting participant noted that such data indicated that "PC growth was slowing."  Other Gateway internal documents reflected that unit growth was only 6% for July, a sharp contrast to reported unit growth of 39% in the second quarter. 
+ 18.	Nevertheless, on August 3, 2000, Gateway management informed analysts that July was a "solid" month.  From this conference call, analysts believed that Gateway's consumer sales "remained robust" and that consensus revenue growth of 16% was achievable.  On September 6, 2000, Gateway management told analysts that market conditions would not "[stand] in the way of Gateway's plan to accelerate revenue growth in the second half [of 2000]." 
+ 19.	On September 15, 2000, Gateway management received a document from the financial planning department - entitled "Gap to Consensus" - illustrating a significant gap between Gateway's actual results and analysts' estimates, and quantifying the effect of various transactions on that gap.  The document indicated that, through the end of August, Gateway had achieved only $1.4 billion of $2.5 billion in revenue necessary to meet analysts' expectations and had achieved only $.06 EPS of the analyst-estimated $.46 EPS.  The document further indicated that unit sales through the end of August were up only 5%, and revenue only 4%, over the same period in 1999.  The document projected that, taking into account the likely income contribution from September sales ($.09 EPS), and various corporate items ($.22 EPS), Gateway likely would achieve only $.36 EPS - 10 cents shy of analysts' expectations.  It also referenced various items "being worked" to bridge the gap. 
+ 20.	On September 17, 2000, a Gateway executive sent an e?mail to senior staff informing them that they were "coming down to the wire" on the third quarter results.  He told them that, based on current forecasts, the Company was likely to come in $110 million short of analysts' revenue expectations for the third quarter 2000 and that, as of the end of August, the Company had generated only $.06 of the $.46 necessary to meet consensus analysts' EPS estimates.  The executive referenced several potential "gap closures" that would be discussed in a staff meeting on September 18, 2000. 
+ 21.	During this same period, other PC companies were informing the investment community that demand was slowing and providing downward guidance.  On August 10, 2000, one of Gateway's competitors reported slower-than-expected sales growth for the quarter ended in July, and shipment increases of only 22%, compared to an increase of 55% during the same period of 1999.  On September 13, 2000, a maker of components and PCs lowered its revenue forecast by 13% and its EPS forecast by 11%, attributing the revised forecast to seasonal weaknesses in consumer electronics and PC demand.  Another company announced on September 21, 2000 that its revenue and earnings for that quarter would fall below expectations.  The next day, the price of Gateway stock fell to $54.50, from the previous day's close of $59.45.  On September 28, 2000, yet another company warned that its quarterly profits would miss previous forecasts, due to disappointing sales of computer products.  Gateway's stock price fell to $48.25 on September 29, 2000 from the previous day's close of $52.90. 
+ 22.	Gateway did not inform analysts that it anticipated that it might not meet expectations for third quarter revenue and earnings.  Rather, Gateway engaged in the activities described below to bridge the gap between analysts' expectations and Gateway's true financial results. 
+ Undisclosed Increased Consumer Financing  
+ 23.	Gateway continued to support slipping PC sales in the third quarter with its outbound program with riskier customers.  Early in the third quarter, Gateway exhausted its list of declined credit applicants who met the second quarter's criteria.  In order to continue the outbound program and to generate revenue, Gateway's bank screened the remaining applicants within Gateway's declined applicant pool in order to target the least risky applicants remaining in the pool.  The third quarter outbound program was dubbed internally at Gateway the "DDS program," which stood for "deep, deep sh[--]."  A bank employee estimated losses for the program at over 50%, but informed management that projected loss rates were a "mere guess and that [losses] could be catastrophic." 
+ 24.	The outbound program in the third quarter generated $84 million, or 4%, of Gateway's quarterly revenue.  In its October 12, 2000 press release and Form 10?Q for the third quarter, Gateway announced that it had exceeded consensus analysts' expectations for revenue by $30 million.  Gateway would not have met expectations had it not engaged in the outbound campaigns to high?risk customers, a fact that Gateway did not disclose.  Further, Gateway announced that its consumer sales had increased 27% over the third quarter 1999, giving the false impression that its third quarter 2000 sales were of the same quality as its third quarter 1999 sales. 
+ 25.	Gateway's third quarter press release and Form 10?Q failed to provide information concerning the deteriorating quality of Gateway's consumer loan portfolio.  At the end of the third quarter, the sub?prime loan receivables had risen to $243 million, or 37%, of Gateway's total portfolio.  Furthermore, the portfolio included outbound loans on which Gateway anticipated losses of more than 50%.  All of these facts were significant trends that should have been disclosed under Regulation S?K, Item 303(a)(3)(i) and (b)(2). 
+ Improper Change in Loan Loss Reserve Methodology 
+ 26.	By September 15, 2000, Gateway's "Gap to Consensus" spreadsheet reflected that one of the items being worked to close the gap was Gateway's loan loss reserve.  Gateway anticipated generating $10 million in operating income by reducing expenses from reducing the reserve that had been established in prior quarters. 
+ 27.	Early in the third quarter of 2000, the increasingly risky nature of the outbound program, as well as the significant increase in the reserve due to the aggressive outbound program in the second quarter, began to attract the attention of management.  Consequently, on July 31, 2000, Gateway's financial management and officers of Gateway's bank met to discuss the portfolio.  One of the topics was whether there was a "shortage in the loan loss reserve."  From that meeting, Gateway's senior financial managers determined to adopt a new methodology.  The new methodology did not follow from actual loss curves but rather adopted a straight-line approach to loss provisioning.  Under the new method, the reserve was reduced by $34.5 million from what would have been recorded under Gateway's prior methodology. 
+ 28.	Gateway viewed the reserve as an "opportunity" available to "offset other shortfalls."  The change in the reserve methodology in the third quarter resulted in an increase in pre?tax income of $34.5 million, causing an overstatement of EPS of $.067, in a quarter when Gateway claimed to have precisely met consensus expectations of $.46 EPS. 
+ 29.	Gateway's change to its loan loss reserve methodology in the third quarter of 2000 was improper under GAAP in that Gateway failed to employ a consistent approach between periods.  2     Moreover, a change in methodology would be appropriate only if the new approach were demonstrably preferable to the old approach.  APB No. 20, "Accounting Changes" ¶¶ 15 and 16.  The new methodology was demonstrably less preferable because it encompassed a straight-line approach to loss provisioning, which is inconsistent with a typical pattern of loan losses in a consumer loan portfolio.  Gateway was further required to disclose any significant changes in any accounting principles, or estimates inherent in the preparation of financial statements, in its interim financial statements.  Regulation S-X §10-01(a)(5).  Gateway's change in methodology was significant, in that it reduced the reserve by $34.5 million from what would have been recorded under the prior method, and increased EPS by $.067.  Also, as in the second quarter, Gateway's Form 10-Q failed to provide certain disclosures required under Regulation S-X, including the amount of its loan loss provision, its loan loss reserve, and changes in its reserve methodology. 
+ 30.	In March 2001, Gateway amended its Form 10-Q for the third quarter of 2000, in which Gateway restated its financial statements for that quarter to reflect that it had restated its loan loss reserve for that quarter after adopting a new, revised loan loss reserve methodology. 
+ Improper Revenue Recognition on Sale with Contingency 
+ 31.	Another item reflected as a potential gap closer on the September 15, 2000 "Gap to Consensus" spreadsheet, and the September 17 e?mail to Gateway's senior staff, was a potential $10 million sale to a vendor financing company.  In the summer of 2000, Gateway had commenced discussions with this vendor financing company concerning the possibility of this company financing some of Gateway's customers who had poor credit.  Specifically, the parties contemplated that Gateway would provide the vendor financing company with referrals to customers who had been declined for credit by Gateway, and the vendor financing company would find an underwriter to service the loans. 
+ 32.	The parties reached a deal on September 22, 2000.  Under a Reseller Agreement and a Referral Agreement, the vendor financing company agreed to purchase approximately $21 million of PCs.  Gateway was required to refer sufficient customers to the vendor financing company to facilitate resale of the PCs by December 31, 2000 to end customers, or the vendor financing company could terminate the agreement and Gateway would have to take any remaining PCs back.  The vendor financing company was not obligated to pay for any PC until 24 hours after it was shipped from a warehouse to an end customer, or within 120 days from September 22, 2000, whichever came first.  Further, Gateway later agreed to amend the contract to extend the payment terms to March 31, 2001, thus permitting the vendor financing company to defer any payment until the products actually were shipped to end customers. 
+ 33.	Before the end of the third quarter, Gateway shipped the PCs to warehouses and improperly recognized revenue of almost $21 million.  This transaction increased Gateway's third quarter reported. revenue by $21 million. 
+ 34.	Gateway's purported sale of PCs to the vendor financing company failed to meet requirements for revenue recognition under GAAP because, at the end of the quarter, Gateway had not fulfilled its contractual obligation to refer customers to the vendor financing company to facilitate its resale of the PCs.  Statement of Financial Accounting Concepts No. 5, "Recognition and Measurement in Financial Statements of Business Enterprises" ("CON 5") ¶83 (revenue considered earned when entity substantially accomplished what it must to be entitled to benefits represented by revenue).  3    
+ 35.	In March 2001, Gateway amended its Form 10-Q for the third quarter of 2000, in which Gateway restated its financial statements for that quarter to reflect that Gateway had restated this transaction. 
+ Improper Bill-and-Hold Sale 
+ 36.	Gateway also solicited an arrangement with one of its larger customers, a rent-to-own consumer leasing company, in mid-September 2000.  As with the vendor financing company, the September 17, 2000 e-mail to Gateway's senior staff referenced a potential "pull forward" to the consumer leasing company of $10-20 million as a way to help bridge Gateway's revenue gap.  A potential pull forward of $10-20 million also was referenced on a September 18, 2000 version of the "Gap to Consensus" spreadsheet. 
+ 37.	In April 2000, Gateway commenced a relationship with the consumer leasing company that included the consumer leasing company's agreement to purchase PCs from Gateway to rent to its customers.  Initially, the consumer leasing company issued a blanket purchase order for PCs for each of its stores throughout the country.  It then placed smaller purchase orders with Gateway based on the needs of a particular store.  Gateway then shipped the PCs directly to the store that sought them and invoiced the corporate office of the consumer leasing company for the order.   
+ 38.	On September 21, 2000, Gateway's sales representative sent an e-mail to the consumer leasing company confirming that the consumer leasing company would issue a purchase order for $16.5 million of PCs, for which it would receive a 5% discount, that the consumer leasing company would be billed by September 30, 2000 and would take the PCs by October 31, 2000.  The e-mail did not reference warehousing arrangements.  The parties agreed that the consumer leasing company would not take the product until the fourth quarter, after it issued subsequent purchase orders from individual stores, as had been its practice.  They also agreed that the consumer leasing company would be invoiced and pay on the subsequent store purchase orders, not the $16.5 million purchase order. 
+ 39.	On September 21, 2000, the consumer leasing company issued a purchase order for $16.5 million in PCs and peripherals.  The purchase order provided that the equipment would be shipped to "local warehousing for subsequent distribution," and stated that the order was FOB destination.  Gateway then "shipped" the products by segregating them in the third-party warehouses located adjacent to Gateway's manufacturing facilities - the same warehouses which housed the PCs for the vendor financing company.  The consumer leasing company did not make any arrangements with the warehouses, or have any contact with the warehouses.   
+ 40.	Gateway improperly recognized revenue of $16.5 million on the third quarter purported sale (and also failed to apply the 5% discount on the sale until the fourth quarter).  Thus, Gateway increased its third quarter reported revenue by $16.5 million.   
+ 41.	The transaction failed to satisfy three critical GAAP criteria for revenue recognition on a bill-and-hold transaction.  4     First, revenue recognition was inappropriate because the consumer leasing company lacked any substantial business purpose for ordering the goods on a bill-and-hold basis.  Second, Gateway had specific performance obligations concerning the purchase order that it did not discharge during the third quarter, including: (1) upon receipt of a second purchase order from the consumer leasing company, an obligation to remove the product from the warehouse inventory, send it back to Gateway's manufacturing facility for re-entry in Gateway's computer system, and then ship the product to the individual store specified on the order; and (2) an obligation to reverse the September 21, 2000 sale of the PC out of its system and issue a second invoice to the consumer leasing company.  These specific performance obligations precluded revenue recognition.  Third, revenue recognition was inappropriate because the consumer leasing company did not request that the transaction be on a bill-and-hold basis, and did not pay the cost for warehousing the inventory.     
+ 42.	This transaction had a $.003 impact on EPS and a 0.69% impact on revenue for the third quarter of 2000. 
+ Improper Revenue Recognition on Internet Service Bundles 
+ 43.	Gateway looked to another unusual business transaction involving an Internet service provider ("ISP') to further bridge the gap in the third quarter.  Gateway's relationship with the ISP began in 1999 when the parties entered into a strategic alliance.  One of the critical components of that alliance was a bundling arrangement by which Gateway agreed to bundle Internet service with the sale of Gateway PCs.  The initial agreement, entered into in December 1999, provided that the ISP would make an upfront bounty payment to Gateway of either $132.06 or $164.56 for each end user who purchased a PC bundled with a one?year Internet service package (a "bundled product") and registered for the service; and Gateway would pay the ISP $219.45 for each such end user.  The price of the bundle was open to renegotiation on a quarterly basis.  Gateway recorded the initial bounty payment received from the ISP per subscriber as revenue, and the $219.45 it paid to the ISP as cost of goods sold.  Gateway did not disclose that it received direct bounty payments from the ISP for new subscribers, or that it recorded these payments as revenue.  5   
+ 44.	In July 2000, early in the third quarter, the parties entered into a letter agreement setting forth the bounty arrangements for the third and fourth quarters of 2000.  That agreement provided that Gateway would continue to pay the ISP $219.45 per subscriber who purchased a bundled product and registered for the Internet service, but the ISP would increase its bounty payment to Gateway to $219.45 per registered user. 
+ 45.	On September 14, 2000, an employee in Gateway's accounting department sent a Gateway executive an e?mail suggesting that Gateway "accelerate [its] revenue" relating to the ISP arrangement by recognizing revenue based on shipments of PCs bundled with the Internet service rather than recognizing revenue based on customers who actually registered for the Internet service.  The employee further suggested that such a change "would bridge the gap."  6    The Gateway executive contacted the ISP on September 22, 2000 and September 26, 2000 to request the ISP's agreement to change the third quarter bundling arrangement to provide for the respective bounty and service payments upon shipment of a bundle, rather than upon registration of a customer with the ISP.  On September 28, 2000, representatives of Gateway and the ISP met in person at Gateway to discuss various aspects of the strategic alliance, including the change. 
+ 46.	On September 30, 2000, a representative of the ISP notified Gateway that it had signed an amended agreement.  Based on the notification, Gateway also signed a version of the amended agreement.  That agreement, which was dated July 1, 2000, was identical to the agreement signed in July 2000 except that it provided that Gateway and the ISP would pay their respective $219.45 payments per end user who purchased a bundled product, rather than who registered for the Internet service.  On October 1, 2000, a Gateway executive sent an e?mail to the ISP thanking the ISP for the "favorable accounting treatment." 
+ 47.	There was no economic reason for the amendment to Gateway's previous third quarter agreement with the ISP other than to inflate Gateway's revenue.  As to each party, the amendment did not affect the mutual $219.45 payments.  Based on the amendment to the agreement, Gateway retroactively adjusted its revenue from the ISP bounties back to the beginning of the third quarter, increasing its third quarter revenue by $70 million, in a quarter in which it exceeded analysts' expectations for revenue by just $30 million.  Without the revenue associated with the amended agreement, Gateway would not have met analysts' expectations. 
+ 48.	It was improper under GAAP for Gateway to change the event triggering the recognition of revenue on the ISP bounty payments from registrations to shipments.  First, revenue recognition was inappropriate because the revision to the agreement provided Gateway no net economic benefit.  A basic tenet of GAAP is that a transaction or event should be accounted for in accordance with its economic substance.  Statement of Financial Accounting Concepts No. 2, "Qualitative Characteristics of Accounting Information"  ¶160 ("the quality of reliability, and in particular, of representational faithfulness leaves no room for accounting representations that subordinate substance to form.").   See also  AICPA Codification of Statements on Auditing Standards, AU §411.06.  Further, even if the change in the method of calculating the bounty revenue had satisfied the requirements of revenue recognition, Gateway would have been required to disclose it under Regulation S-X §10-01(a)(5), which requires disclosure of any significant change in accounting principle or practice. 
+ 49.	In April 2003, Gateway filed an amended Form 10-K for the year ended December 31, 2002, in which Gateway restated its financial results for 2000 and 2001 which eliminated these sales from its reported results.   
+ Sale of Fixed Assets Improperly Recognized as PC Revenue 
+ 50.	Late in the quarter, a Gateway executive met with Gateway's financial management to discuss the likely third quarter results.  One manager suggested that Gateway attempt to sell the computer equipment used in Gateway's internal operations to Gateway's outsourced information technology ("IT") services provider.  The executive directed the manager to attempt to complete such a transaction before the end of the third quarter. 
+ 51.	On September 22, 2000, Gateway approached the IT services provider and suggested that the provider purchase certain of the computer equipment used in the IT infrastructure at Gateway.  Gateway suggested that the IT services provider purchase the equipment from Gateway, and simultaneously enter into a revised outsourcing contract to permit it to lease the equipment back to Gateway to recover its cash outlay.  The IT services provider responded affirmatively.  The deal was put together in a matter of days and signed on September 29, 2000.  The deal required the IT services provider to pay Gateway $47.2 million for the hardware over a five?month period in five equal payments beginning October 30, 2000; the deal further permitted Gateway to lease the equipment back from the IT services provider over a 36?month period, by prepaying the IT services provider a $47.2 million payment on October 2, 2000.  The structure of the transaction was designed to neutralize any financial impact to the IT services provider.  Gateway improperly recorded revenue on the sale of $47.2 million on September 30, 2000.  Without the revenue from this sale, Gateway would not have met consensus analysts' expectations for revenue. 
+ 52.	Gateway's recording of revenue on the fixed asset sale departed from GAAP.  Under Statement of Financial Accounting Concepts No. 6, "Elements of Financial Statements" ("CON 6"), revenues are "actual or expected cash inflows . . . as a result of [an] entity's ongoing major or central operations."  Gateway's central or core operations involve the manufacture and sale of new PCs for use by end customers, not the sale and lease back of used assets.  Indeed, because the assets sold to the IT services provider were not equipment generated through Gateway's central operations for sale, Gateway properly had capitalized them and was depreciating them in an appropriate manner over their estimated life.  Thus, Gateway's sale of used assets could not properly be recorded as revenue.  Rather, Gateway should have recorded the sale of fixed assets as a gain (or loss), reported it within "Other Income" on the Income Statement,  7    and, in this case, deferred the gain over the 36 month period of the lease.  Statement of Financial Accounting Standards No. 28, "Accounting for Sales with Leasebacks" ¶3. 
+ 53.	Gateway's recording of revenue on the fixed asset sale departed not only from GAAP, but also from Gateway's own accounting policy.   
+ 54.	In March 2001, Gateway filed an amended Form 10-Q for the third quarter of 2000, in which Gateway restated its financial statements for that quarter to reflect that Gateway had restated this transaction. 
+ Improper Reduction of Legal Reserves 
+ 55.	Also during the third quarter, Gateway arbitrarily and improperly reduced a reserve for potential patent infringement claims from $15 million to $8 million, resulting in an increase to income of $.015 EPS.  The legal reserve was originally created, along with other intangible assets, as a purchase accounting adjustment in connection with Gateway's 1997 acquisition of a server company. 
+ 56.	Gateway's initial establishment and subsequent reduction of the legal reserve was not in conformity with GAAP.  First, Gateway's initial establishment of the reserve was improper because the liability was neither probable nor reasonably estimable.  SFAS 5 ¶8.  Accordingly, any reduction of the reserve in 2000 should have been accounted for as a correction of an error  8   and excluded from the determination of net income.  APB No. 20 ¶36; APB No. 9, "Reporting the Results of Operations," ¶18. 
+ 57.	Further, even if the reserve had been appropriate when established, it was improper under GAAP to reduce the reserve in the third quarter.  CON ¶5 88 requires that a recognized liability, such as a legal reserve, be measured at the amount initially recognized until an event that changes the liability or its amount occurs.   No event occurred during the third quarter that triggered a change to the amount of the liability. 
+ 58.	In April 2003, Gateway filed an amended Form 10-K for the year ended December 31, 2002, in which Gateway disclosed the reduction in this reserve. 
+ Improper Retroactive Adjustment of Warranty Accrual 
+ 59.	Also in the third quarter, Gateway improperly made a retroactive reduction of its second quarter warranty expense.  During the third quarter, Gateway reassessed the costs associated with its product warranties and, based on the reassessment, adjusted its warranty accrual rate for business product sales.  The application of the new warranty accrual rate retroactively to the second quarter, however, was inappropriate because changes in estimates apply only to the period of such a change and future periods, not to prior periods.  APB 20 ¶31; APB No. 28, "Interim Financial Reporting" ¶26; Statement of Financial Accounting Standards No. 16, "Prior Period Adjustments" ¶13.  Thus, in applying the change retroactively, Gateway departed from GAAP.  The improper retroactive rate adjustment decreased Gateway's warranty expense for the third quarter by $4 million. 
+ 60.	In March 2001, Gateway filed an amended Form 10-Q for the third quarter of 2000, in which Gateway restated its financial statements for that quarter to reflect that Gateway had restated this transaction. 
+ Reported Financial Results and Street Reaction 
+ 61.	After the close of the market on October 12, 2000, Gateway announced record third quarter profits of $152.6 million on revenue of $2.53 billion, precisely meeting analysts' expectations of $.46 EPS, and exceeding expectations for revenue by $30 million.  Gateway claimed that it had "accelerated year-over-year revenue growth to 16 percent" - again precisely meeting expectations - and that the consumer unit had posted revenue growth of 27% over 1999. 
+ 62.	In the analysts' call following the third quarter earnings release, Gateway stated that it "had a great quarter despite the noise in the marketplace."  Gateway management highlighted the Company's revenue growth, and noted that the revenue of $2.530 billion was "30 million better than guidance."  Gateway stated that the Company had "differentiated itself from its competitors and been able to post continued earnings growth in a more difficult market."  Similarly, it claimed that the "combination of accelerating revenue and profit growth that leads the traditional PC industry further illustrates the difference in the Gateway business model."  Management also stated that Gateway's EPS growth of 32% for the first three quarters of 2000 exceeded the 20% average of its competitors. 
+ 63.	One financial analyst commented that Gateway had become "increasingly immune to the vagaries of the PC market."  Another stated that Gateway's model "gives them an advantage over everyone."  On October 13, 2000, Gateway's stock jumped from $43.63 to $53.11. 
+ 64.	On November 14, 2000, Gateway filed its Form 10?Q for the third quarter of 2000 with the Commission.  Like Gateway's earnings press release, the Form 10?Q reported income of $152.6 million on revenue of $2.53 billion, and EPS of $.46. 
+ Misleading Disclosure of "Beyond-the Box" Sales Percentage 
+ 65.	Gateway reported in its Form 10?Q and earnings release for the third quarter that "non?PC income was more than 50 percent of income, exceeding the fourth quarter 2000 target by five percentage points."  Gateway made a similar disclosure in the analysts' call following the release, stating that the non?PC, or "beyond-the-box" income accounted for "almost 50 percent or 50 percent plus of profits."  Gateway further stated that "[b]eyond-the-box performance of 50 percent exceeded our year?end goal of 45 percent."  When asked about the state of consumer demand in the PC market, management stated "the sky is not falling," and claimed that "the market [was] still solid." 
+ 66.	This disclosure was misleading.  In fact, non?PC income actually amounted to 90% of net income.  Gateway's failure to disclose the actual amount of income flowing from its non?PC products and services misled investors about the fact that the sale of PCs - Gateway's core business - was increasingly less profitable, and that Gateway's "bread and butter" business had declined.  This disclosure therefore contributed to providing the public with a misleading view of Gateway's operating results. 
+ Omission of Unit Sales Data 
+ 67.	In its Form 10?Q and earnings release for the third quarter, for the first time, Gateway stopped reporting the number of PC units sold.  Gateway's decision to cease to report the number of PC units sold was materially misleading, because it obscured the softening of consumer demand for PCs that Gateway experienced in the third quarter.   
+ Internal Control Violation:  Failure to Implement and Follow 
+ Quarterly Cutoff Procedures 
+ 68.	Gateway recorded revenue in a quarter on PCs shipped after midnight on the last day of the quarter.  In its U.S. manufacturing plants, Gateway recorded revenue on PCs manufactured through the end of the night shift that began during the last day of the quarter, generally until 2:00 am. or 7:00 a.m.  Moreover, Gateway management altered the manufacturing cutoff in Gateway's U.S. manufacturing facilities at times during 2000.  At Gateway's European, Middle East, and Africa ("EMEA") division, units continued to be manufactured and counted in quarterly results for an entire weekend if  that weekend included the last day of the quarter.  Thus, at times, EMEA continued recording revenue for a full day after the quarter officially had ended in the manufacturing plants in the United States. 
+ 69.	These practices represented a failure to devise and maintain internal controls, because Gateway's failure to observe consistent quarter end cutoff dates and times caused it to have accounting periods of different lengths from quarter to quarter. 
+ 70.	Gateway resolved its improper revenue recognition created by the fiscal year 2000 manufacturing and shipping cutoff process through the adoption of Commission Staff Accounting Bulletin No. 101, "Revenue Recognized in Financial Statements" ("SAB 101").  Gateway applied SAB 101 in its 2000 financial statements included in a Form10?Q A and in its 2000 Form 10?K.  Applying SAB 101 resulted in changing the Company's revenue recognition policy from shipment to delivery of products to its customers. 
+ Additional Reporting Violation:  Improper ISP Accounting 
+ 71.	In addition to Gateway's improper revenue recognition on the Internet service bundles as discussed above, Gateway's recording of its bounty payments from the ISP as revenue throughout the year 2000 departed from GAAP.  Gateway's recording of its bounty payments from the ISP as revenue throughout the year 2000 departed from GAAP.  Gateway received bounty payments from the ISP based on either the number of bundled products shipped, or the number of customers who registered for the Internet service after receiving a bundled product, and Gateway made comparable payments to the ISP.  As of July 1, 2000, the respective payments were in exactly the same amount - $219.45.  Gateway accounted for this arrangement under the gross revenue recognition method, by recording the bounty payments as revenue and the payments to the ISP as cost of goods sold. 
+ 72.	The accounting for arrangements in which a company sells goods or services to a customer, but the goods or services are provided by a third?party supplier, is governed by EITF 99?19, "Reporting Revenue Gross as a Principal versus Net as an Agent."  Under net revenue reporting, a company reports the net amount retained, that is, the amount billed to a customer less the amount paid to a supplier.  Gateway's arrangement with the ISP concerning the bundling of the Internet service with a Gateway PC meets two of the three indicators of net revenue reporting.  The first indication of net revenue reporting is that the supplier, rather than the company seeking to report the revenue, is the primary obligor for the good or service.  Because the ISP had primary responsibility for providing the Internet service, this factor weighs in favor of net revenue reporting.  The second indication of net revenue reporting is that the company seeking to report revenue earns a fixed dollar amount per customer.  This factor also weighs in favor of net revenue reporting because Gateway earned a fixed amount from each registration or shipment of the Internet service (i.e., the bounty payment).  Under these circumstances, Gateway should have recorded the ISP payments on a net rather than a gross basis. 
+ 73.	In April 2003, Gateway filed an amended Form 10?K for December 31, 2001, restating its 2000 and 2001 financial statements to record the ISP arrangement on a net basis, reducing reported 2000 sales by $337 million, or 3.6%, and its 2001 sales by $131 million, or 2.2%.  Gateway had earlier filed in 2001 its Forms 10?Q A for the first three quarters of 2000, restating its financial statements. 
+ 74.	None of the conduct described in any of the above paragraphs of this Order arose in the performance of a federal, state, or local government contract. 
+ Legal Analysis 
+ 75.	As a result of the conduct described above, Gateway 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, Gateway 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 pre-tax income.   
+ 76.	Further, as a result of the conduct described above, Gateway 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 periodic reports on Forms 10?K and 10?Q.  These reports must contain any material information necessary to make the required statements made in the reports not misleading.  As previously discussed, Gateway filed periodic reports with the Commission that misstated its financial results. 
+ 77.	Further, as a result of the conduct described above, Gateway 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 and records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the issuer.  In the second and third quarters of 2000, Gateway's books and records were inaccurate as demonstrated by Gateway's restatements. 
+ 78.	In addition, as a result of the conduct described above, Gateway 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.  Gateway had insufficient internal controls to assure that it accounted properly for its revenue in the second and third quarters of 2000. 
+ IV. 
+ 79.	Gateway has undertaken and agreed to cooperate fully with the Commission in any and all investigations, litigation, or other proceedings relating to or arising from the matters described herein.  In connection with such cooperation, Gateway has undertaken: 
+	  To produce, without service of a subpoena, any and all non-privileged documents requested by the Commission's staff;   
+	 To be interviewed by the Commission's staff at such times as the staff may reasonably direct and to appear and testify truthfully and completely without service of a subpoena in such investigations, depositions, hearings or trials as may be requested by the Commission's staff; and   
+	 That in connection with any testimony of Gateway, or any current employee of Gateway, to be conducted at deposition, hearing, or trial pursuant to a notice or subpoena, Gateway: 
+	   Agrees that any such notice or subpoena for appearance and testimony may be addressed to General Counsel, Gateway, Inc., 14303 Gateway Place, Poway, California 92064; and   
+		 Agrees that any such notice or subpoena for appearance and testimony in any such action pending in a United States District Court may be served, and may require testimony, beyond the territorial limits imposed by the Federal Rates of Civil Procedure. 
+		  80.	During the early stages of the staff's investigation, the Company's cooperation was not exemplary.  In determining to accept Gateway's offer, however, the Commission has considered these undertakings, the limited duration of the violations, and the remedial measures undertaken by Gateway's current management and board of directors, including the recent restatement of Gateway's financial statements, and substantial actions that Gateway has taken to enhance Gateway's internal controls and corporate governance. 
+ V. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Gateway's Offer. 
+ Accordingly, it is hereby ORDERED: 
+ Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Respondent Gateway shall 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; and 
+
+ 
+
+ By the Commission. 
+
+ 
+ Jonathan G. Katz 
+Secretary 
+ 
+
+ Endnotes   
+   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   Gateway's loan loss reserve accounting was subject to Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies" ("SFAS 5") ¶ 22.  The Emerging Issues Task Force ("EITF") Issue D-80 states that, in applying SFAS 5, the approach should be "applied consistently from period to period."  EITF D-80 Appendix A, "Application of FASB Statements Nos. 5 and 114 to a Loan Portfolio";  see also  Financial Reporting Release No. 28, "Accounting for Loan Losses by Registrants Engaged in Lending Activities" (requiring registrants with loan portfolios to employ systematic methodology each period). 
+   3    See  Accounting Research Bulletin No. 43, ("ARB 43"), Chapter 1A ¶ 1 (profit deemed realized when sale in ordinary course of business effected, unless collection of sale price not reasonably assured under the circumstances). 
+   4   In 1986, the Commission articulated the following conditions for revenue recognition on bill-and-hold sales:  (1) the risks of ownership must have passed to the buyer; (2) the customer must have made a fixed commitment to purchase the goods, preferably reflected in written documentation; (3) the buyer, not the seller, must request that the transaction be on a bill and hold basis and must have a substantial business purpose for ordering the goods on a bill and hold basis; (4) there must be a fixed schedule for delivery of the goods that is reasonable and consistent with the buyer's business purpose; (5) the seller must not retain any specific performance obligations such that the earnings process is not complete; (6) the ordered goods must have been segregated from the seller's inventory and not be subject to being used to fill other orders; and (7) the equipment must be complete and ready for shipment.   In the Matter of Stewart Parness , Exchange Act Release No. 23507, Accounting and Auditing Enforcement Release ("AAER") No. 108 (August 5, 1986) (bill-and-hold criteria for revenue recognition). 
+   5   Gateway also improperly recorded the revenue on a gross, rather than net, basis.  See ¶¶ 71-73  infra . 
+   6   Previously, Gateway had recognized revenue only on those customers who purchased a Gateway PC with a bundled Internet service package and then registered with the ISP for the service.  Only about 50% of Gateway customers who received the bundled service actually registered for the service, so revenue from the bundles would have approximately doubled if revenue were recognized upon shipment. 
+   7   Other income is a line item on the income statement reflecting financing costs, interest income and other gains and losses which are not part of the core operations of the business.  Other income appears on the income statement after operating income but before net income.  Regulation S?X, § 210.5 (b)(7); CON 6 ¶¶ 85 and 87. 
+   8   Under APB 20 ¶13, an error is a mistake in the application of accounting principles, or oversight or misuse of facts, that existed at the time financial statements were prepared. 
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diff --git a/raw/aaer/2003/AAER-1912.txt b/raw/aaer/2003/AAER-1912.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c58027ddd8d141fdf5a2e9ac15e573ebcb3b2537
--- /dev/null
+++ b/raw/aaer/2003/AAER-1912.txt
@@ -0,0 +1,1388 @@
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+ Gateway Agrees to Issuance of a Cease-and-Desist Order 
+
+  Securities and Exchange Commission v. John J. Todd, Robert D. Manza and Jeffrey Weitzen , Civil Action No. 03-CV-02230 K (RBB) (S.D. Cal.) 
+ 
+The Securities and Exchange Commission announced today the filing of fraud charges against the former chief executive officer, chief financial officer, and controller of San Diego-based Gateway, Inc., for engaging in a fraudulent earnings manipulation scheme to meet Wall Street analysts' expectations, and for making false statements and concealing from the investing public important information about the success of Gateway's personal computer (PC) business, in the second and third quarters of 2000.  The Commission's lawsuit, filed today in federal court in San Diego, seeks antifraud injunctions, civil money penalties, disgorgement of ill-gotten gains, and orders permanently barring the defendants from serving as officers or directors of public companies. 
+ 
+Named in the Commission's complaint are the following defendants. 
+ 
+Jeffrey Weitzen, age 47, of Rancho Santa Fe, Calif.  Weitzen was Gateway's chief executive officer and a member of its board of directors. 
+ 
+John J. Todd, age 43, of Rancho Santa Fe, Calif.  Todd was senior vice president and chief financial officer of Gateway. 
+ 
+Robert D. Manza, age 42, of Plano, Tex.  Manza was Gateway's controller during the relevant time and is a certified public accountant. 
+ 
+In a separate administrative proceeding, Gateway, without admitting or denying the Commission's findings, agreed to entry of a Commission order that it cease and desist from violations of the antifraud, reporting, books and records, and internal controls provisions of the federal securities laws. 
+ 
+The SEC's complaint alleges that defendants misrepresented or failed to disclose (1) significant trends in Gateway's business, such as that a material portion of Gateway's sales were generated through high-risk loan financing; (2) that PC sales growth was declining; (3) that, by the end of the third quarter, only a small percentage of net income was associated with PC sales; and (4) that revenue and earnings included various one-time transactions.  Through these actions, the defendants gave the false and misleading impression that Gateway, unlike many of its competitors, was outpacing an industry trend of decreasing sales of personal computers. 
+ 
+The Commission's complaint alleges that in approximately May 2000, when defendants realized that the company would not meet the expectations of the Wall Street analysts who followed Gateway's stock, they embarked on a fraudulent scheme to "close the gap" between analysts' expectations and the company's actual revenue and earnings. 
+ 
+According to the complaint, in the second quarter of 2000, the scheme included contacting individuals whose credit applications had previously been denied by the company, and offering them pre-approved financing to facilitate sales.  The sales campaign to high-risk customers contributed more than 5% of Gateway's second quarter revenues. 
+ 
+Also according to the complaint, when Todd recognized that he could not close the gap simply by increasing the amount of PC sales to high-risk customers, he allegedly authorized a wider variety of improper accounting actions, all of which failed to comply with generally accepted accounting principles (GAAP).  These included (1) reducing loan loss reserves; (2) recognizing revenue from a consignment sale; (3) recognizing revenue from a purported bill-and-hold sale; (4) accelerating purported revenue from payments by America Online, Inc. (AOL) for bundling its internet service with a Gateway PC purchase; (5) recording revenue from the sale of the company's fixed assets; and (6) making additional undisclosed accounting adjustments to meet analysts' earnings estimates. 
+ 
+According to the Commission's allegations, as a result of the improper accounting actions, Gateway announced that, for the third quarter of 2000, it exceeded analysts' expectations for revenue by $30 million, met analysts' expectations for earnings per share (EPS) of $0.46, and experienced year-over-year revenue growth of 16%.  According to the complaint, these statements about Gateway's financial performance were false and misleading.  The improper actions by defendants caused Gateway's net income for the third quarter of 2000 to be overstated by more than ten cents EPS, or 30%, and inflated reported revenue by $154 million, or 6.5%. 
+ 
+The complaint alleges that Todd was the principal architect of the fraudulent scheme; that Manza assisted in the fraudulent scheme by, among other things, initiating certain of the one-time transactions and then preparing financial statements knowing that these transactions failed to comply with GAAP; and that Weitzen knew that Gateway's third quarter 2000 reported revenues were inflated due to certain extraordinary one-time transactions and high-risk loans and misled the public as to the true state of Gateway's business. 
+ 
+In its complaint, the Commission charged Weitzen, Todd, and Manza with violating the antifraud provisions of the Securities Exchange Act of 1934, Section 10(b) and Rule 10b-5 thereunder.  Todd was additionally charged with violating the antifraud provision of the Securities Act of 1933, Section 17(a).  For providing a false and misleading management representation letter to Gateway's outside auditor to support the third quarter 2000 financial results, the three defendants were also charged with violating the false statements to accountants provision, Rule 13b2-2 under the Exchange Act.  The Commission further charged Todd and Manza with violating record-keeping provisions, Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and the internal controls provision, Section 13(b)(5) of the Exchange Act, and aiding and abetting Gateway's violations of reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder, and record-keeping provisions, Section 13(b)(2)(A) of the Exchange Act.  Finally, the Commission charged Weitzen with violating the antifraud and reporting provisions as a control person of Gateway. 
+ 
+The Commission also instituted a settled administrative proceeding against Gateway.  In its cease-and-desist order, the Commission found that, through the conduct described above, Gateway violated the antifraud, reporting, and record-keeping provisions of the federal securities laws.  The Commission also found that Gateway violated the internal controls provision by failing to observe consistent quarter-end cutoff dates and times, which caused it to have accounting periods of different lengths from quarter to quarter.  Without admitting or denying the Commission's findings, Gateway consented to the Commission's order to cease and desist from committing or causing any violation or future violation of these provisions. 
+ 
+In its order, the Commission also found that the Company's cooperation was not exemplary during the early stages of the staff's investigation.  In determining to accept Gateway's settlement offer, however, the Commission considered Gateway's undertakings to provide further cooperation and recent remedial measures undertaken by Gateway's current management and board of directors. 
+ 
+  SEC Complaint in this matter  ( PDF format ) 
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diff --git a/raw/aaer/2003/AAER-1913.txt b/raw/aaer/2003/AAER-1913.txt
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index 0000000000000000000000000000000000000000..174fb2346886b4d6369cea25c9700360707dac32
--- /dev/null
+++ b/raw/aaer/2003/AAER-1913.txt
@@ -0,0 +1,1514 @@
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+              Axeda Systems Inc., Jason C. Liu and Stewart C. Adams
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+        Axeda Systems Inc., Jason C. Liu and Stewart C. Adams
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+ Securities Exchange Act of 1934 
+Release No.  48783 / November 14, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No.  1913 / November 14, 2003 
+
+ Administrative Proceeding 
+File No.  3-11334 
+
+     In the Matter of 
+
+ AXEDA SYSTEMS INC., 
+JASON C. LIU and 
+STEWART C. ADAMS 
+
+ Respondents. 
+  
+ : : : : : : : : : 
+ 
+ ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934    I. 
+
+ The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Axeda Systems Inc., Jason C. Liu and Stewart C. Adams (collectively "Respondents"). 
+
+ II. 
+
+ In anticipation of the institution of these proceedings, the 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, Respondents each consent to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and Respondents' Offers, the Commission finds that: 
+
+ Respondents 
+
+ 1. Axeda Systems Inc., a Delaware corporation located in Malvern, Pennsylvania, is the successor name of Ravisent Technologies, Inc. ("Ravisent"), which was the name of the company during the time of the violations alleged herein.  In July 1999, Ravisent conducted an initial public offering of 5,750,000 shares of common stock at $12 per share.  Ravisent's common stock has been registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the NASDAQ.  For the fiscal year ended December 31, 2000, Ravisent reported revenue of approximately $20.9 million and a net loss of approximately $40.9 million. 
+
+ 2. Jason C. Liu, age 32, a resident of Naperville, Illinois, was Ravisent's Chief Financial Officer from June 1996 through May 2000, when he resigned from the company. 
+
+ 3. Stewart C. Adams, age 49, a resident of Millington, New Jersey, is a certified public accountant and was Ravisent's controller from February 1999 through April 2000, when he resigned from the company.   
+
+ Improper Accounting for Revenue 
+
+ 4. During the relevant time period, Ravisent's principal business was the development and licensing of software products to manage video and audio data in personal computers and other consumer electronics devices.  Its customers consisted primarily of personal computer and consumer electronics manufacturers.  Prior to August 1998, Ravisent's revenue consisted primarily of computer hardware and software sales to manufacturers. 
+
+ 5. As part of its obligations as a public reporting company, Ravisent commenced filing quarterly reports on Form 10-Q ("10-Q reports") with the Commission for the quarter ended June 30, 1999, the company's second quarter.  These reports contained unaudited financial statements prepared by the company. 
+
+ 6. During the second and third quarters of 1999 (ended June and September, respectively), as a result of the incorrect application of Generally Accepted Accounting Principles ("GAAP"), Ravisent prematurely recognized revenue totaling approximately $4.7 million from three separate contracts.  These errors, which were recorded in the company's books, led, in turn, to the company's filing of two materially false and misleading Form 10-Q's.  Specifically, Ravisent, in violation of GAAP, prematurely recognized revenue of $3.92 million during the second quarter and $750,000 during the third quarter from three of its largest sales transactions (as discussed in detail below). 
+
+ 7. In the second quarter, Ravisent erroneously reported revenue of $11.6 million and a net loss of $248,000 when, under GAAP, it should have reported revenue of $7.68 million and a net loss of $1.15 million.  In the third quarter, Ravisent erroneously reported revenue of  $5.99 million and net earnings of $1.097 million when, under GAAP, it should have reported revenue of $5.24 million and net earnings of $530,000. 
+
+ 8. These GAAP violations were detected during the company's year-end audit.  Ravisent then restated its results for the second and third quarters in its Form 10-K annual report filed on March 14, 2000. 
+
+ 9. Ravisent's non-compliance with GAAP, and the subsequent false 10-Q reports, resulted from the conduct of Liu, the company's former Chief Financial Officer.  At all relevant times, Liu was responsible for preparing the 10-Q reports, maintaining certain of the company's financial records and making revenue determinations on the company's sales contracts.  Further, Liu signed the 10-Q reports at issue.  Among other things, Liu failed to adequately apprise himself of and correctly apply GAAP in making revenue determinations on three of Ravisent's largest sales contracts during the second and third quarters.  As a result, Liu caused Ravisent's 10-Q reports to be materially false and misleading.   
+
+ 10. In the first transaction, Liu caused Ravisent to recognize, and recorded in the company's records, revenue of $1.08 million from a purported sale of computer hardware during the second quarter in violation of GAAP.  In this case, the purported sale was actually a consignment whereby the buyer enjoyed the right to return any unsold goods.  GAAP requires that revenue be recognized in accordance with Financial Accounting Standard No. 48 ("FAS 48"), which sets forth the criteria for recognizing revenue when a right of return exists.  Before revenue can be recognized, FAS 48 requires, in pertinent part, that "the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product."  This contract failed to satisfy the condition of FAS 48 because the buyer's obligation to pay Ravisent was contingent upon the buyer's resale of the product, which did not occur during the second quarter.  As a result, Liu failed to comply with FAS 48 by causing Ravisent to recognize the revenue from this contract during the second quarter. 
+
+ 11. In the second contract, Liu again failed to comply with the provisions of FAS 48 when he caused Ravisent to recognize, and recorded in the company's records, revenue of $2.24 million from another sale of computer hardware during the second quarter.  In this case, the buyer's obligation to pay Ravisent was contingent on the buyer's resale of the goods.  Specifically, this contract contained an indemnification clause whereby Ravisent assumed financial liability for any goods that the buyer was unable to resell.  Because the buyer did not resell these goods during the second quarter, Liu violated GAAP by causing Ravisent to recognize the revenue from this contract. 
+
+ 12. In the third contract, which involved the licensing of software, Liu failed to understand and correctly apply AICPA Statement of Position 97-2 ("SOP 97-2") to the recognition of software revenue.  GAAP requires that revenue from the sale or licensing of software be recognized consistent with SOP 97-2.  In relevant part, SOP 97-2 sets forth criteria that must be met before a company can recognize any revenue from a contract that includes a "future delivery" of goods and/or services.  Ravisent's software contract contained such a future deliverable, i.e., the contract required that Ravisent provide a future product which was not yet available.  However, Liu caused Ravisent to recognize, and recorded in the company's records, $600,000 and $750,000 in revenue from this contract in the second and third quarters, respectively, even though the criteria of SOP 97-2 had not been met, in violation of GAAP.  Ravisent was ultimately able to properly recognize the revenue from this contract in March 2000. 
+
+ 13. As the controller, Adams failed in his assigned responsibilities to establish adequate internal accounting controls sufficient to provide reasonable assurances that the company's revenue determinations, which would be reflected in its public filings, were made in accordance with GAAP.  In that regard, Adams failed to establish rigorous, systematic procedures for reviewing the company's preliminary revenue determinations concerning the three contracts at issue. 
+
+ Violations 
+
+ 14. Section 13(a) of the Exchange Act requires all issuers subject to the reporting requirements of the Exchange Act to file periodic and other reports with the Commission containing such information as the Commission's rules prescribe.  Rule 13a-13, promulgated pursuant to Section 13(a), requires issuers to file quarterly reports with the Commission on Form 10-Q.  Rule 12b-20, promulgated pursuant to Section 12 of the Exchange Act, requires "such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made not misleading."  A violation of these provisions is established if annual or quarterly reports are shown to contain materially false or misleading information regarding such items as the issuer's income. 
+
+ 15.       Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, and accounts that accurately and fairly reflect its transactions and dispositions of assets in reasonable detail.  A violation of Section 13(b)(2)(A) is established if the issuer fails to maintain accurate books and records.  Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain the accountability of assets.  Rule 13b2-1 of the Exchange Act was promulgated to enforce the provisions of Section 13(b) and is directed toward the conduct of individuals associated with the issuer.  Rule 13b2-1 states, in pertinent part, 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." 
+
+ 16. As a result of the conduct described above, Ravisent violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; and 
+
+ 17. As a result of the conduct described above, Liu caused Ravisent's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder, and violated Rule 13b2-1. 
+
+ 18.  As a result of the conduct described above, Adams caused Ravisent's violations of Section 13(b)(2)(B) of the Exchange Act. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondents' Offers. 
+
+  Accordingly, it is hereby ORDERED:  
+
+ A. Pursuant to Section 21C of the Exchange Act, that Respondent Axeda Systems Inc. cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; 
+
+ B. Pursuant to Section 21C of the Exchange Act, that Respondent Liu shall cease and desist from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder, and from committing or causing any violations and any future violations of Rule 13b2-1; and 
+
+ C. Pursuant to Section 21C of the Exchange Act, that Respondent Adams shall cease and desist from causing any violations and any future violations of Section 13(b)(2)(B) of the Exchange Act. 
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ 
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diff --git a/raw/aaer/2003/AAER-1914.txt b/raw/aaer/2003/AAER-1914.txt
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+     SEC.gov | Kevin J.  Morrison, et al. 
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+ The Securities and Exchange Commission ("Commission") announced that on November 6, 2003, Mildred K. Miller was sentenced to 60 months imprisonment and ordered to pay more than $4.7 million in connection with criminal charges brought by the United States Attorney for the District of Connecticut.  On March 7, 2003, Miller, age 54, of West Hartford, Connecticut, pleaded guilty to one count of wire fraud in violation of 18 U.S.C. § 1343 for her role in a financial fraud perpetrated at a American Commercial Financial Corporation ("ACFC"), a wholly-owned subsidiary of Boston-based HPSC, Inc. 
+ In a related civil enforcement action, the Commission alleged that Miller improperly received more than $4.7 million in connection with a financial fraud perpetrated by Kevin J. Morrison, also of West Hartford, Connecticut.  According to the Complaint, between 1997 and May 2002, Morrison, the former executive vice president of ACFC, improperly diverted more than $4.7 million of corporate assets to Miller, a purported ACFC factoring customer.  Morrison attempted to conceal his embezzlement by regularly providing fictitious financial reports, which were incorporated in the parent company's Forms 10-K and Forms 10-Q filed with the Commission for the periods ended December 31, 1997 through March 31, 2002, causing HPSC to materially overstate its net income and earnings per share by between 4% and 112% during the affected filing periods. On February 13, 2003, the Commission obtained a default judgment against Miller.  The court ordered Miller to pay disgorgement of $4,782,381.26, plus prejudgment interest thereon of $189,813.63.  
+ On November 21, 2002, in a separate criminal action, Morrison pleaded guilty for his role in the fraudulent scheme before Judge Hall to one count of wire fraud in violation of 18 U.S.C. § 1343.  On March 31, 2003, Morrison was sentenced to serve 16 months in prison and ordered to pay restitution of more than $4.7 million. 
+ For more information, see Litigation Release Nos.  17686  (August 16, 2002) and  17921  (January 8, 2003). 
+
+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2003/AAER-1915.txt b/raw/aaer/2003/AAER-1915.txt
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1915.txt
@@ -0,0 +1,1360 @@
+
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+ 
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+ The Commission announced today that on November 14, 2003 it filed an enforcement action in the United States District Court for the Eastern District of New York against Schick Technologies, Inc. ("STI"), a manufacturer of dental and medical devices in Long Island City, New York; David B. Schick ("Schick"), STI's founder, CEO and Chairman; and Fred Levine ("Levine"), STI's former Director and Vice President of Sales and Marketing.  The Commission's complaint (the "Complaint") charges the defendants with fraud, and books and records and reporting violations for artificially inflating STI's reported revenue for the first three quarters of STI's fiscal year 1999, and then covering up the fraud by lying to STI's outside auditors. 
+ The Complaint alleges that STI improperly booked and reported revenue from sales practices including end of quarter shipments to warehouses, consignment sales, and merchandise shipped to customers pursuant to two loaner programs where the customer accepted the product on a trial basis with no obligation to purchase the product.  The defendants also failed to account properly for massive product returns and to establish sufficient sales reserves.  As a result of the fraud, which led to two restatements, STI materially overstated its reported revenue for the June, September and December quarters of 1998.  The Complaint alleges that Schick and Levine knew of or recklessly disregarded the fraudulent practices and deception, and were responsible for STI's improper recording and reporting of the inflated revenue and income. 
+ The Complaint further alleges as to the defendants: 
+	  STI is a Delaware company whose common stock traded on the NASDAQ from STI's initial public offering in July 1997 until September 1999 when it was delisted, and was quoted in the National Quotation Bureau's "pink sheets" until January 2002.  Since then, STI's common stock has traded on the OTC Bulletin Board.  STI's primary products during the relevant period were the CDR computed dental radiography dental imaging system that produces dental x-ray images on a computer monitor rather than on conventional x-ray film, and the accuDEXA bone densitometer that assesses bone mineral density and fracture risk.   
+	 Schick has been STI's CEO and Chairman since he founded the Company in 1992.  He was also the President of the Company from 1992 until 1999.  During the relevant period, STI's accounting decisions and practices were made and controlled by Schick.  He also signed each of the materially false and misleading quarterly reports at issue.   
+	 Levine, who joined STI in 1995, became the Vice President of Sales and Marketing in 1997 in charge of all product sales, and a Director in 1998.  He was terminated in August 1999. 
+	  The Commission's Complaint charges that all defendants violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 and charges, in the alternative, that Levine aided and abetted these violations.  The Complaint charges that STI violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-13; that Schick is liable for STI's violations as a control person of STI; that Schick and Levine also aided and abetted STI's reporting violations; and that Schick and Levine violated or aided and abetted violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2.  The Commission seeks a permanent injunction against all defendants, civil penalties and a permanent officer and director bar against Schick and Levine, and disgorgement of ill-gotten gains. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2003/AAER-1916.txt b/raw/aaer/2003/AAER-1916.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2eeff69928c9ae51dbfa3d4e27141a78dbb21304
--- /dev/null
+++ b/raw/aaer/2003/AAER-1916.txt
@@ -0,0 +1,1357 @@
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+ The Securities and Exchange Commission ("Commission") announced today that on November 12, 2003, Graham J. Marshall, age 56, formerly of Lexington, Massachusetts, was indicted on criminal charges brought by the United States Attorney for the District of Massachusetts.  Marshall, a former officer of Inso Corporation, Inc. (later known as eBT International, Inc.), a now defunct software company headquartered in Boston, Massachusetts, was charged with securities fraud, making false statements in filings with the Commission, wire fraud, conducting an international monetary transaction to promote fraud, and perjury in connection with a Commission investigation.  If convicted, Marshall faces maximum penalties that range from 5 to 20 years in prison to be followed by 3 years of supervised release and fines of up to $1,000,000 on each count. 
+ The indictment alleges that at the end of September 1998, Marshall played a pivotal role in arranging for a Malaysian software distributor to provide Inso with a bogus $3 million purchase order in anticipation of an expected upcoming sale of software to U.S. Airways.  This phony deal represented over 15% of Inso's reported third quarter revenues and enabled Inso to meet internal and public targets for revenue growth.  The indictment further alleges that in the following months, when the hoped-for genuine sale to U.S. Airways failed to materialize, Marshall was involved in efforts to cover up the phony purchase order and to pay off the Malaysian distributor who had provided the purchase order.  The indictment charges that at the end of December 1998 and the beginning of January 1999, Marshall procured a $160,000 payoff to the Malaysian distributor by providing Inso's chief financial officer with a forged letter agreement reflecting that the payment was part of a separate contract.  Lastly, the indictment charges Marshall with perjury for providing false testimony to attorneys from the Commission's Division of Enforcement when he was questioned about the payoff. 
+ On June 21, 2002, the Commission filed related civil enforcement actions against Marshall and other senior executives of Inso, including Bruce Hill, then-general counsel, Steven Paxhia, then-chief executive officer, and Richard P. Vatcher, then-vice president.  Without admitting or denying the allegations in the complaint, Paxhia consented to entry of a final judgment permanently enjoining him from future violations of the antifraud and certain reporting provisions of the Exchange Act.  He also agreed to pay disgorgement of his losses avoided from the sale of Inso stock during the relevant time period of $101,000, including pre-judgment interest.  Without admitting or denying the allegations in the complaint, Vatcher consented to entry of a final judgment permanently enjoining him from future violations of the antifraud provisions of the Securities Act and the Exchange Act and of certain reporting provisions of the Exchange Act.  He also agreed to pay a $25,000 civil penalty.  On September 30, 2003, Vatcher pleaded guilty to five counts of securities fraud and causing false reports to be filed with the Commission in connection with criminal charges brought by the United States Attorney for the District of Massachusetts.  Vatcher is scheduled to be sentenced on January 12, 2004, and faces a maximum penalty of 10 years in prison, followed by a 3 year term of supervised release, and a $1,000,000 fine on each count.  The Commission's action against Marshall and Hill remains pending.    
+ For more information see Litigation Release No.  18394  (October 6, 2003) and Litigation Release No.  17578  (June 21, 2002). 
+
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diff --git a/raw/aaer/2003/AAER-1917.txt b/raw/aaer/2003/AAER-1917.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d090fc34c30ae41a90bc470574712ab10d0465f9
--- /dev/null
+++ b/raw/aaer/2003/AAER-1917.txt
@@ -0,0 +1,1357 @@
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+ The Commission announced today that on October 30, 2003, a Massachusetts federal judge sentenced William J. Burke, the former chief financial officer of Interspeed, Inc., to three years probation and a $10,000 fine in connection with criminal charges filed against him by the U.S. Attorney for the District of Massachusetts arising from a fraudulent reporting scheme.  Burke pleaded guilty on June 25, 2003 to one count of falsification of Interspeed's books and records.  During his plea hearing, he admitted concealing information from the company's auditors and structuring a product payment in a way that falsely described the payment's origin.   The Honorable George A. O'Toole, Jr., United States District Judge for the District of Massachusetts, ordered that Burke serve the first six months of his probation in community confinement. 
+ The Commission previously filed a related civil injunctive action against Burke and two other former officers of Interspeed, Inc., alleging that they caused Interspeed to engage in a nine million dollar fraud that inflated reported sales between 25% and 93% from January to September 2000.  The Commission's litigation is ongoing.  In that action, the Commission seeks, among other things, an order permanently barring Burke from acting as officer or director of any public company. 
+ For further information see Litigation Release Nos.  17758  and  18180 . 
+
+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2003/AAER-1918.txt b/raw/aaer/2003/AAER-1918.txt
new file mode 100644
index 0000000000000000000000000000000000000000..095daa5f2aa91823ab2f794867145001c67534a0
--- /dev/null
+++ b/raw/aaer/2003/AAER-1918.txt
@@ -0,0 +1,1357 @@
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+ The Securities and Exchange Commission announced today that, on October 9, 2003, a Massachusetts federal court entered a final judgment, by consent, against David R. Earl, of Westford, Massachusetts, in connection with a financial fraud.  The final judgment enjoined Earl from future violations of the antifraud, books and records and internal accounting controls provisions of the federal securities laws.  The judgment also bars Earl from acting as an officer or director of any public company.  At the time of the conduct at issue, Earl was the vice president for operations of Kurzweil Applied Intelligence, Inc., a software company formerly headquartered in Waltham, Massachusetts. 
+ The Commission's complaint, filed on July 26, 1995, alleged that, between January 1992 and May 1994, Earl and others engaged in a fraudulent revenue recognition scheme during the time leading up to and following the company's initial public offering of stock in 1993.  The scheme resulted in improper revenue recognition from over eighty transactions.  The complaint alleged that Earl knew and assisted in the practice of using side letters, among other methods, to improperly recognize revenue on contingent sales, and implemented a system whereby product was shipped to an off-site warehouse on sales that had not closed by the end of a quarter.  The complaint further alleged that Earl instructed an employee to provide false information to auditors and concealed his knowledge of the scheme when questioned about it by auditors, and that he sought to conceal the scheme from Kurzweil's outside auditors by transferring inventory hidden at the off-site warehouse in rented trucks to other, more remote, locations.  As a result of the conduct alleged in the complaint, Kurzweil's Commission filings overstated revenue by more than $8 million during 1993 and 1994, and the company reported a profit when in fact it was losing nearly $8 million. 
+ The final judgment permanently enjoined Earl from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder (antifraud provisions) and Exchange Act Section 13(b)(5) and Rules 13b2-1 and 13b2-2 (prohibiting falsification of issuer books and records, evasion of internal accounting controls and making false statements to accountants).  The final judgment also barred Earl from acting as an officer or director of any publicly- traded company.  Earl was the last defendant in this case.  Three other individual defendants previously settled the Commission's action.  The Commission also previously instituted related settled administrative orders against Kurzweil and three of its accounting department employees.  For further information, see Litigation Release Nos. 14571 (July 26, 1995),  14992  (July 30, 1996),  15069  (September 25, 1996) and  15187  (December 16, 1996) and Exchange Act Release Nos. 36021 and 36022 (July 25, 1995). 
+
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diff --git a/raw/aaer/2003/AAER-1920.txt b/raw/aaer/2003/AAER-1920.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5bb4e6258b32bf95a6611adb77e5e5d3401bbff6
--- /dev/null
+++ b/raw/aaer/2003/AAER-1920.txt
@@ -0,0 +1,1466 @@
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+              Peter F. Kuebler, CPA
+           
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+        Peter F. Kuebler, CPA
+       
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+ Securities Exchange Act of 1934 
+Release No. 48901 / December 10, 2003 
+
+ Accounting and Auditing Enforcement  
+Release No. 1920 / December 10, 2003 
+
+ Administrative Proceeding 
+File No. 3-9568 
+
+     In the Matter of 
+
+ Peter F. Kuebler, CPA 
+
+ Respondent. 
+  
+ : : : : : : : : 
+ 
+ ORDER GRANTING APPLICATION FOR REINSTATEMENT TO APPEAR AND PRACTICE BEFORE THE COMMISSION AS  AN ACCOUNTANT RESPONSIBLE FOR THE PREPARATION OR REVIEW OF FINANCIAL STATEMENTS REQUIRED TO BE FILED WITH THE COMMISSION    On July 31, 1998, Peter F. Kuebler, CPA ("Kuebler"), 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 Kuebler pursuant to Rule 102(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. 
+
+ Kuebler, an inactive CPA in the state of California, was Vice President and Chief Financial Officer of Wilshire Technologies, Inc. ("Wilshire"), a manufacturer and marketer of medical, clean room and transdermal drug delivery products, from November 1992 through March 1994.  The original order alleges that Kuebler knew, or was reckless in not knowing, that Wilshire's financial statements, from at least July 1993 through January 1994, were materially false and misleading and that Kuebler falsified, or caused to be falsified, accounting entries to Wilshire's books and records.  The original order also alleges that Kuebler omitted to state material facts to Wilshire's auditors in connection with the fiscal year 1993 audit of Wilshire's financial statements.  2   
+
+ 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, Kuebler has undertaken to have his work reviewed by the independent audit committee of the company for which he then works, or in some other manner acceptable to the Commission, while practicing before the Commission in this manner.  Kuebler 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, Kuebler'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."  This "good cause" determination is necessarily highly fact specific. 
+
+ On the basis of information supplied, representations made, and undertakings agreed to by Kuebler, it appears that Kuebler has complied with the terms of the July 31, 1998 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 Kuebler pursuant to Rule 102(e) of the Commission's Rules of Practice, and that Kuebler, by undertaking to have his work reviewed by the independent audit committee of the company for which he then works, or in some other manner acceptable to the Commission, in his practice before the Commission as a preparer or reviewer of financial statements required to be filed with the Commission, has shown good cause for reinstatement.  Therefore, it is accordingly,  
+
+ ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that Peter F. Kuebler, 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  
+
+ Endnotes 
+
+   1    See  Accounting and Auditing Enforcement Rel. No. 1060,  In the Matter of Peter F. Kuebler, CPA , July 31, 1998.  Kuebler was permitted, pursuant to the order, to apply for reinstatement after four years upon making certain showings.  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."  17 C.F.R. § 201.102(e)(5)(i). 
+
+   2    Prior to the original order, Kuebler consented to the entry of a judgment permanently enjoining him from violating 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-13, 13b2-1 and 13b2-2 thereunder, without admitting or denying any of the allegations that were later referenced in the original order.  
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diff --git a/raw/aaer/2003/AAER-1921.txt b/raw/aaer/2003/AAER-1921.txt
new file mode 100644
index 0000000000000000000000000000000000000000..001c671bd41d951aa5cde052567f8710ead76fb1
--- /dev/null
+++ b/raw/aaer/2003/AAER-1921.txt
@@ -0,0 +1,1514 @@
+
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+ 
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+     SEC.gov | Thomas D. Costello 
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+              Thomas D. Costello
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+ Securities Exchange Act of 1934 
+Release No. 48906 / December 11, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1921 / December 11, 2003 
+
+ Administrative Proceeding 
+File No. 3-11353 
+
+     In the Matter of 
+
+ Thomas D. Costello, 
+
+ 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 against Thomas D. Costello ("Costello" or the "Respondent") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"). 
+
+ In anticipation of the institution of these proceedings, Costello 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 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. 
+
+ II. 
+
+ On the basis of this Order and the Offer submitted by Respondent, the Commission finds  1   that: 
+
+ Respondent 
+
+ 1. Thomas D. Costello, 38, of Evanston, Illinois, was Akorn, Inc.'s controller from March 31, 2000 to November 15, 2002.  From March 31, 2000 to approximately late February 2001, he supervised the accounts receivable department. 
+
+ Background 
+
+ 2. Akorn, a Louisiana corporation headquartered in Buffalo Grove, Illinois, manufactures and markets diagnostic and therapeutic pharmaceuticals, surgical instruments and related products and provides contract manufacturing services.  Akorn files reports with the Commission pursuant to Section 13(a) of the Exchange Act.  During the relevant time period and through June 25, 2002, Akorn's stock traded on the Nasdaq National Market System.  On June 25, 2002, Akorn's stock was delisted from Nasdaq based on the company's failure to provide audited financial statements in its 2001 Form 10-K, filed on April 16, 2002. 
+
+ 3. In its 2000 Form 10-K, Akorn issued audited financial statements that were not accurate and were not in accordance with generally accepted accounting principles.  Specifically, Akorn carried on its books at least $7 million in accounts receivable that were impaired or uncollectible. Although Akorn subsequently created a reserve for these uncollectible accounts in its first quarter 2001, it claimed that the reserve was only the result of a "change in estimate" based on new information, rather than properly disclosing that the reserve was the result of ongoing, serious problems with the company's books and records and internal controls. 
+
+ 4. Beginning in at least 2000, Akorn failed to promptly and completely record and reconcile cash and credit remittances, including from its top five customers, to invoices posted in its accounts receivable sub-ledger. These top five customers, wholesale drug distributors, comprised forty-three percent of Akorn's sales and sixty percent of its accounts receivable during 2000.  Akorn's problems resulted from numerous internal control and books and records deficiencies that prevented the company from accurately recording, reconciling and aging its receivables.  Akorn's contractual relationships with its top five wholesale customers provided for an array of complicated credits in the form of rebates and chargebacks.  The wholesaler's purchasing practices combined with Akorn's complicated credit system created a confusing accounting environment for Akorn.  Often, the wholesalers deferred paying individual Akorn invoices upon receipt.  Instead, the wholesalers periodically made lump-sum payments applicable to numerous invoices and simultaneously withheld claimed credits.  In addition, when Akorn failed to timely act on credits to which customers thought they were entitled, the customers took the credit themselves and reduced payment on their next remittance to Akorn.  Computer problems, rapid growth, heavy staff turnover, and unsupervised and inexperienced accounts receivable staff further contributed to Akorn's reconciliation difficulties.  Accordingly, many remittances from Akorn's top five customers were not timely reconciled, i.e., payments and credits received were not timely applied to the corresponding, individual open invoices.  Indeed, Akorn frequently recorded payments as a separate entry in its systems without making any offsetting entries with respect to the corresponding individual invoices.  Akorn was also aware that problems with its computer systems often caused invoices that had been at least partially paid to be shown open in full. 
+
+ 5. In their management letter dated February 25, 2000, Akorn's auditors described management's failures during 1999 to review accounts receivable aging in detail, to reconcile accounts receivable timely, and to collect outstanding balances effectively and efficiently, and further noted the misapplication of credits and payments.  During a review of this management letter with Akorn's auditors in May 2000, Costello acknowledged problems with the accounts receivable and informed the auditors that management's goal was significant collection resolution by June 30, 2000, and complete cleanup by August 31, 2000. 
+
+ 6. Management did not reach that goal and, during the last half of 2000, accounts receivable remained a major problem.  Akorn's accounts receivable manager told Costello in August or September 2000 that her department was unable to reconcile cash remittances and credit claims.  She asked for additional staff to work on collections and for additional training for existing staff.  Costello did not provide sufficient additional resources or training.  Moreover, Costello did not supervise adequately the accounting staff. 
+
+ 7. Through late 2000 and early 2001, the accounts receivable manager informed Costello of Akorn's efforts to reconcile and collect $700,000 worth of open invoices from smaller customers dated mainly 1997 through 1999.  2    By January 2001, Akorn was able to collect only approximately $200,000 of these open invoices.  Some customers refused to pay the remaining invoices because of the age of the invoices and Akorn's inability to provide proof of delivery.  Subsequently, in a memo dated January 31, 2001 to Akorn's auditors, of which Costello received a copy, the accounts receivable manager concluded that Akorn's failure to reconcile invoices "significantly affected the accounts receivable collectibles."  She concluded that, with respect to both wholesaler and end-use customer accounts, there was "no evidence indicating prior implementation regarding credit and collections efforts [had] been effective thus far." 
+
+ 8. By early 2001, Akorn began to have serious cash flow problems, and it violated certain loan covenants with its primary lender.  As a result, the company thereafter focused on reconciling and collecting its accounts receivable balance.  On March 7, 2001, Akorn's chairman of the board directed:  "All receivables will be analyzed thoroughly and a determination will be made on accuracy and any write-offs necessary. . . . A report will be presented before the end of March on any potential write-offs."   
+
+ 9.On March 15, 2001, a consultant hired by Akorn drafted a report to the chairman of the board concluding that he could not determine the collectibility of Akorn's accounts receivable and the magnitude of a potential write-off.  Moreover, by March 2001, Akorn's management was aware that there was a substantial discrepancy regarding the amount owed by Akorn's largest customer.  In February, this customer provided Akorn's management with its accounts payable aging summary.  Akorn's open account receivable balance showed that the customer owed Akorn approximately $4 million, while the customer's open accounts payable balance showed Akorn actually owed it approximately $800,000.  Akorn's management also learned, by mid March, that this customer had taken approximately $1 million in rebate credits that Akorn believed were improper, but to which the customer believed it was entitled.  Costello was relieved of responsibility for accounts receivable in approximately late February 2001, but retained responsibility for drafting Akorn's financial statements.  During the course of his duties, Costello knew that Akorn had retained an accounts receivable consultant.  Costello also was periodically and informally kept apprised of Akorn's management's communications with Akorn's largest customer. 
+
+ 10. In furtherance of its end of the year audit for 2000, Akorn's auditors prepared a detailed summary of Akorn's unreconciled accounts receivable as of September 30, 2000, in late February 2001.  Using Akorn's accounts receivable data base, Akorn's auditors analyzed the roughly $26 million in gross accounts receivable and determined that Akorn had approximately $7.23 million in purportedly open unreconciled invoices dated 1999 and older in its accounts receivable portfolio.  Akorn's auditors discussed the results of the analysis with Costello prior to Akorn's filing of its 2000 Form 10-K as Costello retained the responsibilities of preparing Akorn's Form 10-K and coordinating Deloitte's audit. 
+
+ 11. Costello, with other members of Akorn management, signed the management representation letters to Akorn's auditors, in connection with the 2000 audit.  In the first representation letter to Akorn's auditors dated February 23, 2001, the date the auditors completed their field work, Costello, with other members of Akorn management, acknowledged that the company "is responsible for determining and maintaining the adequacy of the allowance for doubtful accounts receivable" and represented that "the allowances are adequate to absorb currently estimated uncollectible receivables in the account balances." In the second representation letter to Akorn's auditors dated April 17, 2001, Costello, with other members of Akorn management, represented that "no events had occurred [since February 23, 2001] that have a material effect on the financial statements that are in the filing [the 2000 Form 10-K] or that should be disclosed in order to keep those statements from being misleading."  Costello did not gain an understanding of the accounts receivable consultant's March 2001 beliefs regarding the collectibility of accounts receivable and the magnitude of any write-offs of those accounts and therefore failed to share with Akorn's auditors the consultant's progress.  Costello's failure was based on his responsibility to inquire regarding the accounts receivable consultant's progress given that Costello was responsible for drafting Akorn's 2000 Form 10-K.  Further, Costello orally represented to Akorn's auditors that the exceptions Akorn's auditors found during its attempt to confirm Akorn's receivables would be eliminated once Akorn reconciled its accounts. 
+
+ 12. Costello assisted in drafting the financial statements, footnotes and management's discussion and analysis for Akorn's 2000 Form 10-K.  He also calculated the reserve for doubtful accounts, but did not establish a reserve with respect to Akorn's top five customer accounts receivable. 
+
+ 13. On April 17, 2001, Akorn filed its Form 10-K for the year ended December 31, 2000, reporting annual net sales of $66.9 million and net income of $2.2 million or $0.11 per share.  Akorn reported year end accounts receivable totaling $24.1 million, its largest asset.  Despite its substantial problems with properly recording, reconciling and collecting its accounts receivable throughout 2000 and first quarter 2001, Akorn did not establish a reserve for any of its accounts receivable for its top five wholesale customers during fiscal year 2000, nor did it disclose any impairment of those receivables.  Although Akorn had recorded $801,000 in its doubtful accounts reserve (roughly one fourth of which was carried over from 1999), that amount was comprised solely of accounts for its non-top five, end-use customers.  Had Akorn appropriately recorded a reserve for its doubtful accounts, it would have posted a $2 million loss for its fiscal year ended December 31, 2000, rather than the $2 million profit it claimed in its 2000 Form 10-K. 
+
+ 14. On May 16, 2001, one month after filing its 2000 Form 10-K, Akorn issued a press release announcing that it was evaluating the extent to which it would need to make changes to its financial reserves, including its bad debt reserve, and that the changes would have a significant and adverse impact on earnings.  The price of Akorn common stock dropped from $3.0937 to $1.7343 per share the day of the announcement, while the volume increased from an average of 70,280 shares per day in the prior five trading days to 1,092,500 shares on May 16, 2001. 
+
+ 15. In its first quarter Form 10-Q, filed on May 22, 2001, Akorn increased its reserve for doubtful accounts by $7.5 million or 10 percent of reported net sales for fiscal year 2000 and 126 percent of reported net sales for the first quarter 2001.  The per share impact for the quarter was ($0.39).  Following Akorn's filing, the price of Akorn's common stock declined further to close at $1.0937 on May 22, 2001, and $1.125 on May 23, 2001.  Akorn explained the increase in its accounts receivable reserve as resulting from a change in estimate "[b]ased upon its recent unsuccessful efforts to collect past due balances."  Akorn did not disclose anything about its lack of internal controls or its failure to accurately compute, age and monitor its accounts receivable. 
+
+ 16. Costello was responsible for drafting the financial statements and reviewed the calculation of reserve for doubtful accounts for Akorn's Form 10-Q for the first quarter of 2001.  Akorn did not disclose the composition of its reserve account in its Form 10-Q, but the reserve was calculated based upon 100 percent of Akorn's entire accounts receivable for the years 1999 and prior and 50 percent of its entire accounts receivable for 2000.  The first quarter 2001 Form 10-Q, which Costello assisted in drafting, inaccurately attributed the increased accounts receivable reserve just to a change in estimate based on recent collection efforts, rather than an error caused in large part by books and records and internal control problems. 
+
+ Violations 
+
+ 17. As a result of the conduct described above, Costello violated Section 13(b)(5) of the Exchange Act which prohibits any person from knowingly failing to implement a system of internal accounting controls.  Costello also 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.  Costello knew that Akorn's accounts receivable staff was not accurately recording payments on Akorn's books and records and not timely reviewing credits and rebates taken by Akorn's customers.  Costello knew that the receivables on Akorn's books and records included items that may not, in fact, be due to Akorn.  Nevertheless, Costello knowingly failed to hire adequate staff or to provide necessary training and supervision despite requests for assistance by the accounting staff throughout 2000 and the first quarter of 2001. 
+
+ 18. As a result of the conduct described above, Costello violated Rule 13b2-2 which prohibits an officer or director of an issuer from: (1) making materially false statements; or (2) omitting to state a material fact necessary to make statements made not misleading to an accountant in connection with an audit or in connection with the preparation of any document to be filed with the Commission.  Costello misrepresented to Akorn's auditors Akorn's ability to compute, age and monitor its accounts receivable in the management representation letters for the 2000 audit.  Costello also did not inform Akorn's auditors of the consultant's beliefs regarding the accounts receivable as he failed to gain an understanding of the consultant's progress despite his responsibility for drafting the 2000 Form 10-K.  Costello also failed to disclose Akorn's management's communications with its largest customer.  Costello further misrepresented that Akorn's accounts receivable reserve in its Form 10-Q for the 1st quarter of 2001 was a change in estimate.  The first quarter 2001 Form 10-Q, which Costello assisted in drafting, inaccurately attributed the increased accounts receivable reserve just to a change in estimate based on recent collection efforts, rather than an error caused in large part by books and records and internal control problems. 
+
+ 19. As a result of the conduct described above, Costello caused Akorn's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder which require every issuer of a security registered pursuant to Section 12 of the Exchange Act to file with the Commission, in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security, such quarterly and annual reports as the Commission may prescribe.  Akorn's 2000 Form 10-K materially misstated its accounts receivable balance or, alternatively, failed to disclose the impairment to its accounts receivable.  In calculating Akorn's doubtful account reserve and drafting the 2000 Form 10-K, Costello should have known that the substantial problems with Akorn's accounts receivable books and records and internal controls prevented Akorn from knowing the exact composition and age of Akorn's receivables.  Costello helped draft the Form 10-Q and reviewed the calculation of the reserve.  Costello therefore caused Akorn to file the 2001 Form 10-Q, which did not correct Akorn's previous accounts receivable errors, but rather inaccurately attributed the increased reserve to a change in estimate based on recent unsuccessful collection efforts. 
+
+ 20. As a result of the conduct described above, Costello caused Akorn's 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.  Costello also caused Akorn's violations of Section 13(b)(2)(B) of the Exchange Act which requires public companies to devise and maintain a system of adequate internal accounting controls sufficient to provide reasonable assurance that, among other things, transactions were recorded as necessary to permit preparation of financial statements in conformity with Generally Accepted Accounting Principles ("GAAP") and to maintain accountability of assets.  Akorn's accounting books and records and its internal accounting controls were insufficient to permit the preparation of Akorn's financial statements in conformity with GAAP.  As an officer in charge of ensuring the accuracy of Akorn's books and records and sufficiency of its internal controls, Costello caused Akorn's violations of Sections 13(b)(2)(A) and (B) of the Exchange Act. 
+
+ III. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Respondent.  Accordingly, it is hereby ordered that: 
+
+ Pursuant to Section 21C of the Exchange Act, Respondent Thomas D. Costello shall cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder, and from causing any violations and any future violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+
+ Endnotes 
+
+   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     It is typical, however, for companies like Akorn, which requires payment from customers within 30 or 60 days, to establish a reserve when invoices are past due by 30 days or more. 
+
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diff --git a/raw/aaer/2003/AAER-1922.txt b/raw/aaer/2003/AAER-1922.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5c542ed578bf5d6455c8f16a9da68830c0da5c50
--- /dev/null
+++ b/raw/aaer/2003/AAER-1922.txt
@@ -0,0 +1,1365 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 18504 / December 12, 2003 
+
+ Accounting and Auditing Enforcement 
+Release No. 1922 / December 12, 2003 
+
+  Securities and Exchange Commission v. Cumulus Media Inc. et al.,  (U.S.D.C. N.D. Ill., Case Number	03 C 8908, filed  December 10, 2003) 
+
+ The Securities and Exchange Commission announced that on December 10, 2003, it filed a Complaint in the United States District Court for the Northern District of Illinois alleging that Cumulus Media Inc. and certain of its former officers engaged in two separate schemes to artificially inflate Cumulus' financial position.  Specifically, the Commission's Complaint alleged that throughout 1999, Cumulus and its former Chief Financial Officer, Richard J. Bonick, Jr., prematurely recorded revenue from advertising contract packages into Cumulus' books, records and accounts.  The Commission alleged that this practice caused Cumulus to overstate its net revenues and broadcast cash flows and understate its net losses for the first and third quarters of 1999.  These misstated financial figures were incorporated into Cumulus' Forms 10-Q for the first and third quarters of 1999 and into Form S-3 registration statements and prospectuses for secondary offerings of Cumulus' common stock during July and November 1999.  The Commission's Complaint further alleged that in a second scheme, Cumulus, its former Executive Chairman, Richard W. Weening, and its former Vice President of Finance, Daniel O'Donnell, engaged in an attempt to manage Cumulus' earnings and broadcast cash flow for the fourth quarter of 1999 in order to bring those figures in line with Wall Street analysts' expectations for that quarter.  Specifically, the Commission alleged that after learning that Cumulus did not meet Wall Street analysts' expectations for the fourth quarter of 1999, Weening instructed O'Donnell to amend agreements with two related companies adding provisions to the agreements that would condition the amount of money paid by Cumulus to the related companies on Cumulus' performance as compared to analyst expectations.  At the time he instructed O'Donnell to amend the agreements, Weening knew that Cumulus' performance for the fourth quarter of 1999 was below analyst expectations.  At that time, Weening also knew that the amendments would require the related companies to refund money paid to them by Cumulus in order for Cumulus to meet analysts' expectations for the fourth quarter of 1999.  When Cumulus' auditors eventually learned of this practice, they told Weening that the manner in which he was attempting to record the effect of the amendments was indicative of earnings management.  Based on these comments, Cumulus canceled the amended agreements and reversed related accounting entries prior to their inclusion in Cumulus' financial statements. 
+
+ All of the defendants, without admitting or denying the allegations of the Complaint, consented to the entry of final judgments against them upon filing of the Complaint.  Bonick consented to the imposition of an order permanently enjoining him from violating or aiding and abetting violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, 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-13 and 13b2-1 thereunder for his role in overstating Cumulus' net revenues and broadcast cash flows and understating Cumulus' net losses.  Bonick also agreed to pay a civil penalty of $50,000.  In addition, Weening and O'Donnell consented to the imposition of orders permanently enjoining them from violating or aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder for their roles in the attempt to manage Cumulus' earnings and broadcast cash flows.  Weening and O'Donnell also agreed to pay civil penalties of $75,000 and $40,000 respectively.  Cumulus consented to the imposition of an order permanently enjoining it from violating Sections 17(a)(2) and 17(a)(3) of the Securities Act, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-13 and 13b2-1 thereunder as a result of the two schemes. 
+
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diff --git a/raw/aaer/2003/AAER-1923.txt b/raw/aaer/2003/AAER-1923.txt
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+ On December 10, 2003, the Securities and Exchange Commission filed a civil enforcement action in the United States District Court for the Northern District of Illinois against four former senior executives of Nicor Energy LLC ("Nicor Energy"), a joint venture between Nicor Inc. ("Nicor") and Dynegy Inc. ("Dynegy").  In its complaint, the SEC charged that Kevin M. Stoffer, Nicor Energy's former president and Chief Executive Officer, Andrew J. Johnson, Nicor Energy's former Director of Financial Services, John Fringer, Nicor Energy's former Vice President of Power Services and Regulatory Affairs, and John F. Weir, Nicor Energy's former Director of Gas Services and Major Markets, engaged in a scheme that improperly inflated Nicor Energy's net income by over $11 million.  Stoffer, Fringer and Johnson were indicted in connection with the same conduct. 
+ In its case, the SEC alleged that the defendants, using Nicor as a conduit, made material misstatements, and omitted to state material facts, to the investing public regarding Nicor Energy's financial condition and results of operations for its fiscal year ended December 31, 2001.  The complaint alleges that the defendants knowingly or recklessly overstated Nicor Energy's unbilled revenue accounts, understated Nicor Energy's accounts receivable (bad debt) reserve, shifted 2001 expenses into 2002 and shifted 2002 income into 2001, in order to inflate Nicor Energy's 2001 income by more than $11 million.  As a result of the fraud, Nicor Energy erroneously reported to Nicor and Dynegy net income of $4.097 million instead of losses of $7.47 million for 2001.   
+ The complaint charged the defendants with violating the antifraud and internal control provisions of the federal securities laws (Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("the Exchange Act") and Rules 10b-5 and 13b2-1 thereunder).  It further charged the defendants with aiding and abetting Nicor Energy's violations of those same provisions.  The complaint finally charged Stoffer as a controlling person for Nicor Energy's violations of those provisions. 
+ The SEC seeks an order permanently enjoining the defendants from violating federal securities laws, granting civil penalties and permanently barring the defendants from serving as an officer or director of a public company.   
+ The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Northern District of Illinois, the Federal Bureau of Investigation and the Postal Inspector's Office.  The Commission's investigation is continuing. 
+
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+     SEC.gov | Richard Marks 
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+ The Securities and Exchange Commission and the United States Attorney's Office for the Central District of California announced today the filing of civil and criminal charges, respectively, against Richard Marks, the former President and Chief Operating Officer of Motorcar Parts and Accessories, Inc.  Motorcar, a public company based in Torrance, California, remanufactures automotive alternators and starters.  Motorcar's stock previously traded on Nasdaq and now trades on the over-the-counter market. 
+ The SEC's civil complaint and the Justice Department's criminal action, filed today in federal district court in Los Angeles, allege that Marks engaged in fraudulent accounting practices and falsified Motorcar's books and records, thereby causing Motorcar to issue false and misleading financial information to the investing public in its 1997 and 1998 Forms 10-K filed with the SEC.  Marks, 51, of Los Angeles, has agreed to plead guilty to the criminal charges and, in settlement of the SEC's action, to pay over $1.2 million and to be permanently barred from serving as an officer or director of a public company. 
+ The criminal charges against Marks focus on his false inflation of Motorcar's revenues and profitability for fiscal year 1997 by falsely reporting as revenues sales that in fact were shipped after year-end, a practice sometimes known as leaving a period "open."  The charges against Marks also stem from a double-counting of inventory in connection with the audit at fiscal year-end 1998.  While Motorcar's public accountants were not on the premises, Marks caused Motorcar personnel to move truckloads of goods that had already been counted and included in inventory at one warehouse to another warehouse so that they would be included a second time in the auditors' test counts the following day.  By causing the transferred inventory to be double-counted, unbeknownst to the auditors, Marks fraudulently caused the amount of Motorcar's inventory to be materially overstated in Motorcar's financial statements for the fiscal year ended March 31, 1998. 
+ The SEC's civil complaint alleges that Marks directed two fraudulent schemes at the end of fiscal years 1997 and 1998 relating to returned alternators and starters and customer credits.  First, Marks hid product returns from Motorcar's independent auditor by shipping the returns to offsite storage.  After completion of the audit, Marks allowed the returns to be checked into inventory.  Second, Marks caused Motorcar to understate its reserve for returns and to delay issuing credits to customers by directing his staff to prepare false schedules for the auditor that supported an understated reserve for credits that the company had not yet processed.  The SEC's complaint further alleges that Marks lied to Motorcar's independent auditors when he caused transferred inventory to be double counted. 
+ The SEC's complaint alleges that his actions resulted in the company overstating its pre-tax earnings for fiscal year 1997 by $3,391,000, or 59.8%, and for fiscal year 1998 by $3,576,000, or 49.6%; that the overstated earnings figures were reported to the public in Motorcar's annual reports on Form 10-K; and that Motorcar included its false 1997 financial statements in a registration statement filed with the SEC in October 1997 for an offering that raised $19.8 million. 
+ The SEC charged Marks with violations or aiding and abetting violations of the antifraud, corporate reporting, books and records, internal controls, and lying to the auditor provisions of the federal securities laws.  Specifically, Marks was charged with 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 Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13b2-1 and 13b2-2.  Marks simultaneously settled the SEC's action without admitting or denying the complaint's allegations.  As part of his settlement, Marks agreed (1) to be permanently enjoined from committing future violations of the charged provisions of the federal securities laws, (2) to pay disgorgement of $651,500, consisting of 1997 and 1998 bonuses of $254,000 and $397,500 in ill-gotten gains from his sale of Motorcar stock, as well as prejudgment interest of $239,188, (3) to pay a $330,000 civil penalty, and (4) to be permanently barred from serving as an officer or director of a public company. 
+ In the related criminal case, Marks agreed to plead guilty to a two-count information charging him with making false statements in two Form 10-K reports that were filed with the SEC.  In a plea agreement filed this morning, Marks admitted that he directed Motorcar employees to engage in fraudulent accounting practices and to falsify Motorcar's books and records, thereby causing false and misleading statements to be made to the investing public about Motorcar's income.  The two charges against Marks each carry a maximum possible penalty of 10 years in federal prison and a $1 million fine.   
+ On September 18, 2002, the U.S. Attorney's Office for the Central District of California filed criminal charges against Peter Bromberg, Motorcar's former CFO, relating to his role in directing Motorcar employees to engage in fraudulent accounting practices and in causing false and misleading statements to be made to the investing public about Motorcar's revenues and income.  Bromberg has pled guilty to these criminal charges and is awaiting sentencing.  
+ Also on September 18, 2002, the SEC filed a civil suit against Motorcar and Bromberg arising out of the SEC's investigation into Motorcar's financial statements and reporting practices for fiscal years 1997 and 1998.  Both Motorcar and Bromberg have settled the SEC's action.   
+ The civil case was investigated by the SEC.  The criminal case was investigated by the United States Attorney's Office in Los Angeles, the Federal Bureau of Investigation, and the U.S. Postal Inspection Service. 
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diff --git a/raw/aaer/2003/AAER-1926.txt b/raw/aaer/2003/AAER-1926.txt
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+     SEC.gov | Kevin Lasky et al. 
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+ The Securities and Exchange Commission (Commission) announced that on December 17, 2003, the Honorable Judge John Feikens of the United States District Court for the Eastern District of Michigan sentenced Kevin Lasky, former Vice President of Portfolio Management of MCA Financial Corporation (MCA), to two years in prison for his involvement in a fraudulent scheme perpetrated by MCA.  Judge Feikens also ordered Keith Pietila to pay $128 million in restitution.  Previously, in May 2002, Lasky pled guilty to one count of wire fraud. 
+ Lasky and Patrick Quinlan, Lee Wells, Pietila, Alexander Ajemian, John O'Leary and Cheryl Swain are the defendants in a pending civil injunctive action filed by the Commission on April 23, 2002 in the United States District Court for the Eastern District of Michigan arising out of MCA's alleged violations of the antifraud, reporting and other provisions of the federal securities laws.  The Complaint alleges that MCA was a mortgage banking company headquartered in Southfield and Troy, Michigan that engaged in a financial and offering fraud in connection with two different types of securities.  First, the Complaint alleges that MCA sold $71 million of securitized interests in pools of mortgage loans from 1994 through 1999 while knowingly misrepresenting the risk, rate of return and historical performance of the interests in the offering materials.  The Complaint alleges that, as a result, investors lost at least $49 million.  Second, the Complaint alleges that MCA engaged in the fraudulent sale of $19 million in debentures between 1994 and 1999 by including financial statements that materially inflated its assets, income and equity in registration statements and annual and quarterly reports filed with the Commission.  The Complaint further alleges that MCA materially inflated its assets, income and equity by improperly: (1) recognizing gains on sale of real estate to related parties; (2) valuing certain mortgages held for resale; (3) failing to disclose related party mortgages held for resale; (4) failing to write down uncollectible related party receivables; and (5) failing to disclose MCA's potential liability in connection with the fraudulent sale of the securitized interests in pools of mortgage loans.  The Complaint alleges that as a result, investors in the debentures lost all $19 million invested.   
+ The Complaint alleges, among other things, that Lasky and the other six defendants violated, or aided and abetted violations of, the antifraud provisions of the federal securities laws as a result of their involvement in MCA's fraudulent sale of securities.  The Complaint seeks, among other things, injunctive relief and civil penalties against Lasky and the other six defendants.   
+ Ajemian and Pietila also have pled guilty to federal criminal charges arising out of MCA's fraudulent scheme and have been sentenced.  Ajemian was sentenced to 37 months in prison and ordered to pay $256 million in restitution.  Pietila was sentenced to 48 months in prison and ordered to pay $256 million in restitution.  Wells and Swain have pled guilty to federal criminal charges arising out of MCA's fraudulent scheme but have not been sentenced yet.  Quinlan and O'Leary were indicted on federal criminal charges of conspiracy, mail fraud, wire fraud, bank fraud and making false statements to the Commission arising out of MCA's fraudulent scheme on June 23, 2002.  The trial of Quinlan and O'Leary is scheduled to begin in April 2004.  In addition, the Michigan Attorney General's Office has filed state felony securities fraud charges against Quinlan, Wells, Pietila and Ajemian. 
+ The Commission wishes to thank the Office of the United States Attorney for the Eastern District of Michigan for its assistance and cooperation in this matter. 
+ For additional information, see Litigation Release No.  17484  (April 23, 2002),  18131  (May 12, 2003) and  18195  (June 19, 2003). 
+
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diff --git a/raw/aaer/2003/AAER-1927.txt b/raw/aaer/2003/AAER-1927.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9e7ab9e4c77bdec0d147f97aaaa55ba316850b5b
--- /dev/null
+++ b/raw/aaer/2003/AAER-1927.txt
@@ -0,0 +1,1527 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
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+ 
+ 
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+     
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+     SEC.gov | Hanover Compressor Company and William S. Goldberg, 
+     
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+              Hanover Compressor Company and William S. Goldberg,
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Hanover Compressor Company and William S. Goldberg,
+       
+
+             
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+
+
+        
+                   
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+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  48951 / December 18, 2003
+  ACCOUNTING AND AUDITING ENFORCEMENT 
+ Release No.  1927 / December 18, 2003
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-11360
+
+        In the Matter of    
+  Hanover Compressor Company 
+ and William S. Goldberg,  
+    Respondents.    
+     
+  : : : : : : :   
+ 
+ ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING 
+ FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO 
+ SECTION 21C OF THE SECURITIES 
+ EXCHANGE ACT OF 1934
+     I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Hanover Compressor Company ("Respondent," "Hanover," or "the Company") and Williams S. Goldberg ("Respondent" or "Goldberg").
+
+   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 over the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.
+
+   III. 
+
+  On the basis of this Order and Respondents' Offers, the Commission finds that:  1     Respondents 
+
+    1.  Hanover Compressor Company  is a Delaware corporation based in Houston, Texas, that has been engaged in the manufacture, rental and operation of oil field equipment, primarily natural gas compressors, since its 1990 formation.  Hanover's common stock is registered with the Commission under Section 12(b) of the Exchange Act and trades on the New York Stock Exchange.  Hanover's stock has been publicly traded since the Company's 1997 initial public offering.
+
+  2.  William S. Goldberg , 45, of Winnetka, Illinois, served as a Hanover director from 1991 through August 31, 2002, as its executive vice president from 1991 through early 2002, and as its interim CFO from mid-2000 through January 2002.  Goldberg received an MBA degree, but is not an accountant or CPA.  Goldberg, among others, was responsible for Hanover's internal controls.  2     Summary 
+
+  3. As described below, serious internal controls deficiencies as well as misconduct by certain former senior executives led to Hanover's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  3    These failings, some of which began prior to Goldberg's role as interim CFO, resulted in Hanover materially overstating pre-tax income included in its Forms 10-K for fiscal 1999 and fiscal 2000 and its Forms 10-Q for the first, second and third quarters of 2000 and the second and third quarters of 2001, and materially understating the pre-tax income included in its Form 10-Q for the first quarter of 2001.  During a special inquiry Hanover conducted during 2002,  4   the Company announced three restatements that reduced Hanover's pre-tax income by $3.123 million, or 4.9%, for fiscal 1999, by $14.4 million, or 15.5%, for fiscal 2000, and by as much as $5.5 million, or 22.6%, in an individual quarter.  5    Goldberg, among others, failed adequately to address Hanover's internal controls deficiencies in light of the Company's rapid growth and to adequately review the facts and circumstances underlying various transactions, and, consequently, was a cause of Hanover's violations.    
+
+   Internal Control Deficiencies 
+
+  4. Hanover grew rapidly throughout its history, in substantial part through acquisitions, and its growth was most pronounced in 2000 and 2001, when the Company tripled in size, from $756 million in assets and $323 million in revenues at year end 1999 to $2.3 billion in assets and $1 billion in revenues at year end 2001.  The Company failed, however, to effectively integrate its acquisitions from a management and accounting perspective.  Hanover had approximately 30 different accounting systems, which its employees manually consolidated.  Moreover, the Company lacked adequate accounting personnel-although Goldberg made efforts to hire additional staff, the staffing levels were not increased sufficiently as the Company grew.  Furthermore, Goldberg, the Company's interim CFO beginning in mid-2000, had a limited accounting background and experience, and the company did not have an overall controller.  Additionally, the company did not have an internal legal staff to provide consistent documentation and processes for handling large transactions.  Finally, to the extent that Hanover had internal controls procedures, they were not adequately enforced.  Despite advice from its outside auditor, Goldberg and Hanover's management did not adequately strengthen the Company's internal controls to deal with the changing size and nature of its operations and they were slow to implement improvements in staffing and internal controls.  Hanover's poor internal controls caused or contributed to its improper recording of numerous transactions, including approximately 17 transactions involved in its restatements, several of which occurred prior to Goldberg becoming the interim CFO.  Goldberg, among others, was a cause of the deficient internal controls that contributed to Hanover improperly recording the transactions that were later restated.
+
+   Hanover's Sale of Equipment to a Joint Venture for a Project in Nigeria 
+
+  5. The most significant of the approximately 17 restated transactions was Hanover's sale of equipment to a joint venture which was to own a gas compression plant on barges in Nigeria.  In 1999, prior to Goldberg becoming the interim CFO, Hanover entered into agreements with a Nigerian company to design, construct and operate offshore barges to provide gas compression and processing services in Nigeria.  In late 1999, Hanover sought advice from its auditor about structuring a sale of an interest in the project to allow for gain recognition on the sale.  Hanover's auditor warned the company that it could recognize revenue from the Nigerian venture only if it received cash, had no obligations to return the cash, and did not guarantee debt.  Hanover sought a partner for the project to spread some of the risk on the project and to recognize revenue, and sought to complete the transaction with its prospective partner by the end of the third quarter 2000 so that it could include the transaction in earnings for the quarter.  On September 30, 2000, a Hanover subsidiary entered into a $51 million contract to design and construct equipment for a limited liability company (the "LLC") that was 25% owned by Hanover and 75% owned by a third party (the "venture partner").  The LLC, in turn, was to lease the barges and other equipment to the Nigerian company.  Hanover recorded revenue on the construction contract under the percentage-of-completion method, after eliminating 25% of the profit to reflect its 25% ownership position in the LLC.  In the third quarter 2000, Hanover recorded $2.9 million in pre-tax income from the equipment sale, representing over 11.7% of its pre-tax quarterly income.  In the fourth quarter 2000, Hanover recorded $1.2 million in pre-tax income and capitalized $500,000 in expenses related to the equipment sale, thereby increasing its pre-tax fourth quarter 2000 income by 5.6%.  In total, Hanover recognized $4.6 million in pre-tax income and capitalized expenses related to the equipment sale in fiscal 2000, equivalent to approximately 5% of its pre-tax income for the year.
+
+    6. When the sale of equipment ultimately closed on September 30, 2000, Hanover entered into a loan commitment letter that obligated Hanover to loan the balance of the purchase price to the joint venture if third party financing could not be obtained.  In addition, in order to induce the venture partner to make the down payment in early November 2000, Hanover entered into a Guarantee of Refund (the "Guarantee"), which obligated Hanover to return the down payment, with interest and expenses, under certain circumstances.  Hanover's CEO and COO, however, did not disclose these agreements to the Company's accountants or, consequently, its auditors, and the Company failed to disclose these facts in its Commission filings.
+
+  7. Because of Hanover's Guarantee of the down payment and its commitment to provide financing, the company should not have recognized revenue on the sale of the barges and equipment to the LLC.  First, Hanover effectively guaranteed the venture partner's equity investment, and thus was the only true investor in the LLC.  Consequently, the LLC should have been consolidated into Hanover's financial statements, effectively eliminating recognition of any revenue from the sale of the equipment.  Second, even if the LLC were not a consolidated entity, Hanover's sale of equipment to the LLC should not have been treated as a sale, because Hanover retained substantial risks of ownership in the property sold.  6    As a result of these undisclosed agreements, Hanover failed to account for the transaction in accordance with GAAP in recording income from the sale of equipment to the LLC, and the Company materially overstated the pre-tax income for the third and fourth quarters 2000 and fiscal 2000 that it reported in its Form 10-K for fiscal 2000 and its Form 10-Q for the third quarter 2000. 
+
+    8. In early February 2001, the venture partner notified Hanover in writing that it was exercising the Guarantee.  Hanover initially obtained an extension of time in return for paying the venture partner interest and expenses pursuant to the Guarantee.  In March 2001, however, when the extension of time was running out, Hanover in substance returned the down payment through the guise of a short-term, unsecured $4 million "loan" to an affiliate of the venture partner.  Subsequently, another partner replaced the venture partner, but in February 2002, after Hanover began its special inquiry, the company repurchased the substitute partner's interest. 
+
+   Turbine Sales 
+
+  9. Among the other significant transactions included in Hanover's restatements were sales of three turbines during the fourth quarter 2000 and the second and third quarters 2001.  In each of these sales, the turbines remained under Hanover's control, either at Hanover facilities or in a third-party storage facility rented by Hanover, and Hanover's COO entered into undisclosed side arrangements, including indirect funding of some payments on the turbines, that precluded revenue recognition on the sales under GAAP.  7    Consequently, Hanover's pre-tax income for the fourth quarter and fiscal 2000 and the second and third quarters 2001 was materially overstated in the company's Form 10-K for fiscal 2000 and Forms 10-Q for the second and third quarters 2001.
+
+   The Frame 6 Turbine Sale 
+
+    10. In December 2000, Hanover supposedly sold a Frame 6 turbine for $7.5 million to an affiliate of its venture partner, and the company later arranged the assignment of the contract to other "purchasers."  Hanover recorded pre-tax income of $1.3 million from this turbine sale, representing 4.2% of its fourth quarter 2000 pre-tax income and 1.4% of its fiscal 2000 pre-tax income.  Ultimately, however, Hanover did not sell the Frame 6 turbine, but instead exchanged it for a partial ownership interest in a Frame 7 turbine.
+
+    11. Although Hanover received a 10% down payment from one of the Frame 6 turbine "purchasers," a number of circumstances show that Hanover did not effectively transfer ownership of or risks associated with the Frame 6 turbine, that it retained specific performance obligations on the turbine after the purported sale, and that collectibility of the resulting receivable was not reasonably assured, thereby precluding revenue recognition on the transaction.  In particular:  (1) a senior officer orally committed Hanover to a profit-splitting and commission arrangement with the initial "purchaser" of the turbine; (2) Hanover made virtually all of the efforts to sell the turbine for each of the "purchasers"; and (3) Hanover indirectly funded a $250,000 interim payment on the Frame 6 turbine in June 2001, when payment on the turbine was overdue.  Finally, in late December 2001, when the Frame 6 turbine receivable was long overdue, Hanover agreed to purchase a 51% interest in a Frame 7 turbine for $8 million, and for the Frame 7 seller to then purchase the Frame 6 turbine for $8 million, which was primarily applied to Hanover's overdue receivable.  Thus, Hanover essentially exchanged the Frame 6 turbine for an equivalent interest in a Frame 7 turbine.  Hanover's COO, however, did not disclose these facts to the Company's accountants or, consequently, its auditors, and the Company failed to disclose these facts in its Commission filings.
+
+   The LM6000 Turbine Sales 
+
+  12. During the second quarter 2001, Hanover recorded the sale of an LM6000 turbine for $16.1 million, recognizing pre-tax income of $1.8 million, or 4.7% of the second quarter 2001 income.  The purchaser made a 10% down payment on the LM6000 in April 2001, but revenue recognition was inappropriate because Hanover did not effectively transfer ownership or risks, it retained specific performance obligations on the turbine after the purported sale, and collectibility of the receivable was not reasonably assured.  In particular:  (1) a senior officer represented that the purchaser would make a 20-30% profit in 45 days or less on his 10% down payment; (2) he promised that Hanover would help the purchaser, who no longer had an active business, sell the turbine on behalf of the purchaser; (3) Hanover made virtually all efforts to sell or finance the turbine on behalf of the purchaser; and (4) Hanover personnel stored, modified and maintained the turbine as if it were still owned by Hanover.  In addition, in the third quarter 2001, the purchaser refused to make an additional payment on the turbine, and a Hanover officer funded the interim payment that Hanover received.  Hanover's COO, however, did not disclose any of these facts to the Company's accountants or, consequently, its auditors, and the Company failed to disclose these facts in its Commission filings.  The $14.5 million receivable from the second quarter 2001 LM6000 sale was not paid off until December 2001, when Hanover obtained a $12 million line of credit and effectively guaranteed the performance of a third party in order for the receivable to be paid.
+
+  13. In the third quarter of 2001, Hanover sold a second LM6000 turbine for $17.5 million, recording pre-tax income of $2.8 million, or 7.8% of its third quarter 2001 pre-tax income, but revenue recognition was not appropriate in the third quarter 2001 for a number of reasons.  First, although the documents for the sale were dated at the end of the third quarter, they were not drafted or signed until October 2001.  Second, in mid to late October 2001, the purchaser advised Hanover that the purchaser had not been able to locate investors to fund the $2 million down payment, and Hanover ultimately indirectly funded the $2 million down payment.  8    Thus, Hanover did not effectively transfer ownership or risks in the third quarter 2001 sale of the second LM6000, it retained specific performance obligations on the turbine after the purported sale, and collectibility of the third quarter 2001 LM6000 receivable was not reasonably assured, which precluded  revenue recognition on the transaction.  Hanover's COO, however, did not disclose any of these facts to the Company's accountants or, consequently, its auditors, and the Company failed to disclose these facts in its Commission filings.  9     Violations 
+
+    14. As a result of the conduct described above, Hanover violated Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, and Goldberg was a cause of Hanover's violations of these provisions.  Section 13(a) of the Exchange Act requires issuers to file periodic reports with the Commission containing such information as the Commission prescribes by rule.  Exchange Act Rule 13a-1 requires issuers to file annual reports, while Rule 13a-13 requires issuers to file quarterly reports.  Under Exchange Act Rule 12b-20, such reports must contain, in addition to disclosures expressly required by statute and rule, such other information as is necessary to ensure that the statements made are not materially misleading under the circumstances.  Section 13(b)(2) of the Exchange Act requires issuers to maintain an adequate system of internal controls and to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the issuer.
+
+   Hanover's Remedial Efforts 
+
+  15. In determining to accept Hanover's Offer, the Commission considered the remedial efforts promptly undertaken by Hanover, and cooperation afforded the Commission staff.
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in the Offers of Hanover and Goldberg.
+
+    Accordingly, it is hereby   ORDERED that : 
+
+    A. Respondent Hanover 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.
+
+    B. Respondent Goldberg 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.
+
+
+
+                Jonathan G. Katz
+               Secretary
+  ____________________________
+      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      As disclosed in Hanover's 2000 and 2001 proxy statements, Goldberg did not receive remuneration from Hanover, other than Hanover stock options granted to him in 1998.  Instead, Goldberg was employed and paid by a partnership that was the general partner of Hanover's largest shareholder.  Goldberg lives in the Chicago area and commuted to Texas throughout his association with Hanover.
+
+      3      On December 18, 2003, the Commission filed a district court action against additional former senior Hanover officers seeking a permanent injunction, civil penalties and additional relief.  In a separate district court action, Goldberg consented, without admitting or denying the allegations of the complaint, to the imposition of a civil penalty.   See  Litigation Rel. No. 18514  (December 18, 2003).
+
+      4      After a financial publication and a stock analyst began questioning Hanover's reporting relating to its joint venture for a project in Nigeria, Goldberg initiated Hanover's internal inquiry.
+
+      5      A restatement announced in February 2002 was included in Hanover's 10-K for the year ended December 31, 2001, filed April 16, 2002, and restatements announced in August and October 2002 were included in amended Hanover Forms 10-K for the years ended December 31, 1999-2001, filed November 21, 2002 and December 23, 2002.
+
+      6      Under Paragraph 21 of FASB Statement of Financial Accounting Standards No. 13 ( Accounting for Leases ) ("FAS 13"), a seller cannot treat the sale of property that is intended to be leased by the purchaser to a third party as a sale if the seller retains substantial risks of ownership in the leased property.  Hanover's guarantee to refund the venture partner's down payment and Hanover's commitment to loan the LLC the balance of the purchase price created substantial risk of ownership in the 75% of the LLC that Hanover did not already own.  Therefore, Hanover's sale of barges and equipment to the LLC should have been accounted for as a borrowing rather than a sale.  FAS 13, ¶ 22.
+
+      7      Revenue typically is realized or realizable and earned when the following criteria are met:  (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured.   See  Statement of Financial Accounting Concepts  ("SFAC") No. 2,  Qualitative Characteristics of Accounting Information , ¶ 63; SFAC No. 5, ¶¶ 83-84; Statement of Position 97-2,  Software Revenue Recognition , ¶¶ 8, 26, 30-33; ARB No. 43, Chapter 1A, ¶ 1; APB Opinion No. 10, ¶ 12; Statement of Financial Accounting Standards No. 66,  Accounting for Sales of Real Estate,  ¶¶ 18, 28; Staff Accounting Bulletin 101,  Revenue Recognition in Financial Statements  (Dec. 3, 1999) ("SAB 101").  SAB 101 summarizes some of the requirements the Commission has articulated for recognition of revenue when delivery has not occurred, i.e. on a "bill and hold sale," including:  "(1) The risks of ownership must have passed to the buyer; ... (3) The buyer, not the seller, must request that the transaction be on a bill and hold basis.  The buyer must have a substantial business purpose for ordering the goods on a bill and hold basis; ... (5) The seller must not have retained any specific performance obligations such that the earnings process is not complete; ...."  Each of Hanover's turbine sales failed to meet one or more of the general criteria for recognition of revenue or the criteria specifically applicable to bill and hold sales.
+
+      8      In addition, Hanover signed letters of intent to make an equity investment in the South American project in which the second LM6000 turbine was to be used, and did virtually no due diligence on the purchaser, whose principal was a paid Hanover consultant officed at Hanover's Dallas facilities.
+
+      9      Goldberg, who authorized Hanover's recording of the income from the second LM6000 sale, did so without seeking and obtaining adequate information about the underlying transactions.  
+      
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diff --git a/raw/aaer/2003/AAER-1928.txt b/raw/aaer/2003/AAER-1928.txt
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--- /dev/null
+++ b/raw/aaer/2003/AAER-1928.txt
@@ -0,0 +1,1362 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Charles D. Erwin and Michael J. McGhan; Hanover Compressor Company and William S. Goldberg 
+     
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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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+              Charles D. Erwin and Michael J. McGhan; Hanover Compressor Company and William S. Goldberg
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+        Charles D. Erwin and Michael J. McGhan; Hanover Compressor Company and William S. Goldberg
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+ On December 18, 2003, the Securities and Exchange Commission filed a complaint in the United States District Court for the Southern District of Texas, against Charles D. Erwin, the former Chief Operating Officer of Hanover Compressor Company ("Hanover"), and against Michael J. McGhan, its former Chief Executive Officer, alleging that they orchestrated a managed earnings scheme to inflate the company's reported pre-tax income and meet Hanover's earnings goals and estimates during 2000 and 2001.  The complaint alleges that the scheme, together with internal control deficiencies, resulted in the overstatement of Hanover's pre-tax income during the relevant reporting periods in amounts ranging from 4.9% to 22.6%.  The SEC's charges against Erwin and McGhan include securities fraud and other securities law violations.  To settle the SEC's claims against them, McGhan and Erwin have agreed to pay a combined total of $672,171, and consent to permanent injunctions against future violations of the securities laws and five year bars from serving as an officer or director of a publicly held company. 
+ The Commission simultaneously instituted settled cease-and-desist proceedings against Hanover and against William S. Goldberg, Hanover's former interim Chief Financial Officer, based on Hanover's violations of the record keeping, reporting and internal control provisions of the federal securities laws and Goldberg's causing those violations.  In addition to the cease-and-desist order, Goldberg has agreed to pay a civil penalty of $50,000. 
+ Hanover is a Houston, Texas based company that manufactures, rents and operates natural gas compressors and other oil field equipment.  Hanover's common stock trades on the New York Stock Exchange.  McGhan and Erwin are residents of Houston, and Goldberg resides in a Chicago suburb.    
+ According to the SEC's allegations, Erwin and McGhan fraudulently inflated Hanover's reported pre-tax income during the third and fourth quarters of 2000, and Erwin inflated the company's reported pre-tax income during the second and third quarters of 2001, to meet Hanover's earnings goals and estimates.  The SEC alleges that Erwin and McGhan failed to inform Hanover's accountants - or, consequently, its auditors - about side agreements that should have precluded Hanover from recognizing revenue on sales of equipment in Nigeria.  The SEC alleges that Erwin also failed to inform Hanover's accountants - or, consequently, its auditors - about important facts relating to three turbine sales, and structured certain transactions to deceive Hanover's accountants and auditors about payments for the turbines.  As a result, according to the SEC, Hanover recognized revenue on those deals in contravention of Generally Accepted Accounting Principles, and included false financial statements in its Form 10-K for the year ended December 31, 2000, and in its Forms 10-Q for the third quarter 2000 and the second and third quarters of 2001.  Additionally, the SEC alleges that Erwin benefited from the inflated financial statements by selling stock in a March 2001 secondary offering of Hanover common stock.  The SEC also claims that Hanover's deficient internal controls facilitated Erwin and McGhan's misconduct, that McGhan, among others, was responsible for Hanover's deficient internal controls and record keeping, and that McGhan and Erwin were both responsible for the company's filing of false financial statements with the Commission. 
+ In the cease-and-desist proceeding against Hanover and Goldberg, the SEC found that Hanover failed to implement and maintain an adequate system of internal controls, which contributed to the record keeping and reporting failures that occurred when the company improperly recognized revenue on equipment deals and included false financial statements in annual and quarterly reports to the SEC.  The SEC further found that Goldberg, who was Hanover's executive vice president until early 2002 and its interim Chief Financial Officer from mid-2000 through January 2002, caused Hanover's violations of those provisions because he failed to address adequately Hanover's internal control deficiencies, in light of Hanover's rapid growth, and failed to review adequately the facts and circumstances underlying various transactions that Hanover recorded improperly.   
+ The SEC alleges that Erwin violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aided and abetted Hanover's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  The SEC alleges that McGhan violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-2 thereunder, and aided and abetted Hanover'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.  Without admitting or denying the allegations in the complaint, Erwin and McGhan made, and the Commission accepted, an offer of settlement in which each defendant consents to a permanent injunction against further violations of the above provisions of the federal securities laws, the payment of a civil money penalty ($110,000 for Erwin and $80,000 for McGhan), and a five year bar against serving as an officer or director of a publicly held company.  Erwin will also disgorge $417,900 of illicit profits, plus prejudgment interest in the amount of $64,271, based on his sale of Hanover stock in March 2001. 
+ Hanover and Goldberg both consented to the entry of an order in the SEC's cease-and-desist proceeding, which requires the company to cease and desist from violating, and requires Goldberg to cease and desist from causing violations of, Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  Further, in a related civil proceeding against Goldberg, he has agreed to pay a civil penalty of $50,000. 
+ The SEC agreed to settle with Hanover on the above terms based on the company's cooperation in the investigation and the company's numerous remedial measures to ensure against violations of the securities laws in the future.    
+
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diff --git a/raw/aaer/2003/AAER-1929.txt b/raw/aaer/2003/AAER-1929.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7538fe717ee0bdb2a60aca845c79292087765d14
--- /dev/null
+++ b/raw/aaer/2003/AAER-1929.txt
@@ -0,0 +1,1473 @@
+
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+              Mary E. Crabtree
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48961 / December 19, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1929 / December 19, 2003 
+
+ Admin. Proc. File No. 3-11362 
+
+
+ 
+     In the Matter of 
+ MARY E. CRABTREE 
+ 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 Mary E. Crabtree ("Crabtree" or "Respondent"). 
+ II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over her and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, 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  1   that:  
+ RESPONDENT 
+ 1.	Crabtree, age 60, resides in Mt. Juliet, Tennessee.  She was employed by an issuer whose securities are registered pursuant to Section 12 of the Exchange Act ("the Company") for 34 years and served as Distribution Manager at its Nashville distribution center since 1980.  Crabtree retired in December 2001.   
+ FACTS 
+ 2.	In the last few weeks of the Company's fiscal year ended February 3, 2001, the president of one of the Company's divisions (the "Division President") learned that the division would not meet its internal sales targets.  On January 31, three business days before the end of the Company's fiscal year, the Division President convened a meeting of her staff to discuss the shortfall.  During this meeting, the Division President conveyed that a failure to achieve the division's sales targets was not acceptable.  She instructed her staff to take whatever action was necessary to achieve the division sales targets.   
+ 3.	Two Company employees, a division vice president (the "Division Vice President") and the Division's Director of Customer Care, met with Crabtree to discuss shipping the orders for a specific Company customer by the Company's fiscal year end.  Such a shipment would be in advance of that customer's requested shipping date and these two Company's employees knew that this customer had already specifically refused early shipment. The Division Vice President told the Division President about the plan to ship these orders early, and the Division President approved the plan.   
+ 4.	The Company did not ship the orders as planned, but Crabtree, after meeting with the Director of Customer Care, prematurely recorded the orders as shipped.  This caused the Company to issue invoices to the customer and prematurely record $2.8 million of improper sales revenue, making its books and records inaccurate.  Because the Company improperly recognized this sales revenue in the fourth quarter of fiscal 2001, the Company's audited annual financial statements for fiscal year 2001 were not prepared in conformity with generally accepted accounting principles ("GAAP").  As a result, the Company overstated its net earnings on financial statements included in its Form 10-K for fiscal year 2001 filed with the Commission in May 2001; net earnings after a charge for discontinued operations for the fourth quarter were overstated by 2.7% and for the year by 1.6%.   
+ 5.	In late 2001, the Director of Customer Care told the Company's human resources department that she could not sign her annual ethics certification as a result of her involvement in certain conduct that occurred during the fourth quarter of fiscal year 2001.  She disclosed the scheme to record prematurely sales revenue.  
+ 6.	The Company's investigation revealed that in the first three quarters of the Company's fiscal year 2001 and the first two quarters of its fiscal year 2002, Crabtree caused other orders to be recorded as shipped even though shipment did not occur until the respective following quarter, making the Company's books and records inaccurate.  As a result of Crabtree's misconduct, the Company's net earnings after a charge for discontinued operations in each of the six quarters ended between April 29, 2000, and August 4, 2001, were overstated or understated by 2.7% to 18.0%.  
+ 7.	Crabtree recorded goods as shipped when they were not and scanned bills of lading  2   into the Company's accounting system to improperly book sales revenue before the goods were actually shipped. 
+ VIOLATIONS 
+ 8.	Section 13(b)(5) of the Exchange Act provides that no person shall knowingly circumvent a system of internal accounting controls or knowingly falsify any book, record or account described in Section 13(b)(2).   
+ 9.	Section 13(b)(2)(A) of the Exchange Act requires issuers of registered securities to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions and the dispositions of their assets.  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).    
+ 10.	By reason of the conduct described above, Crabtree violated Exchange Act Section 13(b)(5) and Rule 13b2-1 by knowingly falsifying the Company's books and records when she improperly recorded goods as shipped when they were not shipped until the following period. Crabtree also violated Section 13(b)(5) when she knowingly circumvented the Company's system of internal controls by scanning bills of lading into the Company's accounting system before the goods were shipped.  Crabtree was a cause of the Company's violations of Section 13(b)(2)(A) of the Exchange Act by improperly recording sales revenue and failing to keep books and records that accurately recorded the Company's transactions and disposition of assets for each quarter in fiscal year 2001 and the first two quarters of fiscal year 2002. 
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent Crabtree's Offer. 
+ Accordingly, it is hereby ORDERED that: 
+ Respondent Crabtree cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1, and shall cease and desist from causing any violations and any future violations of Section 13(b)(2)(A) of the Exchange Act.  
+
+
+	 By the Commission. 
+	
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+ 
+  Endnotes   
+   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   A bill of lading is signed by a carrier and serves as a receipt for goods given to the carrier for transport. 
+
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diff --git a/raw/aaer/2003/AAER-1930.txt b/raw/aaer/2003/AAER-1930.txt
new file mode 100644
index 0000000000000000000000000000000000000000..285bd4d1692c22ab9b683bd319d42fa941193860
--- /dev/null
+++ b/raw/aaer/2003/AAER-1930.txt
@@ -0,0 +1,1478 @@
+
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+              Genesco Inc.
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 48962 / December 19, 2003 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1930 / December 19, 2003 
+
+ Admin. Proc. File No. 3-11363 
+
+
+ 
+     In the Matter of 
+ GENESCO 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 Genesco Inc. ("Genesco" 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  1   that:  
+ 1.	Genesco is a Tennessee corporation headquartered in Nashville, Tennessee.  Genesco's common stock is registered pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock Exchange under the symbol "GCO." 
+ IMPROPER REVENUE RECOGNITION IN FOURTH QUARTER OF FISCAL YEAR 2001 
+ 2.	In the last few weeks of Genesco's fiscal year ended February 3, 2001, the president of Genesco's Johnston & Murphy division (the "Division President") learned that the division would not meet its internal sales targets.  On January 31, three business days before the end of Genesco's fiscal year, the Division President convened a meeting of her staff to discuss the shortfall.  During this meeting, the Division President conveyed that a failure to achieve the division's sales targets was not acceptable.  She instructed her staff to take whatever action was necessary to achieve the division sales targets.   
+ 3.	Two Genesco employees, a Johnston & Murphy division vice president (the "Division Vice President") and the Johnston & Murphy Director of Customer Care, met with a manager in Genesco's distribution center (the "Distribution Manager") to discuss shipping the orders for a specific Genesco customer by Genesco's fiscal year end.  Such a shipment would be in advance of that customer's requested shipping date and these two Genesco employees knew that this customer had already specifically refused early shipment. The Division Vice President told the Division President about the plan to ship these orders early, and the Division President approved the plan.   
+ 4.	Genesco did not ship the orders as planned, but the Distribution Manager, after meeting with the Director of Customer care, prematurely recorded the orders as shipped.  This caused Genesco to prematurely record $2.8 million of sales revenue, making its books and records inaccurate.  Because Genesco improperly recognized this sales revenue in the fourth quarter of fiscal 2001, Genesco overstated its net earnings on the financial statements it included in its Form 10-K for fiscal year 2001 filed with the Commission in May 2001; net earnings after a charge for discontinued operations for the fourth quarter were overstated by 2.7% and for the year by 1.6%.   
+ IMPROPER REVENUE RECOGNITION IN CERTAIN OTHER QUARTERS IN FISCAL YEARS 2001 AND 2002 
+ 5.	In late 2001, the Director of Customer Care told Genesco's human resources department that she could not sign her annual ethics certification as a result of her involvement in certain conduct that occurred during the fourth quarter of fiscal year 2001.  She disclosed the scheme to prematurely record sales revenue.   
+ 6.	Genesco immediately commenced an internal investigation.  Based on the results of its investigation, Genesco informed the Division President, the Division Vice President, and the Distribution Manager that they could resign or they would be terminated for cause.  The Director of Customer Care, who previously had transferred to a position with no financial reporting responsibilities, was disciplined.  Genesco also revised its internal controls, made a public announcement with respect to these matters and self-reported to the Commission's staff.  Genesco cooperated with the staff during its investigation.   
+ 7.	Genesco's investigation revealed that in the first three quarters of Genesco's fiscal year 2001 and the first two quarters of its fiscal year 2002, the Distribution Manager caused other orders to be recorded as shipped even though shipment did not occur until the respective following quarter, making Genesco's books and records inaccurate.  As a result of this misconduct, Genesco's net earnings after a charge for discontinued operations in each of the six quarters ended between April 29, 2000, and August 4, 2001, were overstated or understated by 2.7% to 18.0%. 
+ GENESCO FAILED TO MAINTAIN ADEQUATE INTERNAL ACCOUNTING CONTROLS 
+ 8.	During its fiscal year 2001 and the first two quarters of fiscal year 2002, Genesco failed to establish or maintain adequate internal accounting controls sufficient to allow the preparation of its financial statements in conformity with generally accepted accounting principles ("GAAP").  Genesco failed to monitor or verify whether invoice dates and bill of lading  2   dates matched.  Genesco has since implemented such a control. 
+ VIOLATIONS 
+ 9.	Section 13(a) of the Exchange Act and Rule 13a-13 thereunder requires issuers of registered securities to file with the Commission quarterly reports prepared in conformity with the requirements of the Commission's rules and regulations.  In addition, Exchange Act Rule 12b 20 requires that such reports contain, in addition to disclosures expressly required by statute and rules, such other information as is necessary to ensure that the statements made in those reports are not, under the circumstances, materially misleading. 
+ 10.	Section 13(b)(2)(A) of the Exchange Act requires issuers of registered securities to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions and the dispositions of their assets.     
+ 11.	Section 13(b)(2)(B) of the Exchange Act requires issuers of registered securities to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed in accordance with management's authorization and that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain accountability for assets.   
+ 12.	By reason of the conduct described above, Genesco violated Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 by filing a Form 10-Q that contained financial statements for the second quarter of fiscal year 2001 that materially overstated its net earnings.    Genesco violated Section 13(b)(2)(A) of the Exchange Act by failing to keep books and records that accurately recorded its transactions and disposition of assets for each quarter in fiscal year 2001 and the first two quarters of fiscal year 2002.  Genesco violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that its transactions were executed in accordance with management's authorization and that its transactions were recorded as necessary to permit the preparation of financial statements in conformity with GAAP. 
+ IV. 
+ In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff. 
+ V. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent Genesco's  Offer. 
+ Accordingly, it is hereby ORDERED that: 
+ Respondent Genesco 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 13a-13 and 12b-20 thereunder.  
+
+
+	 By the Commission. 
+	
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+ 
+  Endnotes   
+   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   A bill of lading is signed by a carrier and serves as a receipt for goods given to the carrier for transport. 
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diff --git a/raw/aaer/2003/AAER-1932.txt b/raw/aaer/2003/AAER-1932.txt
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+++ b/raw/aaer/2003/AAER-1932.txt
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+     SEC.gov | Canadian Imperial Bank of Commerce, Daniel Ferguson, Ian Schottlaender, and Mark Wolf 
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+        Canadian Imperial Bank of Commerce, Daniel Ferguson, Ian Schottlaender, and Mark Wolf
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+ CIBC Simultaneously Settles Charges, Consenting to a Permanent Anti-Fraud Injunction and Payment of $80 Million in Disgorgement, Penalties and Interest 
+
+ 
+The Securities and Exchange Commission ("Commission") today charged Canadian Imperial Bank of Commerce ("CIBC") and three of its executives with aiding and abetting Enron Corp.'s securities fraud.  The Commission's complaint, filed in U.S. District Court in Houston, alleges that CIBC and the three executives aided and abetted Enron's manipulation of its reported financial results through a series of complex structured finance transactions over a period of several years preceding Enron's bankruptcy.  The 34 financings were structured as "asset sales" for accounting and financial reporting purposes, allowing Enron to hide from investors and rating agencies the true extent of its borrowings.  Between June 1998 and October 2001, Enron used these disguised loans to increase reported earnings by more than $1 billion, to increase reported operating cash flows by almost $2 billion, and to avoid disclosure of more than $2.6 billion in debt on its financial statements.  Enron's alternative, borrowing money using the asset as collateral, would have given Enron access to cash to meet its operating expenses, but carried with it financial reporting consequences -- increased debt, no positive effect on cash flow, and no positive effect on earnings -- that would have had a detrimental impact on Enron's credit rating and stock price. 
+ 
+Simultaneously with the filing of the complaint, CIBC consented to entry of a final judgment settling the Commission's action against it.  In the consent, CIBC has agreed, without admitting or denying the allegations of the complaint, to the entry of a final judgment permanently enjoining it from future violations of the antifraud, books and records, and internal control provisions of the federal securities laws [Sections 10(b), 13(a), 13(b)(2)(A) and (B), and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1].  CIBC also has agreed to pay $80 million: $37.5 million in disgorgement, a $37.5 million civil penalty and $5 million in prejudgment interest.  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. 
+ 
+Daniel Ferguson and Mark Wolf, without admitting or denying the Commission's allegations, also consented to the entry of a final judgment that permanently enjoins each from violating the same antifraud, books and records, and internal control provisions of the federal securities laws.  In addition, Ferguson has agreed to pay a total of $563,000: disgorgement of $265,000, a penalty of $265,000, and prejudgment interest of $33,000, and has agreed to the entry of an order barring him from serving as an officer or director of a publicly traded company for a period of five years.  Wolf, who is no longer employed by CIBC, has agreed to pay a total of $60,000: $27,500 as disgorgement, a penalty of $27,500, and prejudgment interest of $5,000.  The Commission will likewise direct those monies to Enron fraud victims pursuant to the Fair Fund provisions.  Ian Schottlaender, a former managing director in CIBC's corporate leveraged finance group in New York City, is contesting the matter. 
+ 
+As alleged in the Commission's complaint, the financings involved purported transfers of assets from Enron to Enron-sponsored off-balance sheet qualified special purpose entities (QSPEs) or special purpose entities (SPEs).  Enron treated these transfers as accounting "sales" pursuant to Financial Accounting Standards Board (FASB) Statements No. 125 and 140, in order to book earnings and recognize operating cash flows, without reporting the associated debt on its financial statements.  CIBC organized a syndicate of banks to provide, in the form of debt, the majority of the capitalization of the QSPEs and SPEs.  Applicable accounting rules also require that a portion of their capitalization -- nominal in the case of a QSPE and at least three percent in the case of an SPE -- be equity unrelated to Enron and at risk of loss.  CIBC provided this outside "equity at risk" to validate the financings.  The accounting rules also require that the transferor, Enron, relinquish control over the assets, transferring the risk and rewards of ownership of the assets to the transferees. 
+ 
+The complaint further alleges that the transactions met neither the requirement that the equity stake be at risk, nor the requirement that the transferor relinquish control over the asset.  With respect to the equity, the complaint alleges that a senior CIBC official directed Schottlaender to obtain commitments from Enron senior management that Enron would support CIBC's equity contribution.  In conversations between Andrew Fastow, Enron's CFO, and defendant Schottlaender, Fastow gave Schottlaender "the strongest possible assurances" that CIBC's equity would be repaid.  The defendants knew that this "undocumented understanding" could not be disclosed in written deal documents between Enron and CIBC because it would be fatal to the "sale" accounting treatment that  was the sole basis for the financings.  Within CIBC, the guaranteed equity stake in the Enron transactions was referred to as, among other things, "trust me" equity, a term attributed to Schottlaender.  Up to the date Enron filed for bankruptcy, consistent with the assurances, Enron fully repaid CIBC for its equity stake and the promised 15 percent return in each of the financings as they unwound or were settled, even when the assets had lost value. 
+ 
+The complaint further alleges that Enron did not relinquish control over the assets. For example, the parties understood that Enron, not CIBC, was responsible for the ultimate disposition of each asset.  Consistent with this undocumented understanding, Enron or an Enron affiliate reacquired or refinanced each of the assets before the expiration date of the financing.  Similarly, CIBC's return on its equity stake was -- like a loan -- limited to its original investment and a stated yield of generally 15 percent.  In the event an asset appreciated beyond CIBC's limited contractual return, Enron structured the financings to receive any further increase in asset value, an increase generally considered a return on equity.  The complaint also points to the limited or no due diligence performed in connection with the transfers.  According to the complaint, the transactions were in fact a form of asset parking.  Both CIBC and Enron described the largest transaction structure as a "short term revolving warehouse facility." 
+ 
+The complaint alleges that although CIBC officials had concerns over whether Enron had "financially engineered" a large portion of its profits, CIBC was determined to achieve status as one of Enron's elite "Tier I" of banks.  CIBC earned approximately $18 million in fees from the fraudulent financings.  The disgorgement award of $37.5 million includes all the fees from the fraudulent transactions, as well as all "relationship" fees from any other transactions occurring at or after the date of the first fraudulent transaction.  CIBC's civil penalty also is based upon the total fees CIBC received from Enron from 1998 until Enron's demise. 
+ 
+The Commission brought this action in coordination with the U.S. Department of Justice Enron Task Force, the Federal Reserve Bank of New York, and the Canadian Office of the Superintendent of Financial Institutions. 
+ 
+The Commission's investigation is continuing. 
+ 
+For additional information, see 
+   SEC v. Michael J. Kopper  - Litigation Release 17692 (Aug. 21, 2002)   
+  SEC v. Andrew S. Fastow  - Litigation Release 17762 (Oct. 2, 2002)   
+  SEC v. Kevin A. Howard and Michael W. Krautz  - Litigation Release 18030 (March 12, 2003)   
+  SEC v. Merrill Lynch & Co. Inc., et al.  - Litigation Release 18038 (March 17, 2003)   
+  SEC v. Kevin A. Howard, Michael W. Krautz, Kenneth D. Rice, Joseph Hirko, Kevin P. Hannon, Rex T. Shelby, and F. Scott Yeager  - Litigation Release 18122 (May 1, 2003) (Amended Complaint)   
+  SEC v. J.P. Morgan Chase  - Litigation Release 18252 (July 28, 2003)   
+  In the Matter of Citigroup, Inc.  - Exchange Act Release 48230 (July 28, 2003)   
+  SEC v. Ben F. Glisan, Jr.  - Litigation Release 18335 (Sept. 10, 2003)   
+  SEC v. Wesley H. Colwell  - Litigation Release 18403 (Oct. 9, 2003)   
+  SEC v. David W. Delainey  - Litigation Release 18435 (Oct. 30, 2003)   
+  SEC v. Daniel Gordon  - Litigation Release  18515 (Dec. 19, 2003)  
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diff --git a/raw/aaer/2003/AAER-1933.txt b/raw/aaer/2003/AAER-1933.txt
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index 0000000000000000000000000000000000000000..3baaff0681fc196389519c1e47cd4f67b77cb82e
--- /dev/null
+++ b/raw/aaer/2003/AAER-1933.txt
@@ -0,0 +1,1362 @@
+
+
+ 
+ 
+   
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+ 
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+     SEC.gov | Eddy Lynn Patterson 
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+ On December 16, a federal jury in Tulsa, Oklahoma, convicted Eddy L. Patterson, the former chairman and chief executive officer of Tulsa-based Nesco, Inc., of securities fraud, bank fraud and tax-relegated offenses.  Patterson, 59, was convicted for his role in fraudulently inflating the accounts of Nesco, a former NASDAQ company once recognized by Fortune Small Business Magazine as one of America's 100 fastest growing small companies (OTC: NESCQ).  Patterson is scheduled to be sentenced in March 2004.  Patterson's wife, Judith Ray Patterson, was also convicted of tax-related offenses. 
+ On May 7, 2003, the U.S. Securities and Exchange Commission filed a civil securities fraud case in the United States District Court for the Northern District of Oklahoma (Tulsa Division) against Patterson (see Lit. Rel No.  18125). The SEC charged Patterson with financial fraud and other securities law violations related to his orchestration of a false invoice scheme that inflated Nesco's assets and revenue for its fiscal year 2000 and first quarter 2001 by over $2 million. The SEC's action was brought in close coordination with the U. S. Attorneys' Office in Tulsa, Oklahoma and the Internal Revenue Service-Criminal Investigation Division.   
+ According to the SEC's complaint, Patterson was Nesco's chairman and CEO at all relevant times until August 16, 2001, when the company's board of directors forced him to resign. Assisted by Nesco's now deceased former controller, Patterson grossly overstated the company's earnings by booking 28 bogus customer invoices totaling $2,153,986 in the fourth quarter of 2000 and one invoice totaling $183,385 in the first quarter of 2001. These false invoices resulted in overstatements to Nesco's pretax income for those periods of 400% and 175%, respectively. Nesco included these false figures in its annual and quarterly reports filed with the SEC. The complaint further alleges that Patterson, who had borrowed heavily to acquire large amounts of Nesco stock, devised the fraudulent scheme to conceal the company's dismal financial performance from investors, bolstering Nesco's share price and preventing his personal financial ruin.  The SEC's complaint further alleged that Patterson lied to Nesco's auditor to prevent discovery of the scheme during its audit of the company's 2000 fiscal year.  
+ According to the SEC's complaint, Nesco's management became suspicious of the company's financial statements for the 2000 fiscal year and commenced an internal investigation in May 2001. This investigation ultimately revealed Patterson's fraud and caused Nesco to compel his immediate resignation from the company on August 16, 2001. Further, Nesco voluntarily issued a press release disclosing its financial overstatements, restated its financial results for its fiscal year 2000 and first quarter 2001, and continued its internal investigation to ensure that it had uncovered the whole scheme and any other financial mismanagement. Nesco also fully cooperated with the SEC in its investigation of the matter.   
+ The SEC's case, which is continuing, requests that Patterson be permanently enjoined from future securities violations, that a civil monetary penalty be assessed against him, that he be ordered to disgorge the full amount of compensation he received from Nesco during the relevant period, including salary and bonuses, with prejudgment interest, and that he be barred from serving in the future as an officer or director of a public company.   
+ On May 7, 2003, the SEC also announced the institution of cease-and-desist proceedings against Nesco based on the aforementioned misconduct. The SEC simultaneously accepted Nesco's offer to consent to a cease-and-desist order. The order, in charging violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, orders Nesco to cease and desist from committing or causing any future violations of the above books and records, reporting, and internal controls provisions.   
+ Additional information can be found in Litigation Release  No. 18125  (May 7, 2003). 
+
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+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2003/AAER-1934.txt b/raw/aaer/2003/AAER-1934.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7ed46a704fc0aec922d7b7f44481303794e29541
--- /dev/null
+++ b/raw/aaer/2003/AAER-1934.txt
@@ -0,0 +1,1361 @@
+
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+ 
+ 
+   
+     
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+ 
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+     SEC.gov | Rent-Way, Inc., et al., Jeffrey A. Conway, Matthew J. Marini, Jeffrey K. Underwood 
+     
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+        Rent-Way, Inc., et al., Jeffrey A. Conway, Matthew J. Marini, Jeffrey K. Underwood
+       
+
+             
+   
+
+
+        
+                   
+             
+               
+  
+    
+      
+
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+
+             
+                        
+             
+
+ The Securities and Exchange Commission announced that Jeffrey Conway, Matthew Marini and Jeffrey Underwood were sentenced in connection with their respective roles in Rent-Way's $60 million financial reporting fraud.  On July 22, 2003, Conway and Underwood each settled SEC charges against them and Marini partially settled charges against him.  Each of the defendants also pleaded guilty to criminal charges against them on the same day. 
+ Conway, Rent-Way's former president and CFO, pleaded guilty to one count of conspiring to falsify Rent-Way's books and records.  On November 25, 2003, Conway was sentenced to 13 months in prison and 2 years of supervised release, and was ordered to pay a $20,000 fine.    
+ Marini, Rent-Way's former controller and CAO, pleaded guilty to one count of securities fraud.  On November 26, 2003, Marini, who cooperated in the investigations by the Department of Justice and the Commission, was sentenced to 3 months in prison, 3 months of home detention, and 2 years of supervised release. 
+ Underwood, Rent-Way's former vice president in charge of operations, pleaded guilty to one count of falsifying Rent-Way's books and records. On December 19, 2003, Underwood, who also cooperated in the investigations by the Department of Justice and the Commission, was sentenced to 2 years probation and ordered to pay a $7,000 fine.   
+ The Commission thanks the United States Attorney for the Western District of Pennsylvania and the Federal Bureau of Investigation for their assistance and cooperation in this matter. 			
+ For additional information, see Litigation Release  No. 18241  (July 22, 2003) and Accounting and Auditing Enforcement Release No. 1816 (July 22, 2003). 
+
+
+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2003/AAER-1935.txt b/raw/aaer/2003/AAER-1935.txt
new file mode 100644
index 0000000000000000000000000000000000000000..eccc35fca37f95564a74bf87162f3d0ffac80507
--- /dev/null
+++ b/raw/aaer/2003/AAER-1935.txt
@@ -0,0 +1,1391 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
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+ 
+ 
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+     
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+     SEC.gov | Vivendi Universal, S.A., Jean-Marie Messier, and Guillaume Hannezo 
+     
+     
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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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+              Vivendi Universal, S.A., Jean-Marie Messier, and Guillaume Hannezo
+           
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+   
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+      
+      
+             
+        Vivendi Universal, S.A., Jean-Marie Messier, and Guillaume Hannezo
+       
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+   
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+                   
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+
+ Defendants Agree to Pay Over $51 Million in Disgorgement and Civil Penalties 
+
+ Complaint Alleges Fraud Between December 2000 and July 2002, Including False Press Releases, Improper Adjustments to Earnings, and Failure to Disclose Future Commitments 
+
+  Securities and Exchange Commission v. Vivendi Universal, S.A., Jean-Marie Messier, and Guillaume Hannezo, 03-CIV-10195  (S.D.N.Y.)(filed December 23, 2003)  
+
+ The Securities and Exchange Commission (Commission) announced today that it filed a settled enforcement action against Vivendi Universal, S.A. (Vivendi), a media and environmental services conglomerate, its former CEO, Jean-Marie Messier (Messier), and its former CFO, Guillaume Hannezo (Hannezo).  The settlements include Vivendi's consent to pay a $50 million civil money penalty.  The settlements also include Messier's agreement to relinquish his claims to a â¬21 million severance package that he negotiated just before he resigned his positions at Vivendi, and payment of disgorgement and civil penalties by Messier and Hannezo that total over $1 million. 
+
+ The Commission's Complaint describes a course of conduct by Vivendi, Messier, and Hannezo that disguised Vivendi's cash flow and liquidity problems, improperly adjusted accounting reserves to meet earnings before income taxes, depreciation, and amortization (EBITDA) targets, and failed to disclose material financial commitments, all in violation of the antifraud provisions of the federal securities laws.   
+
+ Specifically, the Commission's Complaint includes the following allegations:  
+
+  During 2001 and the first half of 2002, Vivendi issued misleading press releases authorized by Messier, Hannezo, and other senior executives.  The press releases falsely portrayed Vivendi's liquidity and cash flow as "excellent" or "strong" and as sufficient to meet Vivendi's future liquidity requirements.  These statements were misleading in light of Vivendi's inability unilaterally to access the cash flow of two of its most profitable subsidiaries, a situation that substantially impaired Vivendi's ability to satisfy its debt burden and other operating costs.   
+
+ Vivendi, at the direction of its senior executives, made improper adjustments that raised Vivendi's EBITDA by approximately â¬59 million during the second quarter of 2001 and by at least â¬10 million during the third quarter of 2001.  These adjustments were made so that Vivendi could meet ambitious earnings targets that it had communicated to the market.   
+
+ Vivendi failed to disclose future financial commitments regarding two of its subsidiaries.  Vivendi failed to disclose the commitments in Commission filings and in meetings with analysts.  If Vivendi had revealed those commitments, they would have raised doubts about the company's ability to meet its cash needs.   
+
+ Vivendi and the other defendants failed timely to disclose all of the material facts about Vivendi's investment in a fund that purchased a 2% stake in Elektrim Telekomunikacja Sp. zo.o (Telco), a Polish telecommunications company in which Vivendi already held a 49% stake.   All of the defendants consented to the settlements without admitting or denying the Commission's allegations.  The settled action permanently enjoins Vivendi, Messier, and Hannezo from further violations of the federal securities laws and includes other substantial relief: 
+
+  Vivendi is required to pay a civil money penalty in the amount of $50 million and disgorgement of $1;   
+
+ Messier is required to relinquish his claim to a severance package of about â¬21 million, to pay a civil money penalty of $1,000,000, and disgorgement of $1;   
+
+ Hannezo is required to disgorge $148,149, and to pay a penalty of $120,000; and   
+
+ Messier and Hannezo are prohibited from serving as an officer or director of a public company for, respectively, 10 and 5 years.   The Commission intends to direct that disgorgement and penalties paid in this case be paid to defrauded investors, including those who held Vivendi's ordinary shares and its American Depository Shares during the time period alleged in the Commission's Complaint, pursuant to Section 308 (Fair Funds for Investors) of the Sarbanes-Oxley Act of 2002.  
+
+ The â¬21 million payment, now valued at approximately $25 million (including interest), to which Messier is relinquishing his claim has already been placed in an escrow account as a result of the Commission's successful litigation pursuant to Section 1103 of the Sarbanes-Oxley of 2002. On the SEC's motion, the District Court in New York ordered Vivendi to place those funds in escrow on September 24, 2003.   
+
+ The Commission acknowledges the cooperation of the United States Attorney's Office for the Southern District of New York and the Autorit© des marches financiers, formerly the Commission des Op©rations de Bourse.  The Commission's investigation is continuing. 
+
+  See also   Litigation Release No. 18352  (September 16, 2003) 
+
+   SEC Complaint in this matter  
+
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diff --git a/raw/aaer/2003/AAER-1936.txt b/raw/aaer/2003/AAER-1936.txt
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+ The Securities and Exchange Commission today charged Parmalat Finanziaria S.p.A. ("Parmalat") with securities fraud.  The Commission's complaint, filed in U.S. District Court in the Southern District of New York, alleges that Parmalat engaged in one of the largest and most brazen corporate financial frauds in history. 
+
+ The Commission's complaint alleges as follows:  From August through November 2003, Parmalat fraudulently offered $100 million of unsecured Senior Guaranteed Notes to U.S. investors by materially overstating the company's assets and materially understating its liabilities.  As Parmalat acknowledged in a press release dated December 19, 2003, the assets in its 2002 audited financial statements were overstated by at least â¬3.95 billion (approximately $4.9 billion).  In addition, Parmalat falsely stated to U.S. investors that it used its "excess cash balances" - which actually did not exist - to repurchase corporate debt securities worth â¬2.9 billion (approximately $3.6 billion), when in fact it had not repurchased those debt obligations and they remained outstanding.  The $100 million note offering failed after Parmalat's auditors raised questions about certain Parmalat accounts. 
+
+ The complaint further alleges that as of the end of 2002, Parmalat purportedly held the â¬3.95 billion worth of cash and marketable securities in an account at Bank of America in New York City in the name of Bonlat Financing Corporation ("Bonlat"), a wholly owned subsidiary incorporated in the Cayman Islands.  Bonlat's auditors certified its 2002 financial statements based upon a false confirmation that Bonlat held these assets at Bank of America.  The bank account and the assets did not exist and the purported confirmation had been forged.  These non-existent assets are reflected on Bonlat's 2002 books and records and, in turn, in Parmalat's 2002 consolidated financial statements, as well as in its consolidated financial statements as at June 30, 2003, which were provided to U.S. investors to whom Parmalat offered notes from August through November 2003.  The complaint further alleges that a private placement memorandum that Parmalat provided to U.S. investors in August 2003 contained numerous material misstatements about the company's financial condition.  For example, the memorandum falsely states:  "Liquidity is high with significant cash and marketable securities balances...."      
+
+ The complaint further alleges that on December 9, 2003, Parmalat's Chairman and Chief Executive Officer, and his son, a senior Parmalat executive, met with representatives from a New York City-based private equity and financial advisory firm regarding a possible leveraged buyout of Parmalat.  During that meeting, one of the New York firm's representatives noted that Parmalat's financial statements showed that the company had a large amount of cash.  In response, the son stated that the cash was not there, and that Parmalat really had only â¬500 million in cash.  Later, Parmalat's Chief Financial Officer joined the meeting.  During a discussion of Parmalat's outstanding debt, the CFO stated that Parmalat's debt was actually â¬10 billion, much higher than the balance sheet showed.  The CFO indicated that the balance sheet was incorrect because the company had not repurchased â¬2.9 billion of Parmalat bonds.  The balance sheet falsely reflected that the bonds had been repurchased. 
+
+ The complaint further alleges that based on these revelations, the New York firm's representatives offered to send members of the firm's restructuring group to meet with Parmalat representatives.  The following day, representatives of the firm's restructuring group met with the Parmalat representatives, and informed them that Parmalat needed to publicly disclose the facts disclosed to the New York firm if that firm were to continue to have any involvement.  When it became clear that the Parmalat representatives were unwilling to do so, the New York firm's representatives terminated their discussions with Parmalat. 
+
+ The complaint further alleges that from 1998 through 2002, Parmalat and certain of its top managers and directors, including its then Chairman and CEO and its CFO, actively marketed and sold nearly $1.5 billion in notes and bonds to U.S. investors.  Parmalat also sponsored an American Depositary Receipts ("ADR") program.  Parmalat's ADRs were originally privately placed in the U.S. on August 9, 1996.  Before December 19, 2003, the price of Parmalat ADRs had been artificially inflated by the materially false and misleading statements described above.   
+
+ Parmalat is charged with violating Section 17(a) of the Securities Act of 1933. The Commission seeks against Parmalat a permanent injunction from future securities fraud violations and a substantial civil penalty. 
+
+ The Commission's investigation into these events is continuing. 
+
+ The Commission acknowledges the assistance of Commissione Nazionale per la Societ  e la Borsa ("Consob"), the public authority responsible for regulating the Italian securities market. 
+
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diff --git a/raw/aaer/2004/AAER-1937.txt b/raw/aaer/2004/AAER-1937.txt
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+  Securities and Exchange Commission v. Henry C. Yuen et al. ,  Case No. CV 03-4376 NM (MANx) (C.D. Cal.) 
+ 
+The Securities and Exchange Commission announced that today it filed securities fraud charges against three former senior executives of Gemstar-TV Guide International, Inc. - its former co-president, its former general counsel, and the former chief financial officer of its wholly owned subsidiary, TV Guide, Inc.  The complaint charges that these executives participated in Gemstar's widespread and complex scheme to inflate its licensing and advertising revenue and to mislead investors about the company's true financial performance. 
+ 
+The SEC's action, filed in United States District Court in Los Angeles, amends the Commission's complaint filed against Gemstar's former chief executive officer, Henry C. Yuen, and former chief financial officer, Elsie M. Leung, on June 19, 2003.  The complaint seeks permanent injunctions, civil money penalties, disgorgement of ill-gotten gains (including salaries, bonuses and any proceeds from the sale of stock during the fraud), and bars from service as an officer or director of a public company. 
+ 
+The SEC's new charges name the following defendants: 
+  Peter C. Boylan, age 39, of Tulsa, Okla.  From July 2000 to April 1, 2002, Boylan was a co-president, co-chief operating officer, and member of the board of directors of Gemstar, and co-chairman, chief executive officer, and co-president of Gemstar's wholly owned subsidiary, TV Guide, Inc.   
+ Jonathan B. Orlick, age 46, of Chatsworth, Calif.  During the relevant period, Orlick served as general counsel, executive vice president, and a member of the board of directors of Gemstar.  He is a member of the Washington, D.C. and Florida bars.   
+ Craig Waggy, age 44, of Tulsa, Okla.  Waggy was the chief financial officer of TV Guide from September 1997 to May 2002.  Waggy holds a master's degree in accounting and was employed at a major accounting firm for approximately 13 years. 
+  
+The SEC charged each defendant with violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder, aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.  The SEC also charged Orlick and Waggy with aiding and abetting violations of Rule 13a-13 of the Exchange Act, and Orlick with violations of Rule 13b2-2 of the Exchange Act. 
+ 
+Gemstar is a Los Angeles-based media and technology company that, among other things, publishes TV Guide magazine and develops, licenses, and markets 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 amended complaint 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.  As described in the SEC's amended complaint, Gemstar manipulated its financial results through the following schemes. 
+  Improperly reporting IPG licensing and advertising revenue from expired, disputed, or non-existent agreements.   
+ Improperly reporting IPG advertising revenue from related transactions as if they were unrelated transactions.  Some of the related transactions involved either "round-trip" transactions in which Gemstar paid money to a third party and then received it back as purported IPG advertising revenue or non-monetary transactions in which Gemstar used IPG advertising to acquire other advertising or assets.   
+ Improperly reporting revenues switched from its media and licensing business sectors to its IPG advertising sector.  Gemstar switched the revenue by structuring transactions unrelated to IPG advertising so that all or a portion of the amount to be paid to Gemstar was nominally and artificially designated as the purchase of IPG advertising.   
+ Improperly reporting IPG advertising revenue from TV Guide when Gemstar had not run the advertising.   
+ Improperly reporting IPG licensing revenue by recognizing the revenue from an eight-year licensing contract over twelve months. 
+  
+The amended complaint alleges that Boylan participated in Gemstar's fraudulent reporting of transactions relating to IPG advertising.  The amended complaint alleges that Boylan structured two transactions unrelated to IPG advertising so that a portion of the amount to be paid to Gemstar was nominally and artificially allocated to the sale of IPG advertising.  The amended complaint further alleges that in press releases, conference calls with securities analysts, and annual reports, Boylan omitted to disclose material information regarding the transactions. 
+ 
+The amended complaint also alleges that Orlick participated in Gemstar's fraudulent recording and disclosure of certain IPG licensing and advertising revenue.  The amended complaint alleges that Orlick knew, but omitted to disclose, that Gemstar was improperly recognizing and reporting material amounts of licensing revenue from two companies.  The amended complaint also alleges that Orlick participated in Gemstar's fraudulent recognition of this licensing revenue by repeatedly signing false management representation letters to Gemstar's auditors regarding the status of negotiations with one of the companies.  Orlick failed to disclose material information regarding certain of Gemstar's IPG revenue. 
+ 
+The amended complaint alleges that Waggy participated in Gemstar's fraudulent recognition and disclosure of certain IPG advertising revenue.  The amended complaint alleges that Waggy participated in Gemstar's fraudulent recognition of IPG advertising revenue from TV Guide for advertising that did not run, from a third party that did not have the financial ability to pay for the advertising, and from an advertising barter transaction.  Waggy also omitted to disclose material information regarding certain of Gemstar's IPG revenue.  The amended complaint further alleges that Waggy participated in Gemstar's fraudulent disclosure by preparing annual and quarterly reports that omitted to disclose that certain IPG advertising revenue was improperly recognized and misrepresented that certain IPG advertising was unrelated to Gemstar's other transactions with the advertiser. 
+ 
+The SEC's amended complaint charges Boylan, Orlick, and Waggy with securities fraud, falsifying Gemstar's books and records, and aiding and abetting Gemstar's reporting and record-keeping violations of the federal securities laws.  The amended complaint also charges Orlick with lying to Gemstar's auditors. 
+ 
+Previously, the U.S. District Court in Los Angeles granted the SEC's application for an order requiring Gemstar to escrow any extraordinary payments to any of its directors, officers, partners, controlling persons, agents, or employees pursuant to Section 1103 of the Sarbanes-Oxley Act of 2002.  The Court's order placed in escrow, subject to court supervision, approximately $37.64 million in cash payments that Gemstar had previously agreed to pay to Yuen and Leung. 
+ 
+The Commission's investigation into the conduct of others is continuing. 
+ 
+Additional information can be found in  Litigation Release No. 18199  (June 20, 2003),  No. 18135  (May 13, 2003), and  No. 18095  (April 18, 2003). 
+ 
+    SEC Complaint in this matter  
+-->
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diff --git a/raw/aaer/2004/AAER-1940.txt b/raw/aaer/2004/AAER-1940.txt
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+ The Securities and Exchange Commission ("Commission") announced today that on December 26, 2003,  the Honorable Mark L. Wolf of the United States District Court for the District of Massachusetts entered a final judgment by consent against Kevin J. Morrison, age 54, of West Hartford, Connecticut.  Morrison was the executive vice-president of American Commercial Financial Corp., a wholly-owned subsidiary of Boston-based HPSC, Inc.  Without admitting or denying the Commission's allegations, Morrison consented to the entry of a final judgment that bars him from serving as an officer or director of a public company and permanently enjoins him from future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 promulgated thereunder. 
+ In its Complaint, the Commission alleged that from at least 1997 through May 2002, Morrison improperly diverted nearly $5 million of corporate assets to relief defendant Mildred K. Miller, a purported ACFC customer.  According to the Complaint, Morrison covered up his embezzlement by regularly providing falsified financial reports to ACFC's president, HPSC, and HPSC's outside auditors.  Information contained in those reports was incorporated in HPSC's financial statements for the periods ended December 31, 1997 through March 31, 2002, causing those financial statements to contain material misstatements.  On August 14, 2002, after becoming aware of Morrison's conduct, HPSC filed amended Forms 10-K for the years ended December 31, 2000 and December 31, 2001, which restated the company's net income and earnings per share for the years ended December 31, 1997 through December 31, 2001 and for the quarters ended March 31, 2000 through December 31, 2001.  The company also filed amended Forms 10-Q for the quarters ended September 30, 2001 and March 31, 2002.  The restatements reflect that Morrison's fraud resulted in an overstatement of HPSC's net income and earnings per share of between 4% and 112% during these periods. 
+ Previously in this same litigation, the Commission obtained a default judgment against Miller on December 22, 2002.  That default judgment against Miller was vacated by the court.  On February 13, 2003, the court re-entered a Final Judgment by Default against Miller.  The court ordered Miller to pay disgorgement of $4,782,381.26, plus prejudgment interest thereon of $189,813.63. 
+ On November 21, 2002, in related criminal proceedings filed by the United States Attorney for the District of Connecticut, Morrison pleaded guilty to one count of wire fraud in violation of 18 U.S.C. § 1343.  On March 31, 2003, Morrison was sentenced to serve 16 months in prison and ordered to pay restitution of nearly $5 million by Judge Janet C. Hall of the United States District Court for the District of Connecticut.  On March 7, 2003, Miller pleaded guilty before Judge Hall to one count of wire fraud in violation of 18 U.S.C. § 1343.  On November 6, 2003, Miller was sentenced to 60 months imprisonment and ordered to pay restitution of nearly $5 million. 
+ For more information, see Litigation Release Nos.  18463  (November 17, 2003),  17686  (August 16, 2002) and  17921  (January 8, 2003). 
+
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diff --git a/raw/aaer/2004/AAER-1953.txt b/raw/aaer/2004/AAER-1953.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7bee48889c366649f29b05c3d8a520d00d158fea
--- /dev/null
+++ b/raw/aaer/2004/AAER-1953.txt
@@ -0,0 +1,1457 @@
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 49204 / February 6, 2004 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 1953 / February 6, 2004 
+
+ Admin. Proc. File No. 3-10083 
+
+
+ 
+     In the Matter of 
+ Lee R. Fontaine, 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 21, 1999, Lee R. Fontaine ("Fontaine") 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 Fontaine pursuant to Rule 102(e) of the Commission's Rules of Practice.  1    This order is issued in response to Fontaine'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.  
+ During fiscal year 1994, KnowledgeWare, Inc. ("KnowledgeWare" or the "Company"), filed with the Commission three consecutive quarterly reports that materially misstated the Company's revenue and net income.  In addition, KnowledgeWare reported a profit in the third quarter when, in fact, the Company incurred a loss.  Fontaine, KnowledgeWare's former manager of financial reporting, prepared the financial statements and other materially false and misleading portions of the September 1993, December 1993 and March 1994 Forms 10-Q.  On October 4, 1999, Fontaine settled an injunctive action on which the 1999 suspension order was based. 
+ As a result of the 1999 suspension order, the Georgia State Board of Accountancy placed Fontaine's license on probation for one year and conditioned his reinstatement on his compliance with the terms outlined in its order.  At the end of the probationary period, the Georgia Board voted to take Fontaine off probation.   
+ 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, Fontaine has undertaken 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 manner.  Fontaine 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, Fontaine'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."  This "good cause" determination is necessarily highly fact specific. 
+ On the basis of information supplied, representations made, and undertakings agreed to by Fontaine, it appears that Fontaine has complied with the terms of the October 21, 1999 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 Fontaine pursuant to Rule 102(e) of the Commission's Rules of Practice, and that Fontaine, by undertaking to have his work reviewed by the independent audit committee of any company for which he works, or in some other manner acceptable to the Commission, in his practice before the Commission as a preparer or reviewer of financial statements required to be filed with the Commission, has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that Lee R. Fontaine, 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 
+	 
+
+ 
+  Endnotes   
+   1   See Accounting and Auditing Enforcement Release No. 1194, dated October 21, 1999. Fontaine was permitted, pursuant to the order, to apply for reinstatement after three years upon making certain showings. 
+ 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/2004/AAER-1962.txt b/raw/aaer/2004/AAER-1962.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c89a10c336486c84b14edcf3cf997c2ae1428a5a
--- /dev/null
+++ b/raw/aaer/2004/AAER-1962.txt
@@ -0,0 +1,1622 @@
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No. 49309 / February 24, 2004 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1962 / February 24, 2004 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11411 
+
+ 
+       In the Matter of 
+ STEVEN F. STORK, 
+ 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 Steven F. Stork ("Stork" or "Respondent").    
+
+ II. 
+
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over Respondent and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, 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  1   that 
+
+ A. 
+
+  Respondent  
+
+ Stork, 50, was employed in the accounting division of Ralphs Grocery Company ("Ralphs") for many years.  Stork was vice president of accounting for Ralphs from 1989 until December 1999.  He reported to Ralphs' controller.  He then served as controller of Ralphs from December 1999 through March 2000, and he was vice-president of finance of Ralphs during April 2000.  During the period Stork served as controller, Ralphs was a division of a publicly-held retail firm.  Stork left Ralphs in April 2000 for the position of controller of another supermarket chain.  Currently Stork is a consultant to a private company.  Stork has BA and MBA degrees in finance, but he has no professional license or certification. 
+
+  Other Relevant Entities  
+
+ Ralphs, a Delaware corporation with its principal executive offices in Compton, California, operates retail grocery stores in southern California as a division of The Kroger Company ("Kroger").  Prior to its acquisition by Kroger, Ralphs was a subsidiary of Food 4 Less Holdings, Inc. ("Food 4 Less") and Fred Meyer, Inc. ("Fred Meyer").  From at least 1997 through October 28, 1998, when Ralphs' separate reporting obligations ceased, Ralphs issued publicly traded debt and filed periodic reports with the Commission.  Ralphs fiscal year ended January 28. 
+
+ Food 4 Less, was a Delaware corporation that served as a holding company for Ralphs.  As discussed below, Fred Meyer and Kroger acquired Ralphs and Food 4 Less.  From at least 1997 through June 1, 1998, when its separate reporting obligations ceased, Food 4 Less issued publicly traded debt and filed periodic reports with the Commission.     
+
+ Fred Meyer, a food, drug and jewelry retailer in the western United States, is a Delaware corporation with its principal executive offices in Portland, Oregon.  In March 1998, Fred Meyer acquired Food 4 Less including Ralphs.  From at least 1997 through June 8, 1999, when Fred Meyer's separate reporting obligations ceased, its common stock was registered with the Commission pursuant to Section 12(b) of the Exchange Act and traded on the New York Stock Exchange.   
+
+ Kroger, an Ohio corporation with its principal executive offices in Cincinnati, Ohio, operates retail grocery stores, food manufacturing facilities, convenience stores, and jewelry stores under its own name and through subsidiaries.  In May 1999, Kroger acquired Fred Meyer, including Food 4 Less and Ralphs.  Kroger's common stock is registered pursuant to Section 12(b) of the Exchange Act and trades on the New York Stock Exchange.  
+
+
+ B. 
+
+  Background  
+
+ Ralphs operates retail grocery stores in southern California.  In March 1998, Fred Meyer acquired Ralphs and its parent Food 4 Less.  In 1998, Stork served as Ralphs' Vice President of Accounting.  In May 1999, Kroger acquired Fred Meyer, Food 4 Less, and Ralphs.  In December 1999, Stork became Ralphs' controller for three months before being promoted to vice president of finance in April 2000, and then leaving Ralphs.    
+
+ On March 5, 2001, Kroger announced that as a result of its investigation it would restate earnings for fiscal years 1998, 1999, and the first two quarters of 2000 to conform with generally accepted accounting principals (GAAP).  In a press release dated March 5, 2001, Kroger stated that Ralphs had engaged in certain improper accounting practices that began more than one year before Fred Meyer acquired Ralphs. 
+
+ On March 5, 2001, Kroger announced that as a result of its investigation it would restate earnings for fiscal years 1998, 1999, and the first two quarters of 2000 to conform with generally accepted accounting principals (GAAP).  In a press release dated March 5, 2001, Kroger stated that Ralphs had engaged in certain improper accounting practices that began more than one year before Fred Meyer acquired Ralphs. 
+
+  Kroger also announced specific adjustments to its financial statements.  These adjustments restated amounts that had been improperly placed in the seven General Liability Accounts, and corrected the reduction of the General Liability Accounts in later periods.  It affected Kroger's net income, earnings per share, and assets, and liabilities as follows: 
+
+ 
+     
+ 
+ 1998
+ 
+ 1999
+ 
+ Q1 2000
+ 
+ Q2 2000
+    Net Income ($ millions
+ 
+ 10
+ 
+ (14)
+ 
+ (7)
+ 
+ (8)
+    Basic Earnings per Share ($) 
+ 
+ .01
+ 
+ (.02)
+ 
+ (.01)
+ 
+ (.01)
+     Total Assets ($ millions)
+  
+ (32)
+ 
+ (35)
+ 
+ NP
+ 
+ NP
+    Total Liabilities ($ millions)
+ 
+ (42)
+ 
+ (31)
+ 
+ NP
+ 
+ NP
+    AAs evidence of the effect on Kroger of the restatement, in its press release on March 5, 2001, Kroger disclosed the following changes to its prior financial statements: 
+
+ EARNINGS PER SHARE* 
+
+   Fiscal Period
+ 
+ Reported
+ 
+ Restated
+    1998  *   
+ $ 0.58
+ 
+ $ 0.59
+    Q1, 1999
+ 
+ $ 0.24
+ 
+ $ 0.25
+    Q2, 1999
+ 
+ $ 0.06
+ 
+ $ 0.06
+    Q3, 1999
+ 
+ $ 0.15
+ 
+ $ 0.15
+    Q4, 1999
+ 
+ $ 0.29
+ 
+ $ 0.27
+    1999
+ 
+ $ 0.74
+ 
+ $ 0.73
+    Q1, 2000
+ 
+ $ 0.12
+ 
+ $ 0.12
+    Q2, 2000
+ 
+ $ 0.26
+ 
+ $ 0.25
+    Kroger's adjustments also affected the fiscal year 1998 pre-tax income of Fred Meyer.  In that year, the adjustments, on balance, released amounts from the General Liability Accounts that had the effect of increasing Fred Meyer's reported income (before income taxes, extraordinary items, and adjustments for GAAP changes) by $16.36 million or 8.9 percent. 
+
+  Unsupported Balances in Balance Sheet Accounts  
+
+ For Ralphs' fiscal year 1998, Ralphs misstated its earnings.  Ralphs placed excess income in the General Liability Accounts on its balance sheet instead of recognizing the income immediately through its income statement in conformity with GAAP.  When an accounts receivable employee at Ralphs received an atypical, or non-recurring, check or other income receipt, Ralphs, on occasion, recorded that item in one of the General Liability Accounts that functioned without proper documentation or accounting basis as reserve accounts.   Ralphs also inflated certain expenses and correspondingly built up the General Liability Accounts.  Then, from time to time, Ralphs transferred amounts from the General Liability Accounts into income without proper documentation or accounting basis. 
+
+ Ralphs also placed excess expense accruals in the General Liability Accounts.  By the end of a period, if operating expenses reported to the accounting department (such as repairs, maintenance, and supplies) lagged behind forecasted expenses, Ralphs booked additional, estimated expenses, often conforming expenses to forecast.  At period end, Ralphs transferred the amount of expenses, as adjusted, into one of the General Liability Accounts, such as account number 239133 (Other Liabilities). 
+
+ In 1999, Ralphs significantly under-accrued for self-insurance and certain other expenses.  In early 2000, in connection with the fiscal 1999 year-end closing, Ralphs transferred large amounts from the General Liability Accounts to meet those expenses, including $6.2 million transferred in accounting period 4 of 2000 from Account Number 239189 "Other Clearing." 
+
+ In addition, Ralphs had obtained more revenue than it needed to meet its fiscal year 1999 goal.  Ralphs placed the extra funds in the General Liability Accounts.  In March 2000, Ralphs transferred $2,100,000 of these amounts to a grocery department income account by debiting the General Liability Accounts for $2,100,000 and crediting the money to a grocery department account. 
+
+
+  Quarter End Dispersals from the General Liability Accounts  
+
+ At the end of each quarter, including year-end, Ralphs used journal entries to transfer substantial portions of the balances of the General Liability Accounts to other liability accounts.  At the beginning of the next period, Ralphs automatically reversed these journal entries and restored the pre-existing balances to the General Liability Accounts.  This process had the effect of reducing the balances in the General Liability Accounts at quarter end. 
+
+ For the period 1997 to 1999, each of Ralphs' successive controllers made these reversing journal entries at quarter end on Ralphs' general ledger.  In fact, no one other than the controller or his assistant made these adjustments to the trial balance at the end of the quarters.  Ralphs continued to make unsupported adjustments, including reversing journal entries, at the end of each quarterly period for each of the three years. 
+
+  Respondent's Conduct  
+
+ Respondent served as controller of Ralphs.  He generated or directed the generation of journal entries that booked income receipts into the General Liability Accounts.  Respondent also created or approved journal entries that subsequently transferred amounts from the General Liability Accounts into income accounts.  He also used automatic reversing entries at quarter end to disperse portions of the balances of the General Liability Accounts to other accounts.  These dispersals had the effect of reducing the balances in the General Liability Accounts at quarter end below audit thresholds.  As a result, Respondent circumvented the internal controls that then existed at Ralphs. 
+
+ C. 
+
+ As a result of the conduct described above, Respondent Mortensen committed violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder.  
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent's Offer. 
+
+ Accordingly, it is hereby  ORDERED  that: 
+
+ Respondent Stork cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder. 
+
+ By the Commission. 
+ 
+Jonathan G. Katz 
+Secretary 
+
+ Endnotes   
+   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   Source: The Kroger Company Form 10-K for the fiscal year ended February 3, 2001.  NP means Not Presented. 
+ 
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diff --git a/raw/aaer/2004/AAER-1965.txt b/raw/aaer/2004/AAER-1965.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2159c0ae632961eb55d999e018e8fee246be6059
--- /dev/null
+++ b/raw/aaer/2004/AAER-1965.txt
@@ -0,0 +1,1360 @@
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+ The United States Attorney for the District of Colorado announced that on February 26, 2004, Jon Clark, the former CFO of the now defunct Vari-L Company, Inc. and Sarah Hume, the former controller of the company, were criminally charged with falsifying information to inflate the company's revenue. Clark was charged in a one-count information with making a false statement in a report filed with the Securities and Exchange Commission. Hume was charged with one count of falsifying corporate books and records. The separate criminal informations were filed in the U.S. District Court for the District of Colorado.  
+ On September 27, 2001, the Commission filed a civil complaint against Clark, Hume and others in the U.S. District Court for the District of Colorado on, alleged that they and 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. On October 8, 2001 and August 9, 2002,respectively, the U.S. District Court entered final judgments of permanent injunction, pursuant to the defendants' consents, against Clark and Hume. 
+ For more information, see Litigation Release Nos.  17671  (August 9, 2002) and  17155   (September 27, 2001). 
+
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diff --git a/raw/aaer/2004/AAER-1973.txt b/raw/aaer/2004/AAER-1973.txt
new file mode 100644
index 0000000000000000000000000000000000000000..db5ab4dc69836f85c9e82eced5876ca120423191
--- /dev/null
+++ b/raw/aaer/2004/AAER-1973.txt
@@ -0,0 +1,1489 @@
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+ SECURITIES EXCHANGE ACT OF 1934 
+Release No.  49392 / March 10, 2004 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 1973 / March 10, 2004 
+
+ Admin. Proc. File No. 3-11428 
+
+
+ 
+     In the Matter of 
+ Conseco, 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 Conseco, Inc. ("Conseco" or "Respondent"). 
+ II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "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, 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: 
+
+ FINDINGS OF THE COMMISSION 
+ Respondent 
+ 1.	Conseco is a financial services holding company, incorporated in Indiana with its principal place of business in Carmel, Indiana.  At all relevant times, Conseco's common stock was registered with the Commission pursuant to Section 12(b) of the Exchange Act and was traded on the New York Stock Exchange.  At all relevant times, Conseco was required to file periodic reports with the Commission pursuant to Section 13(a) of the Exchange Act.  In August 2002, Conseco's common stock was delisted.  In December 2002, Conseco filed for protection under Chapter 11 of the U.S. Bankruptcy Code, reorganizing around its insurance operations and selling all of Conseco Finance Corporation's ("Conseco Finance") assets.  Conseco emerged from bankruptcy protection in September 2003, and is no longer engaged in the business that is the subject of this Order. 
+ Related Entity and Persons 
+ 2.	At all relevant times, Conseco Finance was a Delaware corporation with its principal place of business in Saint Paul, Minnesota.  Conseco Finance was previously known as Green Tree Financial Corporation ("Green Tree").  Green Tree merged with Conseco in June of 1998, became one of Conseco's wholly owned subsidiaries and later changed its name to Conseco Finance.  At all relevant times, certain of Conseco Finance's securities were registered with the Commission pursuant to Section 12(b) of the Exchange Act.  At all relevant times, Conseco Finance was required to file periodic reports with the Commission pursuant to Section 13(a) of the Exchange Act.  In December 2002, Conseco Finance filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and thereafter, sold all of its assets.    
+ 3.	Rollin Dick ("Dick"), age 72, is a resident of Zionsville, Indiana and a certified public accountant.  From 1986 to April 2000, Dick was Conseco's Chief Financial Officer.  From June 1998 to April 2000, Dick was also Conseco Finance's Chief Financial Officer.  Dick signed each of Conseco and Conseco Finance's Forms 10-Q filed with the Commission during 1999.   
+ 4. 	James Adams ("Adams"), age 43, is a resident of Carmel, Indiana and a certified public accountant.  From 1996 to September 2000, Adams was Conseco Inc.'s Treasurer and Chief Accounting Officer.  From June 1998 to September 2002, Adams was also Conseco Finance's Treasurer and Chief Accounting Officer.  Adams prepared Conseco and Conseco Finance's financial statements included in the Forms 10-Q filed with the Commission during 1999. 
+ Summary 
+ 5.	Throughout fiscal 1999, Conseco and its wholly owned subsidiary Conseco Finance made materially false and misleading statements about their earnings in Commission filings and in public statements announcing their earnings, overstating their results by hundreds of millions of dollars.  This massive overstatement occurred primarily because Dick and Adams conducted a fraudulent accounting scheme to avoid writing down the value of certain securities held by Conseco Finance and the resulting charges to earnings.  In addition, in each quarter of 1999, Dick and Adams made a number of unsupported and improper adjustments ("top-side adjustments") to the books and records of Conseco and Conseco Finance in order to increase earnings. 
+ Conseco Finance's Business and the IO Securities 
+ 6.	At all relevant times, Conseco's business consisted of insurance, fee-based businesses (such as mutual funds), and finance operations.  All of Conseco's finance operations were conducted through Conseco Finance.  Conseco included Conseco Finance's financial results in its consolidated financial statements.  Conseco Finance originated, purchased, sold and serviced consumer and commercial loans.  As part of its business, Conseco Finance put its loans into groups (called "pools"), and sold the pools to a special purpose entity ("SPE").  The SPE, in turn, sold bonds to the public backed by the principal and interest payments due from the pools.  Conseco Finance received back the proceeds of the bond sales, and an interest-only security ("IO security) that represented the right to receive any principal and interest due from the pool after the other bondholders and servicing fees were paid.  Conseco Finance carried the IO securities on its books as assets and was supposed to adjust them to their fair value each quarter.  Conseco Finance purportedly determined the fair value of the IO securities each quarter by using a discounted cash flow method, estimating the cash flows due on each IO security and discounting them to their present value.  The Conseco Finance accounting department determined these cash flows using computer models that relied on assumptions that Dick and Adams selected and controlled.   
+ 7.	At the time that it received each IO security, Conseco Finance established its initial basis.  Thereafter, if the fair value of any IO security became less than its basis, Generally Accepted Accounting Principles ("GAAP") required Conseco Finance to determine whether the decline in value was "other than temporary" (i.e., "permanent impairment").  Specifically, GAAP required Conseco Finance to compare the IO security's basis with the present value of the cash flows due on the security, discounted at a risk-free rate.  If the basis was greater, the IO security was permanently impaired, and GAAP required Conseco Finance to write down the value of the IO security and take a corresponding charge against earnings (called an "impairment charge").  During fiscal 1999, Dick and Adams manipulated both sides of this comparison (i.e., the IO securities' basis and the IO securities' estimated cash flows) to avoid having to take impairment charges.   
+ Dick and Adams Manipulate 
+ The Accounting For the IO Securities to Avoid Charges to Earnings  
+ 8.	At the end of each of the first three quarters of 1999, Conseco Finance's accounting department determined that some of its IO securities were permanently impaired.  Instead of writing down the value of these securities and taking the impairment charges, as GAAP required, Dick and Adams instructed the Conseco Finance accounting department to go back and change the historical basis of each IO security in order to make it falsely appear that none of the IO securities were permanently impaired.  These changes to the basis of each of the IO securities were not made in accordance with GAAP, and eliminated all of the permanent impairments initially found by the Conseco Finance accounting department in each of the first three quarters of 1999.  As a result, Conseco and Conseco Finance recorded no impairment charges and reported inflated earnings in public statements and in financial statements included in their Forms 10-Q for these periods.  Conseco and Conseco Finance also failed to disclose the improper changes to the IO securities' basis or their beneficial effect on current period earnings.   
+ 9.	For the fourth quarter of 1999, Dick and Adams again directed the Conseco Finance accounting department to make changes to the basis of each of the IO securities as described above.  In addition and in order to avoid impairment charges in the fourth quarter, Dick and Adams manipulated the computer models used to produce the IO securities' cash flows to produce inflated cash flows, thereby inflating the value of the IO securities.  Thus at the end of the fourth quarter of 1999, Conseco Finance compared the improperly adjusted basis of its IO securities to the inflated cash flows in order to falsely claim that none of its IO securities were permanently impaired.  As a result, Conseco and Conseco Finance released inflated fourth quarter and full-year 1999 earnings results to the public in press releases on February 23, 2000.   
+ Conseco and Conseco Finance's Improper Accounting 
+For the Top-side Adjustments 
+ 10.	In addition to the above, during the first three quarters of 1999, Dick and Adams ordered Conseco Finance's accounting department to make certain top-side adjustments to Conseco Finance's financial statements after Conseco Finance's accounting department had prepared preliminary financial statements.  Dick and Adams' top-side adjustments increased earnings in each of the first three quarters of 1999, and many were inconsistent with GAAP or lacked supporting documentation.      
+ Discovery of the Scheme 
+ 11.	In March of 2000 during the 1999 year-end audit, PricewaterhouseCoopers, L.L.P. ("PwC"), the auditors for Conseco and Conseco Finance, discovered the improper changes to the IO securities' basis and that the fourth quarter valuation was inflated as described above.  At that time, PwC determined that the changes to basis and the fourth quarter valuation were improper and needed to be corrected.  PwC also required Conseco and Conseco Finance to reverse the improper topside adjustments.  In addition, PwC determined there were deficiencies in Conseco Finance's internal controls and notified Conseco's Board.  These deficiencies in internal controls permitted the activities described above.   
+ 12.	On March 31, 2000, Conseco and Conseco Finance announced that they were reviewing the value of their IO securities and expected to record a charge to earnings, estimated at $350 million after taxes, to write-down the carrying value of its interest only securities.  Conseco's stock fell more than 16% that day.    
+ 13.	On April 14, 2000, Conseco and Conseco Finance filed their respective Forms 10-K's for 1999, which included restated results for the first three quarters of 1999, and revised results for the fourth quarter and full-year 1999.  Specifically, Conseco disclosed that it had overstated its net income as reported in its Forms 10-Q for the first three quarters of 1999 by $9.3 million (3.2%), $84.2 million (39.5%) and $37.8 million (24.3%), respectively, and inflated its publicly announced net income for the fourth quarter and full-year 1999 by $236.3 million (383%) and $367 million (61.7%) respectively.  Conseco Finance also disclosed that it had overstated net income as reported in its Forms 10-Q for the first three quarters of 1999 by $7.5 million (5.8%), $56.1 million (49.9%) and $14.8 million (26.2%), respectively, and inflated its publicly announced operating income for the fourth quarter and year-end 1999 by $378.3 million (112.9%) and $562.6 million (1,654.7%), respectively.  Conseco's stock price fell more than 10% following these disclosures.  
+ Conseco's Violations of the Exchange Act 
+ 14.	As a result of the conduct described above, Conseco violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder which require companies whose securities are registered under Section 12 of the Exchange Act to file, among other things, accurate quarterly reports with the Commission, to keep this information current and to include in such quarterly reports such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances in which they are made, not misleading.  15 U.S.C. § 78m; 17 C.F.R. § 240.13a-13; 17 C.F.R. § 240.12b-20.   
+ 15.	As a result of the conduct described above, Conseco also violated Section 13(b)(2)(A) of the Exchange Act, which requires companies whose securities are registered under Section 12 of the Exchange Act to make and keep books, records and accounts, which, in reasonable detail, accurately and fairly reflected the transactions and disposition of its assets.  15 U.S.C. § 78m.  Conseco also violated Section 13(b)(2)(B) of the Exchange Act, which requires companies whose securities are registered under Section 12 of the Exchange Act to devise and maintain a system of internal controls sufficient to: (1) permit the preparation of its financial statements in conformity with GAAP; and (2) assure that the recorded accountability for assets was compared with the existing assets at reasonable intervals and that appropriate action was taken with respect to any differences.  15 U.S.C. §78m.  Further, as a result of the conduct described above, Conseco violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, which prohibit any person, including any entity, from knowingly circumventing or failing to implement a system of internal accounting controls or from falsifying any book, record, or account, and from, directly or indirectly, falsifying or causing to be falsified any book, record or account that is required to be kept pursuant to Section 13(b)(2) of the Exchange Act.  15 U.S.C. 78m; 17 C.F.R. 240.13b2-1.   
+ Undertakings 
+ 16.	In connection with this proceeding and any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party, Respondent (i) agrees to have its officers, directors, employees and agents appear and be interviewed by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) will accept service by mail or facsimile transmission of notices or subpoenas issued by the Commission for documents or testimony at depositions, hearings, or trials, or in connection with any related investigation by Commission staff; (iii) appoints Respondent's attorneys at Kirkland & Ellis, L.L.P. as agent to receive service of such notices and subpoenas; (iv) with respect to such notices and subpoenas, waives the territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any applicable local rules, provided that the party requesting the testimony reimburses Respondent's travel, lodging, and subsistence expenses at the then-prevailing U.S. Government per diem rates; and (v) consents to personal jurisdiction over Respondent in any United States District Court for purposes of enforcing any such subpoena. 
+ Cooperation and Other Acts 
+ 17.	In determining to accept the Offer, the Commission considered certain remedial acts promptly undertaken by Conseco, and Conseco's cooperation with the Commission's staff. 
+ IV.  
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent Conseco's Offer. 
+ Accordingly, it is hereby ORDERED that:  
+ Pursuant to Section 21C of the Exchange Act, Respondent Conseco cease and desist from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-13, and 13b2-1 thereunder.   
+
+
+
+	 By the Commission. 
+	
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
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diff --git a/raw/aaer/2004/AAER-2004.txt b/raw/aaer/2004/AAER-2004.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bf5834d52dde3f377b7439e93d5efefc94ce1a0b
--- /dev/null
+++ b/raw/aaer/2004/AAER-2004.txt
@@ -0,0 +1,1375 @@
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+       
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+                        
+                   U.S. Securities and Exchange Commission 
+
+ Litigation Release No.  18700 / May 10, 2004 
+
+ Accounting and Auditing Enforcement Release No.  2004 / May 10, 2004 
+
+  Securities and Exchange Commission v. Emery W. Harris , United States District Court for the Northern District of Alabama, Civil Action No. CV-03-J-0715-S 
+
+	 On January 20, 2004, the Honorable Inge Johnson, U. S. District Judge for the Northern District of Alabama, entered a Final Judgment as to defendant Emery W. Harris 
+(Harris), formerly a group vice president, accounting and assistant controller of HealthSouth Corporation, enjoining him from further violations of Section 17(a) of the Securities Act of 1933, Sections 13(b)(5) and 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13b2-1 and 10b-5 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.  Harris was also permanently barred from serving as an officer or director of a public company.  Harris consented to the entry of the judgment without admitting or denying any of the allegations of the Commission's Complaint.       
+
+ The Commission's Complaint alleged that Harris 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.    
+
+
+ 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; and 
+L. R. 18339 / September 10, 2003 
+
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diff --git a/raw/aaer/2004/AAER-2008.txt b/raw/aaer/2004/AAER-2008.txt
new file mode 100644
index 0000000000000000000000000000000000000000..264dbc74a4f12eed7739f2ed9baa176b6ca165a6
--- /dev/null
+++ b/raw/aaer/2004/AAER-2008.txt
@@ -0,0 +1,1687 @@
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+        PricewaterhouseCoopers LLP
+       
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+ SECURITIES EXCHANGE ACT OF 1934
+ Release No. 49678 / May 11, 2004
+  ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No. 2008 / May 11, 2004
+  ADMINISTRATIVE PROCEEDING
+ File No.  3-11483
+  
+       In the Matter of 
+             PricewaterhouseCoopers LLP,  
+   Respondent. 
+     
+  : : : : : : : :   
+   ORDER INSTITUTING PUBLIC   ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING A CENSURE 
+      I. 
+
+    The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against PricewaterhouseCoopers LLP ("PwC" or "Respondent") pursuant to Rule 102(e)(1)(iii) of the Commission's Rules of Practice.  1     II. 
+
+    In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") that the Commission has determined to accept.  2    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, 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 a Censure ("Order"), as set forth below.  3     III. 
+
+    On the basis of this Order and Respondent's Offer, the Commission finds  4   that: 
+
+   A.  Respondent & Other Relevant Entities  
+
+     PricewaterhouseCoopers LLP  is a national public accounting firm with its headquarters in New York, New York.  PwC audited the financial statements of The Warnaco Group, Inc. and provided various consulting services for the company during the period 1995 through 1998.  It also performed quarterly reviews of Warnaco's financial results for the period 1996 through the third quarter of 1999.  
+
+     The Warnaco Group, Inc.  ("Warnaco") is a Delaware corporation with its headquarters in New York, New York.  During the relevant period, Warnaco was one of the largest apparel manufacturers in the United States, reporting net revenue of $2 billion.  Warnaco's common stock is registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act").  During the relevant period, Warnaco was a Fortune 500 company that traded on the New York Stock Exchange, Inc. under the symbol "WAC."  Warnaco filed for bankruptcy on June 11, 2001.  In February 2003, Warnaco emerged from bankruptcy under new management and began trading on the NASDAQ National Market under the symbol "WRNC."   
+
+   B.  Summary  
+
+    On April 2, 1999, Warnaco filed with the Commission an annual report on Form 10-K for fiscal 1998 that contained a material $145 million restatement of the prior three years' financial results.  The restatement decreased 1998 net income by $49 million; turned a $23 million net profit in 1997 into a $12 million net loss; and increased the company's net loss for 1996 from $8.2 million to $31 million.  In its annual report, Warnaco misled investors about the reason for the restatement.  Warnaco stated that the restatement involved the write-off of previously-deferred "start-up related" costs identified in connection with the company's adoption of a new accounting pronouncement.  Because the restatement resulted from a material inventory overstatement caused by an antiquated and defective accounting system at one of the company's largest divisions, Warnaco's description in its annual report was misleading.
+
+    PwC audited the financial statements contained in Warnaco's fiscal 1998 Form 10-K and issued an audit report containing an unqualified opinion dated March 2, 1999.  During its audit, PwC concluded that the inventory overstatement identified by the company was not an accumulation of deferred start-up costs that could be written off pursuant to Warnaco's adoption of a new accounting pronouncement.  5    PwC also concluded as part of its audit that the inventory overstatement most likely resulted from a series of internal control deficiencies and accounting errors that failed to reduce inventory properly over a period of years.  PwC failed to object to Warnaco's mischaracterization of the inventory overstatement as "start-up related costs." PwC also incorporated the misleading description of the restatement into its own audit report.    By doing so, PwC aided and abetted Warnaco's violation of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.
+
+   C.  Facts  
+
+    On April 2, 1999, Warnaco filed its annual report on Form 10-K for the year ended January 2, 1999 (fiscal year 1998).  In this annual report, Warnaco reported revised financial results for the previously-reported periods 1996, 1997 and the first three quarters of fiscal 1998.  Warnaco described the revisions as involving "start-up related production and inefficiency costs that had previously been deferred."  Warnaco also asserted that these costs had been identified in connection with the company's early adoption of SOP 98-5, which required that pre-operating costs relating to the start-up of new manufacturing facilities or businesses be expensed as incurred.  The disclosure misleadingly suggested that Warnaco was revising its previously reported financial statements as part of its write off of previously deferred "start-up related" costs in connection with the company's adoption of SOP 98-5.
+
+    PwC issued an audit report containing an unqualified audit opinion that the financial statements contained in Warnaco's fiscal 1998 Form 10-K "present fairly, in all material respects, the financial position of The Warnaco Group, Inc. and its subsidiaries at January 2, 1999 and January 3, 1998, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 2, 1999 in conformity with generally accepted accounting principles."  The audit report also stated that "[a]s described in Note 1 [to the financial statements], pursuant to the adoption of SOP 98-5 the Company changed its accounting for deferred start-up costs effective the beginning of fiscal 1998 and revised its fiscal 1997 and 1996 consolidated financial statements with respect to accounting for other start-up related production and inefficiency costs."
+
+    PwC knew at the time it issued its report that the $145 million restatement was not caused by Warnaco's adoption of SOP 98-5 or Warnaco's write-off of deferred start-up or start-up related costs.  PwC's audit report was misleading.
+
+     1. PwC's Audit Risk Assessment of Warnaco 
+
+    PwC was engaged as Warnaco's independent auditor in 1995.  PwC viewed Warnaco as an important client, in part because it was a Fortune 500 company with a high-profile chief executive officer.  
+
+    As early as its first audit of Warnaco in 1995, PwC considered Warnaco to be a high-risk client that employed aggressive accounting practices.  As part of its 1998 audit, PwC's audit risk assessment form included a section relating to management's characteristics and control over the company.  In that category, PwC internally assessed the risk of Warnaco engaging in fraudulent accounting as a 5 out of 6 (with 6 being the highest risk) and identified a number of significant risk factors, including:  
+
+      Warnaco's management had a practice of committing to analysts and others to achieve unduly aggressive or unrealistic forecasts, including quarterly earnings;
+
+         Warnaco's management was dominated by a single person or small group without counterbalancing controls, such as effective oversight by the board;
+
+         Warnaco's management had an "excessive interest" in maintaining or increasing the price of the company's stock through "unusually aggressive accounting practices;" and 
+
+         Warnaco's management had an "excessive interest" in delaying the recognition of losses.  
+    2. PwC Had Identified Significant Apparent Errors In Warnaco's Inventory Accounts in Prior Audits 
+
+    As early as its 1996 and 1997 audits, PwC had identified a number of potential errors in Warnaco's inventory accounting.  PwC realized early in its tenure as Warnaco's auditors that the accounting systems at Warnaco's then-largest division, the Intimate Apparel Division ("IAD"), were antiquated and prone to error.  The standard costs used by IAD's inventory system no longer approximated the division's actual costs, leading to significant and increasing variances that needed to be allocated between inventory and cost of goods sold in order to estimate actual costs for GAAP reporting purposes.  6    PwC questioned Warnaco's method for allocating the variances between inventory and cost of goods sold and questioned the appropriateness under GAAP of Warnaco's capitalization of certain overhead costs.  PwC identified potential audit adjustments of  $20 million to IAD's inventory accounts during the 1996 audit.  During the 1997 audit, PwC identified $52 million in potential audit adjustments to IAD's inventory.  These apparent errors did not relate to start-up costs or start-up activities; they were simply accounting errors caused by system flaws at IAD or accounting decisions made by Warnaco that were not in accordance with GAAP.
+
+    PwC did not require Warnaco to make adjustments relating to these apparent errors in either year.  At the conclusion of the 1996 audit, PwC recommended that Warnaco examine its cost accounting system at IAD.  PwC also recommended in its management report to Warnaco that the company improve its internal controls, establish more accurate standard costs, and reconsider its classification of certain costs in inventory.  
+
+   3. PwC Consultants Identified Apparent Errors of $60 Million Or More In IAD's Inventory Accounts 
+
+  In late 1997, at PwC's recommendation, Warnaco's senior management hired PwC consultants to review, update, and correct IAD's standard cost system (the "Standard Cost Project").  As part of the Standard Cost Project, the PwC consultants examined IAD's inventory accounts.  Shortly after beginning their review, the PwC consultants determined that Warnaco's standard costs failed to include certain actual production costs and that IAD was capitalizing too much of its variance amounts and overhead costs into inventory.  This conclusion was similar to the conclusions reached by the 1996 and 1997 PwC audit teams.
+
+    By the Spring of 1998, the PwC consultants preliminarily concluded that IAD's inventory accounts were overvalued by $60 million.  The consultants conveyed their preliminary findings to Warnaco's senior management and to PwC's audit team during a meeting on March 31, 1998.  However, no adjustment was made to the inventory accounts at this time.  
+
+     4. PwC Knew That Warnaco's Senior Management Wanted To Delay Or Avoid Correcting The Inventory Errors 
+
+    In June 1998, after Warnaco informed PwC that the company internally estimated that inventory was overstated by $80 million or more, PwC recommended that Warnaco begin amortizing the overstatement over an arbitrary four-year period (a recommendation not in accordance with GAAP).  PwC also informed Warnaco's senior management that, if the overstatement was material, it would require the company to restate prior years' financial results.  Warnaco refused to begin recording the adjustment until the Standard Cost Project was completed and the total amount of the overstatement was determined.  PwC acceded to this request.
+
+    In July 1998, the PwC engagement partner for the Warnaco account retired and was replaced by another PwC partner.  The new engagement partner believed that Warnaco's audit committee should be informed about the potential inventory overstatement.  After the engagement partner informed the audit committee of the potential overstatement at the August 1998 board meeting, Warnaco's CEO expressed dissatisfaction with the partner's failure to raise the issue with management prior to the meeting and requested that PwC address the issue.  PwC assigned a new audit team, including another new engagement partner. That partner ultimately insisted upon the restatement of Warnaco's previously issued financial statements as a result of the inventory overstatement.
+
+     5. PwC's Expanded Audit Work In 1998 Confirmed That Flaws In IAD's Outdated Standard Cost System Caused The Overstatement 
+
+    In the Fall of 1998, IAD completed its annual physical inventory count and attempted to reconcile the value of the physical inventory to the inventory value on the division's books and records.  The reconciliation process was consistent with the size of the potential adjustment identified in the Standard Cost project:  the value of the actual physical inventory was $60 million to $80 million   less   than the inventory value recorded on IAD's internal records and publicly reported in Warnaco's periodic reports.   In late October or early November, Warnaco informed the new PwC audit team of these facts.  Warnaco's chief financial officer claimed to the new PwC team that Warnaco could not explain the cause of the apparent inventory overvaluation.
+
+    Given the magnitude of the inventory discrepancy, PwC immediately informed Warnaco's senior management that the audit firm could not rely upon Warnaco's own accounting and internal control systems at IAD.  Instead, the PwC audit team engaged some of the same PwC consultants who had worked on the Standard Cost Project to create a new model to value IAD's inventory.  PwC also required that Warnaco complete another physical inventory count at year-end, observed by the PwC auditors, to ensure that the inventory discrepancy was a valuation problem and not a physical inventory problem.  The physical inventory confirmed that the problem was not one of missing inventory, but rather was due to an overvaluation of existing inventory.
+
+    In the course of this work, PwC identified numerous flaws in IAD's cost accounting system - including missing cost data and improper capitalization of costs - that had prevented the system from properly reducing the value of inventory recorded on Warnaco's books as inventory was sold.  These findings were consistent with the potential errors PwC had previously identified in the 1996 and 1997 audits and in the Standard Cost Project.  None of the flaws identified by PwC indicated that deferred start-up costs had been improperly recorded in the inventory accounts or were the source of the inventory overstatement.  During a meeting in December 1998 and in subsequent discussions, PwC notified Warnaco's senior management of its findings.  
+
+     6. PwC Knew Warnaco Was Unable To Provide Sufficient Evidence of Its Claim That The Inventory Overstatement Was Caused By Misrecorded Start-Up Costs 
+
+    PwC knew that Warnaco's senior management was very resistant to recording the inventory overstatement as the correction of an error that would require a restatement of previously reported financial results.  When Warnaco's CFO first informed PwC of the reconciliation problem in late October, he asked whether Warnaco could write off the inventory overstatement as part of the restructuring costs the company planned to recognize in the fourth quarter of 1998.  After consulting with the concurring partner, the audit team correctly advised the CFO that GAAP did not permit such accounting treatment.  
+
+    Warnaco's senior management then asserted that the overstatement was attributable to start-up costs that had been improperly recorded in inventory accounts.  Warnaco's management wanted to write off the overstatement as part of the company's adoption of a new accounting pronouncement SOP 98-5 later that year.  7    However, Warnaco's management was unable to support this assertion with sufficient evidence.  Moreover, as PwC knew, Warnaco had already identified and recorded more than $71 million in deferred start-up costs in a separate account on its books.  Given the size of the start-up balance already on Warnaco's books, and the fact that this balance had been audited by PwC in prior years, PwC was skeptical Warnaco had incurred an additional $60-$80 million in deferred start-up costs that had been mistakenly recorded in IAD's inventory accounts. 
+
+    In February 1999, PwC completed its audit work and determined that the inventory accounts at IAD were overvalued by a total of $159 million.  Moreover, PwC concluded there was no evidence to support Warnaco's assertion that the overstatement was due to misplaced start-up costs.  In late February, PwC advised Warnaco's senior management of both of these findings and warned the company that it would have to restate its prior years' financial statements.
+
+    Warnaco's CEO and CFO did not accept PwC's conclusion and sought one final meeting to persuade PwC that the overstatement could properly be written off as start-up costs under SOP 98-5.  PwC agreed to the meeting, but warned Warnaco that PwC would require sufficient competent, auditable evidence before it would change its conclusion.
+
+    Over the course of a two-day meeting in February 1999, senior Warnaco management tried to persuade PwC to allow Warnaco to write off the inventory overstatement as start-up costs under SOP 98-5.  Although PwC had repeatedly asked Warnaco to provide evidence supporting the proposed accounting treatment of the overstatement as "start-up" costs, the company had produced none.  At the start of the two-day meeting, Warnaco's CFO gave the auditors a two-page schedule attributing nearly the entire overstatement to start-up costs.
+
+    After reviewing the schedule, PwC concluded that it could not rely upon it to support the company's proposed accounting treatment, because the costs on the schedule could not be traced back to Warnaco's books and records or came from factories that had been open for many years and thus did not qualify as start-up costs under the company's start-up policy.  PwC determined that, at most, only $14 million of the overstatement could be reclassified and accounted for as a current year write-off of start-up costs.  The remaining inventory overstatement - $145 million - could not be written off under SOP 98-5.  Accordingly, PwC told Warnaco that: (i) the overstatement must be accounted for as the correction of an error, thus necessitating a restatement of previously reported financial statements; and (ii) PwC would not certify financial statements that accounted for the overstatement as part of the change in accounting to adopt SOP 98-5.
+
+  PwC's workpapers confirmed this analysis.  The final memorandum to the audit file summarized PwC's conclusions:  
+
+      Factors Contributing to Overstatement of Inventories :  The audit team performed necessary procedures through the end of February 1999 ... to try to understand the cause of the inventory cost accumulation issue and the reasons why the Company's internal controls were not effective in identifying the inventory valuation issue in a timely manner.
+
+    * * *
+
+    On the basis of the work we performed, we believe that the inventory cost accumulation issue most likely resulted from not properly relieving inventory over a period of years.  8     By the end of the two-day meeting, Warnaco acceded to PwC's conclusion that it would have to restate its 1997 and 1996 financial statements.  The following day, March 1, 1999, PwC reiterated to Warnaco's board of directors the firm's conclusion that the inventory overstatement could not be written off under SOP 98-5.  
+
+  The "revisions" had a material downward impact on Warnaco's previously-reported inventory, cost of goods sold, net income, and earnings per share, as set forth in the table below:
+  
+       
+ 
+   Inventory   
+   ($ in thousands)  
+ 
+   Net Income   
+   ($ in thousands)  
+ 
+   EPS  
+   (diluted)  
+     
+ 
+   Prev. Reported  
+ 
+   Restated  
+ 
+   %  
+ 
+   Prev.  
+   Reported  
+ 
+   Restated  
+ 
+   %  
+ 
+   Prev.  
+   Reported  
+ 
+   Restated  
+ 
+   %  
+    1998_
+ 
+ 625,545
+ 
+ 492,827
+ 
+ -21%
+ 
+ 94,352
+ 
+ 69,948 *  
+ - 26%
+ 
+ 1.48
+ 
+ 0.72
+ 
+ - 51%
+    1997
+ 
+ 526,185
+ 
+ 431,185
+ 
+ -18%
+ 
+ 23,032
+ 
+ (12,319)
+ 
+ -154%
+ 
+ 0.42
+ 
+ (0.23)
+ 
+ -155%
+    1996
+ 
+ 387,318
+ 
+ 349,335
+ 
+ - 10%
+ 
+ (8,239)
+ 
+ (31,409)
+ 
+ -281%
+ 
+ (0.16)
+ 
+ (0.61)
+ 
+ -281%
+    
+
+ _ Cumulative results from the first three quarters of 1998
+ * Adjusted to exclude $23,976 related to adoption of SOP 98-5 effective beginning of fiscal 1998
+
+     7. PwC Reviews Warnaco's Draft Press Release 
+
+    On the afternoon of March 1, 1999, Warnaco's CFO gave the PwC engagement partner a draft of a press release that Warnaco intended to issue the following day.  In the draft release, Warnaco touted "record" earnings results.  The draft release falsely characterized the inventory error as a part of Warnaco's write-off of deferred start-up costs pursuant to SOP 98-5.  After consulting with PwC's National Office regarding the press release, the PwC engagement partner informed Warnaco's CFO that the press release was inconsistent with the manner in which the company's financial results would be presented in the Form 10-K and that Warnaco should seek advice of counsel before issuing the release.  Despite this, Warnaco issued the press release, substantially unchanged, the following day.
+
+     8. Warnaco's 1998 Annual Report on Form 10-K 
+
+  Also in March 1999, Warnaco began preparing its annual report on Form 10-K for fiscal 1998.  As a result of Warnaco's issuance of the misleading March 2 press release, there were extensive discussions between Warnaco and PwC regarding the scope of the necessary disclosures in the company's annual report.  According to a PwC partner, Warnaco's press release had characterized the inventory adjustment as a write-off of deferred start-up costs, and PwC's view was "very inconsistent with that, and so there were a lot of discussions going back and forth [regarding] how to get the disclosures to . . . an acceptable level."
+
+  On April 2, 1999, Warnaco filed its annual report on Form 10-K for fiscal 1998.  In this report, the company revised its financial results for fiscal 1996-1998 to reduce inventory and increase cost of goods sold by $145 million, as required by GAAP.  Warnaco continued, however, to insist misleadingly that the restatement was related to the company's adoption of SOP 98-5.
+
+  In the notes to the audited financial statements, Warnaco explained the restatement to its investors as an inventory "revision" that was the result of "start-up related and production inefficiency costs" identified as part of the company's adoption of new accounting standard SOP 98-5.  Specifically, the notes to the financial statements stated:
+
+      Adjustments, Reclassifications and Revisions:   As noted above, the Company early adopted SOP 98-5 in fiscal 1998.   In connection with the adoption of the new accounting standard, an extensive effort was undertaken to identify all start-up related production and inefficiency costs that had previously been deferred.   Over the last six years, the Company has opened or expanded 10 manufacturing facilities.  In addition, to support anticipated future growth, the Company opened 2 new manufacturing facilities during 1998 for a total of 12 new facilities.   This resulted in the Company's incurring plant inefficiencies and other start-up related costs resulting from high turnover and related training and other costs.    Such start-up related production and inefficiency costs have been classified in other assets and inventories .   Because certain such costs identified in this process related to fiscal 1997 and 1996 activities, such prior year consolidated financial statements have been revised to reflect additional costs of goods sold[.]   (Emphasis added.)
+
+   The Form 10-K was misleading.  The restatement was not the result of "previously deferred" start-up costs and was not related to the company's adoption of SOP 98-5.  Rather, the restatement was precipitated by a material failure of Warnaco's inventory accounting system.  The annual report did not clearly explain to investors that Warnaco had restated its financial results for a three-year period to correct a $145 million inventory overvaluation, and did not disclose that this restatement was caused by the failure of the company's accounting system to properly deduct costs from inventory as goods were sold. 
+
+  PwC's workpapers confirmed that the audit firm viewed the inventory restatement as an error caused by material flaws in Warnaco's cost accounting system.  Despite this, PwC acceded to Warnaco's insistence that these costs be disclosed in the annual report as "start-up related production and inefficiency costs."  PwC issued a report containing an unqualified opinion and adopted Warnaco's characterization of the restatement in its report.  After stating that the company's financial statements "present fairly, in all material respects, the financial position of The Warnaco Group . . . in conformity with generally accepted accounting principles," PwC's report contained the following explanatory paragraph:
+
+     As described in Note 1,  pursuant to the adoption of SOP 98-5, the Company  changed its accounting for deferred start-up costs effective the beginning of fiscal 1998 and  revised its fiscal 1997 and 1996 consolidated financial statements with respect to accounting for other start-up related production and inefficiency costs .  (Emphasis added.) 
+
+   At the time the Form 10-K was filed, there was no reasonable basis for either   Warnaco or PwC to describe the inventory restatement as the write-off of "start-up related" costs identified in connection with Warnaco's adoption of SOP 98-5.  PwC knew that there was not sufficient and competent audit evidence to support Warnaco's claim that the restatement was due to deferred "start-up" or "start-up related" costs.  The only analysis performed by Warnaco in support of that position was the CFO's two-page analysis, which PwC had rejected because it was unverifiable.  Both Warnaco and PwC were aware as a result of the Standard Cost Project that the inventory was overvalued on Warnaco's books by at least $60-$80 million.  Furthermore, during both the Standard Cost Project and the 1998 audit, PwC had discovered defects in IAD's inventory systems that caused IAD's inventory to be overvalued, and had concluded at the end of the 1998 audit that the overstatement was due to the failure of the system to properly deduct costs from inventory as that inventory was sold.  Warnaco mischaracterized the inventory restatement to conceal a material weakness in its cost accounting and internal control systems, and PwC's audit opinion aided and abetted this misleading disclosure.
+
+    Warnaco did not correct the  disclosure until May 16, 2000, over a year later, when it filed an amended 1998 Form 10-K.  In its amended report, Warnaco revised the discussion of the restatement to remove all references to "start-up related production and inefficiency costs" and the adoption of SOP 98-5.  For the first time, Warnaco informed investors that the restatement resulted from flaws in the company's inventory costing control system:
+
+      Reclassifications and Restatement:   . . .  Prior to fiscal 1998, the Company rapidly expanded its manufacturing capacity, hiring and training over 15,000 new employees.  This resulted in the Company incurring plan inefficiencies and higher than anticipated manufacturing costs characteristic of new manufacturing operations resulting from high labor turnover and related training and other costs.  The Company's infrastructure personnel and systems were overburdened by the size and scope of this rapid expansion and by the increased manufacturing volume.  Manufacturing related costs, which were significantly higher than anticipated, were added to inventories when incurred.   In connection with the fiscal 1998 year-end closing, the Company determined that in fiscal 1996, 1997 and the first three quarters of 1998, as merchandise was sold, inventories were relieved at less than actual cost per unit, leaving an accumulation of inventory costs.  As a result, costs related to [those periods] have been restated to reflect additional costs of goods sold[.] . . . This restatement resulted from flaws in the Company's Intimate Apparel Division inventory costing control system that have since been addressed.   (Emphasis added.)
+
+   At the same time, PwC issued an amended audit opinion that stated:
+
+     As described in Note 1, pursuant to the adoption of SOP 98-5 the Company changed its accounting for deferred start-up costs effective the beginning of fiscal 1998.   Also as described in Note 1, the Company restated its fiscal 1997 and 1996 consolidated financial statements with respect to accounting for inventory production and inefficiency costs.    (Emphasis added.)
+
+    D.  Violations   
+
+    Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require that annual reports filed by issuers must accurately reflect the financial condition and operating results of the issuer in all material respects.  Rule 12b-20 further requires that, in addition to the information expressly required to be included in such a report, the issuer must include such additional material information as may be necessary to make the required statements, in light of the circumstances under which they were made, not misleading.   See ,  e . g .,  SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979).  Information is material where there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision.   Basic, Inc. v. Levinson , 485 U.S. 224, 231-32 (1988).  The issuer's legal obligation "extends not only to accurate quantitative reporting of the required items in its financial statements, but also to other information, qualitative as well as quantitative, needed to enable investors to make informed decisions."   In re Sony Corp. and Sumio Sano , 67 SEC Docket 1609, 1998 WL 439898, at *4 (Aug. 5, 1998).
+
+    Warnaco issued a materially misleading fiscal 1998 Form 10-K annual report on April 2, 1999 that mischaracterized the reason for the company's restatement of its 1996 to 1998 financial results.  The annual report inaccurately stated that the restatement involved the write-off of previously-deferred start-up or "start-up related" costs that related to the growth of the company's business and that were discovered in connection with Warnaco's adoption of SOP 98-5.  It also failed to disclose the true reason for the restatement:  that cost accounting and internal control systems at Warnaco's Intimate Apparel Division were materially deficient and caused a $145 million inventory overstatement.  By this conduct, Warnaco violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.
+
+    By issuing an audit report containing an unqualified audit opinion that incorporated the company's misleading disclosures and yet stated that the company's financial statements "presented fairly, in all material respects" Warnaco's financial condition and results of operations, PwC willfully aided and abetted Warnaco's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.  9     E.  Findings  
+
+    Based on the foregoing, the Commission finds that PwC willfully aided and abetted Warnaco's violation of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+
+   IV. 
+
+    In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent PwC's Offer.
+
+    Accordingly, it is hereby ORDERED, effective immediately, that PwC is censured pursuant to Rule 102(e)(iii) of the Commission's Rules of Practice.
+
+    By the Commission.
+
+	                 Jonathan G. Katz
+               Secretary
+  
+
+ _______________________________
+      1      Rule 102(e)(1)(iii) provides, in relevant 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 ...[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       Simultaneously with this proceeding, the Commission has instituted or filed the following settled actions:   In the Matter of The Warnaco Group, Inc. , Rel. No. 34-49675 (May 11, 2004);  SEC v. William S. Finkelstein , 04 CV 3574 (May 11, 2004 S.D.N.Y.) (SS);  In the Matter of Linda J. Wachner , Rel. No. 34-49677 (May 11, 2004); and  In the Matter of Stanley P. Silverstein , Rel. No. 34-49676 (May 11, 2004). 
+
+      3       In a separate civil action filed simultaneously with this proceeding, PwC consented to the entry of a judgment by the U.S. District Court for the Southern District of New York pursuant to Section 21(d) of the Securities Exchange Act of 1934 ordering PwC to pay a $2.4 million civil penalty.   SEC v. PricewaterhouseCoopers LLP , 04 CV 3573 (May 11, 2004 S.D.N.Y.) (HB).
+
+      4       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. 
+
+      5       American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 98-5, which was issued on April 3, 1998, required companies to expense start-up costs in the period in which they were incurred, rather than capitalizing them as had been previously permitted.  Companies were required to write-off any previously deferred start-up costs on their books at the time of adoption.  SOP 98-5 became effective in fiscal 1999, although companies were permitted to adopt the SOP early.   Warnaco adopted SOP 98-5 at the end of its fiscal 1998 year.
+
+      6       Variances are the difference between standard and actual costs (e.g., the difference between what a company expects labor or raw materials to cost and the actual cost of such items).  Under GAAP, companies must report the actual costs of inventory and cost of goods sold on their financial statements, even if they use a standard cost system internally.  In order to determine actual costs, each quarter, Warnaco was required to determine what portion of the variances related to goods that had been sold and what portion related to goods still in inventory.  The variances were then allocated accordingly between inventory and cost of goods sold.  By the end of 1997, IAD's standard costs were so far below actual costs that its variances added to inventory ("capitalized") exceeded $42 million, more than 40 percent of the total value of the inventory on the division's books.  
+
+      7       "Start-up costs" are those costs associated with one-time activities related to opening a new facility or introducing a new product or service.  Historically, GAAP allowed companies to capitalize their start-up costs, and amortize those costs over a period of years.  However, SOP 98-5 required companies to record start-up costs at the time they were incurred.  All public companies were required to adopt SOP 98-5 and write off their start-up costs by no later than fiscal 1999.
+
+      8       As inventory is sold, the costs associated with manufacturing that inventory are deducted (or "relieved") from the inventory accounts on the balance sheet and recorded in the cost of goods sold account on the income statement.  This process decreases the inventory balance and increases the cost of goods sold.
+
+      9       "Willfully" as used in this Order means knowingly committing the act which constitutes the violation,  see Wonsover v. SEC , 205 F.3d 408, 414 (D.C. Cir. 2000);  Tager v. SEC , 344 F.2d 5, 8 (2d Cir. 1965).
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diff --git a/raw/aaer/2004/AAER-2047.txt b/raw/aaer/2004/AAER-2047.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7afe2560c819980fbbb4690b8beebad8e833dc54
--- /dev/null
+++ b/raw/aaer/2004/AAER-2047.txt
@@ -0,0 +1,1525 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | James H. Peach, Chartered Accountant 
+     
+     
+     
+     
+     
+     
+     
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+           
+       
+              James H. Peach, Chartered Accountant
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        James H. Peach, Chartered Accountant
+       
+
+             
+   
+
+
+        
+                   
+             
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+  
+    
+      
+
+   
+
+             
+                        
+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 49934 / June 29, 2004 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2047 / June 29, 2004 
+
+ ADMINISTRATIVE PROCEEDING 
+File No. 3-11516 
+ 
+
+  
+	 
+		 
+			  
+			 
+			 In the Matter of 
+
+			 JAMES H. PEACH, CHARTERED ACCOUNTANT, 
+
+			 Respondent. 
+
+			   
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			 ORDER MAKING FINDINGS AND IMPOSING SANCTIONS PURSUANT TO RULE 102(e)(1) OF THE COMMISSION'S RULES OF PRACTICE 
+		 
+	 
+ 
+
+ I. 
+
+ On June 9, 2004, the Securities and Exchange Commission ("Commission") instituted public administrative proceedings pursuant to Rule 102(e)(1) of the Commission's Rules of Practice [17 C.F.R. § 201.102(e)(1)] against James H. Peach, a Canadian chartered accountant ("Peach" or "Respondent"), to determine whether Peach engaged in improper professional conduct and to determine whether any order should be issued as to Peach pursuant to Rule 102(e)(1) of the Commission's Rules of Practice.  1   
+
+ II. 
+
+ Peach 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 as to the Commission's jurisdiction over him and over the subject matter of these proceedings, which are admitted, Peach consents to the entry of this Order Making Findings and Imposing Sanctions Pursuant to Rule 102(e)(1) of the Commission's Rules of Practice ("Order"), as set forth below. 
+
+ III. 
+
+ On the basis of this Order and the Offer, the Commission makes the following findings  2   : 
+
+ A. Peach, age 48, is a resident of Coquitlam, British Columbia, Canada, and is licensed to practice as a Chartered Accountant in British Columbia. 
+
+ B. LASV Enterprises, Inc. ("LASV") is a Delaware corporation located in British Columbia. Between 1993 and April 2004, its common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934. LASV filed periodic reports with the Commission from 1994 through 2001. 
+
+ C. Peach audited and reported on LASV's financial statements for the year ended September 30, 2000, which were included in LASV's Form 10-KSB and Amended Form 10-KSB filed with the Commission on January 12, 2001, and April 4, 2001, respectively. These financial statements materially overstated LASV's assets and liabilities, specifically: 
+
+ 1. LASV recorded a Dominican Republic real estate property as its sole asset on its balance sheet with a value of $2.825 million. LASV, in fact, did not own the property as of September 30, 2000, the date of the audited financial statements. LASV had merely indirectly paid $875,000 to enter into a purchase agreement for the property that required LASV to pay the $1.95 million purchase price balance by October 19, 2000. LASV never paid the purchase price balance and never acquired the property; and 
+
+ 2. LASV also recorded a "note payable" as a liability on its September 30, 2000, balance sheet with a value of $1.95 million. The financial statements notes described the note as "non-interest bearing" with "no specific terms of repayment." In fact, LASV had no such note payable, and the $1.95 million referenced in the balance sheet was merely the purchase price balance for the Dominican property. 
+
+ D. With respect to the audit referenced in paragraph III.C. above, Peach issued an audit report which represented that LASV's financial statements presented fairly, in all material respects, the financial position of the company in conformity with generally accepted accounting principles ("GAAP"), when, in fact, those financial statements were materially false. Peach also represented in his audit report that his audit of LASV's financial statements was conducted in accordance with generally accepted auditing standards ("GAAS"), when it was not. 
+
+ E. Over the course of his audit engagement with LASV, Peach failed to determine that LASV recorded assets and liabilities in a manner that did not comply with GAAP. GAAP requires that a purchase agreement's value be recorded at cost, that is, the amount paid to acquire the purchase agreement, unless the acquisition is or becomes less than probable, at which time the cost is to be expensed.  3   LASV failed to comply with GAAP because it recorded the Dominican property at its full value as if LASV already owned the property, instead of recording it at an amount equal to the cost to acquire the purchase agreement, or, if the acquisition was less than probable, zero as required by GAAP. 
+
+ F. In the course of auditing LASV's financial statements, Peach failed to comply with GAAS, as follows: 
+
+ 1. Peach failed to prepare audit programs or to conduct audit risk assessments sufficient to determine the nature, timing, and extent of substantive tests needed for the audit; 
+
+ 2. Peach failed to obtain sufficient competent evidential matter upon which to base an opinion. Specifically, Peach failed to obtain, or plan to obtain, any evidence from third parties about LASV's purported ownership of the Dominican property or its purported note payable; and 
+
+ 3. Peach issued an audit report containing an unqualified opinion which stated that LASV's financial statements fairly presented the company's financial condition in conformity with GAAP when, in fact, they did not. 
+
+ G. As a result of the conduct described above, Respondent Peach engaged in improper professional conduct within the meaning of Rule 102(e)(1) of the Commission's Rules of Practice. 
+
+ V. 
+
+ In view of the foregoing, the Commission deems it is appropriate to impose the sanction agreed to in Peach's Offer. 
+
+ Accordingly, it is hereby ORDERED, effective immediately, that Peach is denied the privilege of appearing or practicing before the Commission as an accountant. 
+
+ For the Commission, by its Secretary, pursuant to delegated authority. 
+ 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+  
+
+ 
+  
+
+   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 be lacking in character or integrity or to have engaged in unethical or improper professional conduct…; (iv) With respect to persons licensed to practice as accountants, "improper professional conduct: under §201.102(e)(1)(ii) means: (A) Intentional or knowing conduct, including reckless conduct, that results in a violation of applicable professional standard; or (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. 
+
+   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   FASB Statement of Financial Accounting Standards No. 67 Paragraph 4 states: 
+
+ Payments to obtain an option to acquire real property shall be capitalized as incurred. All other costs related to a property that are incurred before the enterprise acquires the property, or before the enterprise obtains an option to acquire it, shall be capitalized if all of the following conditions are met and otherwise shall be charged to expense as incurred: (a) The costs are directly identifiable with the specific property. (b) The costs would be capitalized if the property were already acquired. (c) Acquisition of the property or of an option to acquire the property is probable. This condition requires that the prospective purchaser is actively seeking to acquire the property and has the ability to finance or obtain financing for the acquisition and that there is no indication that the property is not available for sale. 
+
+ FASB Statement of Financial Accounting Standards No. 5 defines "probable" as "likely to occur." 
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diff --git a/raw/aaer/2004/AAER-2051.txt b/raw/aaer/2004/AAER-2051.txt
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--- /dev/null
+++ b/raw/aaer/2004/AAER-2051.txt
@@ -0,0 +1,1390 @@
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+ The Securities and Exchange Commission ("Commission") today initiated civil charges against Kenneth L. Lay, former Chairman and Chief Executive Officer of Enron Corp., for violating, and aiding and abetting violations of, the antifraud, periodic reporting, books and records, and internal controls provisions of the federal securities laws. [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 Exchange Act Rule 10b-5, and for aiding and abetting the violation of Sections 13(a), and 13(b)(2)(A) and (B) of the Exchange Act, and Exchange Act Rules 12b-20 and 13a-11].  In this action, the Commission is seeking disgorgement of all ill-gotten gains, civil money penalties, a permanent bar from acting as a director or officer of a publicly held company, and an injunction against future violations of the federal securities laws.  
+
+ The Commission today, subject to the approval of the Honorable Melinda Harman, U.S. District Court Judge, filed a Second Amended Complaint seeking to add Lay to its pending action against Jeffrey K. Skilling, Enron's former President, CEO and Chief Operating Officer, and Richard A. Causey, Enron's former Chief Accounting Officer.  The proposed Second Amended Complaint alleges that Lay and others engaged in a wide-ranging scheme to defraud by falsifying Enron's publicly reported financial results and making false and misleading public representations about Enron's business performance and financial condition.  In addition, the proposed Second Amended Complaint alleges that Lay profited from the scheme to defraud by selling large amounts of Enron stock at prices that did not reflect its true value.  The sales also occurred while Lay was in possession of material non-public information concerning Enron and generated unlawful proceeds in excess of $90 million during 2001.  Specifically, Lay sold over $70 million in Enron stock back to the company to repay cash advances on an unsecured Enron line of credit.  In addition, while in possession of material non-public information, Lay amended two program trading plans to enable him to sell an additional $20 million in Enron stock in the open market.  Lay's proceeds from the sales constitute illegal gains resulting from his scheme to defraud. 
+
+ Specifically, the Commission's Proposed Second Amended Complaint alleges as follows: 
+
+   Lay's Early Participation in the Scheme to Defraud.  Lay, along with others at Enron, engaged in a wide-ranging scheme to defraud in violation of the federal securities laws.  During 2001, with specific knowledge of rapidly deteriorating performances of Enron's business units, Lay made numerous false and misleading public statements about Enron's financial condition.  As Enron's Chairman and CEO, Lay had oversight of Enron's business units and supervised the senior executives and managers of these units, reviewed drafts of public filings and draft press releases, and participated in conference calls with investment analysts. 
+
+ In presentations to the investing public, Lay and others heavily emphasized the performance and potential of Enron Broadband Services (EBS) and Enron Energy Services (EES).  To support what Enron had already said about EES, Lay and others concealed massive losses in EES' business through fraudulently manipulating Enron's "business segment reporting."  They accomplished this at the close of the first quarter of 2001 through a reorganization designed to conceal the magnitude of EES' business failure, which was known to Lay as early as January 2001.  With Lay's approval, Enron hid that failure from the investing public by moving large portions of EES' business - which Lay and others knew at the time would have to otherwise report hundreds of millions of dollars in losses - into Enron Wholesale, which was the Enron business segment housing most of the company's wholesale energy trading operations and income.  As Lay and others knew, Enron Wholesale had ample earnings to absorb the EES losses, while at the same time continuing to meet its own internal budget targets.  Lay made the false and misleading statements to persuade investors that Enron's profitability would continue to grow, to maintain credit ratings, to influence investment analysts, and to prop up the share price of Enron stock. 
+
+ Lay knew of Enron's use of structured transactions - specifically prepays and the infamous Raptors - to misstate its financial results.  Enron entered into circular transactions that were characterized as prepay forward contracts in order to disguise borrowings as cash from operations.  Lay was aware of the importance and magnitude of prepay transactions to create operating cash flow and thereby maintain Enron's investment grade credit rating.  Lay was aware that the credit rating agencies were not told the magnitude of Enron's prepay obligations and that this information was not disclosed in Enron's public filings. In addition, Enron created the Raptor structures to "hedge" volatile assets against any potential decline in value.  The manner in which Enron structured and funded the Raptors meant that any hedging losses in the Raptors would ultimately be borne by Enron.   Lay understood that Enron used the Raptors for earnings management and that decreases in the price of Enron stock threatened the viability of the Raptors.    
+
+  Lay Knowledge of Additional Problems Following Skilling's Resignation.  On July 13, 2001, Skilling unexpectedly told Lay he was resigning because he felt there was nothing he could do to stop the decline in Enron's stock price.  On August 14, Enron issued a press release, with Lay's approval, that announced Skilling had resigned for personal reasons.  In a conference call with investment analysts later that same day, Lay repeatedly asserted that, "there are absolutely no problems that had anything to do with Jeff's departure . . . there are no accounting issues, no trading issues, no reserve issues . . . unknown, previously unknown problems, issues . . . I can honestly say that the company is probably in the strongest and best shape . . . that it's probably ever been in."  Regarding EES, Lay offered that "we've been doubling revenue and doubling income quarter on quarter, year on year for now about the last three years.  We expect that to continue to grow very, very strong. . . ." 
+
+ After Skilling resigned, Lay met repeatedly with Enron's senior management, who described for him Enron's deteriorating financial condition.  Lay was advised internally of accounting improprieties regarding the Raptors and that various assets and investments were overvalued on Enron's books and records by approximately $7 billion.  During this period, Lay repeatedly received internal financial reports consistent with these problems.  In August and September, senior executives informed Lay that Enron was facing an increasing earnings shortfall, hundreds of millions of dollars in losses, a proposed non-recurring charge relating to certain investments, and an accounting error in excess of $1 billion.  Enron's problems were so severe that a senior executive informed Lay that Enron needed to consider being acquired or selling its prized pipelines.    
+
+  Lay Continued to Mislead the Public - August and September 2001.  Despite specific knowledge of Enron's deteriorating financial condition, Lay continued to make false and misleading public statements about Enron's financial performance.  In meetings with research analysts and in public statements, Lay falsely and misleadingly stated there were "no accounting issues," "no reserve issues," and "no other shoes to fall" at Enron.  Lay made a series of false and misleading statements during an Enron employee online forum, including that: "[t]he third quarter is looking great.  We will hit our numbers.  We are continuing to have strong growth in our businesses," "we have record operating and financial results," and "the balance sheet is strong."  In addition, Lay misled Enron employees regarding his purchases of Enron stock when he informed them that he had purchased additional shares over the last couple of months.  In making this statement, Lay concealed that he had made net sales of over $20 million in Enron stock in the preceding two months.    
+
+  The October 16, 2001 Third Quarter Earnings Release.  In a meeting with other senior executives one month prior to Enron's third quarter earnings release, Lay learned that Enron had incorrectly accounted for the Raptor transactions, and as a result, Enron shareholders' equity would be reduced by $1.2 billion.  Lay also knew that the Raptors were being terminated and combined with other pending write-downs that would result in an earnings charge of $1.01 billion.  Specifically, Lay knew that these two items - the $1.01 billion earnings charge and the $1.2 billion reduction of shareholder equity - were unrelated, and that the reduction to shareholders' equity was required whether or not the Raptors were terminated.  Lay reviewed and approved Enron's earnings release that reported a "nonrecurring" earnings charge of $1.01 billion, a majority of the charge ($544 million) relating to the early termination of the Raptors.  Lay knew that the characterization of the termination of the Raptors as "nonrecurring" losses was erroneous and inconsistent both with advice Enron had received from its auditor and Enron's past treatment of Raptor earnings as recurring operating earnings.  Lay and others intentionally omitted any reference to the $1.2 billion equity reduction from the press release.  In a conference call with analysts to discuss the earnings release, Lay falsely stated that "in connection with the early termination" of the Raptors, Enron's shareholders' equity would be reduced by $1.2 billion.  Lay did not disclose, as he knew, that the reduction was principally due to a significant accounting error, as opposed to the termination of the Raptors.  
+
+  Lay's Last Ditch Efforts -- October and November 2001.  In an effort to calm deepening public concern regarding the decline in Enron's stock price, Lay participated in conference calls with analysts and others.  In these calls, Lay made false and misleading statements regarding Enron's financial health.  For example, Lay stated, "[Enron is] not trying to conceal anything.  We're not hiding anything," and "[w]e're really trying to make sure that the analysts and the shareholders and the debt holders really know what's going on here.  So, we are not trying to hold anything back."  In a telephone call with a prominent credit rating agency, Lay falsely stated that Enron and its auditors had "scrubbed" the company's books and that no additional write-downs would be forthcoming.  In fact, Lay knew that Enron was carrying its international assets at billions in excess of their fair value and that Enron had failed to disclose a $700 million goodwill impairment.  In an all-employee meeting to reassure Enron's employees, Lay falsely described Enron's liquidity, stating that "[o]ur liquidity is fine.  As a matter of fact, it's better than fine, it's strong. . ."  At the time he made the statement, Lay knew that Enron had been forced to offer its prized pipelines as collateral for a $1 billion bank loan and that the only source of liquidity was a $3 billion line of credit, which was fully utilized on Lay's authority.  In addition, Lay made misleading statements about Enron stock and its prospects.  Lay misleadingly stated, "as sad as the current market price is . . . [b]ut we're going to get it back" and "that doesn't mean we can't get back up to the $80s or $90s in the not-too-distant future."  At the time he made the statement, with Enron stock trading at less than $20 per share, Lay did not disclose that he had quietly sold over $65 million of Enron stock back to the company during 2001.    
+
+  Lay's Sales of Enron Stock Back to Enron.  From January 25, 2001 to November 27, 2001, Lay took advances on a non-collateralized $4 million line of credit with Enron in the total amount of $77,525,000.  Thereafter, in twenty separate transactions, Lay repaid the credit line by selling $70,104,762 worth of Enron stock back to the company, at prices he knew did not accurately reflect Enron's true financial condition.  For example, after learning of Enron's undisclosed plan to hide over $500 million in EES losses in ENA, Lay sold 1,086,571 shares of Enron common stock back to the company, in 11 transactions, for a total of $34,081,558.  Following Skilling's resignation on August 14, 2001, at a point when Lay was learning more about Enron's deteriorating financial condition, Lay sold 918,104 shares of Enron common stock back to the company, in five transactions, totaling $26,066,474.  As Lay tried to prop up Enron's stock price following Enron's third quarter earnings release on October 16, 2001, Lay sold 362,051 shares of Enron stock back to the company, in four transactions, totaling $6,050,232.  Enron's shareholders and employees, much less the public, did not learn of Lay's sales of Enron stock back to the company until February 2002, over two months after Enron filed for bankruptcy protection. 
+
+ Lay also made withdrawals from his line of credit totaling $7.5 million between October 24 and November 27, 2001, at a point when Enron's financial condition was crumbling.  
+
+  Lay's Sales of Enron Stock Pursuant to Amended 10b5-1 Plans.  On November 1, 2000, Lay established two program sales plans under Commission Rule 10b5-1.  Subsequently, Lay amended both plans.  At the time Lay amended both plans, he was in possession of material nonpublic information concerning Enron's deteriorating financial condition, meaning Lay cannot use the plans as a defense to insider trading charges.  Under the amended plans, Lay unlawfully sold over 350,000 Enron shares for total proceeds in excess of $20 million.  
+  The Commission acknowledges the assistance of the Enron Task Force.   
+
+ The Commission's investigation is continuing. 
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+  SEC Complaint in this matter 
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diff --git a/raw/aaer/2004/AAER-2061.txt b/raw/aaer/2004/AAER-2061.txt
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+                   U.S. Securities and Exchange Commission 
+
+ LITIGATION RELEASE NO.  18800 / July 27, 2004 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 2061 / July 27, 2004 
+
+  Securities and Exchange Commission v. Michael Felicissimo , Civil Action No. 04-RB-1541 (OES) (D. Co.) 
+
+ The Commission today filed civil fraud charges against the former chief financial officer of Qwest Communications International Inc.'s ("Qwest") wholly owned subsidiary, Qwest Wireless LLC ("Wireless"), alleging that he fraudulently concealed $112 million of improperly recognized revenue at Wireless.  The Commission's complaint alleges that, on several occasions between April 2001 and July 2002, Wireless's accounting group identified errors in its accounting for revenue from the sale of mobile phone products and services.  For example, between at least January 2000 and September 2001, Wireless improperly recorded revenue from mobile phone accessories that were given to customers for free as an inducement to buy other products and services.  These revenue recognition errors caused Wireless, and hence Qwest, to overstate revenue by about $57 million in 2000, $46 million in 2001, and $9 million during the first two quarters of 2002. 
+
+ The Commission's complaint further alleges that over the course of several months between September 2001 and July 2002, the Wireless accounting group estimated the amount by which Qwest had overstated revenue based on the errors and, on numerous occasions, informed Felicissimo of its conclusions.  Rather than telling the president of Wireless or other higher-level Qwest executives about the overstatements, Felicissimo concealed, and directed others to conceal, those overstatements.  For example, after viewing a document in about July 2002 showing that the accounting group estimated that Qwest had overstated revenue by about $20 million in 2000, $33 million in 2001, and $9 million through the first two quarters of 2002 based on all of the errors, Felicissimo told a Wireless accountant to "bury" the document.  
+
+ The Commission's complaint seeks an order against Felicissimo enjoining him from further 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 Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Exchange Act Sections 10(b), 13(a), and 13(b)(2) and Rules 10b-5, 13a-1, 13a-11, and 13a-13; imposing civil money penalties; ordering disgorgement of all ill-gotten gains, including compensation, bonuses, and stock trading profits made during the relevant period; and barring him from acting as a director or officer of a publicly held company. 
+
+ The Commission's investigation into the conduct of others is continuing. 
+
+ 
+  SEC Complaint in this matter 
+ 
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diff --git a/raw/aaer/2004/AAER-2068.txt b/raw/aaer/2004/AAER-2068.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ff763aac4e18f5a02847b5621bcc3b6fa7f6142e
--- /dev/null
+++ b/raw/aaer/2004/AAER-2068.txt
@@ -0,0 +1,1371 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 18815 / July 30, 2004 
+
+ Accounting and Auditing Enforcement 
+Release No. 2068 / July 30, 2004 
+
+  Securities and Exchange Commission v. Kenneth D. Rice, et al.,  Civil Action No. H-03-0905 (Harmon) (S.D. Tx.) (May 1, 2003) (Amended Complaint) 
+
+ SEC SETTLES CIVIL FRAUD CHARGES FILED AGAINST KENNETH D. RICE, FORMER CHIEF EXECUTIVE OFFICER OF ENRON BROADBAND SERVICES 
+
+ Rice To Pay $14.7 Million; Agrees To Cooperate In Ongoing Investigation 
+
+ The Securities and Exchange Commission ("Commission") today settled civil fraud charges filed against Kenneth D. Rice, former Chief Executive Officer of Enron Broadband Services ("EBS").  The complaint, filed on May 1, 2003 in the U.S. District Court in Houston, charged Rice and other executives from EBS with fraud and insider trading.  Without admitting or denying the allegations in the Commission's complaint, Rice has agreed to be enjoined permanently from violating Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5, and to be barred permanently from acting as an officer or director of a public company.  The Commission settled its action in coordination with the Justice Department's Enron Task Force, which entered into a guilty plea with Rice on related criminal charges.  In resolving the parallel civil and criminal proceedings, Rice has agreed to pay disgorgement and a civil penalty totaling more than $14.7 million and to cooperate with the government's continuing investigation. 
+ As alleged in the Commission's complaint, Rice and other EBS executives engaged in a wide-ranging fraudulent scheme to, among other things, inflate the value of Enron stock through a series of false and misleading statements and the omission of material information in such public statements about the technology, financial condition, performance and value of EBS.  The false and misleading statements by Rice and others were made in press releases over a two-year period as well as in presentations and statements made at Enron's annual analyst conferences in January 2000 and 2001.  As a result of the false statements, Enron's stock price was artificially inflated.  Rice then sold large amounts of Enron stock at the inflated levels, at a time when he knew that the statements were false and misleading and when he was in possession of material non-public information concerning the true status of EBS' technology and commercial success.      
+ The Commission acknowledges the assistance of the Enron Task Force.  The Commission's investigation is continuing.  For additional information see 
+  SEC v. Kevin A. Howard, Michael W. Krautz, Kenneth D. Rice, Joseph Hirko, Kevin P. Hannon, Rex T. Shelby, and F. Scott Yeager, - Litigation Release 18122 (May 1, 2003)  
+
+
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+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2004/AAER-2076.txt b/raw/aaer/2004/AAER-2076.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bc63aad4b5e0105ad8fa9557ab0f550736495af6
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+++ b/raw/aaer/2004/AAER-2076.txt
@@ -0,0 +1,1946 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
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+ 
+ 
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+     SEC.gov | Grant Thornton LLP, Doeren Mayhew & Co. P.C., Peter M. Behrens, CPA, Marvin J. Morris, CPA, and Benedict P. Rybicki, CPA 
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+              Grant Thornton LLP, Doeren Mayhew & Co. P.C., Peter M. Behrens, CPA, Marvin J. Morris, CPA, and Benedict P. Rybicki, CPA
+           
+     
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+
+   
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+        Grant Thornton LLP, Doeren Mayhew & Co. P.C., Peter M. Behrens, CPA, Marvin J. Morris, CPA, and Benedict P. Rybicki, CPA
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+              SECURITIES EXCHANGE ACT OF 1934 
+Release No. 50148 / August 5, 2004 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2076 / August 5, 2004 
+
+ ADMINISTRATIVE PROCEEDING File No. 3-11377 
+ 
+
+  
+	 
+		 
+			  
+			 
+			 In the Matter of 
+
+			 GRANT THORNTON LLP, 
+			DOEREN MAYHEW & CO. P.C., 
+			PETER M. BEHRENS, CPA 
+			MARVIN J. MORRIS, CPA and 
+			BENEDICT P. RYBICKI, CPA, 
+
+			 Respondent. 
+
+			   
+			 : 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			: 
+			 
+			 ORDER MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE 
+		 
+	 
+ 
+
+ I. 
+
+ On January 20, 2004, the Securities and Exchange Commission ("Commission") instituted public cease-and-desist and administrative proceedings, pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice, against Grant Thornton LLP ("Grant Thornton"), Doeren Mayhew & Co. P.C. ("Doeren Mayhew"), Marvin J. Morris, CPA ("Morris"), Peter M. Behrens, CPA ("Behrens") and Benedict P. Rybicki, CPA ("Rybicki") (collectively the "Respondents").  1   
+
+ II. 
+
+ The Respondents have each 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 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 Making Findings and Imposing Remedial Sanctions Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, as set forth below. 
+
+ III. 
+
+ On the basis of this Order and the Respondents' Offers, the Commission finds that: 
+
+ A. NATURE OF THE PROCEEDING 
+
+ 1. This matter concerns the causing and aiding and abetting of financial reporting violations in the offer, sale and purchase of securities by Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki while performing auditing services for MCA Financial Corporation ("MCA"), a Southfield, Michigan-based mortgage banking company which filed for bankruptcy in 1999. 
+
+ 2. This matter also concerns violations of or aiding and abetting violations of Section 10A of the Exchange Act by Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki in connection with the audit ("the 1998 MCA audit") of MCA's financial statements for its fiscal year ended January 31, 1998 ("MCA's 1998 annual financial statements"). 
+
+ 3. This matter also concerns improper professional conduct within the meaning of Rule 102(e) of the Commission's Rules of Practice by Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki in connection with the audit of MCA's 1998 annual financial statements. 
+
+ 4. The conduct by Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki is connected to a financial reporting and offering fraud at MCA that lasted from at least 1994 through 1999. During this period, MCA used false and misleading financial statements to entice investors to purchase MCA's corporate debentures. 
+
+ 5. As part of MCA's fraud, the 1998 annual financial statements included in its 1998 annual report on Form 10-K filed with the Commission were materially false and misleading and failed to comply with generally accepted accounting principles ("GAAP"). In the financial statements, MCA failed to divulge millions of dollars of material, related party transactions. MCA also inflated its income, assets and equity by, among other things, failing to write down overvalued related party mortgages and land contracts held for resale and failing to write off uncollectible receivables from related parties. 
+
+ 6. Grant Thornton and Doeren Mayhew jointly issued an audit report containing an unqualified opinion on MCA's 1998 annual financial statements and consented in writing to the inclusion of their report in a Post-Effective Amendment to a Form S-1 Registration Statement ("Post-Effective Amendment") for a debenture offering by MCA. 
+
+ 7. MCA violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by utilizing the 1998 annual financial statements included in its 1998 annual report and the Post-Effective Amendment, which financial statements were materially false and misleading and failed to comply with GAAP, in the offer and sale and in connection with the purchase and sale of debentures. 
+
+ 8. MCA violated Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-1 thereunder by filing with the Commission its 1998 annual report containing its materially false and misleading 1998 annual financial statements that failed to comply with GAAP. 
+
+ 9. MCA sold approximately $2.2 million of debentures after filing with the Commission its 1998 annual report containing its materially false and misleading 1998 annual financial statements that failed to comply with GAAP. MCA sold approximately $1.9 million of debentures after filing with the Commission the Post-Effective Amendment which contained its materially false and misleading 1998 annual financial statements that failed to comply with GAAP. 
+
+ 10. Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki caused and willfully aided and abetted certain of MCA's violations of the federal securities laws because they knew that MCA failed to disclose several million dollars of material, related party transactions in its 1998 annual financial statements but nevertheless issued or authorized and/or agreed with the issuance of a report containing an unqualified opinion on those financial statements and/or consented or authorized the consent to the inclusion of that report in the Post-Effective Amendment.  2   
+
+ 11. Grant Thornton and Doeren Mayhew willfully violated and Behrens, Morris and Rybicki willfully aided and abetted violations of Section 10A of the Exchange Act. While conducting the 1998 MCA audit, they had access to information indicating that illegal acts had or may have occurred as a result of MCA's failure to disclose material, related party transactions in its 1998 annual financial statements and its fiscal year 1998 quarterly reports. However, they failed to inform MCA's Board of Directors about the illegal acts that were detected or otherwise came to their attention. 
+
+ 12. Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki engaged in improper professional conduct under Rule 102(e)(1)(ii) of the Commission's Rules of Practice by recklessly failing to comply with generally accepted auditing standards ("GAAS") in auditing MCA's 1998 annual financial statements. They issued or authorized and/or agreed with the issuance of a report containing an unqualified opinion on MCA's 1998 annual financial statements despite knowing that MCA had failed to disclose material, related party transactions. They did not adequately plan tests regarding the valuation of MCA's mortgages and land contracts held for resale. They did not obtain sufficient competent evidential matter to support MCA's valuation of its mortgages and land contracts held for resale and related party receivables. They did not maintain an attitude of professional skepticism after becoming aware of red flags while auditing MCA's mortgages and land contracts held for resale and related party receivables. 
+
+ B. RESPONDENTS 
+
+ 13.  Grant Thornton LLP , a national accounting firm, was one of two firms that jointly provided audit services to MCA and jointly signed reports containing unqualified opinions on MCA's annual financial statements from 1993 through 1998. 
+
+ 14.  Doeren Mayhew & Co. P.C. , a Michigan accounting firm, was the other firm that jointly provided audit services to MCA and jointly signed reports containing unqualified opinions on MCA's annual financial statements from 1993 through 1998. 
+
+ 15.  Peter M. Behrens , age 47, is a certified public accountant who has been licensed to practice by the State of Michigan since 1993. Behrens has spent his entire professional accounting career at Grant Thornton, starting as a staff accountant in 1979 and eventually becoming a partner in 1993. Behrens served as an engagement partner for Grant Thornton's joint audits of MCA. 
+
+ 16.  Marvin Jackson Morris , age 60, is a certified public accountant who has been licensed to practice by the State of Michigan since 1969. Morris began his professional accounting career in 1967 at Arthur Andersen and subsequently worked at several other accounting firms including Alam, Morris & Co., Pannell Kerr & Forester and BDO Seidman. He has been employed by Doeren Mayhew since July 1991 and has been a director since October 1993. Morris served as an engagement partner for Doeren Mayhew's joint audits of MCA. 
+
+ 17.  Benedict P. Rybicki , age 40, is a certified public accountant who has been licensed to practice by the State of Michigan since 1989. Rybicki began his professional accounting career in 1987 at Pannell Kerr & Forester, which subsequently merged into BDO Seidman during Rybicki's tenure. He has been employed by Doeren Mayhew since November 1991, starting as a staff accountant and eventually becoming a director in October 1999. Rybicki served as the sole engagement manager for Doeren Mayhew's joint audits of MCA. 
+
+ C. OTHER RELEVANT PERSONS AND ENTITIES 
+
+ 18.  MCA Financial Corporation  was incorporated in 1989 under the laws of the State of Michigan as a holding company for four wholly-owned subsidiaries and was headquartered in Southfield, Michigan with 45 branch offices in seven states. MCA primarily was involved in the residential mortgage-banking business. MCA was a privately held corporation whose common stock was not registered with the Commission. MCA filed annual and quarterly reports with the Commission under Section 15(d) of the Exchange Act because it sold preferred stock and corporate debentures pursuant to registration statements filed with the Commission. MCA ceased operations on January 22, 1999 and filed a voluntary Chapter 11 bankruptcy petition on February 10, 1999. The bankruptcy judge approved a bankruptcy plan for MCA in August 2000 which provided for liquidation and distribution of MCA's assets to creditors and investors. 
+
+ 19.  Property Corporation of America  ("PCA") was incorporated in 1986 under the laws of the State of Michigan and was headquartered in Detroit, Michigan. MCA's Chief Executive Officer ("CEO") and Chief Operating Officer ("COO") each owned 50% of PCA's common stock, and MCA owned all of PCA's non-voting preferred stock. PCA's stock was not publicly traded. PCA was the general partner/managing member of several limited partnerships/limited liability companies (the "Related Limited Partnerships"), most of which had no limited partners/investors or MCA's Chief Operating Officer as their sole limited partner/investor. The Related Limited Partnerships purchased real estate on a regular basis from MCA. Like MCA, PCA ceased operations on January 22, 1999 and filed a voluntary Chapter 11 bankruptcy petition on February 10, 1999. 
+
+ D. BACKGROUND FOR THE 1998 MCA AUDIT 
+
+ 20. MCA hired Morris and Doeren Mayhew, the firm at which he was a director, to be its auditors in or about 1992. 
+
+ 21. Morris, Tom Wells (an MCA Director) and Lee Wells (President, COO and a director of MCA and Tom Wells' son) had known each other for at least 15 years as of 1992. 
+
+ 22. Morris met Tom Wells in the early 1970s when Morris was hired to head the audit practice at Tom Wells' accounting firm, Bernard, Wells, Loving & Co. ("Bernard, Wells"). While they were employed at Bernard, Wells, Morris and Tom Wells and their spouses socialized together. Morris first met Lee Wells while employed at Bernard, Wells when Lee Wells was a child. 
+
+ 23. Morris continued providing accounting and auditing services for companies owned and/or run by Tom Wells after Morris left Bernard, Wells in or about 1978. Tom Wells hired Morris in the mid-1980's to provide accounting and auditing services for several cable and child-care companies which Wells owned and/or ran. 
+
+ 24. From its inception through approximately 1992, MCA utilized the Detroit office of BDO Seidman, where Morris was employed as a partner, for auditing services. In the early 1990's, however, BDO Seidman fired Morris, and Morris joined Doeren Mayhew. Shortly thereafter, Morris made a proposal to MCA executives, which MCA accepted, for Doeren Mayhew and Morris to provide auditing and other services to MCA. 
+
+ 25. Soon after MCA retained Doeren Mayhew and Morris, Morris was advised by MCA executives that MCA believed it needed a national accounting firm in addition to Doeren Mayhew to act as MCA's auditors. 
+
+ 26. Morris searched for an accounting firm with a national reputation that would perform a joint audit of MCA with Doeren Mayhew. Morris knew the managing partner at Grant Thornton's Detroit office and contacted him to determine if Grant Thornton would be interested. 
+
+ 27. At that time, Grant Thornton's Detroit office was engaged in a marketing program entitled the Shared Professional Services Program. Grant Thornton, through this program, entered into joint ventures with local accounting firms whose clients needed the additional expertise and name recognition of a larger, nationally recognized firm. 
+
+ 28. MCA hired Grant Thornton to jointly perform annual financial statement audits with Doeren Mayhew beginning with the financial statements for the fiscal year ended January 31, 1993. Grant Thornton and Doeren Mayhew jointly audited MCA's annual financial statements from the fiscal year ended January 31, 1993 through the fiscal year ended January 31, 1998. Both firms jointly signed a report containing an unqualified opinion on MCA's financial statements in each of those years. 
+
+ 29. Grant Thornton's and Doeren Mayhew's relationship was governed by a Memorandum of Understanding, included in the workpapers for each audit. The Memorandum of Understanding for the 1998 MCA audit stated that Grant Thornton's audit and administrative guides would be utilized for the audit and that each firm would sign the audit report on the combined letterhead for both firms. 
+
+ 30. In the Memorandum of Understanding for the 1998 MCA audit, Morris of Doeren Mayhew and Behrens of Grant Thornton were assigned as engagement partners to "work jointly in planning and review." 
+
+ 31. According to the audit manual used in the 1998 MCA audit, the engagement partner's responsibilities included, among other things, overall responsibility for supervising the work of the audit team, keeping up-to-date with audit and accounting matters, considering the practical effects of new accounting developments with respect to audit clients and maintaining a knowledge of the industries in which clients operate. 
+
+ 32. As the engagement partners, Behrens and Morris each signed a workpaper in connection with the 1998 MCA audit: (a) confirming that the entire MCA engagement had been performed in accordance with professional standards; (b) confirming that related parties or unusual transactions and relationships were properly disclosed and documented in MCA's financial statements; and (c) agreeing with the issuance of the report containing an unqualified opinion. 
+
+ 33. Morris obtained personal mortgages through MCA in July 1994 for approximately $344,000 and in July 1995 for approximately $200,000. The 1994 mortgage was discharged when the 1995 mortgage was executed. 
+
+ 34. Morris did not review the auditors' workpapers for several key portions of the 1998 MCA audit, including the workpapers for mortgages and land contracts held for resale and gains on sale of real estate. 
+
+ 35. As late as 2001, Morris had only ever read the first 13 of the approximately 150 Statements of Financial Accounting Standards. Reading the Statements of Financial Accounting Standards was not "what [Morris did] for a living." Rather, he considered himself a "salesperson." 
+
+ 36. In the Memorandum of Understanding for the 1998 MCA audit, Rybicki of Doeren Mayhew was assigned to be the sole engagement manager. His responsibilities consisted of "coordinating the fieldwork between the two firms," "keeping the audit partners informed of the assignment progress on a current basis," reviewing assistants' field work and signing off on the appropriate line in the review module. 
+
+ 37. As the engagement manager, Rybicki signed a workpaper in connection with the 1998 MCA audit: (a) confirming that the entire MCA engagement had been performed in accordance with professional standards; (b) confirming that related parties or unusual transactions and relationships were properly disclosed and documented in MCA's financial statements; and (c) agreeing with the issuance of the report containing an unqualified opinion. 
+
+ 38. Rybicki socialized with Alexander Ajemian, MCA's Controller, while Doeren Mayhew acted as one of MCA's auditors. 
+
+ 39. Rybicki first met Ajemian in approximately 1987 when both were staff accountants at the Detroit office of Pannell Kerr & Forster ("Pannell Kerr"). Rybicki and Ajemian both played on Pannell Kerr's softball team. They continued playing on the same team even after each had left Pannell Kerr, including while Ajemian was MCA's Controller and Rybicki was the engagement manager for the MCA audits. Rybicki, Ajemian and the remainder of the softball team often ate and drank together after the games. 
+
+ 40. Between 1993 and 1998, Rybicki and Ajemian occasionally spent weekends in Petosky, Michigan, where they stayed at a lakefront condominium owned by MCA. During the same time period, Rybicki and Ajemian spoke socially on the telephone, ate together, water skied and traveled to the Kentucky Derby. 
+
+ 41. After MCA filed for bankruptcy in 1999 and Ajemian pled guilty in 2001 to federal criminal charges in connection with his conduct at MCA, Rybicki and Ajemian continued socializing. They dined together, attended sporting events, played on the same softball team and traveled together. 
+
+ 42. While acting as MCA's auditors, Doeren Mayhew and Grant Thornton personnel, including Behrens, Morris and Rybicki, sometimes attended a party held by Ajemian annually at his home and paid for by MCA known as the "Bean Counters Bash." This party was held to celebrate the completion of the annual audit. 
+
+ 43. MCA executives provided Doeren Mayhew and Grant Thornton auditors with free tickets to Detroit Red Wings hockey games and University of Michigan football games. MCA executives also invited the auditors to tailgate parties paid for by MCA at the football games. 
+
+ 44. Rybicki obtained a personal mortgage through MCA for approximately $59,000 to purchase his house in the early 1990's. 
+
+ 45. Grant Thornton and Doeren Mayhew performed the field work for the 1998 MCA audit in or about March and April of 1998. They issued a report, dated April 28, 1998, containing an unqualified opinion on MCA's 1998 annual financial statements. They received approximately $105,000 in fees for the audit. Behrens, Morris and Rybicki authorized and/or agreed with Grant Thornton's and Doeren Mayhew's issuance of the report containing an unqualified opinion. 
+
+ 46. The 1998 MCA audit workpapers calculated a materiality threshold of $820,000. 
+
+ 47. Grant Thornton and Doeren Mayhew consented in writing, dated May 19, 1998, to the inclusion of their report containing an unqualified opinion on MCA's 1998 annual financial statements in the Post-Effective Amendment. Behrens and Morris authorized Grant Thornton and Doeren Mayhew's consent to the inclusion of the report in the Post-Effective Amendment. 
+
+ E. MCA'S FRAUD 
+
+ 48. Between at least 1994 and 1999, MCA executed a fraudulent scheme through the use of related party transactions to inflate and mischaracterize its income, assets and equity. As part of this scheme, MCA's 1998 annual financial statements were materially false and misleading and failed to comply with GAAP. 
+
+ 49. During the relevant period, senior officials of MCA signed false representation letters to Doeren Mayhew and Grant Thornton which stated that MCA's financial statements were fairly presented in conformity with GAAP. They also took affirmative steps in connection with the audits and examinations of the financial statements of MCA to mislead Doeren Mayhew and Grant Thornton, including giving instructions to alter documents and otherwise withhold information.  3   
+
+ 1. MCA's Mortgage Banking Business 
+
+ 50. MCA primarily was involved in the residential mortgage-banking business. It acted as the lender, providing funds to borrowers to purchase homes. In exchange for the funds, the borrowers executed mortgages or land contracts in favor of MCA. By 1998, a significant percentage of MCA's mortgages and land contracts were "non-conforming," which means that the home buyers generally posed higher credit risks. 
+
+ 51. MCA obtained the funds to lend to home buyers from short-term lines of credit, called warehouse lines, provided by a number of major banks. MCA repaid the warehouse lender the borrowed funds when the mortgages and land contracts were resold. MCA could maintain mortgages and land contracts on most of its warehouse lines for only approximately 180 days before repaying the warehouse lender. Until the mortgages and land contracts were resold, MCA recorded them as assets on its balance sheet under the headings of "Mortgages Held for Resale" or "Land Contracts Held for Resale." 
+
+ 52. MCA sought to resell mortgages and land contracts within a short period of time. MCA resold mortgages and land contracts to other mortgage bankers. MCA also packaged the mortgages and land contracts into pools and offered investors units of ownership interests in these pools, otherwise known as pass-through certificates. From 1991 through 1999, MCA sponsored and sold approximately 111 series of real estate pass-through certificates with assets totaling approximately $109 million. 
+
+ 2. MCA's Motive for its Fraudulent Scheme 
+
+ 53. At least as early as 1994, MCA realized that it was in financial trouble due to falling margins in its mortgage banking business. As an example of its financial problems, MCA disclosed in its 1995 annual report a net loss of $277,546. 
+
+ 54. In order to continue in business between 1994 and 1999, MCA needed to raise more capital than it could borrow from banks or obtain by selling pass-through certificates. Accordingly, from 1994 through 1999, MCA sold three series of corporate debentures totaling approximately $19 million. MCA filed registration statements for the debenture offerings with the Commission and also filed periodic reports with the Commission containing its financial statements under Section 15(d) of the Exchange Act. 
+
+ 55. MCA was concerned that investors would not invest in MCA debentures if MCA was reporting significant losses in its financial statements. MCA also was concerned that its warehouse lenders would not continue to provide lines of credit if MCA continued reporting significant losses in its financial statements. In addition, MCA planned to make a public offering of its stock and intended to use its financial statements as a means to induce potential investors to purchase MCA stock. 
+
+ 56. To avoid reporting significant losses in its financial statements, MCA executed a fraudulent scheme to inflate and mischaracterize its income, assets and equity in its financial statements from at least 1994 through 1999. 
+
+ 3. MCA's Execution of its Fraudulent Scheme 
+
+ 57. MCA's fraudulent scheme was accomplished through related party transactions and involved the following steps. MCA purchased distressed rental properties in the city of Detroit, sold them to the Related Limited Partnerships at inflated prices, advanced the Related Limited Partnerships small down payments (usually 10% or 20%) and accepted executed mortgages or land contracts for the remainder of the purchase prices ("related party mortgages" or "related party land contracts"). 
+
+ 58. MCA established the prices at which it sold the rental properties to the Related Limited Partnerships by calculating the value each property would have after substantial rehabilitation, even though rehabilitation work had not been completed or, for that matter, even begun. MCA then recognized the entire gain on each sale as revenue even though MCA knew that the Related Limited Partnerships could not afford to pay for the properties because of the inflated sales prices and the prevailing rental rates. In fact, the Related Limited Partnerships failed to make most of the required loan payments to MCA for the properties. 
+
+ 59. MCA recorded the money owing from the Related Limited Partnerships as a result of advancing the down payments on the asset side of its balance sheet under the heading of "Accounts Receivable-Related Parties." MCA carried those receivables without any valuation allowance despite the Related Limited Partnerships' inability to repay the receivables. 
+
+ 60. MCA fraudulently sold some related party mortgages and land contracts to the pools and carried the remainder at cost or with an inadequate allowance for loan losses under the headings of "Mortgages Held for Resale" or "Land Contracts Held for Resale" despite the Related Limited Partnerships' inability to repay and the inadequate collateral. The collateral for these mortgages and land contracts was the real estate which MCA had sold to the Related Limited Partnerships at inflated prices. As a result, MCA knew that foreclosing on the collateral would not result in MCA receiving the full principal amount of the loans. 
+
+ 61. MCA did not disclose in its financial statements that a material amount of its mortgages and land contracts held for resale were related party mortgages and land contracts. 
+
+ 62. MCA utilized the same collateral to support multiple related party mortgages and land contracts ("double pledging") and also carried the additional mortgages and land contracts at cost or with an inadequate allowance for loan losses despite the Related Limited Partnerships' inability to repay the mortgages and land contracts and the inadequate, double pledged collateral. 
+
+ 63. MCA also engaged in a practice its personnel called "remetering" the related party mortgages and land contracts. "Remetering" meant that MCA had the Related Limited Partnerships execute new mortgages and land contracts in favor of MCA to discharge older related party mortgages and land contracts provided to MCA on the same real estate. MCA engaged in "remetering" to disguise the age of the loans from MCA's warehouse lenders. MCA carried "remetered" related party mortgages and land contracts at cost or with an inadequate allowance for loan losses despite MCA's prolonged inability to sell these loans, the Related Limited Partnerships' prolonged inability to make the required loan payments, and the inadequacy of the collateral. 
+
+ 4. MCA's Securities Laws Violations and Failures to Comply with GAAP 
+
+ 64. In connection with the conduct alleged above, MCA violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by utilizing annual financial statements included in annual reports and registration statements and the amendments thereto, which financial statements were materially false and misleading and failed to comply with GAAP, in the offer and sale and in connection with the purchase and sale of debentures. MCA sold approximately $2.2 million of debentures after filing with the Commission on or about May 1, 1998 its 1998 annual report containing its materially false and misleading 1998 annual financial statements that failed to comply with GAAP. MCA sold approximately $1.9 million of debentures after filing with the Commission on or about May 19, 1998 the Post-Effective Amendment containing its materially false and misleading 1998 annual financial statements that failed to comply with GAAP. 
+
+ 65. In connection with the conduct alleged above, MCA violated Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-1 thereunder by filing with the Commission annual reports which contained materially false and misleading financial statements that failed to comply with GAAP. MCA filed its 1998 annual report containing its 1998 annual financial statements, which were materially false and misleading and failed to comply with GAAP, on or about May 1, 1998. 
+
+ 66. In connection with the conduct alleged above, MCA filed financial statements with the Commission that were materially false and misleading and failed to comply with GAAP because MCA failed to disclose material, related party mortgages and land contracts held for resale as required by Statement of Financial Accounting Standards No. 57 (FAS 57), "Related Party Disclosures." In its 1998 annual financial statements, MCA improperly failed to disclose that the borrowers on approximately $39.8 million of its approximately $102.2 million of mortgages held for resale and approximately $6.7 million of its approximately $20.7 million of land contracts held for resale were the Related Limited Partnerships. In its 1998 annual financial statements, MCA reported approximately $259 million in assets and approximately $13.3 million in net worth. 
+
+ 67. In connection with the conduct alleged above, MCA failed to comply with Regulation S-X Rule 4-08(k) promulgated under the Exchange Act which requires disclosure of related party transactions, including the amounts of those transactions, on the face of the balance sheet, income statement and statement of cash flows. In its 1998 annual financial statements, MCA failed to disclose on the face of its balance sheet that the borrowers on approximately $39.8 million of its approximately $102.2 million of mortgages held for resale and approximately $6.7 million of its approximately $20.7 million of land contracts held for resale were the Related Limited Partnerships. 
+
+ 68. In connection with the conduct alleged above, MCA's financial statements were materially false and misleading and failed to comply with GAAP because MCA, contrary to the requirements of Statement of Financial Accounting Standards No. 65 (FAS 65), "Accounting for Certain Mortgage Banking Activities," carried related party mortgages and land contracts held for resale, including "remetered" and double-pledged related party mortgages and land contracts held for resale, at cost or with an inadequate allowance for loan losses instead of at the lower of cost or market. In its 1998 annual financial statements, MCA improperly failed to carry approximately $39.8 million in related party mortgages held for resale and approximately $6.7 million in related party land contracts held for resale, which included "remetered" and double-pledged mortgages and land contracts held for resale, at the lower of cost or market. 
+
+ 69. In connection with the conduct alleged above, MCA's financial statements were materially false and misleading and failed to comply with GAAP because, contrary to the requirements of Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies," MCA carried receivables owed by PCA and the Related Limited Partnerships without any valuation allowance even though MCA knew that PCA and the Related Limited Partnerships were unable to repay the debt. In its 1998 annual financial statements, MCA improperly carried approximately $3.6 million in receivables owed by PCA and the Related Limited Partnerships ("related party receivables") without any valuation allowance. 
+
+ F. RESPONDENTS' RESPONSE TO MCA'S SECURITIES LAWS VIOLATIONS 
+
+ 70. As alleged above, MCA violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by utilizing its 1998 annual financial statements included in its 1998 annual report and the Post-Effective Amendment, which financial statements failed to disclose material, related party transactions, in the offer and sale and in connection with the purchase and sale of debentures. Also, as alleged above, MCA violated Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-1 thereunder by filing with the Commission its 1998 annual report which contained the 1998 annual financial statements that failed to disclose material, related party transactions. 
+
+ 71. During the 1998 MCA audit, Behrens, Morris and Rybicki knew that millions of dollars of the mortgages and land contracts held for resale reported in MCA's 1998 annual financial statements consisted of related party mortgages and land contracts. Behrens, Morris and Rybicki obtained this knowledge through their preparation of the 1998 MCA audit plan, their review of the 1998 audit workpapers and other materials, their performance of audit procedures during the 1998 audit, their communications with MCA executives and/or their knowledge of MCA's business from prior audits. 
+
+ 72. Specifically with respect to the workpapers, Behrens and Rybicki reviewed workpapers as part of the 1998 MCA audit which showed that MCA sold approximately $10.8 million in real estate to the Related Limited Partnerships in fiscal year 1998. Those workpapers also showed that MCA advanced the Related Limited Partnerships a small down payment for the real estate and accepted an executed mortgage or land contract for the remaining portion of the purchase price. Those workpapers further calculated that approximately $4.9 million of those related party mortgages and land contracts had not been sold as of MCA's balance sheet date and thus were included in the total mortgages or land contracts held for resale as reported in MCA's 1998 annual financial statements. 
+
+ 73. Behrens and Rybicki also reviewed workpapers as part of the 1998 MCA audit which contained balance sheets for the Related Limited Partnerships reflecting approximately $57.3 million in liabilities under the heading of "Mortgages and Land Contracts Payable." 
+
+ 74. Behrens and Rybicki additionally reviewed workpapers as part of the 1998 MCA audit which showed that approximately $4.0 million of MCA's land contracts held for resale, those that had been pledged as collateral for one of MCA's debenture offerings, were related party land contracts. 
+
+ 75. During the 1998 MCA audit, Behrens, Morris and Rybicki read MCA's 1998 annual financial statements. Those financial statements did not disclose any related party mortgages or land contracts held for resale or state the total amount of such mortgages and land contracts held for resale. 
+
+ 76. Grant Thornton and Doeren Mayhew issued a report, dated April 28, 1998, containing an unqualified opinion on MCA's 1998 annual financial statements even though Behrens, Morris and Rybicki knew that MCA had failed to disclose material, related party mortgages and land contracts. Behrens, Morris and Rybicki authorized and/or agreed with Grant Thornton's and Doeren Mayhew's issuance of the report containing an unqualified opinion. MCA sold approximately $2.2 million of debentures after filing its 1998 annual report containing its 1998 annual financial statements with the Commission on or about May 1, 1998. 
+
+ 77. Grant Thornton and Doeren Mayhew consented in writing, dated May 19, 1998, to the inclusion of their report containing an unqualified opinion on MCA's 1998 annual financial statements in the Post-Effective Amendment. Behrens and Morris authorized Grant Thornton's and Doeren Mayhew's consent to the inclusion of the report in the Post-Effective Amendment. MCA sold approximately $1.9 million of debentures after filing with the Commission on or about May 19, 1998 the Post-Effective Amendment, which contained its 1998 annual financial statements. 
+
+ G. RESPONDENTS' VIOLATIONS OF OR CAUSING AND AIDING AND ABETTING VIOLATIONS OF SECTION 10A OF THE EXCHANGE ACT 
+
+ 78. As alleged above, during the 1998 MCA audit, Behrens, Morris and Rybicki knew that millions of dollars of the mortgages and land contracts held for resale reported in MCA's 1998 annual financial statements consisted of related party mortgages and land contracts. 
+
+ 79. As alleged above, during the 1998 MCA audit, Behrens, Morris and Rybicki read MCA's 1998 annual financial statements. Those financial statements did not disclose any related party mortgages or land contracts held for resale or state the total amount of such mortgages and land contracts held for resale. 
+
+ 80. As alleged above, MCA violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by utilizing the 1998 annual financial statements included in its 1998 annual report and the Post-Effective Amendment, which financial statements failed to disclose material, related party transactions, in the offer and sale and in connection with the purchase and sale of debentures. Also, as alleged above, MCA violated Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-1 thereunder by filing with the Commission its 1998 annual report which contained the 1998 annual financial statements that failed to disclose material, related party transactions. 
+
+ 81. As a result, during the 1998 MCA audit, Behrens, Morris and Rybicki had access to information indicating that illegal acts had or may have occurred as a result of MCA's failure to disclose material, related party transactions in its 1998 annual financial statements. 
+
+ 82. During the 1998 MCA audit, Behrens, Morris and Rybicki knew that MCA had entered into related party mortgage and land contract transactions in the first, second and third quarter of MCA's 1998 fiscal year. 
+
+ 83. As part of the 1998 audit, Behrens, Morris and Rybicki read MCA's quarterly reports filed with the Commission on Form 10-Q during its fiscal year 1998. Those quarterly reports failed to disclose MCA's related party mortgages and land contracts or state the total amounts of such mortgages and land contracts. 
+
+ 84. MCA violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by utilizing financial statements that failed to disclose material, related party transactions, which financial statements were included in its fiscal year 1998 quarterly reports on Form 10-Q, in the offer and sale and in connection with the purchase and sale of debentures. MCA violated Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-13 thereunder by filing with the Commission quarterly reports on Form 10-Q during its 1998 fiscal year that failed to disclose material, related party transactions. 
+
+ 85. As a result, during the 1998 MCA audit, Behrens, Morris and Rybicki had access to information indicating that illegal acts had or may have occurred as a result of MCA's failure to disclose material, related party transactions in its fiscal year 1998 quarterly reports. 
+
+ 86. Behrens, Morris and Rybicki failed to inform MCA's Board of Directors about the illegal acts that were detected or otherwise came to their attention in the course of the 1998 MCA audit. 
+
+ H. RESPONDENTS' IMPROPER PROFESSIONAL CONDUCT 
+
+ 1. Characterization of the 1998 MCA Audit as High Risk 
+
+ 87. Rybicki prepared, and Behrens and Morris reviewed, a workpaper in connection with the 1998 MCA audit entitled "Audit Planning." In this workpaper, Rybicki assessed the audit risk on the MCA engagement as "high." Later in the workpaper, Rybicki noted that the reasons for the high risk assessment were that MCA had "significant and/or frequent difficult to audit transactions or balances" and "material, related party transactions on a recurring basis." 
+
+ 88. Rybicki prepared, and Behrens and Morris reviewed, a workpaper in connection with the 1998 MCA audit entitled "Fraud Risk Assessment." In this workpaper, Rybicki answered several questions concerning fraud risk factors relating to MCA's operating characteristics and financial stability. Rybicki answered "yes" to the following questions: 
+
+ 1. "Are there assets, liabilities, revenues, or expenses based on significant estimates that involve unusually subjective judgments or uncertainties, or that are subject to potential significant change in the near term in a manner that may have a financially disruptive effect on the entity - such as ultimate collectibility of receivables, timing of revenue recognition, realizability of financial instruments based on the highly subjective valuation of collateral or difficult-to-assess repayment sources, or significant deferral of costs?" 
+
+ 2. "Are there significant related-party transactions not in the ordinary course of business or with related entities not audited or audited by another firm?" 
+
+ 3. "Are there significant, unusual, or highly complex transactions, especially those close to year end, that pose difficult "substance over form" questions?" 
+
+ 89. Rybicki stated in his Closing Memo for the 1998 MCA audit, which was reviewed by Morris and Behrens, that "the Company continues to enter into related party transactions that give rise to significant audit issues." Rybicki made a similar statement in the audit planning memo. 
+
+ 2. Inadequate Audit Concerning Disclosure of Related Party Transactions 
+
+ 90. As alleged above, during the 1998 MCA audit, Behrens, Morris and Rybicki knew that millions of dollars of the mortgages and land contracts held for resale reported in MCA's 1998 annual financial statements consisted of related party mortgages and land contracts. 
+
+ 91. As alleged above, during the 1998 MCA audit, Behrens, Morris and Rybicki read MCA's 1998 annual financial statements. Those financial statements did not disclose any related party mortgages or land contracts held for resale or state the total amount of such mortgages and land contracts held for resale. 
+
+ 92. Despite their knowledge of millions of dollars of undisclosed related party transactions, Behrens, Morris and Rybicki did not inquire of MCA's management its reasons for failing to disclose those transactions. 
+
+ 93. Despite their knowledge of millions of dollars of undisclosed related party transactions, Behrens, Morris and Rybicki did not design audit procedures to test the total amount of undisclosed related party mortgages and land contracts held for resale included in MCA's total mortgages and land contracts held for resale as reported in its 1998 annual financial statements. 
+
+ 94. Despite having knowledge to the contrary, Behrens, Morris and Rybicki each initialed a workpaper in connection with the 1998 MCA audit which stated that "related parties or unusual transactions and relationships have been properly accounted for, disclosed and documented." 
+
+ 95. Despite having knowledge to the contrary, Rybicki prepared a workpaper in connection with the 1998 MCA audit which confirmed that all of MCA's related party transactions had been disclosed on the face of its balance sheet. Rybicki also initialed and Behrens reviewed a workpaper which stated that auditing procedures regarding disclosure of related party loans were not applicable. 
+
+ 96. Grant Thornton and Doeren Mayhew issued a report containing an unqualified opinion on MCA's 1998 annual financial statements even though Behrens, Morris and Rybicki knew that MCA had failed to disclose material, related party mortgages and land contracts. Behrens, Morris and Rybicki authorized and/or agreed with Grant Thornton's and Doeren Mayhew's issuance of the report containing an unqualified opinion. 
+
+ 3. Inadequate Audit of MCA's Mortgages and Land Contracts Held for Resale 
+
+ 97. GAAP requires that mortgages and land contracts held for sale be carried at the lower of cost or market. 
+
+ 98. Behrens, Morris and Rybicki prepared the 1998 MCA audit plan which included the following procedures to purportedly test the valuation of the mortgages and land contracts held for resale as reported in MCA's 1998 annual financial statements. 
+
+ 99. Rybicki selected two samples, one for mortgages held for resale and one for land contracts held for resale. The majority of both samples consisted of mortgages or land contracts that had not been sold between the end of the fiscal year and the performance of the audit field work. For these mortgages and land contracts, the auditors compared MCA's carrying value of the mortgage or land contract to the face amount on the promissory note executed in connection with the mortgage or land contract. For each item sampled, the auditors concluded that the two amounts were identical. 
+
+ 100. The remaining portion of the samples consisted of mortgages or land contracts which had been sold between the end of the fiscal year and the performance of the audit field work. For these mortgages and land contracts, the auditors compared MCA's carrying value of the mortgage or land contract to the sale price and determined whether MCA received the sale price in cash. For each item sampled, the auditors concluded that the sale price was equal to or exceeded the carrying value of the land contract or mortgage and that MCA received the sale price in cash. 
+
+ 101. In connection with the 1998 MCA audit, Behrens, Morris and Rybicki were aware of several red flags that should have caused them to exercise heightened skepticism and seek additional competent evidential matter regarding MCA's valuation of its mortgages and land contracts held for resale. 
+
+ 102. Behrens, Morris and Rybicki were aware of several of the red flags while planning the 1998 MCA audit. First, the 1998 MCA audit was classified as a high risk audit because of, among other things, MCA's numerous and significant related party transactions. Second, approximately 82% of MCA's 1998 pretax income was derived from the sale of real estate to the Related Limited Partnerships. Third, in 1996 and 1997, MCA would have reported a pretax loss of approximately $5.4 million and $6.8 million, respectively, without revenue from sales of real estate to the Related Limited Partnerships. Fourth, sales of real estate to the Related Limited Partnerships resulted in the creation of millions of dollars of MCA's mortgages and land contracts held for resale. Fifth, MCA's total carrying value for mortgages and land contracts held for resale increased approximately 88% and 100%, respectively, between 1997 and 1998, while MCA only generated an additional approximately 25.5% in loan production and the average loan origination amount decreased by approximately 6.5%. Sixth, MCA was taking significantly more time to sell loans in 1998 than in 1997 since MCA was reporting that approximately 8.6% of fiscal year 1997 loan production had not been sold in fiscal year 1997 whereas approximately 13% of fiscal year 1998 loan production had not been sold in fiscal year 1998. 
+
+ 103. Then, during the field work for the 1998 MCA audit, Behrens and Rybicki became aware of an additional red flag concerning MCA's valuation of its mortgages and land contracts held for resale. This red flag should have caused them to exercise heightened skepticism regarding the valuation of MCA's mortgages and land contracts held for resale and to seek additional competent evidential matter. 
+
+ 104. Specifically, Behrens and Rybicki reviewed workpapers which revealed that approximately 46 unsold mortgages held for resale, with a total carrying value of approximately $2,709,031, included in Rybicki's sample of mortgages held for resale were older than 90 days. Rybicki's sample of mortgages held for resale consisted of approximately 128 unsold mortgages held for resale with a total carrying value of approximately $7.2 million. The workpapers reviewed by Behrens and Rybicki also revealed that approximately 21 unsold mortgages included in that sample, with a carrying value of approximately $1.4 million, were older than 180 days. MCA claimed in its 1998 annual report that it typically sold loans within 45 to 60 days of closing. 
+
+ 105. Behrens and Rybicki also reviewed workpapers in connection with the 1998 MCA audit which revealed that at least approximately $3.3 million of MCA's mortgages and land contracts held for resale were more than 90 days old and that the borrowers on those mortgages and land contracts were the Related Limited Partnerships. 
+
+ 106. Despite their awareness that MCA was experiencing difficulty selling millions of dollars of mortgages and land contracts, Behrens and Rybicki did not exercise heightened skepticism or require additional competent evidential matter concerning the valuation of MCA's mortgages and land contracts held for resale. 
+
+ 107. Behrens and Rybicki also did not ask MCA's management to explain the reasons MCA was experiencing difficulty selling millions of dollars of mortgages and land contracts held for resale. 
+
+ 108. Behrens and Rybicki also took no action to determine the total amount of MCA's related party mortgages and land contracts held for resale which were older than 90 or 180 days. 
+
+ 109. Behrens and Rybicki also approved of the audit program for mortgages and land contracts held for resale even though the program labeled as not applicable several procedures that would have tested the valuation of MCA's mortgages and land contracts held for resale. Those procedures would have entailed the auditors computing the amount of impaired loans, obtaining recent past due listings of loans and obtaining information concerning the aggregate amount of non-performing, past due over 90 days or potential problem related party loans. Behrens and Rybicki approved of the audit program despite their awareness of MCA's inability to sell millions of dollars of mortgages and land contracts held for resale. 
+
+ 4. Inadequate Audit of MCA's Related Party Receivables 
+
+ 110. In connection with the 1998 MCA audit, Behrens, Morris and Rybicki designed two primary tests to verify whether the receivables due from the Related Limited Partnerships and PCA were properly valued at approximately $3.6 million. Those tests focused on the collectibility of the receivables. 
+
+ 111. The first test was to review the Related Limited Partnerships' unaudited financial statements, which were prepared by management for the Related Limited Partnerships, to assess whether the Related Limited Partnerships' cash flow from operations was sufficient to repay the receivables. Through this testing, Behrens, Morris and Rybicki learned of a red flag, which was that the Related Limited Partnerships were projecting a negative cash flow of $116,737 for calendar year 1998. Behrens, Morris and Rybicki thus knew that the Related Limited Partnerships likely would be unable to repay the receivables with cash from operations during calendar year 1998. 
+
+ 112. The other test was a "liquidation analysis" to calculate whether the receivables could be repaid if the Related Limited Partnerships were liquidated. 
+
+ 113. In connection with the liquidation analysis, Behrens, Morris and Rybicki relied on estimated fair market values provided by management for the Related Limited Partnerships to test whether the Related Limited Partnerships had appropriately valued the properties that the Related Limited Partnerships purchased from MCA. Behrens, Morris and Rybicki also relied on property appraisals performed by the brother-in-law of MCA's CEO while employed by a company that the auditors listed as an MCA subsidiary. Rybicki specifically noted in the workpapers that this appraiser was a "Related Entity." Nearly all of the Related Limited Partnerships' assets were the properties purchased from MCA. 
+
+ 114. In connection with the liquidation analysis, Behrens and Rybicki became aware of a red flag through reviewing audit workpapers which revealed that the Related Limited Partnerships' property sales in calendar year 1997 generated an accounting loss of approximately $750,000, calculated by subtracting the net book value for all the properties sold from the total net sales proceeds for those properties. 
+
+ 115. Although Behrens and Rybicki did not do so, the same workpapers contained information from which it could be estimated that the Related Limited Partnerships' property sales in calendar year 1997 generated a negative cash flow of approximately $264,000, calculated by subtracting the total estimated debt on the properties sold from the total net sales proceeds for those properties. 
+
+ 116. Despite the Related Limited Partnerships' projected negative cash flow from operations in calendar year 1998 and the Related Limited Partnerships' actual accounting losses and estimated negative cash flow from property sales in calendar year 1997, Behrens, Morris and Rybicki improperly concluded based on the liquidation analysis that the $3.6 million in receivables due from PCA and the Related Limited Partnerships were properly valued. 
+
+ 117. Despite the Related Limited Partnerships' projected negative cash flow from operations in calendar year 1998 and the Related Limited Partnerships' actual accounting losses and estimated negative cash flow from property sales in calendar year 1997, Behrens, Morris and Rybicki did not exercise heightened skepticism or obtain sufficient competent evidential matter concerning the valuation of the receivables due from PCA and the Related Limited Partnerships. 
+
+ I. RESPONDENTS' VIOLATIONS 
+
+ 118. By virtue of the conduct alleged above, Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki caused and willfully aided and abetted MCA's violations of Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-1 thereunder, which prohibit issuers from filing annual reports with the Commission that are materially false and misleading or that require the inclusion of additional material information to make required statements not misleading. 
+
+ 119. By virtue of the conduct alleged above, Grant Thornton and Doeren Mayhew willfully violated and Behrens, Morris and Rybicki willfully aided and abetted violations of Section 10A of the Exchange Act, which requires auditors that detect or otherwise become aware of information indicating that an illegal act has or may have occurred to assure that the audit committee of the issuer or the board of directors of the issuer in the absence of such a committee is adequately informed with respect to illegal acts that have been detected or otherwise come to the attention of the auditor unless the illegal act is clearly inconsequential. 
+
+ 120. By virtue of the conduct alleged above, Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki recklessly failed to conduct the 1998 MCA audit in accordance with GAAS as a result of their: (a) issuance of or authorization and/or agreement with the issuance of a report containing an unqualified opinion on MCA's 1998 annual financial statements while knowing that MCA failed to disclose material, related party transactions; (b) failure to adequately plan the audit; (c) failure to exercise appropriate professional skepticism; and (d) failure to obtain sufficient competent evidential matter. 
+
+ 121. By virtue of the conduct alleged above, Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki engaged in improper professional conduct within the meaning of Rule 102(e) of the Commission's Rules of Practice by recklessly engaging in conduct that resulted in violations of professional standards in connection with the 1998 MCA audit. Grant Thornton, Doeren Mayhew, Behrens, Morris and Rybicki recklessly failed to follow applicable auditing standards in the areas of mortgages and land contracts held for resale and related party receivables. 
+
+ J. CERTAIN STEPS TAKEN BY GRANT THORNTON SINCE THE MCA AUDIT 
+
+ 122. Grant Thornton restructured the oversight responsibilities of its Senior Leadership in January 2003. Client services personnel and the Professional Standards Group now report to different senior management thereby clearly separating the reporting lines of its Professional Standards Group personnel from personnel who deliver client services. Since 1997, the number of professionals in the Professional Standards Group, which is responsible for quality control, has increased from 13 to 40. The Professional Standards Group, among other things: (i) monitors accounting, auditing, SEC and ethical standards and other professional requirements; (ii) consults with professional personnel on auditing, ethical and regulatory matters; and (iii) sets the firm's quality control standards, policies and procedures and monitors the firm's compliance with the same. The partner in charge of the Firm's practice quality reviews reports to and works directly with the senior leaders of the Professional Standards Group. Audit engagement teams are required to follow the guidance of the Professional Standards Group. New quality control elements also have been introduced throughout the firm. For example, Grant Thornton has intensified its client acceptance process, using a new software tool and employing five individuals dedicated to background investigations. The firm also uses an engagement profile factor database on each audit to assist the auditor's risk assessment. Annual meetings are held between members of the Professional Standards Group and the managing partners of the firm's offices to assist in the evaluation of whether to retain clients. In addition, Regional professional standards group members respond to office technical standards inquiries, consult on matters relating to accounting and auditing, approve and participate as necessary in contacts with the SEC and determine, on a case by case basis, the extent of their further involvement with SEC clients. 
+
+ K. UNDERTAKINGS BY GRANT THORNTON 
+
+ Respondent Grant Thornton undertakes the following: 
+
+ 1.  Monetary Payment : Within 10 days of the date of this Order, Grant Thornton shall pay $1.5 million as a penalty ("penalty amount"). Payment of the penalty amount 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 submitted under cover letter that identifies Grant Thornton as a Respondent in these proceedings, the file number of these proceedings, copies of which cover letter and money order or check shall be sent to Peter K.M. Chan, Assistant Regional Director, Midwest Regional Office, U.S. Securities and Exchange Commission, 175 W. Jackson Blvd., Suite 900, Chicago, IL 60604. Within 60 days of the payment, the staff of the Division of Enforcement shall submit a distribution plan to the Commission for the distribution of the penalty amount and the disgorgement and prejudgment interest amounts (pursuant to paragraph IV.B. below) to holders of MCA Financial Corp.'s 11% Subordinated Debentures, Series 1997 due June 1, 2003. 
+
+ 2.  Firm-wide Fraud-Detection Training : Grant Thornton shall require its audit professionals to undergo fraud detection training conducted by the Association of Certified Fraud Examiners. Such training must be completed within 24 months from the date of the Order. The training will include techniques in detecting and responding to possible fraud by audit clients or by employees, officers or directors of audit clients. Grant Thornton shall provide all necessary funding, in the amount of at least $1 million, for such training. 
+
+ 3.  Cessation of Joint Audits : For a period of 5 years, Grant Thornton shall cease all joint audit arrangements with other auditors in connection with audits of Commission registrants, other than joint audit arrangements required by foreign jurisdictions. 
+
+ L. UNDERTAKINGS BY DOEREN MAYHEW 
+
+ Respondent Doeren Mayhew undertakes the following: 
+
+ 1. Doeren Mayhew, which voluntarily discontinued conducting public audits as of March 19, 2003, undertakes that, for a six-month period following the issuance of this Order, it will not accept new engagements for public company audits. 
+
+ 2. For a three-year period commencing with the retention of Doeren Mayhew to conduct an audit of the financial statements of an "issuer" as that term is defined in Section 10A(f) of the Securities Exchange Act of 1934 (a "public company audit"), Doeren Mayhew will establish and implement the following policies and procedures specifically designed to improve the quality of its public company audit practice as described below: 
+
+ a. Development of Procedures for Public Company Audits Doeren Mayhew undertakes to appoint knowledgeable and experienced directors of its firm to oversee the specific areas targeted for improvement herein - public company audit planning and staffing; public company audit quality control; and public company audit independence. The directors designated to carry out these roles will be responsible for Doeren Mayhew's compliance with the relevant undertakings. Directors who fulfill any of these roles with respect to a particular public company audit will not perform other work on that audit. 
+
+  Public Company Audit Oversight Director : Doeren Mayhew will appoint a Public Company Audit Oversight Director to oversee each public company audit. The Public Company Audit Director shall be reasonably experienced and qualified in performing public company audits. The Public Company Audit Oversight Director's primary responsibility shall be reviewing the planning of the particular public company audit. The Public Company Audit Oversight Director also will be responsible for approval of the assignment of personnel on each public company audit, including the engagement and reviewing directors. 
+
+ Upon completion of the relevant public company audit, the Public Company Audit Oversight Director and the Quality Control Director shall consult with one another about the planning and execution of the audit and discuss any outstanding issues with the engagement director. The engagement director shall confirm that such consultation has occurred prior to signing off on the audit. 
+
+ The Public Company Audit Oversight Director shall not act as the engagement director or concurring director or perform other work on the relevant public company audit except in the capacity of Public Company Audit Oversight Director. 
+
+  Quality Control Director : Doeren Mayhew will designate a Quality Control Director as the person responsible for reviewing the execution of each public company audit to ensure compliance with GAAS. The Quality Control Director may act as the concurring director on the relevant public audit. All differences of professional judgment within an engagement team will be resolved by the engagement director and Quality Control Director. The resolution of the differences must be appropriately documented. If a member of the engagement team continues to disagree with the resolution, the member may disassociate from the resolution of the matter and will be offered the opportunity to document that a disagreement exists. 
+
+ As noted above, upon completion of the relevant public company audit, the Quality Control Director and the Public Company Audit Oversight Director shall consult with one another about the planning and execution of the audit and discuss any outstanding issues with the engagement director. The engagement director shall confirm that such consultation has occurred prior to signing off on the audit. 
+
+ The Quality Control Director shall not act as the engagement director or otherwise work on the relevant public company audit other than as set forth in this section. 
+
+  Independence Oversight Director : To promote the independent judgment necessary for high quality public company audit work, Doeren Mayhew will develop and maintain policies and procedures relating to independence, objectivity and integrity. Such policies will include the Doeren Mayhew's interpretations of professional and regulatory requirements, and guidance for identifying and resolving independence issues. Doeren Mayhew will designate an Independence Oversight Director to provide guidance regarding application of these policies and procedures, answer questions and resolve matters, and determine the circumstances that might require consultation with sources outside Doeren Mayhew. 
+
+ Doeren Mayhew will require written representations from personnel engaged in public company audits, upon hire and on an annual basis, that they are familiar with and are in compliance with professional standards and Doeren Mayhew's policies and procedures regarding independence, integrity and objectivity. The Independence Oversight Director will be responsible for obtaining these written representations, reviewing compliance files for completeness, and resolving reported exceptions in consultation with Doeren Mayhew's Quality Control Director. 
+
+ Through the Independence Oversight Director, Doeren Mayhew will emphasize the concepts of independence, integrity, and objectivity in Doeren Mayhew's professional development meetings, in the acceptance and continuance of public company audit clients and engagements, and in the performance of engagements, including discussing the implications regarding engagements for financial institutions, such as prohibiting any member of the engagement team from having a loan with the institution, and the types of nonattest services and relationships that could affect independence. 
+
+ The Independence Oversight Director will inform personnel on a timely basis of those entities to which independence policies apply, by: preparing and maintaining lists of entities to which independence policies apply; making the lists available to personnel who need them to determine their independence (including personnel new to Doeren Mayhew or to an office, and certain former directors); and notifying personnel of changes in the lists on a timely basis via a memorandum or Doeren Mayhew's email system. 
+
+ The Independence Oversight Director shall not act as an engagement director or concurring director or perform other work on any public company audits, except in the capacity of Independence Oversight Director. 
+
+ b. Development of Standards for Public Company Audits 
+
+  Professional Development Program : Doeren Mayhew will establish procedures designed to provide reasonable assurances that all public company audits are performed, supervised, reviewed, documented, and communicated in accordance with the relevant professional, regulatory and firm requirements. Doeren Mayhew will maintain a professional development program designed to provide reasonable assurances that personnel serving public company audit clients participate in professional development activities in accordance with firm guidelines and in subjects that are relevant to their responsibilities. 
+
+  Qualifications of Public Company Audit Personnel : Doeren Mayhew will establish procedures for documenting the qualifications, training and current responsibilities of senior audit personnel assigned to each audit engagement. Doeren Mayhew will establish minimum qualifications for senior managers, engagement directors and reviewing directors that focus on experience in public company audits and experience in addressing key accounting issues affecting the client's business. 
+
+ Personnel assignments for public company audits will be made based on the degree of technical training and proficiency required in the circumstances and the nature and extent of available supervision. Assignments of personnel will be based on such factors as: engagement size and complexity; specialized experience and expertise required; personnel availability and the involvement of supervisory personnel; timing of the work to be performed; and continuity and rotation of personnel. 
+
+ c. Evaluation of New and Existing Public Company Audit Clients 
+
+ Doeren Mayhew will employ procedures to evaluate new and existing public company audit clients. This evaluation shall include: a review of Doeren Mayhew's client acceptance/continuance evaluation; review of risk assessments and audit procedures related to "risk areas" pertinent to the client's business; and consultation outside the engagement team, regarding risk areas pertinent to the client's business that have quality control implications. A Quality Control Director will be assigned to carry out each such evaluation and will report to Doeren Mayhew regarding the results of such evaluation. 
+
+ d. Joint Public Company Audits 
+
+ Doeren Mayhew undertakes that, as a condition of its participation in any joint public company audit, the engagement letter shall specifically state that each participating audit firm be deemed jointly responsible for the performance of the audit. These responsibilities include, without limitation, (a) developing the audit plan; (b) ensuring that the joint audit is staffed with appropriately qualified and experienced personnel at all levels, including the engagement director; and (c) conducting a review of the execution of the audit for compliance with GAAS. 
+
+ When participating in a joint audit, Doeren Mayhew will confirm the independence of the other firm or firms performing parts of an engagement, and, when Doeren Mayhew acts as principal auditor, will obtain and document independence representations from the other participant firm or firms. The Independence Oversight Director will be responsible for including in Doeren Mayhew's policies and procedures directives regarding the form, content, and frequency of independence representations that are to be obtained. 
+
+ e. Third Party Review of Audit Procedures and Process 
+
+ Within one year of Doeren Mayhew's engagement to conduct a public company audit, Doeren Mayhew will retain an independent accounting firm to review the personnel and quality enhancements undertaken consistent with this Order. The independent accounting firm shall, with respect to public company audits performed by Doeren Mayhew during that period, provide a written evaluation of the planning, execution and oversight functions described in this Order. The report will also evaluate Doeren Mayhew's performance with respect to implementing professional standards, regulatory requirements, and the Firm's policies and procedures. The independent accounting firm retained to conduct this review shall be registered with the Public Company Accounting Oversight Board ("PCAOB") and shall not be unacceptable to the Chief Accountant of the Commission. The report shall be completed and issued to the Firm within 180 days of the date of retention of the independent accounting firm and shall be filed with the PCAOB within 60 days of issuance to the Firm. 
+
+ In determining whether to accept the Offers of Grant Thornton and Doeren Mayhew, the Commission has considered the undertakings set forth above. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondents' Offers. 
+
+ Accordingly, IT IS HEREBY ORDERED, effective immediately, that: 
+
+ Grant Thornton 
+
+ A. Grant Thornton is censured pursuant to Rule 102(e) of the Commission's Rules of Practice. 
+
+ B. Within 10 days of the date of this Order, Grant Thornton shall pay disgorgement and prejudgment interest in the total amount of $59,749.41. Such payment shall be made within twenty (20) days of the entry of the Order. Such payments 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 Grant Thornton as a Respondent in these proceedings and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Peter K.M. Chan, Assistant Regional Director, Midwest Regional Office, Securities and Exchange Commission, 175 West Jackson Boulevard, Ste. 900, Chicago, Illinois 60604. 
+
+ Doeren Mayhew 
+
+ C. Doeren Mayhew is censured pursuant to Rule 102(e) of the Commission's Rules of Practice. 
+
+ D. Within 10 days of the date of this Order, Doeren Mayhew shall pay disgorgement and prejudgment interest in the total amount of $115,126.86. Such payment shall be made within twenty (20) days of the entry of the Order. Such payments 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 Doeren Mayhew as a Respondent in these proceedings and the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Peter K.M. Chan, Assistant Regional Director, Midwest Regional Office, Securities and Exchange Commission, 175 West Jackson Boulevard, Ste. 900, Chicago, Illinois 60604. 
+
+ Behrens 
+
+ E. Behrens is denied the privilege of appearing or practicing before the Commission as an accountant. 
+
+ F. After three (3) years from the date of this order, Behrens 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 Behrens'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) Behrens, 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) Behrens, 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 Behrens's or the firm's quality control system that would indicate that Behrens 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) Behrens 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) Behrens 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. 
+	 
+ 
+
+ G. The Commission will consider an application by Behrens 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 Behrens's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+ Morris 
+
+ H. Morris is denied the privilege of appearing or practicing before the Commission as an accountant. 
+
+ I. After five (5) years from the date of this order, Morris 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 Morris'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) Morris, 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) Morris, 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 Morris's or the firm's quality control system that would indicate that Morris 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) Morris 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) Morris 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. 
+	 
+ 
+
+ J. The Commission will consider an application by Morris 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 Morris's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+ Rybicki 
+
+ K. Rybicki is denied the privilege of appearing or practicing before the Commission as an accountant. 
+
+ L. After one (1) year from the date of this order, Rybicki 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 Rybicki'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) Rybicki, 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) Rybicki, 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 Rybicki's or the firm's quality control system that would indicate that Rybicki 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) Rybicki 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) Rybicki 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. 
+	 
+ 
+
+ M. The Commission will consider an application by Rybicki 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 Rybicki's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+
+ By the Commission. 
+ 
+
+ Jonathan G. Katz 
+Secretary 
+
+ Endnotes 
+
+  
+
+ 
+  
+
+   1   Rule 102(e)(1)(ii) provides, in relevant part, that: 
+
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it . . . any person who is found . . . to have engaged in improper professional conduct. 
+
+ Rule 102(e)(1)(iii) provides, in relevant part, that: 
+
+ The Commission may deny . . . temporarily or permanently, the privilege of appearing or practicing before it . . . any person who is found…to have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities law or the rules or regulations thereunder. 
+
+   2   "Willfully" as used in this Order means intentionally committing the act which constitutes the violation, see  Wonsover v. SEC , 205 F.3d 408, 414 (D.C. Cir. 2000);  Tager v. SEC , 344 F.2d 5, 8 (2d Cir. 1965). There is no requirement that the actor also be aware that he is violating one of the Rules or Acts. 
+
+   3   In April 2002, the Commission filed a civil injunctive action against MCA's former officers and directors, including its former Chief Executive Officer and Chief Financial Officer. The Commission alleged, among other things, that these individuals had concealed their wrongful conduct from and lied to MCA's auditors. Thereafter, the United States filed criminal charges against many of these individuals, alleging that as part of the scheme to defraud, MCA's officers deceived the company's auditors. Since their indictment, six of MCA's former officers have pled to crimes arising from MCA's fraud 
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diff --git a/raw/aaer/2004/AAER-2109.txt b/raw/aaer/2004/AAER-2109.txt
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+              James T. Dooley, James E. Lorenz, III and John E. Isselmann, Jr.
+           
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+        James T. Dooley, James E. Lorenz, III and John E. Isselmann, Jr.
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+ SEC Also Brings Enforcement Action Against Former General Counsel of ESI 
+
+ The Securities and Exchange Commission announced the filing of financial fraud charges against James T. Dooley, who served as Chief Financial Officer and Chief Operating Officer and then Chief Executive Officer of Electro Scientific Industries, Inc. (ESI), and James E. Lorenz, III, the company's former Corporate Controller.  ESI, which makes manufacturing equipment for electronics and other high-technology manufacturers, is one of Portland, Oregon's largest public companies.  According to the Commission's complaint, Mr. Dooley and Mr. Lorenz engaged in a scheme to improperly inflate ESI's financial results, reporting a false profit rather than a loss for ESI's quarter ended August 31, 2002, and a substantially reduced loss for the quarter ended November 30, 2002.  After the fraud was discovered in 2003, ESI was later forced to correct the results for both quarters in a restatement of its financial results. 
+
+ In a separate action, the Commission also charged that John E. Isselmann, Jr., ESI's former General Counsel, failed to provide important information to ESI's Audit Committee, Board of Directors, and independent auditors regarding the key accounting transaction that enabled ESI to report a profit rather than a loss in the quarter ended August 31, 2002.  Without admitting or denying the Commission's allegations, Mr. Isselmann agreed to settle the enforcement action by paying a $50,000 civil penalty and consenting to an order prohibiting certain securities law violations. 
+
+ According to the complaint against them, beginning in at least the fall of 2002, Mr. Dooley, 50, of Cape Coral, Florida, and Mr. Lorenz, 41, of Portland, Oregon, conspired to falsely inflate ESI's declining financial results by covering up significant expenses through various accounting devices.  The fraud reached its climax during a late-night meeting on September 12, 2002 when Mr. Dooley and Mr. Lorenz secretly and unilaterally decided to eliminate all retirement and severance benefits for ESI's employees in Asia in order to increase ESI's bottom line for the quarter by $1 million.  The accounting fraud caused ESI to issue press releases and file quarterly reports with the Commission containing materially false financial statements that understated expenses and overstated net income.  In certifications required by the recently enacted Sarbanes- Oxley Act, Mr. Dooley also falsely stated that ESI's quarterly reports filed with the Commission were truthful.  As a result of the restatement, ESI's net income for the quarter ended August 31, 2002, was restated from a profit of $158,000 to a net loss of $3,394,000, and ESI's net loss for the quarter ended November 30, 2002, was restated from $9,548,000 to $12,908,000. 
+
+ With respect to the former General Counsel Isselmann, the Commission alleged that, although not involved in Mr. Dooley and Mr. Lorenz's late-night activities on September 12, 2002, Mr. Isselmann failed to provide important information to the Audit Committee, Board of Directors, and outside auditors relating to one of the restated accounting transactions.  Isselmann attended a meeting with ESI's Audit Committee and independent auditors to review the financial results for the quarter ended August 31, 2002, where he did not question a false statement by Dooley that the decision to eliminate the retirement benefits for employees in Asia had been reviewed by legal counsel.  Isselmann also was provided a document written for ESI's independent auditors stating that ESI was under no legal obligation to provide retirement benefits to its Japanese employees.  Isselmann later received written legal advice that contradicted what the Audit Committee and outside auditors had been told.  The advice stated that the law prohibited the unilateral elimination of such benefits.  Despite having opportunities to convey the advice to ESI's Audit Committee, Board, and independent auditors, Isselmann failed to do so.  Isselmann's failure allowed Dooley and Lorenz to hide an ongoing fraud.  Moreover, while in possession of the written legal advice stating that the law prohibited the unilateral elimination of the benefits, Isselmann was involved in the review process for ESI's quarterly report filed with the Commission describing the elimination of the benefits and the resulting impact on ESI's income.  Isselmann's conduct was a cause of the Company reporting materially false financial results for ESI's first quarter ended August 31, 2002, and violated a Commission rule prohibiting officers of public companies from omitting to state material facts to independent auditors. 
+
+ The Commission's civil complaint against Mr. Dooley and Mr. Lorenz, filed in federal district court in Portland, alleges that they violated or aided and abetted violations of the antifraud, internal controls, and books-and-records provisions of the federal securities laws (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 Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 12b-20, 13a-13, and 13b2-1 thereunder).  The complaint also charges that Dooley and Lorenz lied to ESI's outside auditors in violation of Exchange Act Rule 13b2-2, and that Dooley falsely certified that ESI's Commission filings were truthful in violation of Exchange Act Rule 13b-14.  The complaint seeks an injunction, civil monetary penalties, disgorgement, and an order barring Mr. Dooley and Mr. Lorenz from serving as an officer or director of a public company. 
+
+ The Commission's lawsuit against Isselmann charges that he omitted to state necessary material facts to ESI's independent auditors in violation of Exchange Act Rule 13b2-2.  Under the settlement, without admitting or denying the Commission's allegations, Mr. Isselmann agreed to pay a $50,000 civil penalty and consented to an injunction against similar securities law violations, and a Commission order directing that he cease and desist from causing violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13.   
+
+ The Commission also announced today that it would not bring any enforcement action against ESI because of its swift, extensive, and extraordinary cooperation in the Commission's investigation. This cooperation included reporting its discovery of possible misconduct to the Commission immediately upon the Audit Committee's learning of it, conducting a thorough and independent internal investigation, sharing the results of that investigation with the government (including not asserting any applicable privileges and protections with respect to written materials furnished to the Commission staff), terminating responsible wrongdoers, facilitating the Commission staff's investigation overseas, and implementing remedial actions designed to prevent the recurrence of fraudulent conduct.  These actions, among others, significantly facilitated the Commission's expeditious investigation of this matter. 
+
+ In a separate action, the United States Attorney's Office for the District of Oregon announced the filing of criminal securities fraud charges against Dooley and Lorenz.  The Commission acknowledges the assistance of the United States Attorney's Office, the Portland Division of the Federal Bureau of Investigation, and the Seattle Division of the U.S. Postal Inspection Service. 
+
+   SEC Complaint in this matter  (James T. Dooley and James E. Lorenz, III) 
+
+   SEC Complaint in this matter  (John E. Isselmann, Jr.) 
+
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diff --git a/raw/aaer/2004/AAER-2112.txt b/raw/aaer/2004/AAER-2112.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4285b71005e63572eaea9d432f39207627a839cc
--- /dev/null
+++ b/raw/aaer/2004/AAER-2112.txt
@@ -0,0 +1,1376 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
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+ 
+ 
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+     
+     SEC.gov | Jeremy R. Lent, John V. Hashman, Yinzi Cai, Douglas Wachtel and Bruce Rigione 
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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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+              Jeremy R. Lent, John V. Hashman, Yinzi Cai, Douglas Wachtel and Bruce Rigione
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+ On September 28, 2004, the Securities and Exchange Commission filed securities fraud charges against the former Chairman, Chief Executive Officer ("CEO") and three other senior officers of NextCard, Inc., a San Francisco, California-based credit card issuer.  NextCard, which is now in bankruptcy, was the first major credit card issuer to offer cards exclusively over the Internet. 
+
+ According to the Commission's complaint, beginning in at least November 2000, NextCard began to suffer higher than expected delinquencies and losses on its credit card loans-a reflection of customers paying their credit card bills late or not paying them at all.  Instead of revealing these problems to investors, NextCard's senior officers made a series of undisclosed, after-the-quarter accounting adjustments on NextCard's books.  The adjustments - which NextCard's then-CEO described in his own handwritten notes as "accounting gimmickry" - made it appear that NextCard's customers were paying their bills in a timely fashion, a key indicator of the financial health of a credit card issuer. 
+
+ In fact, NextCard's business model of issuing credit cards over the Internet resulted in NextCard issuing cards to many customers with relatively poor credit who could not pay back their credit card loans in a timely fashion and, in many instances, not at all.  Instead of accounting for these as bad loans and writing them off as uncollectible, as NextCard had done in previous quarters, NextCard simply reclassified many of these accounts as "fraudulent accounts," which were not separately reported to the public, and then failed to tell anyone.  Thus, defendants led stock analysts and investors to believe falsely that NextCard was meeting its projections and that its late-paying and uncollectible loans were rising only moderately, when in fact they were escalating rapidly. 
+
+ The Commission's complaint charges the following former NextCard officers with financial fraud: former Chairman Jeremy Lent of Holualoa, Hawaii; former CEO, John Hashman of Danville, Calif.; former President and Chief Operating Officer Yinzi Cai of Palo Alto, Calif.; former Controller, Douglas Wachtel of San Francisco, Calif.; and former Chief Financial Officer, Bruce Rigione of New Canaan, Conn.  The complaint, which was filed in federal district court in San Francisco, also charges Lent, Hashman, Cai and Wachtel with insider trading, based on their sale of NextCard stock at inflated prices during the course of the fraud.  Lent sold approximately $7 million worth of NextCard stock, Hashman sold $321,000, Cai sold $423,000 and Wachtel sold $105,000.  Lent's stock sales were carried out through the Lent Family Trust, which is also named in the complaint as a relief defendant. 
+
+ The complaint alleges that NextCard failed to disclose to investors reclassifications or changes in its accounting methodology for late paying and uncollectible loans in its earnings releases and periodic reports for the fourth quarter of the 2000 fiscal year and the first and second quarters of 2001.  In addition, the complaint alleges that for the second quarter of 2001 NextCard changed its methodology for calculating reserves for its uncollectible loans.  This change reduced the amount of reserves the company had to set aside to cover expected losses on its loans by 15% to 25%, and artificially inflated the company's reported net income for the second quarter of 2001. 
+
+ According to the complaint, in October 2001 the Office of the Comptroller of the Currency ("OCC"), which regulated NextCard's subsidiary, NextBank, required NextCard to reverse the reclassifications and changes in accounting methodology.  On October 31, 2001, NextCard issued a press release stating that it was changing its accounting for uncollectible loans and that the OCC considered NextBank to be significantly undercapitalized.  NextCard's stock price fell 84% that day, and the company went into bankruptcy the following year. 
+
+ The Commission's complaint charges the defendants with committing and aiding and abetting fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder, as well as aiding and abetting NextCard's violations of the same statue.  The complaint also charges Lent, Hashman, Rigione and Wachtel with aiding and abetting NextCard's violations of the reporting provisions of the Exchanges Act, Section 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  Further, Lent, Hashman, Cai and Wachtel are charged in the complaint for violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and for insider trading in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  The complaint also charges Lent, Hashman and Cai as control persons for NextCard's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and  Hashman and Lent as control persons for NextCard's violations of Section 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+
+ This is the second action brought by the Commission as a result of the financial fraud at NextCard.  In September 2003, the Commission charged three former employees of NextCard's independent auditors, Ernst and Young ("E&Y"), for altering and destroying E&Y's working papers for the fiscal year 2000 audit of E&Y client NextCard, Inc. 
+  
+ The Commission acknowledges the assistance and cooperation of the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2004/AAER-2116.txt b/raw/aaer/2004/AAER-2116.txt
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+
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+     SEC.gov | Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen 
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+           
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+        Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen
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+  Securities and Exchange Commission v. Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen , Civil Action No. 02 C 2180 (N.D. Ill.) (Judge Andersen). 
+
+ 	The Securities and Exchange Commission ("Commission") announced today that, on September 28, 2004, the United States District Court for the Northern District of Illinois entered final judgment as to defendant Bruce D. Tobecksen in the federal civil enforcement action filed by the Commission.  Tobecksen was the former vice president of finance at Waste Management, Inc. ("Waste Management" or "Company").  The Judgment permanently bars Tobecksen from acting as an officer or director of a public company and enjoins him from future violations of the antifraud and other provisions of the federal securities laws.  The Judgment also requires Tobecksen to pay a $120,000 civil penalty and $689,159 in disgorgement and prejudgment interest.  Tobecksen consented to the Judgment without admitting or denying the allegations in the Commission's complaint. 
+
+ The complaint in this action charges the founder, Tobecksen, and four other former top officers of Waste Management with perpetrating a massive financial fraud lasting more than five years.  The Commission alleges that, beginning in 1992 and continuing into 1997, defendants engaged in a systematic scheme to falsify and misrepresent Waste Management's financial results with profits being overstated by $1.7 billion.  The fraud resulted in what at the time was the largest restatement in history. 
+
+ Tobecksen was Waste Management's vice president of finance from March of 1993 until December of 1997.  The Commission's complaint alleges that, starting in 1994, Tobecksen was involved in two particular accounting manipulations - he recorded unsupported and erroneous depreciation entries and assisted in recording purported miscellaneous reclassification entries referred to as "geography."  According to the complaint, Tobecksen had responsibility for creating a new and improper methodology for calculating depreciation expense in 1994.  The complaint alleges that when told that the new method was flawed and overstated income, Tobecksen and other defendants let the error stand and grow and concealed it from the Company's outside auditors.  By 1996, the complaint alleges, they knew that the cumulative impact of the error exceeded $100 million.  The complaint alleges that "geography" worked by simply moving tens-of-millions of dollars from one income statement category of expense to another - from the correct one to an incorrect one.  According to the complaint, the entries improved or smoothed over the Company's reported operating margins or other quarterly trends discussed in the Company=s filings with the Commission.   
+
+ The complaint seeks disgorgement of Tobecksen's earnings-based performance bonuses and enhanced retirement benefits that were based on fraudulently overstated earnings.  The complaint charges Tobecksen with securities fraud, falsifying Waste Management's books and records, and aiding and abetting Waste Management's reporting and record keeping violations, in violation of Sections 10(b), 13(a), 13(b)(2)(A) of the Securities Exchange Act of 1934, Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1 promulgated thereunder, and Section 17(a) of the Securities Act of 1933. 
+
+ The Judgment permanently bars Tobecksen from acting as an officer or director of a public company and enjoins him from future violations, or aiding and abetting violations, of the above provisions of the federal securities laws.  Tobecksen also must pay disgorgement in the amount of $403,179, prejudgment interest thereon in the amount of $285,980, and a $120,000 civil penalty.  The Judgment permits the Commission to later file a motion to distribute the funds pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002.   
+
+ The Commission's litigation is continuing as to the five other former executives of Waste Management:  Dean L. Buntrock, Waste Management's founder, chairman of the Board of Directors, and chief executive officer during most of the relevant period; Phillip B. Rooney, president and chief operating officer, director, and CEO for a portion of the relevant period; James E. Koenig, executive vice president and chief financial officer; Thomas C. Hau, vice president, corporate controller, and chief accounting officer; and Herbert Getz, senior vice president, general counsel, and secretary. 
+
+ Additional information concerning this action and Commission actions related to this matter can be found at: 
+
+   Securities and Exchange Commission v. Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen, Civil Action No. 02-C-2180 (N.D. Ill. March 26, 2002) (Andersen, J.) [ Release No. LR-17435 ] (March 26, 2002)  
+
+   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);  
+
+  In the Matter of  Robert E. Allgyer, CPA , [ Release Nos. 33-7986, 34-44445 ] (June 19, 2001);  
+
+  In the Matter of  Edward G. Maier, CPA , [ Release Nos. 33-7987, 34-44446 ] (June 19, 2001);  
+
+  In the Matter of  Walter Cercavschi, CPA , [ Release Nos. 33-7988, 34-44447 ] (June 19, 2001);  
+
+  In the Matter of  Robert G. Kutsenda, CPA , [ Release No. 34-44448 ] (June 19, 2001).  
+   
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diff --git a/raw/aaer/2004/AAER-2129.txt b/raw/aaer/2004/AAER-2129.txt
new file mode 100644
index 0000000000000000000000000000000000000000..412fff97110bdada19ed13051ea2a21bc2476622
--- /dev/null
+++ b/raw/aaer/2004/AAER-2129.txt
@@ -0,0 +1,1471 @@
+
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+ 
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+   
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+     SEC.gov | David Kaplan, CPA 
+     
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+
+ Securities Exchange Act of 1934 
+Release No. 34-50597 / October 27, 2004 
+
+ Accounting And Auditing Enforcement 
+Release No. 2129 / October 27, 2004 
+
+ Admin. Proc. File No.  3-11721 
+
+     In the Matter of 
+ David Kaplan, CPA, 
+ Respondent. 
+   
+ : : : : : : : : :  
+  ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS, PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS 
+    I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against David Kaplan ("Kaplan" or "Respondent"), pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1   
+ 
+ II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.   
+	
+
+ III. 
+ On the basis of this Order and Respondent's Offer, the Commission finds that: 
+ 1.	Kaplan, 38, resides in Melville, New York and has been a certified public accountant licensed to practice in the State of New York.  He served as a Divisional Vice President in charge of the Financial Reporting Department of Computer Associates International, Inc.  ("CA") during the relevant period, from April 1999 through April 2000. 
+ 2.	CA was, at all relevant times, a Delaware corporation headquartered in Islandia, New York.  CA licenses software for computer mainframes and client server systems.  At all relevant times, CA'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 April 8, 2004, the Commission filed a complaint against Kaplan in SEC v. David Kaplan, (Civil Action No. 04 Civ. 1465 (I.L.G.)).  On April 13, 2004, the court entered an order permanently enjoining Kaplan, by consent, from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 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. 
+ 4.	The Commission's complaint alleged, among other things, that Kaplan engaged in a fraudulent scheme which resulted in CA improperly recording revenue and filing materially false and misleading financial statements on CA's Form 10-K for the fiscal year ended March 31, 2000, and in CA's quarterly reports on Form 10-Q for the first three quarters of fiscal year 2000.  The complaint alleged that Kaplan engaged in a number of improper accounting practices that fraudulently increased CA's annual and quarterly revenue and net income in a departure from generally accepted accounting principles ("GAAP").  These practices included, among other things, prematurely recognizing revenue from software license contracts.  In addition, the complaint alleged that Kaplan failed to disclose to CA's independent auditors certain of the Company's fraudulent revenue recognition practices and also failed to disclose information about these practices in response to questions by CA's outside counsel. 
+
+ 
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Kaplan's Offer. 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ Kaplan is suspended from appearing or practicing before the Commission as an accountant. 
+
+ By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+
+   
+See also the  Order in this matter  -->
+
+  Endnotes   
+   1   Rule 102(e) (3)(i) of the Commission's Rules of Practice 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. 
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diff --git a/raw/aaer/2004/AAER-2131.txt b/raw/aaer/2004/AAER-2131.txt
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index 0000000000000000000000000000000000000000..bd25a8abfcdf82bab228a394c64512dcc0172447
--- /dev/null
+++ b/raw/aaer/2004/AAER-2131.txt
@@ -0,0 +1,1371 @@
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+       
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 18954 / November 2, 2004 
+
+ Accounting and Auditing Enforcement 
+Release No. 2131 / November 2, 2004 
+
+  SEC v. David Rivard,  04 Civ. 1464 (E.D.N.Y.)(Glasser, I.L.); 
+
+  SEC v. David Kaplan,  04 Civ. 1465 (E.D.N.Y.)(Glasser, I.L.). 
+
+ FINAL JUDGMENTS IMPOSING CIVIL PENALTIES, DISGORGEMENT, PERMANENT INJUNCTIONS AND OTHER RELIEF ENTERED AGAINST DEFENDANTS DAVID RIVARD AND DAVID KAPLAN 
+
+ The Securities and Exchange Commission announced that on November 1, 2004, the United States District Court for the Eastern District of New York entered final judgments on consent against David Rivard and David Kaplan, former vice presidents of finance at Computer Associates International, Inc., ("CA"), fully resolving the Commission's litigation against those two defendants.  Rivard consented, without admitting or denying the allegations against him, to a final judgment that requires him to disgorge $83,700 in ill-gotten gains and interest and imposes a $75,000 civil penalty.  Kaplan consented, without admitting or denying the allegations against him, to a final judgment that requires him to disgorge $128,770 in ill-gotten gains and interest and imposes a $100,000 civil penalty.  The final judgments also reincorporate equitable relief that Rivard and Kaplan previously consented to in partial judgments entered by the court at the time the Commission filed the complaints.  The equitable relief includes permanent injunctions prohibiting Rivard and Kaplan from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and from aiding and abetting any violations of Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13.  In addition, the court permanently barred both Rivard and Kaplan from serving as an officer or director of a publicly held company.  On April 8, 2004, the Commission filed complaints alleging that Rivard and Kaplan participated in a widespread practice that resulted in the improper recognition of revenue by CA, one of the world's largest software companies.  During at least CA's fiscal year 2000, which ran from April 1, 1999 through March 31, 2000, CA prematurely recognized revenue from software contracts that had not yet been consummated, in violation of Generally Accepted Accounting Principles. The Commission's complaints allege that, based on this conduct, Rivard and Kaplan violated Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1 and 13b2-2 thereunder.  The complaints further allege that Rivard and Kaplan are also liable for aiding and abetting CA's violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.   
+
+ The Commission's investigation is continuing. 
+
+ For further information see Litigation Releases No.  18552  (January 22, 2004), No.  18665  (April 8, 2004) and No.  18891  (September 22, 2004). 
+
+
+
+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2004/AAER-2146.txt b/raw/aaer/2004/AAER-2146.txt
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index 0000000000000000000000000000000000000000..7d579fd6df6867572b9fe9c68c99af158f43c649
--- /dev/null
+++ b/raw/aaer/2004/AAER-2146.txt
@@ -0,0 +1,1372 @@
+
+
+ 
+ 
+   
+     
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+ 
+ 
+ 
+ 
+ 
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+     
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+     SEC.gov | Evan S. Collins 
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 18986 / November 30, 2004 
+
+ Accounting and Auditing Enforcement 
+Release No. 2146 / November 30, 2004 
+
+  Securities and Exchange Commission v. Evan S. Collins,  Civil Action No. C 04-5030 (FMS), N.D. Cal., November 30, 2004 
+
+ SEC CHARGES FORMER NETWORK ASSOCIATES FINANCIAL OFFICER WITH INSIDER TRADING 
+
+ On November 30, 2004, the Securities and Exchange Commission filed a complaint in the United States District Court for the Northern District of California against Evan S. Collins, a former senior financial officer for Network Associates, Inc., now known as McAfee, Inc.  The complaint charges that Collins traded in the securities of Network Associates while in possession of material, nonpublic information concerning fraudulent accounting practices at Network Associates and that his profits from the illegal trading were approximately $253,000. 
+ Also today, the U.S. Attorney for the Northern District of California filed criminal charges against Collins in connection with the same conduct. 
+ Simultaneously with the filing of the complaint, Collins has consented, without admitting or denying the allegations of the complaint, to the entry of an order permanently enjoining him from violating, directly or indirectly, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, which are antifraud provisions of the federal securities laws.  Collins also has consented to the entry of an order that bars him for five years from serving as an officer or director of a public company.  Collins has further consented to disgorge his unlawful trading profits of $253,125, together with prejudgment interest thereon in the amount of $63,336, for a total disgorgement of $316,461, and to pay a civil penalty of $253,125. 
+ The Commission's complaint alleges that, in September 2000, Collins, who formerly had served as Network Associates' Controller, was serving as Vice President and Chief Financial Officer of a Network Associates majority-owned subsidiary, McAfee.com.  At about that time, Collins learned that his successor at Network Associates, Terry Davis, had made journal entries in Network Associates' general ledger that improperly inflated the company's accounts receivable reserve.  By accessing the Network Associates accounting system from his computer at work, Collins confirmed this information and determined that Davis had transferred $15 million from the company's tax reserve account to an accounts receivable reserve account.  Collins knew that Davis's $15 million transfer was not in conformity with Generally Accepted Accounting Principles (GAAP), which provide that accounts receivable reserves should only be increased by a corresponding reduction to Network Associates' revenue. 
+ The complaint further alleges that, in October 2000, Collins learned that Davis was warning certain colleagues that they should sell their Network Associates stock.  Based on this and his knowledge of the material, nonpublic information concerning the improper accounting entries, Collins concluded that Network Associates had misstated its financial statements and, as a result, was in danger of not meeting its publicly announced revenue targets for the fourth quarter ending December 31, 2000. 
+ The complaint further alleges that on or about November 1, 2000, Collins exercised options on 30,000 shares of Network Associates stock and sold the shares in advance of Network Associates' fourth quarter earnings announcement.  On December 26, 2000, Network Associates stated in a press release that its sales for the fourth quarter 2000 would be only $55 million, dramatically lower than the company's earlier prediction of $245 million.  The news sent Network Associates' stock price down sharply and slashed more than $1 billion from the company's market capitalization.  By trading in advance of the fourth quarter 2000 earnings announcement, Collins realized unlawful profits of $253,125. 
+ The Commission's action against Collins is its third civil enforcement action related to the accounting fraud at Network Associates.  Previously, the Commission filed civil actions against Network Associates' former Controller Terry Davis (Litigation Release No. 18189) and former Chief Financial Officer Prabhat Goyal (Litigation Release No. 18748).  Both of these actions are pending.   
+ The Commission acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Northern District of California and the Federal Bureau of Investigation. 
+ The Commission's investigation into matters related to the fraud at Network Associates, now known as McAfee, Inc., is continuing.  
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+   SEC Complaint in this matter  
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