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+ Securities Exchange Act of 1934 
+Release No. 50978 / January 6, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2160 / January 6, 2005 
+
+ Admin. Proc. File No.  3-11789 
+
+     In the Matter of 
+ MONSANTO COMPANY, 
+ 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 Monsanto Company ("Monsanto," the "Company," or the "Respondent").  1     
+
+ 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 it and the subject matter of these proceedings, which are admitted, the 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. 
+
+ FACTS 
+ On the basis of this Order and the Respondent's Offer, the Commission finds  2   that:  
+ A.	Respondent 
+ Monsanto, a Delaware corporation based in St. Louis, Missouri, is a global producer of technology-based solutions and agricultural products for growers and downstream customers in agricultural markets.  The Company's common stock is registered with the Commission pursuant to Exchange Act Section 12(b) and is listed on the New York Stock Exchange. 
+ B.	Other Relevant Entities  3   
+ PT Monagro Kimia ("PTMK") is a majority-owned subsidiary of Monsanto with its headquarters in Jakarta, Indonesia.  PTMK reports to Monsanto through Monsanto's Asia Pacific regional management, which is headquartered in Singapore.  The results of financial operations of PTMK are included in Monsanto's consolidated results of financial operations. 
+ PT Branita Sandhini ("PTBS") is a contractually-controlled nominee company of Monsanto with its headquarters in Jakarta, Indonesia.  PTBS reports to Monsanto through Monsanto's Asia Pacific regional management, which is headquartered in Singapore.  The results of financial operations of PTBS are included in Monsanto's consolidated results of financial operations. 
+ PTMK and PTBS are collectively referred to herein as the "Indonesian affiliates." 
+ C.	Overview 
+ In 2002, a senior Monsanto manager, who was responsible for certain activities in the Asia Pacific region, authorized and directed an Indonesian consulting firm to make an illegal payment totaling $50,000 to a senior Indonesian Ministry of Environment official ("the senior Environment Official").  The bribe was made to influence the senior Environment Official to repeal an unfavorable decree that was likely to have an adverse effect on Monsanto's business.  Although the payment was made, the unfavorable decree was not repealed.  In addition, from 1997 to 2002, Monsanto inaccurately recorded, or failed to record, in its books and records approximately $700,000 of illegal or questionable payments made to various Indonesian government officials.  The approximate $700,000 was derived from a bogus product registration scheme undertaken by the Indonesian affiliates.  In certain instances, entries were made in the books and records of the Indonesian affiliates that concealed the source, use and true nature of these payments.  During the period, the Indonesian affiliates violated the accounting policies, controls, and procedures of Monsanto. 
+ D.	Background 
+ In addition to its pesticide business, Monsanto develops and produces various genetically-modified organisms ("GMOs").  GMOs are promoted as being better than conventional crops because they resist disease and pestilence, and produce higher yields.  Monsanto wanted to increase acceptance of GMO crops in Indonesia.  To do so, in 1998 Monsanto retained a Jakarta-based investment consulting firm ("consulting firm") that represented U.S. companies in Indonesia.  The consulting firm employed a United States national ("the consulting firm employee") and assigned him to lead Monsanto's account.  The consulting firm employee worked closely with the management team of the Indonesian affiliates and a senior Monsanto manager ("the senior Monsanto manager") who was responsible for certain activities in the Asia Pacific region.  The senior Monsanto manager is a citizen of, and was based in, the United States.   
+ On behalf of Monsanto, the senior Monsanto manager, management of the Indonesian affiliates, and the consulting firm employee lobbied for legislation and ministerial decrees favorable to GMO crops.  Thereafter, in February of 2001, Monsanto obtained limited approval from Indonesia's Ministry of Agriculture, for farmers in South Sulawesi, Indonesia to grow its Bollgard Cotton, a GMO crop.  4      
+ Later in 2001, the Ministry of Environment issued a decree amending Indonesia's longstanding law requiring an environmental impact assessment ("AMDAL") as a condition for approval for certain projects.  The AMDAL decree required, for the first time, certain agricultural products, such as Monsanto's Bollgard Cotton, to undergo an environmental impact assessment prior to cultivation within Indonesia.  The decree was likely to have an adverse effect on Monsanto's business interests in Indonesia.  Thus, through its Indonesian affiliates and the consulting firm, the Company lobbied for repeal of the decree.   
+ E.	Payment to the Senior Environment Official 
+ Due to a change in administration, in August of 2001, new Ministry of Environment officials were appointed.  Monsanto focused its lobbying efforts on the repeal of the AMDAL decree and met on multiple occasions with the senior Environment Official.  Near the end of 2001, when it became clear that the lobbying efforts were having no effect on the senior Environment Official, the senior Monsanto manager told the consulting firm employee to "incentivize" the senior Environment Official with a cash payment of $50,000.  The consulting firm employee discussed the payment with the senior Environment Official and, while the senior Environment Official did not promise to repeal the AMDAL amendment, the senior Environment Official indicated to the consulting firm employee that he would try. 
+ In order to fund the $50,000 payment, the senior Monsanto manager devised a scheme involving false invoices.  The senior Monsanto manager sent several e-mails, processed on a server located in the United States, to the consulting firm employee and spoke to him in person regarding the scheme.  During the planning of the payment to the senior Environment Official, the senior Monsanto manager told the consulting firm employee not to discuss the payment with any other employee of Monsanto. 
+ As part of the scheme, the senior Monsanto manager instructed the consulting firm employee to make the invoices total $66,000, so that the amount paid by Monsanto would include the amount necessary to cover the tax consequences of the consulting firm reporting Monsanto's payment as consulting fee income.  The senior Monsanto manager instructed the consulting firm employee to draft several invoices, detailing hours that the consulting firm employee spent traveling on two trips to the United States; in December of 2001 he accompanied the Minister of Environment to St. Louis, in January 2002 he was to accompany the Minister of Agriculture to St. Louis.  The invoices were submitted to Monsanto in the United States on December 20, 2001, several weeks before the second trip occurred.   
+ Despite Monsanto's retainer arrangement with the consulting firm, the invoices included detailed charges for hours allegedly expended by the consulting firm employee.  The invoices were different from the consulting firm's previous invoices because the amount charged was based on the hours allegedly spent on the trips whereas normally the consulting firm only billed the standard retainer amount plus any expenses.  The improper invoices also included charges for hours of other consulting firm employees who did not travel to the United States.  The breakdown accompanying the invoices made it appear as though other consulting firm employees also traveled to the United States.  Despite the obvious irregularities in the invoices, the senior Monsanto manager approved the invoices and convinced other Monsanto managers to approve the invoices for payment.  
+ In order for the consulting firm employee to withdraw $50,000 from the consulting firm's Indonesian bank account, he needed the approval of the president of the consulting firm.  During the time that the consulting firm employee was having discussions with the senior Monsanto manager and the senior Environment Official, he spoke to the consulting firm's president, informed the president of the plan to bribe the senior Environment Official, and gave the president periodic updates.  The consulting firm's president then authorized the firm's accounting department to release $50,000 in U.S. currency to the consulting firm employee. 
+ On or about February 5, 2002, the consulting firm employee visited the senior Environment Official at his home.  The consulting firm employee briefly spoke with the senior Environment Official, informed the senior Environment Official that he had the money, and then gave an envelope containing $50,000 in $100 bills to the senior Environment Official.  After the meeting, the consulting firm employee separately reported back to both the senior Monsanto manager and the consulting firm's president and informed each that he had given the money to the senior Environment Official.  In early March, the consulting firm received payment on the false invoices from Monsanto.  Despite the cash payment, the senior Environment Official never repealed the AMDAL requirement for Monsanto's products.  
+ F.	Internal Investigation and Discovery of Other Payments 
+ Monsanto first became aware of possible financial irregularities within its Indonesian affiliates in March of 2001.  Monsanto began an internal investigation, which continued at the direction of the Board of Directors.  As a result of the investigation, Monsanto notified the Commission of books and records and compliance irregularities involving the Indonesian affiliates.  While Monsanto's investigation uncovered numerous questionable payments, which Monsanto disclosed to the Commission, it did not uncover the payment to the senior Environment Official described above. 
+ The Indonesian affiliates established more than twenty nominee companies in Indonesia without the knowledge of Monsanto.  Several of these nominees were purportedly established to hold pesticide product registrations on Monsanto's behalf in exchange for a fee.  5     However, the Indonesian affiliates used the nominees to inflate sales of Monsanto's pesticide products between the Indonesian affiliates and the nominees.  This was done through a scheme of over-invoicing, in most cases, and "ghost" sales, in other cases.  The Indonesian management team then siphoned monies from these unauthorized and improperly documented sales to, in part, finance payments to Indonesian government officials.   
+ From 1997 to 2002, the Indonesian affiliates made at least $700,000 of illicit payments to at least 140 current and former Indonesian government officials and their family members.  The largest single set of payments was for the purchase of land and the design and construction of a house in the name of the wife of a senior Ministry of Agriculture official.  The total amount of improper payments made in 1998 and 1999 for the house and land was the rupiah equivalent of $373,990.  Other examples of improper payments include, among others, payments to a senior official of Budget Allocation at the National Planning and Development Board, totaling $86,690, and payments to other Ministry of Agriculture officials, totaling $8,100.  Other payments for travel and gifts (such as cellular phones and golf memberships) were also made by the Indonesian affiliates on behalf of various Indonesian government officials.    
+ In addition, questionable payments were made concerning a cotton gin in South Sulawesi, Indonesia.  In connection with the Sulawesi project, one of Monsanto's Indonesian affiliates, PTBS, entered into a ginning contract with an affiliate of the consulting firm.  Under the ginning contract, PTBS paid the affiliate of the consulting firm to gin the cotton grown in South Sulawesi using cotton gins "rented" from the Indonesian Government.  6     At the same time, PTBS had instituted a program wherein PTBS paid local South Sulawesi Department of Agriculture officials a certain percentage of each kilogram of cotton fruit produced.  Payments of approximately $29,500 were made to various officials under this payment scheme. 
+ G.	Books and Records Violations 
+ The Indonesian affiliates failed to properly account for the illicit payments.  Instead, members of the Indonesian management team used a complex scheme of bogus pesticide product registration fees and over-invoicing to finance off-book slush funds.  These off-book accounts were the source for reimbursements to employees of the Indonesian affiliates for numerous improper payments made to Indonesian officials.  These improper payments were inaccurately recorded by both the Indonesian affiliates and Monsanto as payments for bona fide services or bona fide product sales.  The improper payments were then reflected in Monsanto's consolidated financial statements as payments for bona fide services or bona fide product sales.   
+ H.	Internal Controls Violations 
+ During the review period, Monsanto lacked internal controls sufficient to detect or prevent the illicit payment schemes operated by the Indonesian affiliates.  In fact, from 1996 to 2001 Monsanto did not conduct any internal audits of its Indonesian affiliates.  7     Instead, Monsanto assumed the financial statement information it received from its Indonesian affiliates was accurate.  Despite the statements being unaudited, Monsanto management did not require the Indonesian affiliates to substantiate the information in the financial statements.  The absence of effective internal controls enabled the Indonesian management team to conceal their illicit payment scheme.   
+ I.	Cooperation and Remedial Actions Taken by Monsanto 
+ Upon completion of its internal investigation, Monsanto voluntarily approached the Commission's staff, notified the staff of the results of the investigation, and cooperated with the staff's investigation, including declining to assert its attorney-client privilege with respect to communications during the relevant time period.  Monsanto also undertook certain remedial actions.  In particular, Monsanto:  revised the accounting treatment of the subject payments and included the appropriate supporting documentation in the accounting records; terminated all Monsanto employees involved in improper financial activities or who failed to properly oversee such activities; terminated its relationship with the consulting firm; restructured its Indonesian affiliates; appointed a new Director of Business Conduct; and implemented an improved and expanded Foreign Corrupt Practices Act ("FCPA") compliance program for its worldwide operations. 
+
+ IV. 
+ FEDERAL SECURITIES LAW VIOLATIONS 
+ As a result of the conduct described above, Monsanto violated Section 30A of the Exchange Act, which makes it unlawful, in order to obtain or retain business, for any issuer with a class of securities registered pursuant to Section 12 of the Exchange Act to give, or authorize the giving of, anything of value to any foreign official for purposes of influencing the official or inducing the official to act in violation of his or her lawful duties. 
+ As a result of the conduct described above, Monsanto 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 disposition of their assets. 
+ As a result of the conduct described above, Monsanto violated Section 13(b)(2)(B) of the Exchange Act, which requires all reporting companies to devise and maintain a system of internal accounting controls sufficient to, among other things, provide reasonable assurances that transactions are recorded in accordance with management's general or specific authorization, access to assets is permitted only in accordance with management's general or specific authorization, and the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any difference. 
+ As a result of the conduct described above, Monsanto violated Section 13(b)(5) of the Exchange Act, which prohibits any person or company from knowingly circumventing or knowingly failing to implement a system of internal accounting controls as described in Section 13(b)(2)(B), or knowingly falsifying any book, record, or account as described in Section 13(b)(2)(A). 
+ As a result of the conduct described above, Monsanto violated Rule 13b2-1 of the Exchange Act, which prohibits any person or company from, directly or indirectly, falsifying or causing to be falsified, any book, record or account subject to Section 13(b)(2)(A). 
+
+ V. 
+
+ Monsanto has undertaken to: 
+ 1.	Retain, through its Board of Directors, by March 1, 2005 and for a period of three years thereafter, an independent consultant ("Independent Consultant"), not unacceptable to the staff of the Commission, to review and evaluate Monsanto's internal controls, record-keeping, and financial reporting policies and procedures as they relate to Monsanto's compliance with the books and records, internal accounting controls, and anti-bribery provisions of the FCPA, codified at Sections 13(b)(2)(A), 13(b)(2)(B) and 30A of the Exchange Act [15 U.S.C. §§ 78m(b)(2)(A) & (B) and 78dd-1].  Monsanto shall cooperate fully with the Independent Consultant and shall provide the Independent Consultant with access to its files, books, records, and personnel as reasonably requested for the review;	 
+ 2.	Require that the Independent Consultant issue a report, within sixty (60) days after being retained, summarizing the review and recommending policies and procedures reasonably designed to ensure compliance with the federal securities laws as they relate to the FCPA.  Simultaneously with providing that report to Monsanto's Board of Directors, Monsanto shall require that the Independent Consultant contemporaneously transmit a copy to Richard W. Grime, Assistant Director, Division of Enforcement, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C., 20549-0800; 
+ 3.	Adopt all recommendations in the report of the Independent Consultant; provided, however, that within sixty (60) days after the Independent Consultant serves that report, Monsanto shall in writing advise the Independent Consultant and the Commission of any recommendations that it considers to be unduly burdensome, impractical, or costly.  With respect to any recommendation that Monsanto considers unduly burdensome, impractical or costly, Monsanto need not adopt that recommendation at that time but shall propose in writing an alternative policy, procedure or system designed to achieve the same objective or purpose.  As to any recommendation on which Monsanto and the Independent Consultant do not agree, such parties shall attempt in good faith to reach an agreement within sixty (60) days after Monsanto serves the written advice. In the event Monsanto and the Independent Consultant are unable to agree on an alternative proposal, Monsanto will abide by the determinations of the Independent Consultant;  
+
+ 4.	Require the Independent Consultant to undertake a special review of Monsanto's policies and procedures as they relate to compliance with the federal securities laws as they relate to the FCPA during the first year and in the third year following the date of retention of the Independent Consultant.  During each review of Monsanto's compliance program, the Independent Consultant shall (i) certify that Monsanto's policies and procedures are appropriately designed to accomplish their goals, (ii) monitor Monsanto's implementation and compliance with the policies and procedures, and (iii) report on the Independent Consultant's findings to Monsanto's Corporate Compliance Officer as to the effectiveness of the policies and procedures.  Should the Independent Consultant, during this three-year period, determine that there is a reasonable likelihood that corrupt payments have been offered, promised, paid, or authorized by any Monsanto entity, including agents, consultants, and joint ventures, shareholders acting on Monsanto's behalf, and contractors and sub-contractors working directly or indirectly for Monsanto, the Consultant shall promptly report such payments to Monsanto's Corporate Compliance Officer and Monsanto shall then be obligated to promptly report the same to the staff of the Commission at the address listed above.  Should Monsanto fail to make such disclosure, the Independent Consultant shall independently disclose its findings to the staff of the Commission, at the address listed above, notwithstanding any privileged relationship that may exist between the Independent Consultant and Monsanto.  Further, the Independent Consultant shall disclose to the staff of the Commission in the event that Monsanto, or its officers, employees, consultants, agents, and joint ventures, or shareholders acting on Monsanto's behalf, or contractors or sub-contractors working directly or indirectly for Monsanto refuse to provide information necessary for the performance of the Independent Consultant's responsibilities.  By this Agreement, Monsanto agrees that any privilege, to the extent that it exists, shall not bar such disclosures by the Independent Consultant and that it will not take any action to retaliate against the Independent Consultant for such disclosures.  During the three-year period, Monsanto shall immediately disclose to the staff of the Commission, at the address listed above, any information of which it learns that suggests there is a reasonable likelihood that corrupt payments were offered, promised, paid, or authorized by any Monsanto entity, including agents, consultants, and joint ventures, shareholders working on Monsanto's behalf, and contractors or sub-contractors working directly or indirectly for Monsanto; and	 
+
+ 5.	Require the Independent Consultant to enter into an agreement with Monsanto that provides that for the period of engagement and for a period of two years from completion of the engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with Monsanto, or any of its present or former affiliates, directors, officers, employees, or agents acting in their capacity. The agreement will also provide that the Independent Consultant will require that any firm with which he/she is affiliated or of which he/she is a member, and any person engaged to assist the Independent Consultant in performance of his/her duties under this Order shall not, without prior written consent of the Securities and Exchange Commission's Division of Enforcement, enter into any employment, consultant, attorney-client, auditing or other professional relationship with Monsanto, 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. 
+
+ VI. 
+
+ In determining to accept the Offer, the Commission considered remedial actions taken by the Respondent and cooperation afforded the Commission staff. 
+
+ VII. 
+
+ In view of the foregoing, the Commission deems it appropriate to accept the Respondent's Offer and to impose the sanctions specified therein. 
+ Accordingly, it is hereby ORDERED, pursuant to Section 21C of the Exchange Act, that Respondent Monsanto: 
+	  cease and desist from committing or causing any violations and any future violations of Exchange Act Sections 30A, 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and Rule 13b2-1 thereunder; and   
+	 comply with the undertakings enumerated in Section V., above.   
+	  By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+  Endnotes   
+   1   In addition, the Commission has contemporaneously filed a complaint in the United States District Court for the District of Columbia charging Monsanto with violating Exchange Act Sections 30A, 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and Rule 13b2-1 thereunder and seeking civil penalties. Without admitting or denying the Commission's allegations, the Defendant has consented to the entry of a final judgment by the Court that would require Monsanto to pay a $500,000 civil penalty.  See  SEC v. Monsanto Company, Case No. 1:05CV00014 (D.D.C.), Lit. Rel. No. 19023 (January 6, 2005). 
+   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   During the relevant time, Indonesian law prohibited foreigners from conducting certain types of business and limited the business participation of foreign companies by requiring the participation of Indonesian nationals or companies in certain types of business.  As such, it was a common practice in Indonesia for foreign companies or individuals to organize Indonesian nominee companies to effect the foreign company's or individual's business purpose within Indonesia. 
+   4   Also called Bt Cotton, Bollgard Cotton is grown from seeds that are genetically modified to resist some insect pests and improve the fiber yield of the plant.   
+   5   For example, during the review period, the Indonesian affiliates paid false product registration fees totaling approximately $787,202 to at least two nominee companies established by the Indonesian affiliates.  The false registration fees, which were based on a percentage of sales of certain products, were paid to the two nominee companies despite the fact that other companies held the product registrations on Monsanto's behalf.  The legitimate holders of the product registrations did not charge Monsanto any such fees.  
+   6   There were multiple payment schemes likely designed to funnel money to Indonesian government officials with regard to the cotton gin used in South Sulawesi.  First, PTMK and PTBS entered into a contract with a third-party consultant to gain control of a gin for the affiliate of the consulting firm.  PTMK and PTBS agreed to pay $100,000 under this contract.  Second, the Indonesian affiliates entered into a second contract with another third-party consultant with the same stated objective, to gain control of a gin for an affiliate of the consulting firm.  PTMK agreed to pay $29,500 under this contract.  Despite the existence of these contracts, Monsanto has insufficient documentation of the use and ultimate destination of these funds.  Lastly, PTBS paid $1,000 per month to the Indonesian Plantation Agency, which owned the gin that milled the cotton.    
+   7   Statutory audits required under Indonesian law were also not conducted for PTBS for much of the review period.  
+
+   
+See also the  Order in this matter  -->
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+              Ronald J. Hottovy, CPA
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+        Ronald J. Hottovy, CPA
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+ Securities Exchange Act of 1934 
+Release No. 50995 / January 7, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2163 / January 7, 2005 
+
+ Admin. Proc. File No.  3-11792 
+
+     RONALD J. HOTTOVY, 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 apprpriate that public administrative proceedings be, and hereby are, instituted against Ronald J. Hottovy, CPA ("Respondent" or "Hottovy") 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.  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, the subject matter of these proceedings, and the findings contained in Section III. 1, 2 and 3 below, which are admitted, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e)(1)(iii) 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.	Hottovy is a Certified Public Accountant in the State of Colorado, but does not hold a license.  During the period from approximately December 1991 through April 1996 (the "relevant period"), Hottovy was employed as the Chief Financial Officer of Scientific Software-Intercomp, Inc. ("SSI").   
+ 2.	SSI was a Colorado corporation, headquartered in Denver, Colorado. SSI developed, sold and provided software and consulting services for the oil and gas industry.  SSI'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. § 781(g)] and during the relevant period was listed on NASDAQ. On September 11, 1997, the Commission filed a civil injunctive complaint in the United States District Court for the District of Columbia, captioned  SEC v. Scientific Software-Intercomp, Inc. , 97-CV-2091 (JGP) (D.D.C.), against SSI alleging violations of Section 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules l0b-5, 12b-20, 13a-1, l3a-11 and l3a-13 thereunder.  Simultaneous with the filing of the complaint, SSI consented, without admitting or denying the allegations of the complaint, to injunctive relief and agreed to restate its financial statements for the years ended December 31, 1993, 1994 and 1995. 
+ 3.	On July 30, 1998, the Commission filed a civil injunctive complaint in the United States District Court for the District of Colorado, captioned  SEC v. Ronald J. Hottovy, et al. , (98-S-1636), against Respondent and others alleging violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules l0b-5, 13b2-1, and 13b2-2 thereunder.  On January 10, 2003, after a federal jury found Hottovy liable on all counts before it, the United States District Court for the District of Colorado entered a Final Judgment of Permanent Injunction and Prohibition against Hottovy ("Judgment") which (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, and 13b2-2; 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. § 78l or that is required to file reports pursuant to 15 U.S.C. §78o(d). 
+ 4.  Beginning in at least 1992, and continuing until at least 1995, Hottovy willfully violated Sections 17(a)(1) and (3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by causing SSI to materially overstate its revenue and earnings by backdating or misdating contracts, booking revenue without contracts, overaccruing project revenues and providing confidential side letters modifying payment obligations.  As a result of these practices, SSI reported materially false and misleading financial information in its Annual Reports for fiscal 1993 and 1994, its Quarterly Reports for the first three quarters of fiscal 1994 and the first quarter of fiscal 1995, and in its S-1 registration statement in June 1994.  Further, Hottovy willfully violated Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder by making or causing the making of materially false and misleading accounting entries in SSI's books and records and providing false information to the company's independent auditors in connection with audits of SSI's financial statements.  
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate to accept Hottovy's Offer of Settlement and hereby ORDERS, effective immediately, that: 
+	 A.	Hottovy is denied the privilege of appearing or practicing before the Commission as an accountant for a period of five years. 
+	 B.	After five years from the date of this order, Hottovy 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:  
+		 
+			  Hottovy, 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;   
+			 Hottovy, 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 Hottovy's or the firm's quality control system that would indicate that Hottovy 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;   
+			 Hottovy 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   
+			 Hottovy acknowledges his responsibility, as long as Hottovy appears or practices before the Commission as an independent accountant, to comply with all requirements of the Commission and the Board, including, but not limited to, all requirements relating to registration, inspections, concurring partner reviews and quality control standards.     
+			  
+ The Commission will consider an application by Hottovy to resume appearing or practicing before the Commission provided that his state CPA license is current and he has resolved any and all other disciplinary issues with the applicable state boards of accountancy.  However, if state licensure is dependent on the reinstatement by the Commission, the Commission will consider an application on its merits.  The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Hottovy'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)(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…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. 
+
+   
+See also the  Order in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2166.txt b/raw/aaer/2005/AAER-2166.txt
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index 0000000000000000000000000000000000000000..0874e2e0688622ceeca54042f0c059fab97a999d
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@@ -0,0 +1,1370 @@
+
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+ 
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+     SEC.gov | Resnick, et al. 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19031 / January 11, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2166 / January 11, 2005 
+
+  Securities and Exchange Commission v. Resnick, et al.,  Civil Action No. 1:04-cv-05824-MGC (S.D.N.Y.) (July 27, 2004)  
+
+ SEC SETTLES ACTIONS AGAINST TWO PERSONS IN CONNECTION WITH FINANCIAL FRAUD AND INSIDER TRADING AT U.S. FOODSERVICE SUBSIDIARY OF ROYAL AHOLD 
+
+ On December 28, 2004 the Securities and Exchange Commission settled an enforcement action alleging fraud and other violations relating to the financial fraud and insider trading at Royal Ahold's U.S. Foodservice subsidiary with Timothy J. Lee and William Carter. 
+ On July 27, 2004 the SEC filed a complaint in the United States District Court for the Southern District of New York alleging that Michael Resnick, Mark P. Kaiser, Lee and Carter engaged in or substantially participated in a scheme to overstate Ahold's income by $700 million or more in SEC filings and other public announcements for at least fiscal years 2001 and 2002.  Resnick, Kaiser, Lee, and Carter were top executives at Columbia, Maryland based wholesale food distributor U.S. Foodservice, a major subsidiary of Ahold.  (Litigation Release No. 18797)  The complaint alleges that they grossly inflated reported profits and induced numerous suppliers to submit false confirmations to the company's auditors in order to conceal their fraud.  The Commission alleges that Resnick, former CFO, Kaiser, former Chief Marketing Officer, Lee, former Executive Vice President of Purchasing, and Carter, former Vice President of Purchasing, violated the antifraud provisions; aided and abetted violations of the reporting provisions; and violated and aided and abetted violations of the books and records provisions of the Securities Exchange Act of 1934 ("Exchange Act").  The Commission also alleges that Lee engaged in repeated instances of tipping material, nonpublic information regarding Ahold's March 2000 tender offer for U.S. Foodservice. 
+ Lee and Carter settled the Commission's action, without admitting or denying the allegations in the complaint, by consenting to permanent injunctions, officer and director bars, and payments of $235,000 disgorgement and $96,567 disgorgement and prejudgment interest, respectively.  Lee was enjoined from violating Sections 10(b), 13(b)(5), and 14(e) of the Exchange Act and Rules 10b 5, 13b2-1, and 14e-3 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 13b2-2 thereunder.  Carter was enjoined from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b 5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13b2-2 thereunder. 
+ The Commission will continue to litigate against the non-settling defendants.  The Commission's investigation is continuing.  The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York, the New York Office of the Federal Bureau of Investigation, and the U.S Department of Labor, Employee Benefits Security Administration. 
+ Related Actions 
+ The Commission also filed a related complaint against Peter O. Marion in connection with insider trading of USF securities (Litigation Release No.  18796 ).  The Commission also filed actions against Royal Ahold and others on October 13, 2004 (Litigation Release No.  18929 ).   
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diff --git a/raw/aaer/2005/AAER-2167.txt b/raw/aaer/2005/AAER-2167.txt
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+              Mark A. Bailin, Kenneth H. Bowman, Timothy Neal Daly, Michael J. Hannigan, Peter O. Marion, John Nettle, Gordon Redgate, Bruce Robinson, Michael Rogers, Mark A. Bailin
+           
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+        Mark A. Bailin, Kenneth H. Bowman, Timothy Neal Daly, Michael J. Hannigan, Peter O. Marion, John Nettle, Gordon Redgate, Bruce Robinson, Michael Rogers, Mark A. Bailin
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19034 / January 13 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2167 / January 13, 2005 
+
+  Securities and Exchange Commission v. Mark A. Bailin,  Civil Action No. 1:05CV00053 (KK) (D.D.C.) (January 13, 2005)  
+
+  Securities and Exchange Commission v. Kenneth H. Bowman,  Civil Action No. 1:05CV00054 (KK) (D.D.C.) (January 13, 2005)  
+
+  Securities and Exchange Commission v. Timothy Neal Daly,  Civil Action No. 1:05CV00055 (KK) (D.D.C.) (January 13, 2005)  
+
+  Securities and Exchange Commission v. Michael J. Hannigan,  Civil Action No. 1:05CV00056 (KK) (D.D.C.) (January 13, 2005)  
+
+  Securities and Exchange Commission v. Peter O. Marion,  Civil Action No. 1:05CV00057 (KK) (D.D.C.) (January 13, 2005)  
+
+  Securities and Exchange Commission v. John Nettle,  Civil Action No. 1:05CV00058 (KK) (D.D.C.) (January 13, 2005)  
+
+  Securities and Exchange Commission v. Gordon Redgate,  Civil Action No. 1:05CV00059 (D.D.C.) (January 13, 2005)  
+
+  Securities and Exchange Commission v. Bruce Robinson,  Civil Action No. 1:05CV00060 (KK) (D.D.C.) (January 13, 2005)  
+
+  Securities and Exchange Commission v. Michael Rogers,  Civil Action No. 1:05CV00061 (KK) (D.D.C.) (January 13, 2005)  
+
+  Securities and Exchange Commission v. Mark A. Bailin,  Civil Action No. 05 CV 286Berman (S.D.N.Y.) (January 13, 2005)  
+
+ NINE INDIVIDUALS CHARGED BY THE SECURITIES AND EXCHANGE COMMISSION WITH AIDING AND ABETTING FINANCIAL FRAUD AT ROYAL AHOLD'S U.S. FOODSERVICE SUBSIDIARY FOR SIGNING AND RETURNING FALSE AUDIT CONFIRMATIONS.  ONE ALSO CHARGED WITH INSIDER TRADING 
+
+ The Securities and Exchange Commission today filed enforcement actions against nine individuals alleging they aided and abetted a massive financial fraud by signing and returning materially false audit confirmations sent to them by the auditors of the U.S. Foodservice, Inc. subsidiary of Royal Ahold (Koninklijke Ahold N.V.).   The actions filed name as defendants Mark A. Bailin, Kenneth H. Bowman, Timothy Neal Daly, Michael J. Hannigan, Peter O. Marion, John Nettle, Gordon Redgate, Bruce Robinson and Michael Rogers.  All of these individuals were employees of or agents for vendors which supplied U.S. Foodservice. 
+ The Commission's complaints allege that U.S. Foodservice personnel contacted vendors and urged them to sign and return the false confirmation letters.  In some cases U.S. Foodservice pressured the vendors; in other cases they provided side letters to the vendors assuring the vendors that they did not owe U.S. Foodservice the amounts reflected as outstanding in the confirmation letters.  The letters clearly stated that the confirmations were being used in connection with the annual audit and the letters directed the defendants to return the confirmations directly to the company's auditors.   
+ Each of the individuals aided and abetted the fraud by signing and sending to the company's independent auditors confirmation letters that they knew materially overstated the amounts of promotional allowance income paid or owed to U.S. Foodservice.  The amounts overstated in the confirmations were often inflated by millions of dollars and by more than 100 percent. 
+ The complaints allege that U.S. Foodservice engaged in a scheme to report earnings equal to or greater than its targets, regardless of the company's true performance.  U.S. Foodservice inflated its promotional allowance income by at least $700 million for fiscal years 2001 and 2002 and thereby caused Ahold to report materially false operating and net income for these periods.  The annual audit confirmation process at U.S. Foodservice was systematically corrupted to help keep the fraud from being discovered.   
+ The complaints allege aiding and abetting violations of Sections 10(b), 13(a) [in most cases], 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 [in most cases], and 13b2-1 thereunder.  Bailin, Hannigan, Nettle, Redgate, and Rogers have each agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to permanent injunctions and payment of a $25,000 penalty.  Also today, the U.S. Attorney's Office for the Southern District of New York announced criminal charges in this matter.   
+ The Commission also filed today a separate complaint against Bailin alleging that during February and March of 2000, after learning of material, nonpublic information about Ahold's intention to acquire U.S. Foodservice, he traded in the shares of U.S. Foodservice and recommended the purchase of U.S. Foodservice to six other traders.  The complaint alleges that he made illegal profits of approximately $1,144,794 and the other six traders had a combined profit of $1,079,653.  The complaint alleges violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder.  Bailin has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to a permanent injunction, and payment of $2,224,446.51 disgorgement, $751,031.78 prejudgment interest and a $175,000 penalty. 
+
+ Related Actions 
+
+ On July 27, 2004 the SEC filed a complaint in the United States District Court for the Southern District of New York alleging that Michael Resnick, Mark P. Kaiser, Lee and Carter engaged in or substantially participated in a scheme to overstate Ahold's income in SEC filings and other public announcements for at least fiscal years 2001 and 2002.  Resnick, Kaiser, Lee, and Carter were top executives at Columbia, Maryland based wholesale food distributor U.S. Foodservice, a major subsidiary of Ahold (Litigation Release No. 18797).  The Commission also filed a related complaint against Peter O. Marion in connection with insider trading of U.S. Foodservice securities (Litigation Release No. 18796).  On October 13, 2004, the Commission filed actions against Royal Ahold and others on October 13, 2004 (Litigation Release No. 18929). 
+ The Commission's investigation is continuing.  The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York, and the New York Office of the Federal Bureau of Investigation. 
+
+
+   SEC Complaint in this matter  (Mark A. Bailin) 
+
+   SEC Complaint in this matter  (Mark A. Bailin) 
+
+   SEC Complaint in this matter  (Kenneth H. Bowman) 
+
+   SEC Complaint in this matter  (Timothy Neal Daly) 
+
+   SEC Complaint in this matter  (Michael J. Hannigan) 
+
+   SEC Complaint in this matter  (Peter O. Marion) 
+
+   SEC Complaint in this matter  (John Nettle) 
+
+   SEC Complaint in this matter  (Gordon Redgate) 
+
+   SEC Complaint in this matter  (Bruce Robinson) 
+
+   SEC Complaint in this matter  (Michael Rogers) 
+
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diff --git a/raw/aaer/2005/AAER-2169.txt b/raw/aaer/2005/AAER-2169.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d798a23a9210c28f003f37116375f89a398effc3
--- /dev/null
+++ b/raw/aaer/2005/AAER-2169.txt
@@ -0,0 +1,1459 @@
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+        PricewaterhouseCoopers LLP
+       
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+
+ Securities Exchange Act of 1934 
+Release No. 51056 / January 19, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2169 / January 19, 2005 
+
+ Admin. Proc. File No.  3-11132 
+
+     In the Matter of 
+ PricewaterhouseCoopers LLP, 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER EXTENDING DATE FOR COMPLETION OF INDEPENDENT CONSULTANT'S REPORT  
+   I. 
+ On May 22, 2003, the Securities and Exchange Commission ("Commission") issued an Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Remedial Sanctions ("May 22, 2003 Order") in the Matter of PricewaterhouseCoopers LLP ("PwC").  PwC undertook to complete certain actions detailed in paragraphs 1 through 3 of Section III of the May 22, 2003 Order. 
+
+ II. 
+ PwC has requested to extend the date from February 22, 2005 until March 31, 2005, by which it undertakes to require an independent consultant to complete a review and simultaneously submit a written report documenting its findings to PwC, the Commission and the Public Company Accounting Oversight Board.   
+ 
+ III. 
+ After consideration of PwC's request, the Commission has determined that it is appropriate to grant the extension and the May 22, 2003 Order is hereby amended. 
+
+
+
+ By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+
+   
+See also the  Order in this matter  -->
+
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diff --git a/raw/aaer/2005/AAER-2172.txt b/raw/aaer/2005/AAER-2172.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9300e488c29c6c4a8cf718feb9e8022e51c100ae
--- /dev/null
+++ b/raw/aaer/2005/AAER-2172.txt
@@ -0,0 +1,1507 @@
+
+
+ 
+ 
+   
+     
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+ 
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+     SEC.gov | Daisytek International Corporation 
+     
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+              Daisytek International Corporation
+           
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+ 
+
+   
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+        Daisytek International Corporation
+       
+
+             
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+        
+                   
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+    
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+
+ Securities Act of 1933 
+Release No. 8525 / January 24, 2005 
+
+ Securities Exchange Act of 1934 
+Release No. 51072 / January 24, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2172 / January 24, 2005 
+
+ Admin. Proc. File No.  3-11799 
+
+     In the Matter of 
+ Daisytek International Corporation, 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER, PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934   
+   I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), against Daisytek International Corporation ("Daisytek," "Company," 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 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:  
+
+ RESPONDENT 
+ 1.	 Daisytek , a Delaware corporation based in Allen, Texas, was previously a NASDAQ listed, Fortune 1000 company.  On May 8, 2003, in its Form 8-K, Daisytek reported that it had filed a voluntary petition under Chapter 11 of the U. S. Bankruptcy Code on May 7, 2003.  Prior to filing for bankruptcy, Daisytek was engaged in the sale and distribution of office products and computer supplies, both in the United States and internationally, but it currently has only limited business operations.  Daisytek's common stock was, until recently, registered under Section 12(g) of the Exchange Act. 
+ EARNINGS MANAGEMENT 
+ 2.	Daisytek managed improperly its earnings during its fiscal years ended in 2001, 2002, and 2003.  2      
+ 3.	For the year ended March 31, 2001, Daisytek reported revenues of $1.01 billion and net income of $11.43 million.  For the year ended March 31, 2002, Daisytek reported revenues of $1.19 billion and net income of $10.85 million.  For the 9 months ended December 31, 2002, Daisytek reported revenues of $1.33 billion and a net loss of $24.15 million. Daisytek did not file annual financial statements for the year ended March 31, 2003. 
+ 4.	Daisytek regularly announced earnings forecasts it could not meet, and its inability to meet those forecasts led it to implement a practice known as "booking to budget."  The practice involved, on a monthly basis, booking fictitious "budgeted" revenue and expense amounts, based on the earnings forecasts and budgeted expenses, instead of actual revenue and expense amounts.  
+ 5.	At the end of each quarter, Daisytek closed the gap between its actual results and the "booked to budget" amounts by making large inventory purchases.  The large inventory purchases provided the Company with vendor allowances such as rebates, market development funds ("MDF"), and co-op funds, which the Company immediately booked as revenue or as reductions to the cost of goods sold during the quarter.  3     Daisytek thereby instantly inflated reported earnings and appeared more profitable.   
+ 6.	The large, quarter-end inventory purchases negatively affected Daisytek's liquidity and operations because they typically involved products that were unnecessary for the Company's operations, but on which manufacturers provided large vendor allowances because such products were slow moving.  As a result, Daisytek exhausted its capital through purchases of slow-moving products, which hampered its ability to maintain sufficient inventory of its fastest moving "A" products.  4    
+ 7.	The quarter-end inventory purchases impaired Daisytek's ability to operate profitably.  As a result, the Company needed to make ever-increasing purchases to cover ever-worsening earnings, and the situation spiraled downward.  As a result, the Company's liquidity was so negatively affected that its suppliers placed it on credit hold in late 2002 and early 2003.  At that point, the Company could neither purchase the inventory it needed to meet customer demands, nor profitably sell its excess inventory of slow-moving products, and its business quickly unraveled, leading to Daisytek's bankruptcy. 
+ INADEQUATE AND MISLEADING DISCLOSURE 
+ 8.	Daisytek provided false and misleading descriptions about its inventory-purchasing policy in quarterly and annual reports filed with the Commission.  For example, Daisytek's Form 10-K for the year ended March 31, 2002 stated:  "Our purchases of inventory generally are closely tied to sales and are usually based upon the sales volume of the most recent six to ten week periods;" and "Daisytek manages its inventories held for sale in its core wholesale distribution business by maintaining sufficient quantities of product to achieve high order fill rates while at the same time maximizing inventory turnover rates."  In fact, as noted above, many of Daisytek's inventory purchases bore no relation to historical sales or an effort to maximize inventory turnover rates, and were based solely on the Company's need for vendor allowances to meet its earnings forecasts. 
+ 9.	Daisytek failed to provide material information, in quarterly and annual reports filed with the Commission, about its reliance on vendor allowances or the effects vendor allowances had on its operations.  Funds from vendor allowances often exceeded the earnings reported by Daisytek.  For example, Daisytek recorded $22 million of vendor allowances in its books for the year ended March 31, 2002, and reported annual net income of $10.85 million in its Form 10-K. The Company did not disclose, however, that a significant portion of its reported earnings came through vendor allowances, as opposed to sales.   
+
+ IMPROPER ACCOUNTING 
+ 10.	Daisytek mischaracterized and improperly accounted for vendor allowances by routinely characterizing manufacturer rebates (which should be recognized for accounting purposes when a product is sold through) as MDF and co-op funds (which can be immediately recognized as revenue).  This practice allowed the Company to accelerate earnings and improperly recognize millions of dollars of rebates instantly as revenue in the form of MDF and co-op funds. 
+ 11.	Daisytek also regularly recorded vendor allowances that it knew or was reckless in not knowing were non-existent, or were wholly or partially uncollectible.  During early 2002, for example, Daisytek booked $1.7 million in vendor allowances for the production of a catalog, without receiving any commitments from vendors for the $1.7 million (approximately $700,000 of which had to be written off in late 2002).  In late 2002, Daisytek wrote off $900,000 in co-op funds that it had previously booked, but for which it had no indication of collectability.  On numerous occasions, Daisytek also booked vendor allowances to offset corporate expenses such as office parties, business travel, and community-event sponsorships, without having commitments from vendors to pay for those expenses. 
+ 12.	Daisytek also under-recorded expenses.  For example:  (i) when actual expenses exceeded budgeted expenses, the Company repeatedly ignored the actual figures and booked the budgeted figures; (ii) the Company under-stated freight expenses by at least $1.8 million during late 2001 and 2002; and (iii) during 2002, Daisytek failed to recognize the expenses it was incurring to develop a new catalog, although it had recognized non-existent vendor allowances in connection with the production of that catalog. 
+ 13.	Daisytek also engaged in numerous other accounting improprieties, including: (i) recording receivables without adequate supporting documentation; (ii) failing to write off uncollectible receivables on a timely basis; and (iii) failing to record adequate inventory reserves.  
+
+ INTERNAL CONTROL DEFICIENCIES 
+ 14.	Daisytek failed to devise and maintain a system of internal accounting controls that were sufficient to provide reasonable assurances that its transactions were recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets.  For example: (i) Daisytek improperly recorded vendor rebates as MDF and co-op funds; and (ii) Daisytek's general ledger contained unsubstantiated journal entries. 
+
+ SECURITIES OFFERING 
+ 15.	Daisytek offered and sold securities to its employees in 2001 and 2002 pursuant to S-8 registration statements filed with the Commission, and failed to disclose in connection with those offerings that the Company was managing and inflating earnings as described herein. 
+
+ FEDERAL SECURITIES LAW VIOLATIONS 
+ 16.	As a result of the conduct described above, Daisytek violated Section 17(a) of the Securities Act, which prohibits making misstatements or omissions of a material fact in the offer or sale of any securities.  
+ 17.	As a result of the conduct described above, Daisytek 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. 
+ 18.	As a result of the conduct described above, Daisytek violated Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 thereunder, which required Daisytek to file information and documents as prescribed by the Commission, including annual and quarterly reports, and to include in those reports any material information as may be necessary to make the required statements in those reports not misleading in light of the circumstances under which the statements were made.   
+ 19.	As a result of the conduct described above, Daisytek 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.  
+ 20.	As a result of the conduct described above, Daisytek violated Section 13(b)(2)(B) 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 conformity with generally accepted accounting principles; and prohibit any person from, directly or indirectly, falsifying or causing to be falsified, any book, record or account. 
+
+ UNDERTAKINGS 
+ 21.	Respondent undertakes to cooperate with the Commission's continuing investigation of the matters discussed herein.  
+ 22.	In determining whether to accept the Offer, the Commission has considered this undertaking. 
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Daisytek's Offer. 
+ Accordingly, it is hereby ORDERED that: 
+ Respondent Daisytek 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, 13a-1, 13a-13, and 13b2-1, 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   Daisytek's fiscal year is April 1 through March 31. 
+   3   Rebates are discounts that manufacturers give based on specific purchases of products.  Manufacturers typically make MDF payments to a distributor for the distributor's efforts to create a market for the manufacturer's product (e.g., creating and circulating pamphlets).  Co-op funds are very similar to MDF payments, except that a manufacturer may pay co-op funds for a specific activity it directs the distributor to undertake, and MDF funds are for general marketing activities, over which the distributor may have more discretion. 
+   4   In some cases, the Company had well in excess of a two-year supply of products subject to obsolescence and price decreases. Daisytek, at year-end 2001, reported inventory of $83.6 million; at year-end 2002, $115.4 million; and, for the 9 months ended December 31, 2002, inventory of $190.7 million. 
+
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diff --git a/raw/aaer/2005/AAER-2173.txt b/raw/aaer/2005/AAER-2173.txt
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+              Penthouse International, Inc., Charles Samel and Jason Galanis
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+        Penthouse International, Inc., Charles Samel and Jason Galanis
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19048 / January 24, 2005 
+
+ Accounting and Auditing Enforcement  
+Release No. 2173 / January 24, 2005 
+
+  Securities and Exchange Commission v. Penthouse International, Inc., Charles Samel and Jason Galanis,  05 CV 0780 (RWS)  (S.D.N.Y.) 
+
+ SEC CHARGES PENTHOUSE INTERNATIONAL, INC., A FORMER OFFICER, AND A SHAREHOLDER WITH ACCOUNTING FRAUD, REPORTING VIOLATIONS, AND VIOLATIONS OF THE SARBANES-OXLEY CERTIFICATION RULES 
+
+ SEC SIMULTANEOUSLY INSTITUTES AND SETTLES A RELATED CEASE-AND-DESIST PROCEEDING AGAINST ROBERT C. GUCCIONE,  FORMERLY PENTHOUSE'S PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER  
+
+The Securities and Exchange Commission announced today that it filed a civil injunctive action against Penthouse International, Inc., now known as PHSL Worldwide, Inc., a former officer of Penthouse, Charles Samel, and a Penthouse shareholder, Jason Galanis, charging them with accounting fraud, reporting violations and violations of the Sarbanes-Oxley certification rules.  The Commission also announced today that it instituted a separate settled cease-and-desist proceeding against Penthouse's former Chief Executive Officer, Robert C. Guccione. 
+
+The Commission's complaint, which was filed in the United States District Court for the Southern District of New York, alleges that Penthouse, Samel and Galanis engaged in accounting fraud and financial reporting violations at Penthouse in connection with the company's Form 10-Q for the quarter ended March 31, 2003.  
+
+ According to the complaint: 
+	  Penthouse improperly included as revenue on the financial statements for that quarter $1 million received as an up-front payment in connection with a five-year website management agreement.  That payment should not have been recognized in that quarter because (1) the agreement was not actually signed until the following quarter, and (2) under generally accepted accounting principles (GAAP), the $1 million payment should have been recognized as deferred revenue and amortized into income over the five-year life of the agreement.  The inclusion of the $1 million payment under the agreement increased Penthouse's reported revenue by approximately 9%, from $11,072,000 to $12,072,000 and changed a quarterly net loss of $167,000 to a purported net profit of $828,000.    
+	 Penthouse's Form 10-Q was materially misleading in several other respects.  For example, it bore an unauthorized electronic signature of Robert C. Guccione, Penthouse's principal executive officer and principal financial officer, and thus represented that Guccione had reviewed and signed it, and the accompanying Sarbanes-Oxley certification.  This representation was false: In fact, Guccione had not seen or approved the filing of the Form 10-Q or the Sarbanes-Oxley certification.  Penthouse's auditors and outside counsel also had not reviewed the filing, a fact that also was not disclosed in the filing.     
+	 Samel and Galanis prepared and filed the false Form 10-Q, and they did so knowing or recklessly disregarding that Guccione had not seen or approved it, that Penthouse's auditor had not performed its required review of the Form 10-Q, and that it would be improper to include the $1 million payment as revenue for the quarter ended March 31, 2003.   
+	 Penthouse then made two subsequent filings on Form 8-K that purported to correct misstatements in the 10-Q, but continued to make material misrepresentations and omissions.  In both of these filings, Penthouse failed to disclose that Guccione had not reviewed, approved or signed the 10-Q or the attached Sarbanes-Oxley certification.  In one of these filings, moreover, Penthouse misrepresented that Penthouse's disclosure controls and procedures were adequate.     
+	  The complaint alleges that Penthouse and Samel violated, and Galanis aided and abetted violations of, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder.   Further, the complaint alleges that Penthouse violated Section 15(d) of the Exchange Act and Rules 12b-20, 15d-11, 15d-13 and 15d-14 thereunder, that Samel and Galanis aided and abetted violations of Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-13 thereunder, and that Samel also aided and abetted violations of Rule 15d-14.  In its complaint, the Commission seeks permanent injunctions and civil penalties as to all of the defendants; and officer and director bars against Samel and Galanis.  The litigation is pending. 
+
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+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2175.txt b/raw/aaer/2005/AAER-2175.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7bd6b194370ecb84679e6b5ddab9c04d05efbe50
--- /dev/null
+++ b/raw/aaer/2005/AAER-2175.txt
@@ -0,0 +1,1468 @@
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+       
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+ Securities Exchange Act of 1934 
+Release No. 51045 / January 14, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2175/January 14, 2005 
+
+ Admin. Proc. File No.  3-11675 
+
+     In the Matter of 
+ DANIEL S. LEZAK, 
+   
+ : : : : : :  
+  ORDER MAKING FINDINGS AND IMPOSING SANCTION BY DEFAULT  
+   SUMMARY 
+ This Order permanently suspends Daniel S. Lezak (Lezak) from appearing or practicing before the Securities and Exchange Commission (Commission).  Lezak was previously enjoined from violating the antifraud and reporting provisions of the securities laws.  
+
+ I.  BACKGROUND 
+ The Commission issued its Order Instituting Proceedings (OIP) against Lezak on September 22, 2004, pursuant to 17 C.F.R. § 201.102(e)(3) and temporarily suspended him from appearing or practicing before the Commission.  Lezak filed a petition, pursuant to 17 C.F.R. § 201.102(e)(3)(ii), seeking to lift the temporary suspension.  The Commission denied his petition and ordered a hearing in its Order Denying Motion to Lift Temporary Suspension and Directing Hearing (Hearing Order) on November 23, 2004.  The Division of Enforcement (Division) is seeking to make the temporary suspension permanent.  At a prehearing conference on January 14, 2005, Lezak affirmatively stated that he would not defend the proceeding and would accept a default ordering the relief that the Division seeks. 
+ Lezak is in default within the meaning of 17 C.F.R. § 201.155(a)(2) in that he affirmatively declined to defend the proceeding.  Accordingly, the undersigned finds that the allegations in the OIP and Hearing Order are true.  
+ 
+ II.  FINDINGS OF FACT 
+ Lezak has been permanently enjoined from violations of the antifraud and reporting provisions of the Securities Exchange Act of 1934 (Exchange Act).   SEC v. Madera Int'l, Inc. , Civil Action No. 01-1985 (JR) (D.D.C. Sept. 1, 2004).  The wrongdoing that underlies his injunction concerned Madera International, Inc. (Madera), a now-defunct corporation.  The common stock of Madera was registered with the Commission pursuant to Section 12(g) of the Exchange Act during all relevant times.  Lezak was chairman, chief executive officer, and chief financial officer of Madera from early 1994 through mid-1996.  During 1994, 1995, and 1996, Lezak knowingly signed and caused to be filed with the Commission falsified financial statements, which, among other things, misrepresented ownership interests in, and values of, various timberland properties. 
+
+ III.  CONCLUSIONS OF LAW 
+ Lezak has been permanently enjoined "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" within the meaning of 17 C.F.R. § 201.102(e)(3).  He has affirmatively stated that he will not defend this proceeding.   See  17 C.F.R. §§ 201.102(e)(3)(iv), .155(a)(2).  
+
+ IV.  SANCTION 
+ The Division requests that Lezak be permanently suspended from appearing or practicing before the Commission.  1      This sanction is consistent with 17 C.F.R. § 201.102(e)(3), and accords with Commission precedent and the sanction considerations set forth in  Steadman v. SEC , 603 F.2d 1126, 1140 (5th Cir. 1979). 
+
+ V.  ORDER 
+ IT IS ORDERED that DANIEL S. LEZAK IS PERMANENTLY SUSPENDED from appearing or practicing before the Commission. 
+
+
+
+
+	 
+	 __________________________________ 
+	Carol Fox Foelak 
+	Administrative Law Judge 
+	 
+
+  Endnotes   
+   1   "Practicing before the Commission" includes "transacting any business with the Commission."  17 C.F.R. § 201.102(f). 
+
+   
+See also the  Order in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2179.txt b/raw/aaer/2005/AAER-2179.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cb1196d87bf07d42af44331c376b0f51d02d3325
--- /dev/null
+++ b/raw/aaer/2005/AAER-2179.txt
@@ -0,0 +1,1371 @@
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+              Raymond M. Bowen, Jr.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19063 / February 7, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2179 / February 7, 2005 
+
+  Securities and Exchange Commission v. Raymond M. Bowen, Jr.,  Civil Action No. H-05-00384 (SDTX) (February 7, 2005) 
+
+ SEC CHARGES FORMER ENRON EXECUTIVE RAYMOND M. BOWEN, JR. WITH VIOLATING FEDERAL SECURITIES LAWS 
+
+ Defendant Barred From Serving As Officer Or Director of Public Company for Five Years and Ordered to Pay $500,000 
+
+ The Securities and Exchange Commission today charged Raymond M. Bowen, Jr. with violating the antifraud provisions of the federal securities laws and for aiding and abetting Enron's violations of the reporting and record keeping provisions.  As alleged in the Complaint, Bowen knew or was reckless in not knowing of a scheme to manipulate Enron's publicly-reported earnings through a variety of devices designed to produce materially false and misleading financial results, including the overvaluation of Enron's "merchant" investments in energy and technology companies.   Bowen has agreed to a permanent injunction and to be barred from acting as an officer or director of a public company for five years.  As part of the settlement agreement, which is subject to the approval of the U.S. District Court, Bowen will pay nominal disgorgement of $100 and a civil penalty of $499,900.  
+ Specifically, the Commission's Complaint alleges the following:  Bowen, while serving as managing director of Enron North America (ENA) and co-head of its commercial transactions group, had oversight responsibilities regarding portions of ENA's merchant portfolio during the second and part of the third quarters of 2000, and knew or was reckless in not knowing that the merchant portfolio was materially overvalued on Enron's books.  Bowen also was aware that certain assets were hedged by special purpose entities (SPEs), and knew or was reckless in not knowing that the SPEs did not provide a true economic hedge, and were used to manipulate Enron's financial statements.  Bowen knew or was reckless in not knowing that a $100 million increase to the book value of Enron's largest merchant asset, Mariner Energy, Inc., was recorded in the fourth quarter of 2000 to generate fictitious mark-to-market earnings sufficient to meet Enron's targets.   
+ Bowen 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 from aiding and abetting the violation 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.  Bowen consented to the entry of Final Judgment by the Court without admitting or denying the allegations of the Complaint. 
+ The Commission acknowledges the assistance of the U.S. Department of Justice Enron Task Force.  The Commission's investigation is continuing as to others. 
+
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diff --git a/raw/aaer/2005/AAER-2180.txt b/raw/aaer/2005/AAER-2180.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7700072271569fcf986b6cfa5c29bf4a6a5a3b22
--- /dev/null
+++ b/raw/aaer/2005/AAER-2180.txt
@@ -0,0 +1,1367 @@
+
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+              Danny Forest Whitt and John Terry Shields
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+        Danny Forest Whitt and John Terry Shields
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19065 / February 7, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.   2180 / February 7, 2005 
+
+  Securities and Exchange Commission v. Danny Forest Whitt and John Terry Shields,   Civil Case No. 05-70440 (Roberts, J; Wahlen, M.J) (E.D. Michigan, filed February 4, 2005) 
+
+ SEC Charges Two Employees of Handleman Subsidiary With Books and Records Violations 
+
+ On February 4, 2005, the Securities and Exchange Commission filed civil charges against two former employees of Anchor Bay Entertainment, a former subsidiary of Handleman Company.  The SEC's complaint, which was filed in the United States District Court for the Eastern District of Michigan, alleges that the two employees caused the company to enter into two million dollar sham transactions.  Both transactions involved the purported sale of slow moving or obsolete inventory to business partners coupled with secret buy-back provisions.  The inventory included worthless video boxes and sleeves and DVDs for films.  Handleman subsequently restated its financial statements to correct these accounting errors. 
+ The defendants are Danny Forest Whitt, former President of Anchor Bay Entertainment, and John Terry Shields, former Director of Finance at the company.  Without admitting or denying the allegations of the complaint, Whitt and Shields consented to final judgments permanently enjoining them from violations of Section 13(b)(5) of the Securities Exchange Act of 1934 and Rule 13b2-1 thereunder and from aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act.  Shields also agreed to pay a $25,000 civil penalty.  Whitt was not ordered to pay a civil penalty based upon his sworn financial statements. 
+ The Commission acknowledges the assistance of the U.S. Attorney's Offices for the Eastern District of Michigan and the Northern District of Ohio. 
+
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diff --git a/raw/aaer/2005/AAER-2181.txt b/raw/aaer/2005/AAER-2181.txt
new file mode 100644
index 0000000000000000000000000000000000000000..eee1cf777518545fd4fdece8f563de9da08f1ca0
--- /dev/null
+++ b/raw/aaer/2005/AAER-2181.txt
@@ -0,0 +1,1370 @@
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+              Elan Corporation, plc
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19066 / February 8, 2005 
+
+ Accounting and Auditing Enforcement  
+Release No.  2181 / February 8, 2005 
+
+  Securities and Exchange Commission v. Elan Corporation, plc,  United States District Court for the District of Columbia, Civil Action No. 1:05CV00282 
+
+ SEC FILES DISCLOSURE FRAUD CASE AGAINST ELAN CORPORATION; COMPANY AGREES TO SETTLE CHARGES AND PAY A $15 MILLION PENALTY  
+
+ The Securities and Exchange Commission today announced the filing of a settled civil action against Elan Corporation, plc, a pharmaceutical company headquartered in Dublin, Ireland.  The Commission charged Elan with violating the antifraud provisions of the federal securities laws for failing to disclose material information about the company's financial results in periodic reports filed with the Commission and in quarterly earnings press releases disseminated to investors in the United States. 
+ According to the complaint, during 2000 and 2001, Elan represented in its public statements that it was generating record amounts of revenue, net income and operating cash flow from drug sales and licensing activities.  Elan also claimed that it was making significant progress towards achieving its goal of transforming itself into a fully integrated pharmaceutical company and generating $5 billion of annual revenue by 2005.  The complaint alleges that these statements were materially misleading because Elan failed to disclose, or inadequately disclosed, certain transactions that were critical to Elan's perceived success.  As a result, investors were led to believe that Elan had achieved record results through improvements in the company's business, when in fact it had not. 
+ The complaint, which was filed in the United States District Court for the District of Columbia, describes three principal disclosure failures, and alleges that: 
+	  Elan failed to disclose to investors that a substantial portion of its reported product revenue was generated by selling partial royalty rights to some of its most important products and by selling off other drug product lines entirely.  Despite the fact that these transactions were non-recurring, Elan classified the proceeds received from them as product revenue on its income statement.  As a result, investors were falsely led to believe that the company's product revenue growth was due to drug sales in the normal course of business.   
+	 Elan misled investors about its joint venture program, which generated approximately $490 million of revenue during 2000 and 2001.  The company failed to disclose that it required its joint venture partners to engage in "round-trip" transactions, in which the ventures paid license fees to Elan using money that Elan had provided to the partners.  Elan also failed to disclose that none of the partners or joint ventures ever used any of their own assets to pay for the license fee (most of them did not have the financial resources to do so), that the company never sold a license for its drug delivery technology to any unaffiliated entity at the prices charged to the joint ventures ($10-15 million, in most cases), and that during 2000 and 2001, Elan did not sell any such licenses other than through the joint venture program.  By failing to disclose these facts, Elan obscured the true demand for the licensed technology and its ability to generate license revenue in the future, thereby misleading investors about the quality of the revenue, earnings and cash flow generated by the joint venture program.   
+	 During June 2002, Elan facilitated an artificial sale of certain joint-venture related securities between one of its off-balance sheet subsidiaries and an ostensibly independent third party in an attempt to continue favorable accounting treatment.  Elan publicly stated that the subsidiary had sold the securities at "estimated fair value" (approximately $148 million) to an "unaffiliated third party."  These statements were materially false and misleading because Elan failed to disclose that: (i) the purchaser was not an "unaffiliated third party" because Elan created it (and was required to consolidate it under applicable accounting rules); (ii) Elan paid the purchaser $1 million to participate in the transaction; (iii) the purchaser did not negotiate the $148 million purchase price, which was fixed by Elan; and (iv) the claimed "estimated fair value" did not reflect what a willing buyer would pay to acquire the securities, which was substantially less than $148 million.  Subsequently, in September 2003, Elan restated its financial results due to this transaction, which reduced its 2001 net income by $73.9 million, or 22%.   
+	  Without admitting or denying the allegations in the complaint, Elan consented to the entry of a final judgment that permanently enjoins the company from violating the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as the reporting and internal controls provisions, Sections 13(a) and 13(b)(2)(B) of the Exchange Act and Rules 12b 20, 13a 1 and 13a 16 thereunder.  The judgment also orders Elan to pay $1 in disgorgement and a $15 million civil penalty, which is intended to be distributed to investors harmed by the alleged violations.  The final judgment is subject to Court approval. 
+
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diff --git a/raw/aaer/2005/AAER-2182.txt b/raw/aaer/2005/AAER-2182.txt
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@@ -0,0 +1,1370 @@
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+              Timothy A. DeSpain
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19067 / February 8, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2182 / February 8, 2005 
+
+  Securities and Exchange Commission v. Timothy A. DeSpain,  Civil Action No. H-05-00398 (SDTX) (February 8, 2005) 
+
+ SEC CHARGES TIMOTHY A. DeSPAIN, FORMER ENRON EXECUTIVE, WITH VIOLATING FEDERAL SECURITIES LAWS 
+
+ Defendant Barred From Serving As Officer Or Director of Public Company 
+
+ The Securities and Exchange Commission today charged Timothy A. DeSpain with violating the antifraud provisions of the federal securities laws.  As alleged in the Commission's Complaint, DeSpain disseminated false and misleading information to national credit rating agencies about Enron's business and financial condition.  DeSpain has agreed to a permanent fraud injunction and to be permanently 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, DeSpain will be ordered to pay disgorgement of $300,000, payment of which will be waived based upon his sworn financial statements and other documents submitted to the Commission.  
+ Specifically, the Commission's Complaint alleges the following:  DeSpain, while serving as Enron's Assistant Treasurer from 1999 through the fall of 2001, was directed by his superiors to engage in, and did engage in, conduct that DeSpain recognized was intended to fraudulently manipulate Enron's credit rating.  DeSpain and others at Enron falsely represented to credit rating agencies that Enron was meeting its cash flow targets with cash generated from its operating activities at a time when it was actually experiencing significant shortfalls in cash from operating activities.  DeSpain and others falsely portrayed as cash from operating activities cash generated by Enron from complex structured transactions, known internally as Project Nahanni and "prepays."  In Project Nahanni, Enron improperly reported the sale of $500 million of Treasury securities as cash flow from "operations."  In prepay transactions, Enron accounted for cash received from financial institutions as operating cash flows, when, in substance, prepays created debt-like obligations.  Over the course of DeSpain's tenure as Assistant Treasurer, Enron's obligations under the prepay transactions grew to approximately $5 billion.  Enron's Treasurers directed DeSpain not to reveal the nature and extent of the prepay transactions entered into by Enron to the credit rating agencies, and DeSpain complied with these directions.   
+ The antifraud provisions DeSpain agreed to be enjoined from violating are Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5.  DeSpain consented to the entry of Final Judgment by the Court without admitting or denying the allegations of the Complaint.   
+ On October 5, 2004, DeSpain pleaded guilty to one count of conspiracy to commit securities fraud related to Enron's dissemination of false and misleading information to national credit rating agencies about Enron's business and financial condition. 
+ The Commission acknowledges the assistance of the U.S. Department of Justice Enron Task Force.  The Commission's investigation is continuing as to others. 
+
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2183.txt b/raw/aaer/2005/AAER-2183.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d46ac2d33f590a84f1e401b2a0100d47bb5bed88
--- /dev/null
+++ b/raw/aaer/2005/AAER-2183.txt
@@ -0,0 +1,1365 @@
+
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+     SEC.gov | David Malmstedt 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19068 / February 8, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2183 / February 8, 2005 
+
+  Securities and Exchange Commission v. David Malmstedt,  Civil Action No. C-02-2427 JW (N.D. Cal.)  
+
+ The Securities and Exchange Commission announced that on June 10, 2004, following a seven-day trial, a jury in San Jose, California, returned a verdict in favor of the defendant, David Malmstedt.  The Commission alleged that Malmstedt had engaged in financial reporting fraud in violation of 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), violated the document falsification provision (Section 13(b)(5) of the Exchange Act), and aided and abetted violations of the reporting and the recordkeeping provisions (Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-13, and Rule 13b2-1).  The Commission's complaint alleged that during the relevant time period, Malmstedt was an officer in charge of sales for Legato, Inc., then a Silicon Valley company that created data-storage management software and whose stock was quoted on the NASDAQ National Market System.   
+ This action was filed on May 21, 2002 against Malmstedt and Mark Huetteman, also a former salesman at Legato.  Prior to the jury trial, the Commission settled its action against Huetteman, when he consented to a Final Judgment that enjoined him from future violations of the securities laws described above, and ordered him to pay $162,812 in disgorgement and a $40,000 civil monetary penalty.   
+ The Commission's complaint alleged that Malmstedt, Huetteman and others caused Legato fraudulently to record millions of dollars in revenue on sales orders, resulting in Legato materially overstating its revenue during three fiscal quarters of 1999 and for the fiscal year 1999. 
+ For more information, see Litigation Release No.  17524  (May 21, 2002); Litigation Release No.  18209  (July 2, 2003).   
+
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+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2189.txt b/raw/aaer/2005/AAER-2189.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7d9cef6e44153ec2425d4e5cc5ff26842bdb2064
--- /dev/null
+++ b/raw/aaer/2005/AAER-2189.txt
@@ -0,0 +1,1368 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19077 / February 14, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2189 / February 14, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. CRAIG SCOTT ,  Civil Action No. 3-05 CV 0302 P (USDC/NDTX/Dallas Division) 
+
+ SEC SUES FORMER CFO AND GENERAL COUNSEL OF FORT WORTH, TEXAS-BASED CONVENIENCE STORE AND GAS STATION COMPANY  
+
+ On February 14, 2005, the Securities and Exchange Commission filed a civil action in the United States District Court for the Northern District of Texas against Craig Scott, the former CFO and general counsel of FFP Marketing Company, Inc. ("FFP"), a Fort Worth, Texas-based owner and operator of convenience stores and gas stations whose stock was listed on the American Stock Exchange during the relevant period.  The SEC alleged that Scott committed securities fraud, and that he aided and abetted FFP's violations of SEC reporting rules.  Scott neither admitted nor denied the SEC's allegations, but he settled the case by agreeing to pay a civil money penalty of $25,000. 
+ In June 2002, according to the SEC's complaint, FFP restated its net income for 1999, 2000 and the first three quarters of 2001, as a result of recurrent accounting lapses at the company.  The SEC further alleges that, prior to the restatement, in April and May 2002, Scott prepared, and caused FFP to file with the Commission, notices of late filing (Forms 12b-25), when the company was unable to file periodic reports on time.   
+ According to the SEC's complaint, the late-filing notices that Scott prepared were false and misleading.  The SEC alleges that the notices fraudulently omitted to disclose that an internal investigation of the company's accounting lapses caused the company to delay filing its periodic reports.  The SEC further alleges that the late-filing notices misrepresented the cause of certain losses that the company said it would report.  According to the SEC, the late-filing notices falsely attributed losses that were actually related to the company's accounting lapses to other business conditions.  The SEC alleges that Scott, by preparing the false and misleading notices of late filing, and causing FFP to file them, violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and aided and abetted FFP's violations of Rules 12b-20 and 12b-25 under the Exchange Act. 
+ In addition to settling the SEC's civil action, Scott, who is a licensed attorney and CPA, simultaneously settled an SEC administrative proceeding under Rule 102(e)(1)(iii) of the SEC Rules of Practice, by agreeing to the entry of an SEC order denying him the privilege of appearing or practicing before the Commission as an attorney or as an accountant, with a right to apply for reinstatement after three years.   
+ Scott also settled an SEC cease-and-desist proceeding, by consenting to the entry of an order that he cease and desist from committing or causing violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from causing violations of Rules 12b-20 and 12b-25 under the Exchange Act.  In the same cease-and-desist proceeding, FFP consented to the entry of an order that it cease and desist from committing or causing violations of reporting, record keeping, and internal controls provisions of the Exchange Act and rules promulgated thereunder, and the company's former controller, Warner Williams, consented to an order that he cease and desist from causing violations of those provisions and rules. 
+
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diff --git a/raw/aaer/2005/AAER-2192.txt b/raw/aaer/2005/AAER-2192.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8d150f56e687b0c8153b9bbb042d71cf57a42b13
--- /dev/null
+++ b/raw/aaer/2005/AAER-2192.txt
@@ -0,0 +1,1369 @@
+
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+ 
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+              Steven J. Henke and Chan M. Desaigoudar
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+        Steven J. Henke and Chan M. Desaigoudar
+       
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+                   Litigation Release No.  19102  
+
+ Accounting and Auditing Enforcement Release No.  2192  
+
+  Securities and Exchange Commission v. Steven J. Henke and Chan M. Desaigoudar , United States District Court for the Northern District Of California, Civil Action No. C-98-4011-VRW 
+
+ SEC ASKS COURT TO HOLD FORMER CAL MICRO CEO IN CONTEMPT 
+
+ The Securities and Exchange Commission announced that it has filed a motion for civil contempt against former California Micro Devices ("Cal Micro") CEO Chan M. Desaigoudar.  U.S. District Court Chief Judge Vaughn R. Walker found Desaigoudar liable for fraud and insider trading in February 2004, ordering him to pay $1,341,424 in penalties and prejudgment interest.  The Commission's contempt motion alleges that Desaigoudar still owes over $300,000, and seeks incarceration or additional monetary penalties to enforce compliance with the judgment.  
+
+ The Commission originally sued Desaigoudar in August 1998, alleging that Cal Micro's then-CEO and Chairman participated in a scheme to fraudulently overstate the revenues of the once high-flying Silicon Valley technology firm, while illegally pocketing hundreds of thousands of dollars by selling Cal Micro shares before the fraud was uncovered.  In separate criminal proceedings brought by the United States Attorney for the Northern District of California, Desaigoudar pled guilty to, and was sentenced for, insider trading in Cal Micro's stock. 
+
+ Following a three-day bench trial in December 2003, Judge Walker issued an Order finding that Desaigoudar played a central role in the fraudulent scheme to inflate Cal Micro's revenue, and that Desaigoudar avoided losses of $573,000 by selling Cal Micro stock that he knew was fraudulently inflated in value.  The Court ordered Desaigoudar to pay over $1 million in penalties, as well as prejudgment interest of $308,428.  The Court also permanently barred Desaigoudar from serving as an officer or director of a public company. 
+
+ According to the Commission, Desaigoudar has failed to pay the prejudgment interest ordered by the Court.  The Commission's contempt papers request Chief Judge Walker's determination that Desaigoudar has violated the judgment without justification.  The Commission asks that Chief Judge Walker impose remedial sanctions of incarceration and/or civil monetary penalties to force Desaigoudar's compliance with the judgment.  The Commission has specified the date of March 31, 2005 for the court hearing on its contempt request. 
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diff --git a/raw/aaer/2005/AAER-2193.txt b/raw/aaer/2005/AAER-2193.txt
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+++ b/raw/aaer/2005/AAER-2193.txt
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+
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+              Humatech, Inc., David G. Williams, and John D. Rottweiler
+           
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+        Humatech, Inc., David G. Williams, and John D. Rottweiler
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19108 March 1, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2193 / March 1, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION V. HUMATECH, INC., DAVID G. WILLIAMS, AND JOHN D. ROTTWEILER, Defendants,  Civil Action No. H-05-0665 (U.S.D.C./S.D. TX)(Houston Division) 
+
+ SEC CHARGES HUMATECH, INC. AND ITS CEO AND CFO IN ACCOUNTING-FRAUD SCHEME 
+
+ On February 28, 2005, the Securities and Exchange Commission filed a civil securities-fraud case in the United States District Court for the Southern District of Texas (Houston Division) against Humatech, Inc., and its CEO, David G. Williams, 55, and CFO, John D. Rottweiler, 60.  Humatech is a fertilizer and animal-feed additive company whose common stock trades under the ticker symbol HUMT on the OTC Bulletin Board.   At the time of the alleged violations, Humatech was based in Houston, Texas.  The SEC charged Williams and Rottweiler with financial fraud and other securities-law violations related to a bogus revenue-recognition scheme that materially inflated Humatech's assets and revenue from 2000 through 2002.  
+ According to the SEC's complaint, in January and October 2000, Humatech improperly recorded two sales totaling $297,640 to Humatech Ltd., a United Kingdom distributor that Williams and Rottweiler secretly controlled.  These purported sales, however, were contingent on the distributor reselling the product to a U.K. purchaser.  The distributor did not resell the product, and, consequently, Humatech failed to ship the products to the U.K.  Given the contingent nature of the transactions, they did not qualify for revenue recognition under generally accepted accounting principles.   
+ As a result of the improper revenue recognition, Humatech materially overstated its revenue or assets or both in each quarterly and annual SEC report from January 31, 2000, through the quarter ended October 31, 2002.  For example, the initial sale, in the amount of $277,640, represented 100% of the company's revenue for the third quarter of fiscal year 2000.  And accounts receivable relating to the initial improper sale comprised approximately 63% of the company's assets in the same quarter and approximately 42% of the assets reported in Humatech's annual report for fiscal year 2000.   Further, the company's SEC reports, which were also incorporated by reference in five SEC registration statements, never properly disclosed the related-party nature of the two purported sales. 
+ On February 13 and 24, 2003, Humatech issued restatements for each reporting period from January 31, 2000, through the quarter ended October 31, 2002.  The restatements reduced revenue by $277,640 in fiscal year 2000 and by $20,000 in fiscal year 2001 and wrote off related assets in those periods.  Likewise, the restatements wrote off related assets for fiscal year 2002 and for the first and second quarters of fiscal year 2003.  The company, however, did not disclose that, from the outset, delivery and payment on these purported sales were contingent upon resale of the product by Humatech Ltd.  Instead, the amended filings falsely stated that an epidemic of foot-and-mouth disease in U.K. cattle herds interrupted ongoing delivery of the product.  In reality, the foot-and-mouth epidemic, which began in February 2001, occurred over a year after the first purported sale, and none of the product had been delivered before the outbreak.   
+ The SEC's complaint against Williams, Rottweiler, and Humatech, alleges violations of the anti-fraud, issuer-reporting, books-and-records, internal-controls, officer-certification, and lying-to-auditor provisions of the federal securities laws-specifically, 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-1, 13a-13, 13a-14, 13b2-1, and 13b2-2 thereunder.  The SEC is seeking permanent injunctive relief against each defendant and a civil money penalty, an officer-and-director bar, an accounting, and disgorgement plus prejudgment interest against Williams and Rottweiler.   
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diff --git a/raw/aaer/2005/AAER-2194.txt b/raw/aaer/2005/AAER-2194.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19110 / March 2, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2194 
+
+  Securities and Exchange Commission v. Sandra Miller Christie,  Case No. 05 CV 0420 JM (JFS) (S.D. Cal.) 
+
+ SEC CHARGES FORMER VICE PRESIDENT OF ADVERTISING AT ADVANCED MARKETING SERVICES, INC. WITH SCHEMES TO INFLATE ADVERTISING EARNINGS 
+
+ The Securities and Exchange Commission today announced the filing of civil charges against Sandra Miller Christie for her participation in schemes to improperly inflate the earnings of Advanced Marketing Services, Inc. (AMS).  AMS is a San Diego-based wholesaler of general interest books that provides a variety of other services, including promotional and advertising services.  Christie, age 50, of Palm Springs, California, was vice president of advertising at AMS from 1997 through 2004.   
+ The SEC's complaint, filed today in federal court in San Diego, alleges that Christie participated in schemes to improperly manipulate AMS's earnings.  These schemes were carried out primarily through AMS's advertising department.  The complaint alleges that the fraudulent schemes caused AMS to overstate its pre-tax earnings by about 9% in fiscal year 2001, 10% in fiscal year 2002, and 19% in fiscal year 2003.   
+ The complaint alleges that AMS fraudulently overstated its earnings through two schemes.  An advertising service that AMS provides to publishers is to print and mail advertising vehicles - such as inserts, catalogs, and post-cards - for books the publishers produce.  The first scheme alleged by the complaint involved the improper recognition of revenue on more advertising vehicles than AMS had in fact produced.  As a result, AMS recorded revenue for these services contrary to generally accepted accounting principles, and thereby improperly overstated its earnings.  
+ The complaint further alleges that Christie participated in a scheme to increase AMS's income by improperly reversing certain accrued liabilities relating to retail cooperative advertising.  AMS recorded liabilities for credits that it expected retailers to take for certain advertising and promotional services that the retailers provided.  When the retailers did not take the credits due to them, instead of contacting the retailers and reconciling amounts, Christie directed advertising and sales personnel to hide the discrepancies from the retailers, so that AMS could improperly reverse the liability and thereby decrease expenses and increase its income.  
+ Christie profited from her participation in the fraudulent schemes from her receipt of annual bonuses and sales of AMS stock, which totaled more than $72,000.   
+ The complaint alleges that Christie violated the antifraud provisions of the federal securities laws (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), aided and abetted the periodic reporting requirements (Sections 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder), aided and abetted the record-keeping provisions (Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder), and violated the books and records provisions (Section 13(b)(5) of the Exchange Act).  The SEC seeks a permanent injunction, disgorgement of all ill-gotten gains plus prejudgment interest, a civil penalty, and an officer and director bar against Christie. 
+ The SEC previously filed a complaint in federal court in San Diego against Marcy Wilson Roke, the former director of advertising at AMS, for her participation in schemes to improperly inflate the earnings of AMS.  That action is pending. 
+ The SEC acknowledges the cooperation and assistance of the United States Attorney's Office for the Southern District of California and the Federal Bureau of Investigation in this matter. 
+ The SEC's investigation is continuing. 
+
+
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+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2195.txt b/raw/aaer/2005/AAER-2195.txt
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index 0000000000000000000000000000000000000000..db732d2f968ed6de5fc3cbf248adfa018761c37f
--- /dev/null
+++ b/raw/aaer/2005/AAER-2195.txt
@@ -0,0 +1,1403 @@
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+                   SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 
+
+ Litigation Release No. 19111 / March 2, 2005 
+
+ Accounting and Auditing Enforcement  Release No. 2195 / March 2, 2005 
+
+ Securities and Exchange Commission v. Jack Gaglio, Civil Action No. 3:05-CV-01195-SRC-TJB (D.N.J.)  
+
+ SEC FILES SETTLED CIVIL ACTION AGAINST JACK GAGLIO
+FOR HIS PARTICIPATION IN FRAUDULENT SCHEME 
+AT SUPREMA SPECIALTIES, INC.  
+
+ GAGLIO PLEADS GUILTY IN PARALLEL CRIMINAL PROCEEDING  
+
+ On March 2, 2005, the Securities and Exchange Commission filed a civil complaint in the United States District Court for the District of New Jersey charging Jack Gaglio, the operator and part owner of entities formerly engaged in business with Suprema Specialties, Inc. ("Suprema"), with violating the antifraud and other provisions of the federal securities laws in connection with his participation in a $700 million multi-year fraud orchestrated by Suprema's senior management.   Prior to its delisting in early 2002, Suprema -- a Paterson, New Jersey-based cheese manufacturer -- was a public company whose securities traded on the NASDAQ National Market System.   Gaglio settled the charges without admitting or denying the allegations in the Commission's complaint.   
+
+ 	In its complaint, the Commission alleges that, from at least 1998 through February 2002, when Suprema filed for bankruptcy, Suprema engaged in "round-tripping" transactions that generated approximately $700 million in fictitious sales revenue, or approximately 60% of Suprema's total reported revenue of approximately $1.13 billion over the relevant time period.  The complaint alleges that the "round-tripping" transactions were effectuated through "circles" of entities, each of which included Suprema, a third-party "customer," and a related "vendor."   As the complaint alleges, the customer and vendor in each circle tended to have a common owner.  The complaint alleges that false paperwork was created documenting the fictitious transactions, and checks were circulated in purported payment for the transactions.  Participants allegedly received a kick-back or "commission" on each transaction, the funds for which were drawn on Suprema's line of credit, which increased as Suprema's accounts receivable grew.  With rare exception, the complaint alleges, no goods were actually sold, purchased, or exchanged in these transactions.   
+
+ The Commission further alleges that Gaglio participated in the fraudulent scheme as an operator and part owner of entities that engaged as "customers" or "vendors" in round-tripping transactions with Suprema.  The complaint alleges that these entities, most of which are now defunct, included A&J Cheese Company, Noble J.G. Cheese, LLC, California Goldfield Cheese Trading, LLC, and Wall Street Cheese, LLC as Suprema "customers," and other entities, including Whitehall Specialties, Inc., as Suprema "vendors."  For their participation in the scheme, the complaint alleges that the participating entities received payments of one to two cents per pound of cheese purportedly sold.   
+
+ In furtherance of the scheme, Gaglio, through his entities, also allegedly shipped sizeable quantities of artificial cheese to Suprema at fiscal year end which Suprema then relabeled as higher priced cheese products which the company used to support inflated inventory figures on Suprema's books and records during the year-end audit by Suprema's external auditors.  Gaglio also allegedly signed false audit confirmations that were provided to Suprema's independent auditors.   
+
+ The complaint further alleges that of Suprema's $1.13 billion in reported revenue during the period 1998 through the first quarter of 2002, approximately $359 million, or 32%, was attributable to the fictitious transactions with Gaglio.  The complaint alleges that Suprema's fictitious transactions with Gaglio accounted for approximately 10%, 23%, 34%, 38%, and 38% of the revenue reported by Suprema in its filings with the Commission for the fiscal years 1998, 1999, 2000, 2001, and the first quarter of 2002, respectively.  
+
+ Based on these allegations, the Commission charged Gaglio with: (i) securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5; (ii) aiding and abetting Suprema's violations of the periodic reporting, books and records, and internal accounting controls provisions of Exchange Act Sections 13(a) and 13(b)(2)(A) and (B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13; and (iii) aiding and abetting misrepresentations by Suprema's officers and directors to the company's accountants in violation of Exchange Act Rule 13b2-2.   
+
+ Without admitting or denying the allegations of the Commission's complaint, Gaglio consented to entry of a final judgment that would: (i) permanently enjoin him from future violations of the provisions of the federal securities laws charged in the complaint; (ii) permanently bar him from serving as an officer or director of a public company; and (iii) defer the imposition of any disgorgement, interest, or civil penalties until decided by the Court, upon motion by the Commission at a later date. 
+
+ 	Previously, in January 2004, the Commission filed securities fraud and related charges against the former controller, former operations manager, and several former customers and vendors of Suprema in federal district court for the District of New Jersey for their participation in the financial fraud at Suprema.  See Securities and Exchange Commission v. Robert Quattrone, et al., Civil Action No. 04-33(SRC) (D.N.J.) (Lit. Rel. No. 18534 (January 7, 2004)).  All of the defendants to that action have settled with the Commission.  
+
+ Also today, in a related proceeding, the United States Attorney for the District of New Jersey filed criminal charges against Gaglio.  At a plea hearing in the U.S. District Court for the District of New Jersey held earlier today, Gaglio plead guilty to one count of securities fraud and one count of conspiracy to commit securities fraud, mail fraud, and bank fraud, and to make false statements to auditors.  (U.S. v. Jack Gaglio,  05-CR-141 (SRC) (D.N.J.)).  
+
+ The Commission acknowledges the assistance of the United States Attorney's Office for the District of New Jersey, the Newark Office of the Federal Bureau of Investigation, and the Office of Criminal Investigations of the U.S. Food and Drug Administration in Jersey City in its investigation, which is continuing.  
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diff --git a/raw/aaer/2005/AAER-2196.txt b/raw/aaer/2005/AAER-2196.txt
new file mode 100644
index 0000000000000000000000000000000000000000..aba7af9dd08a373c0e9fac58a43eac18f38f5beb
--- /dev/null
+++ b/raw/aaer/2005/AAER-2196.txt
@@ -0,0 +1,1465 @@
+
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+ Securities Exchange Act of 1934 
+Release No. 51307 / March 3, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2196 / March 3, 2005 
+
+ Admin. Proc. File No.  3-11840 
+
+     In the Matter of 
+ THOMAS C. TRAUGER, CPA, 
+ Respondent.	 
+   
+ : : : : : : :  
+  ORDER OF FORTHWITH SUSPENSION PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE   
+   I. 
+ The Securities and Exchange Commission deems it appropriate to issue an order of forthwith suspension against Thomas C. Trauger ("Trauger") 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.	Trauger is a certified public accountant licensed in the State of California.  Trauger was a partner in the accounting firm Ernst & Young and was the audit partner responsible for the firm's audit of the financial statements of NextCard, Inc. ("NextCard"), a public company, for the year ended December 31, 2000 and quarterly reviews of NextCard's interim financial statements during 2001.   
+ 2.	On October 29, 2004, Trauger entered a plea of guilty in a pending criminal case, admitting that, on or about April 30, 2003, he appeared before the Commission pursuant to subpoena and, while under oath, withheld information about the alteration and deletion of Ernst & Young working papers for the audit of NextCard's financial statements for the year ended December 31, 2000 and working papers for quarterly reviews in 2001.   Trauger admitted that he withheld this information with the intent to impede, obstruct and influence the Commission's investigation.   
+ 3.	On February 1, 2005, a judgment of conviction was entered against Trauger in  U.S. v. Thomas C. Trauger , Case No. CR 03-308 ALL in the United States District Court for the Northern District of California, finding him guilty of falsification of records in a federal investigation in violation of 18 U.S.C. 1519, a felony.  The Court sentenced Trauger to 12 months in federal prison and ordered him to pay a $5,000 fine. 
+
+
+ III. 
+ In view of the foregoing, the Commission finds that Trauger 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 Thomas C. Trauger is forthwith suspended from appearing or practicing before the Commission.    
+
+
+ By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+  Endnotes   
+   1   Rule 102(e)(2) provides in pertinent part:  AAny ... 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." 
+
+   
+See also the  Order in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2198.txt b/raw/aaer/2005/AAER-2198.txt
new file mode 100644
index 0000000000000000000000000000000000000000..82c91c2cfd88864a151beede01070c37d1d4517b
--- /dev/null
+++ b/raw/aaer/2005/AAER-2198.txt
@@ -0,0 +1,1508 @@
+
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+ Securities Act of 1933 
+Release No.  8551 / March 3, 2005 
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+ Securities Exchange Act of 1934 
+Release No. 51315 / March 3, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2198 / March 3, 2005 
+
+ Admin. Proc. File No.  3-11844 
+
+     In the Matter of 
+ EDDIE RICHARD MECHE 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER INSTITUTING PUBLIC PROCEEDINGS, PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND ISSUING 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 Eddie Richard Meche ("Meche" or "Respondent").   
+
+ II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Public Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act ("Order"), as set forth below.   
+
+ III. 
+ On the basis of this Order and Respondent's Offer, the Commission finds  1   that:   
+
+ A.  
+ Respondent 
+ Meche, 39, served as Vice President and Chief Risk Control Officer of Reliant Resources, Inc. ("Reliant"), from June 1999 until his departure in 2002.  Before his promotion to Chief Risk Control Officer, Meche served as Vice President for Risk Control of Reliant's Wholesale Group.  At all times relevant to this Order, Meche was a Certified Public Accountant licensed in Texas.   
+
+ Other Relevant Entities 
+ Reliant Resources, Inc., a Delaware corporation headquartered in Houston, Texas, builds and owns electric power plants that sell energy into unregulated markets.  Through its Wholesale Group, Reliant Resources also markets its own electricity and trades electricity and natural gas.  Reliant Resources' common stock is registered under Section 12(b) of the Exchange Act and trades on the New York Stock Exchange under the symbol RRI. 
+ Prior to October 1, 2002, Reliant Energy, Inc. was an electric and gas public-utility holding company that owned about 80% of Reliant Resources' common stock.  Reliant Energy's common stock was registered under Section 12(b) of the Exchange Act and traded on the New York Stock Exchange under the symbol REI.  Following the spin-off of Reliant Resources on October 1, 2002, Reliant Energy's regulated operations have been carried on by CenterPoint Energy, Inc., which trades on the New York Stock Exchange under the symbol CNP.   Reliant Resources and Reliant Energy are referred to collectively as "Reliant." 
+
+ B.  
+ Background 
+ On May 12, 2002, Reliant Resources announced that it had engaged in significant same-day commodity trading transactions ("round trip trades") involving simultaneous, pre-arranged purchases and sales with the same counterparty for the same volume at approximately the same price.  The trades resulted in no meaningful profit or loss to either transacting party and were intended solely to improve Reliant's standing in the gas and power trading rankings in industry publications.  The higher rankings apparently enabled Reliant to compete more effectively for energy origination business.  
+ On May 12, 2003, the Commission issued a settled cease-and-desist order against Reliant Resources, Inc. and Reliant Energy, Inc. finding that each had 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.   In the Matter of Reliant Resources, Inc. and Reliant Energy, Inc. , Administrative Proceeding File No. 3-11110 (May 12, 2003).   
+
+	 1.	Reliant's Round Trip Trades 
+ In 1999 Reliant entered into five power round trip trades totaling 29.75 million megawatt hours with three counter parties: PanCanadian Energy Services, Inc. ("PanCanadian"), Merchant Energy Group of the Americas, Inc. ("MEGA"), and Public Service Company of Colorado.  MEGA requested and Reliant paid an accommodation fee of $50,000 for its trade.  Reliant also entered into a series of  round trip gas trades that year for 182 billion cubic feet, valued at $364 million, with Cokinos Energy.  In total, the 1999 power and gas round trip trades added over $1.4 billion in offsetting gross revenue and expenses to Reliant's books.   
+ In 2000 Reliant entered into four power round trip trades totaling 30.32 million megawatt hours with two counter parties:  BP Energy Company ("BP Energy") and CMS Energy Corporation ("CMS").  The 2000 trades with BP Energy and CMS added over $1 billion in offsetting gross revenue and cost of goods sold.  Over 97% of this revenue was attributable to the round trip trades with CMS. 
+ In 2001 Reliant entered into eight round trip power trades totaling 74.36 million megawatt hours with CMS and one round trip gas trade for 46 billion cubic feet with EnCana Energy Services Inc. (formerly PanCanadian).  The power trades with CMS accounted for about 20% of Reliant Resources' total trading volume for the year and added over $3.6 billion in revenue and expenses.  
+
+	 2.	Reliant's False Filings 
+ Reliant reported all trades on a gross basis, which meant that its reported revenue figures were not netted against offsetting expenses.  As a result, the round trip transactions conveyed an inaccurate picture of the company's revenues and expenses.  For example, in its 2001 annual report (subsequently amended) Reliant Resources reported gross revenues of $36.5 billion, over $3.8 billion of which resulted from round trip trades.  In total, the round trip trades inflated Reliant Resources' revenues and expenses by 17.7% in 1999, 5.3% in 2000, and 10.6% in 2001.   In addition to recording inaccurate revenue and expenses from the round trip trades, Reliant also published inflated trading volumes in the annual and quarterly reports it filed with the Commission.  
+ Reliant also included the overstated trading volumes and revenues in prospectuses and registration statements that it filed with the Commission in anticipation of securities offerings.  In its initial public offering prospectus dated April 30, 2001, Reliant Resources represented 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, 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.  Both of those filings included or incorporated the revenue overstatements from previously filed annual and quarterly reports. 
+
+	 3.	The Decision to Engage in Round Trip Trades 
+ In late 1998 or early 1999 a series of informal strategy meetings were held within the Wholesale Group of Reliant Energy to find ways to increase trading volume.  One option considered was to engage in frequent day trades in and out of power or gas positions.  The group rejected this sort of transactional churning, however, after receiving an estimate of the transaction costs associated with each trade.  Ultimately, the Reliant officials decided to pre-arrange a smaller number of offsetting large volume trades with willing counter parties.   
+ Reliant officials initially considered booking the round trip trades at a price of zero, but rejected the idea because it would skew the market prices reported to FERC.  Instead, the company booked the round trip trades at market prices.  Based on Reliant's practice at the time of recording all trades on a gross basis, the revenues and expenses associated with the round trip trades were recorded in Reliant's books and records.  
+
+	 4.	Post Closing Adjustment to Add the Cokinos Round Trip Gas Trades 
+ Reliant's first series of round trip trades was with Cokinos Energy for an aggregate $364 million in natural gas to be delivered from April to June 1999.  The trades were never entered into Reliant's computerized trading system or its accounting and general ledger system.  Instead, Reliant entered the trades into its books after the close of the second quarter of 1999 using a post-closing adjustment.    
+
+	 5.	Subsequent Round Trip Trades 
+ In the fourth quarter of 1999 an individual in Reliant's credit group questioned a round trip trade that exceeded the counterparty's credit limit.  The Wholesale Risk Control Group told this individual that the trade was approvable so long as it did not create a margin or credit risk to Reliant.  Because round trip trades had exactly offsetting buy and sell positions, they did not give rise to margin or credit risk to the company.  Following this discussion, Reliant's credit department did not generate exception reports for subsequent round trip trades.   
+ Reliant's draft annual reports on Form 10-K for fiscal years 1999, 2000, and 2001 were circulated to numerous employees of the Wholesale Group and its corporate parent, including Meche.  As filed, the final versions of those reports included both overstated gross revenues and expenses due to the round trip trades, and descriptions of the magnitude of Reliant's power and gas trades.  The reports specifically mentioned Reliant's ranking in terms of its energy trading volumes.   
+ The round trip trading program at Reliant came to light in May 2002, when press reports of round trip trading at Dynegy and CMS identified Reliant as a counterparty on the CMS trades.  Shortly thereafter, Reliant disclosed its round trip trades.  The company undertook a number of remedial actions, which included reorganizing its Wholesale Group and restating results for fiscal years 1999, 2000, and 2001. 
+ 
+ Respondent's Conduct 
+ In July 1999, Respondent Meche had been promoted to corporate level Chief Risk Control Officer and temporarily continued as the Wholesale Group's Vice President for Risk, with oversight responsibility for recording the trading group's commodities transactions.   On July 26, 1999, the Cokinos post-closing adjustment was brought to the attention of individuals in Reliant's corporate accounting department.  They noticed that the transaction seemed to lack a legitimate business purpose and asked Meche about the trade.  Meche was familiar with the transaction, stated that such trades were standard in the industry, and said that the trade should be entered in the company's books. Not satisfied with Meche's explanation, the individuals in Reliant's corporate accounting department brought the matter to the attention of Reliant Energy's Corporate Controller.  The Corporate Controller also concluded that the trade seemed to lack a legitimate business purpose and spoke to Meche about it.  Meche told the Corporate Controller that the transaction should be recorded. 
+ During the fourth quarter of 1999, a round trip trade came to the attention of Meche's successor as Reliant's Wholesale Risk Officer.  The transaction exceeded the counterparty's credit limit, and the Wholesale Risk Officer asked Meche about the trade.  Meche was familiar with the transaction and instructed that such trades were approvable so long as they did not create a margin or credit risk to Reliant.   
+ Due to his conduct with respect to the Cokinos transaction, and the fourth quarter 1999 transaction, Meche was a cause of Reliant's filing of reports, including offering materials, that included revenues and expenses related to round trip trades.  The inclusion of round trip trades in Reliant's reports created a materially misleading impression of Reliant's energy trading volumes.  Meche also was a cause of Reliant's misstatement of the company's transactions and disposition of its assets in its books, records, and accounts.   
+
+ C. 
+ As a result of the conduct described above, Respondent Meche was a cause of Reliant Resources, Inc.'s and Reliant Energy, Inc.'s violations of Sections 17(a)(2) and (3) of the Securities Act, 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. 
+
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent Meche's Offer.   
+ Accordingly, it is hereby ORDERED:  	Pursuant to Section 21C of the Exchange Act, Respondent Meche cease and desist from committing or causing any violations and any future violations of Sections 17(a)(2) and (3) of the Securities Act, and from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), or 13(b)(2)(B) of the Exchange Act or Rules 12b-20, 13a-1, or 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.  
+
+   
+See also the  Order in this matter  -->
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+              William W. Canfield
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19122 / March 4, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2201 / March 4, 2005 
+
+  Securities and Exchange Commission v. William W. Canfield,  Civil Action No. 4:05-CV-369 (SNL), U.S. District Court for the Eastern District of Missouri  
+
+ SEC Settles Charges Against William W. Canfield, CEO of TALX Corporation  
+
+ The U.S. Securities and Exchange Commission (the "Commission") today announced settlement of an enforcement action against William W. Canfield, CEO of TALX Corporation.  TALX is a St. Louis-based provider of employment and income verification and other human resources services.   
+ According to the Commission's complaint, filed in the U.S. District Court for the Eastern District of Missouri, TALX met its 2001 financial targets through accounting misstatements that inflated falsely TALX's financial performance and its stock price leading up to TALX's August 3, 2001 secondary offering.  Canfield sold approximately $6 million of TALX shares in the offering.  The Commission alleged that TALX's misstatements included capitalizing costs relating to a patent infringement claim that should have been expensed, and that Canfield knew or should have known that capitalizing the costs was improper.  Further, the Commission alleged that TALX expensed executive bonuses in fiscal 2002 that should have been expensed in fiscal 2001, and that Canfield knew or should have known that the bonuses were expensed in the wrong period.  As a result, TALX overstated its fiscal 2001 pre-tax income by $1.8 million, or 54 percent, and made material financial misrepresentations in Forms 10-K and 10-Q for the years ended March 31, 2001 and 2002, and for the three months ended June 30, 2002, and in TALX's fiscal 2002 registration statement.   
+ Canfield consented to pay a $100,000 penalty in the civil action filed by the Commission in U.S. District Court.  Further, Canfield consented to a related 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 Securities Exchange Act of 1934 ("Exchange Act") Rule 13b2-1, 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, and to pay disgorgement and prejudgment interest in the total amount of $859,999.  The Commission's staff intends to distribute the penalty and disgorgement to injured investors pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002.  Canfield settled without admitting or denying the Commission's substantive allegations.   
+
+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2202.txt b/raw/aaer/2005/AAER-2202.txt
new file mode 100644
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+
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+              Talx Corporation
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+        Talx Corporation
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+                        
+                   UNITED STATES OF AMERICA
+ before the
+ SECURITIES AND EXCHANGE COMMISSION 
+
+ SECURITIES ACT OF 1933
+ Release No.  8552 / March 4, 2005 
+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  51320 / March 4, 2005 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  2202 / March 4, 2005 
+
+ ADMINISTRATIVE PROCEEDING
+ File No.  3-11845 
+
+     In the Matter of 
+
+ TALX CORPORATION, 
+
+ 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 public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against TALX Corporation ("Respondent" or "TALX").  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 that Respondent has admitted the Commission's jurisdiction over it and over the subject matters set forth herein, Respondent has consented 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  2   that:  
+
+ 1. TALX Corporation, a Missouri corporation with its principal place of business in St. Louis, Missouri, provides automated employment verification services and automated employee self-service applications.  TALX became public in 1996 and its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act.  The company's fiscal year ends March 31, and it files reports on Forms 10-K and 10-Q.  TALX common stock is quoted on the NASDAQ National Market System.        
+
+ 2. During fiscal 2001, and through a secondary offering of common stock completed on August 3, 2001, TALX placed emphasis on meeting its internal and external financial projections, and highlighted its earnings growth to the market.  For example, in an October 2000 investor conference call concerning the company's 2001 second quarter earnings, a TALX executive stated, "We believe that the trend of the last 7 quarters of delivering substantial [earnings per share] increases, and 3 quarters of delivering 50 plus percent quarter over quarter increases, will continue."  Similarly, on January 17, 2001, TALX announced a 50% increase in its third quarter earnings per share ("EPS") and a 53% increase in its EPS for the nine months ended December 31, 2000.     
+
+ 3. During early 2001, TALX began to consider raising additional capital through a secondary stock offering.  On April 25, 2001, TALX announced it had met its fourth quarter and year ended March 31, 2001 EPS target, and that its EPS had grown by more than 50%.  After informing the market in its April 26, 2001 investor conference call that TALX expected its 2001 earnings trend to continue through 2002, TALX set the stage for a secondary offering.   
+
+ 4. On June 22, 2001, TALX filed an S-3 registration statement with the Commission.  On June 28, 2001, TALX filed its 2001 Form 10-K.  TALX filed three amendments to its S-3 registration statement in July and August 2001, two of which incorporated the financial statements contained in TALX's 2001 Form 10-K.  TALX's 2001 financial results were also contained in TALX's Forms 10-K filed on July 1, 2002 and May 22, 2003, and in TALX's Forms 8-K filed on July 16 and July 18, 2001 and on June 25, 2002.   
+
+ 5. On July 18, 2001, TALX reported record first quarter 2002 earnings with earnings growth exceeding 50%.  Between April 2000 and August 3, 2001, TALX's stock price had climbed 240%, from approximately $10 to $34.  Between April 26, 2001 and August 3, 2001, TALX's stock price had increased from approximately $26 to $34.  On August 3, 2001, TALX filed with the Commission a prospectus and completed its secondary offering of 2.95 million shares of common stock for $32 per share, raising approximately $82 million for the company. 
+
+ 6. TALX met its 2001 financial targets and increased its stock price through accounting misstatements which inflated falsely TALX's financial performance.  TALX's misstatements involved an improper bill and hold transaction and other premature revenue recognition; capitalizing costs relating to a patent infringement claim that should have been expensed; and expensing bonuses in the wrong period.  As a result of these misstatements, TALX overstated fiscal 2001 income by approximately $2.1 million, or 65%.  3   
+
+ 7. First, TALX used a fraudulent bill and hold transaction to inflate fiscal 2001 income.  In early fiscal 2001, TALX desired to characterize a transaction with a TALX Customer Premises System ("CPS") client as a "bill and hold" sale.  The transaction did not meet the requirements of a bill and hold sale under generally accepted accounting principles ("GAAP") because the bill and hold was not at the customer's request; there was no valid business purpose; the customer refused to take title to the TALX systems until delivery; and normal billing terms were modified.  As a consequence, TALX improperly recognized $52,000 of income in the second quarter ended September 30, 2000. 
+
+ 8. Second, TALX recognized fraudulently implementation service revenue on CPS transactions.  TALX recognized CPS implementation service revenue using the percentage-of-completion method of accounting.  Under that method, TALX should have recognized revenue, costs, and gross profit as it progressed toward completion on CPS projects.  TALX, however, did not have sufficient internal controls or other accounting policies and procedures in place to measure and record accurately the work performed on CPS projects and therefore to recognize the appropriate amount of service revenue.  The breakdown in internal controls allowed TALX to recognize prematurely implementation service revenue and manipulate the revenue to meet earnings targets.  As a result, TALX overstated CPS service income by $358,000, or 11%, in 2001.  Without this revenue, TALX would have missed its EPS targets for the quarters ended September 30, 2000 and December 31, 2000, and for the year ended March 31, 2001, instead of meeting or exceeding its targets as it reported. 
+
+ 9. Third, TALX fraudulently capitalized costs relating to a patent infringement claim.  On or about March 13, 2001, TALX entered into a license agreement with the patent holder relating to the claim.  TALX's payment to the patent holder included payment for claimed past use of the patented technology, which was a period cost requiring immediate recognition under GAAP.  In its 2001 Form 10-K financial statements, however, TALX capitalized the payment.  By capitalizing the payment, TALX overstated income by $1.6 million, or 49%, in fiscal year 2001.  Had TALX properly expensed the $1.6 million, TALX would have fallen short of its previously announced 50% earnings growth rate.  
+
+ 10. Fourth, TALX fraudulently expensed bonuses paid to three executives.  On or about April 12, 2001, three TALX executives gave up half their fiscal year 2001 bonuses, in aggregate totaling $158,000.  One month later, on or about May 15, 2001, TALX paid bonuses totaling $158,000 to the executives.  GAAP requires that administrative salaries be expensed in the period of the event when the cost occurred.  The reinstated bonuses should have been expensed in fiscal 2001, but TALX improperly expensed them in fiscal 2002.  As a result, TALX overstated its fiscal 2001 income by $158,000, or 5%. 
+
+ 11. Further, prior to and in its 2001 fiscal year, TALX used the percentage-of-completion method of accounting for certain other service transactions.  Pursuant to GAAP, the service revenue should have been recognized on a straight-line basis.  After TALX's auditors brought this to the company's attention, TALX restated its revenue.  As a result of using the wrong method of revenue recognition, TALX overstated income by approximately $2 million in 2001.  
+
+ 12. The combined misstatements, including the intentional misstatements and the unintentional use of the wrong revenue recognition method, resulted in TALX overstating its 2001 income by approximately 122%.  As a consequence, TALX should have reported an earnings decline for fiscal 2001, not the inflated 56% growth originally reported.  Further, the combined misstatements inflated artificially TALX's 2001 stock price leading up to TALX's August 3, 2001 secondary offering.  Without the combined misstatements, TALX would have received less than the $82 million realized in its secondary offering.  
+
+ 13. As a result of the conduct described herein, TALX made material financial misrepresentations in Forms 8-K, 10-K and 10-Q for fiscal years 2001 through the second quarter of 2004, and in its fiscal 2002 registration statement. 
+
+ 14. Section 17(a) of the Securities Act makes it unlawful in the offer or sale of any securities, directly or indirectly, to employ any device, scheme, or artifice to defraud; to obtain money or property by means of any untrue statement of a material fact, or to omit to state a material fact necessary in order to make any statements made, in light of the circumstances under which they were made, not misleading; or to engage in any  transaction, practice, or course of business which operates or may be operating as a fraud or deceit upon the purchaser.  Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit the misrepresentation of or misleading omission of material facts in connection with the purchase or sale of securities.  By engaging in the conduct described herein, TALX committed violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.   
+
+ 15. Section 13(a) of the Exchange Act requires all issuers with securities registered under Section 12 of the Exchange Act to file periodic and other reports with the Commission containing such information as the Commission's rules prescribe.  Pursuant to Section 13(a), the Commission promulgated Rules 13a-1, 13a-11, and 13a-13 that require issuers to file annual, current and quarterly reports, respectively.  The reporting requirements necessarily include the requirement that the issuer supply accurate information.  In addition, Rule 12b-20 requires that reports contain such further material information as may be necessary to make the required statements, in light of the circumstances under which they were made, not misleading.  As a result of the conduct described herein, TALX committed violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. 
+
+ 16. Section 13(b)(2)(A) of the Exchange Act states that every Section 12 registrant must "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."  As a result of the conduct described herein, TALX violated Section 13(b)(2)(A) of the Exchange Act. 
+
+ 17. Section 13(b)(2)(B) states that every issuer must "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that . . . (ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements . . . ."  As a result of the conduct described herein, TALX violated Section 13(b)(2)(B) of the Exchange Act.    
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent TALX's Offer. 
+
+ Accordingly, it is hereby ORDERED that Respondent 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), and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.  
+
+ IT IS FURTHERED ORDERED that Respondent shall, within ten days of the entry of this Order, pay disgorgement in the amount of $1.  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 Clerk of the Court, United States District Court for the Eastern District of Missouri; (C) hand-delivered or mailed to the Clerk of the Court, United States District Court for the Eastern District of Missouri, 111 S. 10 th  Street, St. Louis, Missouri 63102; and (D) submitted under cover letter that identifies that the payment shall be deposited into the Court Registry Investment System 
+
+ ("CRIS") account established for the action titled  Securities and Exchange Commission vs. TALX Corporation , a copy of which cover letter and money order or check shall be sent to Donald M. Hoerl, Associate Director, and Ian S. Karpel, Branch Chief, Division of Enforcement, Securities and Exchange Commission, 1801 California Street, Suite 1500, Denver, Colorado 80202-2648.   
+
+ By the Commission. 
+
+  Jonathan G. Katz 
+Secretary  
+
+   1     This matter is related to a civil action,  Securities and Exchange Commission v. TALX Corporation , which was filed simultaneously and in which TALX has consented to pay a $2,500,000 penalty.  The Commission anticipates that the penalty in the civil action will be added to disgorgement in this action, in order to create a Fair Fund to compensate investors. 
+
+   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    All references to income are pre-tax. 
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diff --git a/raw/aaer/2005/AAER-2203.txt b/raw/aaer/2005/AAER-2203.txt
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+++ b/raw/aaer/2005/AAER-2203.txt
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+h2>UNITED STATES OF AMERICA
+ before the
+ SECURITIES AND EXCHANGE COMMISSION
+
+ SECURITIES ACT OF 1933
+ Release No. 8553 / March 4, 2005 
+
+ SECURITIES EXCHANGE ACT OF 1934
+ Release No.  51321 / March 4, 2005 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+ Release No.  2203 / March 4, 2005 
+
+ ADMINISTRATIVE PROCEEDING
+ File No.   3-11846 
+
+     In the Matter of 
+
+ WILLIAM W. CANFIELD, 
+
+ 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 public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against William W. Canfield ("Respondent" or "Canfield").  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 that Respondent has admitted the Commission's jurisdiction over him and over the matters set forth herein, Respondent has consented 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  2   that:  
+
+ 1. TALX Corporation ("TALX"), a Missouri corporation with its principal place of business in St. Louis, Missouri, provides automated employment verification services and automated employee self-service applications.  TALX became public in 1996 and its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act.  The company's fiscal year ends March 31, and it files reports on Forms 10-K and 10-Q.  TALX common stock is quoted on the NASDAQ National Market System.         
+
+ 2. Canfield, age 65,   a resident of Kirkwood, Missouri, has been the president and chief executive officer of TALX since 1987.  He has been the chairman of the board of directors of TALX since 1988.     
+
+ 3. During the time period relevant to this Order, TALX placed emphasis on meeting its internal and external financial projections, and highlighted its earnings growth to the market.  For example, in an October 2000 investor conference call concerning the company's second quarter earnings, Canfield stated, "We believe that the trend of the last 7 quarters of delivering substantial [earnings per share] increases, and 3 quarters of delivering 50 plus percent quarter over quarter increases, will continue."   Similarly, on January 17, 2001, TALX announced a 50 percent increase in its third quarter earnings per share and a 53 percent increase in its earnings per share for the nine months ended December 31, 2000.   
+
+ 4. During early 2001, TALX began to consider raising additional capital through a secondary stock offering.  On April 25, 2001, TALX announced it had met its fourth quarter and year ended March 31, 2001 earnings per share target, and that its earnings per share had grown by more than 50%.  After informing the market in its April 26, 2001 investor conference call that TALX expected its 2001 earnings trend to continue through 2002, TALX set the stage for the secondary offering. 
+
+ 5. On June 22, 2001, TALX filed an S-3 registration statement with the Commission.  On June 28, 2001, TALX filed its 2001 Form 10-K.  TALX filed three amendments to its S-3 registration statement in July and August 2001, two of which incorporated the financial statements contained in TALX's 2001 Form 10-K.  TALX's 2001 financial results were also contained in TALX's Forms 10-K filed on July 1, 2002 and May 22, 2003, and in TALX's Forms 8-K filed on July 16, 2001, July 18, 2001, and on June 25, 2002. 
+
+ 6. On July 18, 2001, TALX reported record first quarter 2002 earnings with earnings growth exceeding 50%.  Between April 2000 and August 3, 2001, TALX's stock price had climbed 240%, from approximately $10 to $34.  Between April 26, 2001 and August 3, 2001, TALX's stock price had increased from approximately $26 to $34.  On August 3, 2001, TALX filed with the Commission a prospectus and completed its secondary offering of 2.95 million shares of common stock for $32 per share, raising approximately $82 million for the company and $6 million for Canfield.   
+
+ 7. TALX, however, met its 2001 financial targets through accounting misstatements which inflated falsely TALX's financial performance.  The misstatements inflated artificially TALX's 2001 stock price leading up to TALX's August 3, 2001 secondary offering. 
+
+ 8. TALX's misstatements included capitalizing costs relating to a patent infringement claim that should have been expensed.  On or about March 13, 2001, TALX entered into a license agreement with a patent holder.  TALX's payment to the patent holder included payment for claimed past use of patented technology, which was a period cost requiring immediate recognition under generally accepted accounting principles ("GAAP").  TALX, however, capitalized the payment.  Canfield knew or should have known that the payment should have been expensed.  Had TALX properly expensed the payment, TALX would have fallen short of its previously announced financial projections.  Instead, TALX overstated pre-tax income by $1.6 million, or 49 percent, for its fiscal year ended March 31, 2001.   
+
+ 9. TALX's misstatements further included expensing bonuses in the wrong period.  On or about April 12, 2001, Canfield and two other TALX executives gave up half of their fiscal year 2001 bonuses, in aggregate totaling $158,000.  One month later, on or about May 15, 2001, TALX paid bonuses totaling $158,000 to Canfield and the other executives.  GAAP requires that administrative salaries be expensed in the period of the event when the cost occurred.  The reinstated bonuses should have been expensed in fiscal 2001, but TALX expensed them in fiscal 2002.  Canfield knew or should have known that the bonuses were improperly expensed in fiscal 2002.  By expensing the bonuses in the wrong period, TALX overstated its fiscal 2001 pre-tax income by $158,000, or 5 percent.     
+
+ 10. As a result of the conduct described above, TALX made material financial misrepresentations in Forms 10-K and 10-Q for the years ended March 31, 2001 and 2002, and for the three months ended June 30, 2002, and in TALX's fiscal 2002 registration statement.  TALX overstated its fiscal 2001 pre-tax income by $1.8 million, or 54 percent.   
+
+ 11. Section 17(a)(2) of the Securities Act makes it unlawful in the offer or sale of any securities to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading.  Section 17(a)(3) of the Securities Act makes it unlawful in the offer or sale of any securities to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.  By engaging in the conduct described herein, Canfield caused violations of Sections 17(a)(2) and (3) of the Securities Act. 
+
+ 12. Section 13(a) of the Exchange Act requires all issuers with securities registered under Section 12 of the Exchange Act to file periodic and other reports with the Commission containing such information as the Commission's rules prescribe.  Pursuant to Section 13(a), the Commission promulgated Rules 13a-1 and 13a-13 that require issuers to file annual and quarterly reports, respectively.  The reporting requirements necessarily include the requirement that the issuer supply accurate information.  In addition, Rule 12b-20 requires that reports contain such further material information as may be necessary to make the required statements, in light of the circumstances under which they were made, not misleading.  As a result of the conduct described herein, Canfield was a cause of TALX's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. 
+
+ 13. Section 13(b)(2)(A) of the Exchange Act states that every Section 12 registrant must "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."  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).  As a result of the conduct described herein, Canfield committed violations of Rule 13b2-1 of the Exchange Act, and was a cause of  TALX's violations of Section 13(b)(2)(A) of the Exchange Act. 
+
+ IV. 
+
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent's Offer. 
+
+ Accordingly, it is hereby ORDERED that Respondent cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Exchange Act Rule 13b2-1, and from causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  
+
+ IT IS FURTHERED ORDERED that Respondent shall, within ten days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $859,999.  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 to the Clerk of the Court, United States District Court for the Eastern District of Missouri; (C) hand-delivered or mailed to the Clerk of the Court, United States District Court for the Eastern District of Missouri, 111 S. 10th Street, St. Louis, Missouri 63102; and (D) submitted under cover letter that identifies that the payment shall be deposited into the Court Registry Investment System ("CRIS") account established for the action titled  Securities and Exchange Commission v. TALX Corporation , a copy of which cover letter and money order or check shall be sent to Donald M. Hoerl, Associate Director, and Ian S. Karpel, Branch Chief, Division of Enforcement, Securities and Exchange Commission, 1801 California Street, Suite 1500, Denver, Colorado 80202-2648.   
+
+  
+
+ By the Commission. 
+
+  Jonathan G. Katz
+ Secretary  
+
+   1     This matter is related to a civil action,  Securities and Exchange Commission v. William W. Canfield , in which Canfield has consented to pay a $100,000 penalty. 
+
+   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. 
+
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diff --git a/raw/aaer/2005/AAER-2204.txt b/raw/aaer/2005/AAER-2204.txt
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index 0000000000000000000000000000000000000000..ed0c738cf3ae5addcae4d61282ef7a0c83a6dead
--- /dev/null
+++ b/raw/aaer/2005/AAER-2204.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19107 \ March 1, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2204 \ March 1, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. THE TITAN CORPORATION,  Civil Action No. 05-0411 (D.D.C.) (JR) (filed March 1, 2005) 
+
+ SEC SUES THE TITAN CORPORATION FOR PAYMENTS TO ELECTION CAMPAIGN OF BENIN PRESIDENT 
+ TITAN SETTLES AND AGREES TO PAY A TOTAL OF MORE THAN $28 MILLION TO SETTLE SEC ACTION AND RELATED CRIMINAL ACTION 
+ TITAN PLEADS GUILTY IN RELATED CRIMINAL ACTION BROUGHT BY THE UNITED STATES ATTORNEY FOR THE SOUTHERN DISTRICT OF CALIFORNIA AND THE U.S. DEPARTMENT OF JUSTICE, FRAUD SECTION 
+ SEC ALSO ISSUES REPORT OF INVESTIGATION TO PROVIDE GUIDANCE ON DISCLOSURE CONCERNING MATERIAL PROVISIONS IN MERGER AND OTHER CONTRACTUAL AGREEMENTS  
+
+ The Securities and Exchange Commission today announced the filing of a settled enforcement action in the United States District Court for the District of Columbia charging The Titan Corporation ("Titan"), a San Diego, California-based military intelligence and communications company, with violating the anti-bribery, internal controls and books and records provisions of the Foreign Corrupt Practices Act ("FCPA").  Simultaneously with the filing of the Commission's complaint, and without admitting or denying its allegations, Titan consented to the entry of a final judgment permanently enjoining it from future violations of the FCPA and requiring it (i) to pay $15.479 million in disgorgement and prejudgment interest, (ii) to pay a $13 million penalty, which will be deemed satisfied by Titan's payment of criminal fines of that amount in parallel proceedings brought by the U.S. Attorney's Office for the Southern District of California and the U.S. Department of Justice, Fraud Section, and (iii) to retain an independent consultant to review the company's FCPA compliance and procedures and to adopt and implement the consultant's recommendations.   
+ The Commission's complaint alleges that, from 1999 to 2001, Titan paid more than $3.5 million to its agent in Benin, Africa, who was known at the time by Titan to be the President of Benin's business advisor.  Titan failed to conduct any meaningful due diligence into the background of its agent either before his retention or thereafter and also failed to ensure that the services alleged to be performed by the agent, and described in his invoices, were in fact provided to Titan.  The complaint alleges, in 2001, at the direction of at least one former senior Titan officer based in the United States, Titan funneled approximately $2 million, via its agent in Benin, towards the election campaign of Benin's then-incumbent President.  The complaint also alleges that some of these funds were used to reimburse Titan's agent for the purchase to T-shirts adorned with the President's picture and instructions to vote for him in the upcoming election.  According to the complaint, Titan made these payments to assist the company in its development of a telecommunications project in Benin and to obtain the Benin government's consent to an increase in the percentage of Titan's project management fees for that project.  The complaint alleges that a former senior Titan officer directed that these payments be falsely invoiced by the agent as consulting services and that actual payment of the money be broken into smaller increments and spread out over time.  The complaint does not allege that the then-incumbent President knew of the payments.   
+ The Commission's complaint also alleges that, from 1999 to 2003, Titan improperly recorded payments in its books and records, directed agents to falsify invoices submitted to Titan, and failed to devise or maintain an effective system of internal controls to prevent or detect other FCPA violations.  Despite utilizing over 120 agents and consultants in over 60 countries, Titan never had a formal company-wide FCPA policy, failed to implement an FCPA compliance program, disregarded or circumvented the limited FCPA policies and procedures in effect, failed to maintain sufficient due diligence files on its foreign agents, and failed to have meaningful oversight over its foreign agents.  
+ According to the complaint, Titan falsified documents that enabled its agents to under-report local commission payments in Nepal, Bangladesh, and Sri Lanka.  In addition, the complaint alleges that Titan falsified documents presented to the United States government by under-reporting payments on equipment exported to Sri Lanka, France and Japan.  The complaint also alleges that Titan (i) paid a World Bank Group analyst in cash to assist Titan in its project in Benin, and (ii) paid a Benin government official approximately $14,000 in travel expenses from 1999 to 2001.   
+ Without admitting or denying the allegations in the complaint, Titan has consented to the entry of a final judgment permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 13b2-1 thereunder.  Titan also has agreed to disgorge $12,620,000, and to pay prejudgment interest thereon in the amount of $2,859,195.47.  Under the terms of the final judgment, Titan will also retain an independent consultant to review the company's FCPA compliance and procedures and will adopt and implement the consultant's recommendations.   
+ Also today the U.S. Attorney's Office for the Southern District of California and the U.S. Department of Justice, Fraud Section filed criminal FCPA charges and a tax charge against Titan, who entered a guilty plea before the Honorable Roger T. Benitez, United States District Judge for the Southern District of California (United States of America v. Titan Corporation, Case No.05cr0314-BEN (S.D. Cal.)).  In particular, Titan agreed to plead guilty to one felony count of violating the anti-bribery provisions of the FCPA, one felony count for falsifying the books and records of Titan, and one felony count for violating Title 26 U.S.C. Section 7206(2) and to pay a criminal fine of $13 million. 
+ Commission's Report Pursuant to Section 21(a) of the Exchange Act 
+ The Commission also today issued a Report of Investigation pursuant to Section 21(a) of the Exchange Act to provide guidance concerning potential liability under the antifraud and proxy provisions of the federal securities laws for publication of materially false or misleading disclosures regarding provisions in merger and other contractual agreements.   
+ In its Report, the Commission stated that, on September 15, 2003, Titan became a party to a merger agreement with Lockheed Martin Corporation ("Lockheed") in which Lockheed agreed to acquire Titan, pending certain contingencies.  Titan affirmatively represented in that merger agreement that to the knowledge of Titan, neither the company "nor any of its Subsidiaries, nor any director, officer, agent or employee of the Company or any of its Subsidiaries, has … taken any action which would cause the Company or any of its Subsidiaries to be in violation of the FCPA."  This representation was publicly disclosed and disseminated by Titan in two places.  The proxy statement disclosed the nature of the representation.  The merger agreement containing the representation was also appended to Titan's proxy statement, which was filed with the Commission and sent to Titan's shareholders.     
+ As the Report highlights, when an issuer makes a public disclosure of information -- via filing a proxy statement or otherwise -- the issuer is required to consider whether additional disclosure is necessary in order to put the information contained in, or otherwise incorporated into that publication, into context so that such information is not misleading.  The issuer cannot avoid this disclosure obligation simply because the information published was contained in an agreement or other document not prepared as a disclosure document.   
+ The Report is not intended to change the way issuers engage in merger, or other contractual, negotiations or to alter existing diligence obligations or to suggest, absent special circumstances (such as provisions intended to create third party beneficiaries), that provisions such as representations and covenants in such agreements are binding on or intended to benefit persons other than parties thereto.  Representations, covenants, or other provisions of an agreement made by an issuer that are not public or disclosed to shareholders are not covered by the scope of this Report.  
+ The Commission will consider bringing an enforcement action under Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5 and 14a-9 thereunder in the future if it determines that the subject matter of representations or other contractual provisions is materially misleading to shareholders because material facts necessary to make that disclosure not misleading are omitted.  
+ The Commission acknowledges the assistance in this investigation from the Department of Justice, Fraud Section; the United States Attorney's Office for the Southern District of California; the Federal Bureau of Investigation, San Diego Division; the Internal Revenue Service, Criminal Investigations; and the Department of Defense Inspector General's Office, Defense Criminal Investigative Service.   
+ The Commission's investigation is continuing. 
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diff --git a/raw/aaer/2005/AAER-2207.txt b/raw/aaer/2005/AAER-2207.txt
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index 0000000000000000000000000000000000000000..03945884efb5f45e603536d558b12de2efbe694a
--- /dev/null
+++ b/raw/aaer/2005/AAER-2207.txt
@@ -0,0 +1,1379 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19134 / March 15, 2005 
+
+ Accounting And auditing  Enforcement 
+Release No.  2207 / March 15, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. MARK A. SCHUMACHER,  Civ. No. 05-N-483 (OES)(USDC D. Colorado). 
+
+ The United States Securities and Exchange Commission ("Commission") announced that on March 15, 2005, it filed a complaint in the United States District Court for the District of Colorado against Mark A. Schumacher, the former controller of Qwest Communications International, Inc. ("Qwest").  Schumacher consented to the issuance of a Final Judgment ordering him to pay a $40,000 civil penalty, without admitting or denying any of the allegations in the complaint.   
+ The Commission's complaint alleged that Schumacher violated Section 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 13b2-1, and caused Qwest'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, 13a-11 and 13a-13 in connection with Qwest's:  (1) improper recognition of revenue from sales of irrevocable rights of use (IRUs) for the company's fiber optic cable and capacity during fiscal year 2001; and (2) improper disclosures concerning revenues from the company's telephone directories in Qwest's annual report filed with the Commission for the fiscal year 2000 and quarterly reports filed with the Commission for the first three quarters of 2001.   
+ In a related matter, a cease-and-desist order ("Order") was issued against Schumacher, ordering him to cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1, and from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13.  Schumacher undertakes to cooperate in any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party.  Schumacher consented to the issuance of the Order without admitting or denying any of the findings in the Order.  [ In the Matter of Mark A. Schumacher, Sec. Exch. Act Rel. No. 34-51373. ] 
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diff --git a/raw/aaer/2005/AAER-2208.txt b/raw/aaer/2005/AAER-2208.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ab03c2d28d0893dd73c1b24361646f12048fdc93
--- /dev/null
+++ b/raw/aaer/2005/AAER-2208.txt
@@ -0,0 +1,1379 @@
+
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+     SEC.gov | Bryan K. Treadway 
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+              Bryan K. Treadway
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19135 / March 15, 2005 
+
+ Accounting and Auditing  Enforcement 
+Release No.  2208 / March 15, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. BRYAN K. TREADWAY,  Civ. No. 05-N-484 (PAC) (USDC D. Colorado). 
+
+ The United States Securities and Exchange Commission ("Commission") announced that on March 15, 2005, it filed a complaint in the United States District Court for the District of Colorado against Bryan K. Treadway, a former assistant controller and later controller of Qwest Communications International, Inc. ("Qwest").  Treadway consented to the issuance of a Final Judgment ordering him to pay a $40,000 civil penalty, without admitting or denying any of the allegations in the complaint.   
+ The Commission's complaint alleged that Treadway violated Section 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 13b2-1 and 13b2-2 thereunder, and was a cause of Qwest'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, 13a-11 and 13a-13 in connection with Qwest's annual, quarterly, and current reports from the period ended June 30, 2001 through the period ended December 31, 2001, for Qwest's:  (1) improper recognition of revenue from sales of irrevocable rights of use for the company's fiber optic cable and capacity; (2) recognition of revenue in an improper bill and hold transaction for an equipment sale; and (3) improper reduction in compensated absences liability resulting in the understatement of 2001 pre-tax loss by $71.3 million and failure to disclose the change in the accounting methodology for compensated absences.  
+ In a related matter, a cease-and-desist order ("Order") was issued against Treadway, ordering him to cease and desist from committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange Act and Exchange Act Rules 13b2-1 and 13b2-2, 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 Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13.  Treadway undertakes to cooperate in any related judicial or administrative proceeding or investigation commenced by the Commission or to which the Commission is a party.  Treadway consented to the issuance of the Order without admitting or denying any of the findings in the Order.  [ In the Matter of Bryan K. Treadway, Sec. Exch. Act Rel. No. 34-51375. ] 
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diff --git a/raw/aaer/2005/AAER-2210.pdf b/raw/aaer/2005/AAER-2210.pdf
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+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51374 / March 15, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2211 / March 15, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11854  
+ 
+ 
+In the Matter of 
+ 
+Jennifer J. Tanner,  
+f/k/a Jennifer J. Black, 
+ 
+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 ("Co mmission") deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 ("Exchange Act"), against Jennifer J. Tanner ("Tanner" 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.   
+ 2
+III. 
+ On the basis of this Order and Res pondent's Offer, the Commission finds1 that:  
+A. Respondent 
+Tanner, age 33, of Denver, Colorado, was a manager and later a director of finance within 
+Qwest Communications International Inc.’s ("Qwest") technical accounting group from July 2000 
+to October 2002.  Prior to working for Qwest, Tanner was a manager of technical accounting from 
+October 1999 to June 2000 for US West, Inc., which was acquired by Qwest in 2000.  Tanner is a 
+certified public accountant, but her license is inactive.  
+B. Related Party 
+Qwest, based in Denver, Colorado, is one of the largest telecommunications and Internet 
+services companies in the United States.  Qwest’s common stock is registered with the 
+Commission pursuant to Section 12(b) of the Exchange Act, and the company is obligated to file 
+reports on Forms 10-K and 10-Q.  Qwest’s common stock is traded on the New York Stock 
+Exchange. 
+C. Qwest’s Improper Accounting for Indefeasible Rights of Use (“IRU”) Transactions 
+1. During 2001 and earlier, Qwest emphasize d in Commission filings and in public 
+statements, its projected revenues and earnings growth, and issued aggressive growth and revenue 
+targets to the investment community.  In turn, Qwest senior executives placed extraordinary 
+pressure throughout the company to meet or exceed the publicly announced revenue targets.  
+Qwest could not, however, meet its targets through recurring revenue generating transactions.  The 
+lack of recurring revenue created a gap between Qwest’s publicly stated revenue targets and actual 
+revenue.   
+2. To make up for the shortfall betwee n Qwest’s actual revenue and its projected 
+revenue targets, Qwest relied on one-time sales of portions of its network in the form of IRUs.2  
+Qwest accounted for IRUs as sales-type leases, and recognized revenue immediately upon 
+purported delivery and acceptance of the capacity. 
+3. Qwest’s IRU revenue recognition policy fa iled to meet several GAAP criteria and 
+Qwest improperly recognized approximately $1 billion in IRU revenue from the first quarter 2001 
+through December 31, 2001.  Tanner was one of Qwest's technical accountants responsible for 
+                                                 
+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  An IRU is an irrevocable right to use specific fiber optic-cable or fiber capacity for a specified 
+time period.  
+ 3
+reviewing and approving the application of Qwest's IRU accounting policy to Qwest’s IRU sales 
+from the first quarter 2001 through December 31, 2001.   
+4. For revenue recognition as a sales-type lease, GAAP requires that the earnings 
+process be complete and the assets sold remain fixed and unchanged.  In 2001, Tanner became 
+aware that Qwest’s IRU assets were not fixed and unchanged because Qwest often allowed 
+customers to return the IRU assets purchased in exchange for different assets and redirected IRU 
+routes to circumvent problems on Qwest’s network.  After becoming aware that Qwest’s IRU 
+revenue recognition policy was not in conformity with GAAP, in implementing Qwest’s IRU 
+accounting policy, Tanner did not ensure that Qwest’s IRU accounting met the immediate revenue 
+recognition criteria under GAAP, and did not confirm that Qwest had an adequate system of 
+internal controls and procedures concerning its IRU accounting. 
+5. In fact, Qwest’s revenue recognition on IRU sales was not in accordance with 
+GAAP.  Specifically, (i) Qwest’s accounting was fundamentally flawed because Qwest never had 
+specific IRU assets identified for sale as required by GAAP; (ii) immediate revenue recognition on 
+IRU sales was improper because Qwest never established that title transferred and did not transfer 
+the usual risks and rewards of ownership to the buyer; and (iii) Qwest’s immediate recognition of 
+revenue on IRU sales was not in accordance with GAAP because Qwest improperly treated its IRU 
+sales as having several separate revenue elements and did not have sufficient evidence supporting 
+the fair values of the individual elements. 
+6. Qwest's improper accounting for IRUs resulted in material misstatements of the 
+company's revenues, income and earnings per share in, among others, Qwest's 2001 Form 10-K, 
+Qwest’s Forms 10-Q for the quarters ended March 31, June 30, and September 30, 2001 and 
+March 31, 2002, and earnings releases attached to Qwest's current reports on Form 8-K filed with 
+the Commission for the same periods in 2001 and 2002.   
+D. Qwest’s Improper Accounting and Disclosure for Sales Commission Plans 
+ 1. Qwest changed from a policy of expens ing sales commissions when incurred to a 
+more aggressive policy in the first quarter 2001 of deferring sales commissions over the term of the 
+sales contracts.  Qwest, however, did not meet the GAAP requirements to defer sales commissions.  
+Specifically, Qwest did not have procedures in place to track and amortize capitalized 
+commissions over the actual contractual life as required by GAAP. 
+2. Tanner was one of the technical acco untants responsible for opining on the 
+appropriateness of this change and failed to take the steps necessary to determine whether Qwest 
+met the requirements for deferral.  For example, Tanner did not read Qwest’s commission plans, 
+and did not determine whether Qwest had the requisite tracking processes and could identify the 
+specific contract to which the commission was linked.  Moreover, because Tanner did not learn 
+that Qwest did not have procedures to track commissions and link the commissions to a specific 
+contract, she did not advise Qwest’s auditors to that effect. 
+ 3.   Qwest’s inappropriate deferral of sales commissions resulted in a $158 million 
+overstatement of pretax income and adjusted EBITDA in 2001.  Specifically, Qwest's improper 
+ 4
+capitalization of sales commissions resulted in material overstatements of the company's income 
+and earnings per share in its Form 10-K for the year ended December 31, 2001; Forms 10-Q for the 
+quarters ended March 31, June 30 and September 30, 2001 and March 31, 2002; and earnings 
+releases attached to Forms 8-K relating to the same periods. 
+ 4. Tanner also did not determine that the change from expensing to deferring sales 
+commissions was a change in accounting principle that should have been disclosed under GAAP 
+and the required disclosure was therefore not included in Qwest’s Form 10-K for the year ended 
+December 31, 2001 and Forms 10-Q for the quarters ended March 31, 2001, June 20, 2001, 
+September 30, 2001, and March 31, 2002.  
+5. Because Qwest improperly capitalized sales commission expenses, its books, 
+records and accounts did not, in reasonable detail, accurately and fairly reflect its transactions and 
+dispositions of assets.  In addition, Qwest failed to implement internal accounting controls relating 
+to its sales commission accounts which were sufficient to provide reasonable assurances that these 
+accounts were accurately stated in conformity with generally accepted accounting principles.  In 
+2001, Tanner was responsible in part for implementing sufficient internal controls relating to 
+Qwest’s accounting for sales commission expenses. 
+E. Violations
+1. Section 13(a) of the Exchange Act an d Exchange Act Rules 13a-1, 13a-11 and 13a-
+13 require all issuers with securities registered under Section 12 of the Exchange Act to file annual, 
+current and quarterly reports with the Commission on Forms 10-K, 8-K and 10-Q, respectively.  
+These reporting requirements necessarily include the requirement that the issuer supply accurate 
+information.  In addition, Rule 12b-20 requires that reports contain such further material 
+information as may be necessary to make the required statements, in light of the circumstances 
+under which they were made, not misleading.  As a result of the conduct described above, Tanner 
+was a cause of Qwest’s violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 
+13a-11, and 13a-13 thereunder with respect to Qwest's Form 10-K for the year ended December 
+31, 2001; Forms 10-Q for the quarters ended March 31, 2001, June 30, 2001, September 30, 2001, 
+and March 31, 2002; and Forms 8-K to which Qwest's earnings releases for these quarters were 
+attached. 
+ 2. As a result of the conduct describe d above, Tanner was a cause of Qwest's 
+violations of Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to 
+make and keep books, records, and accounts which, in reasonable detail, accurately and fairly 
+reflect their transactions and dispositions of their assets, and Section 13(b)(2)(B), which requires  
+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.   
+3. Also as a result of the conduct describe d above, Tanner violated Section 13(b)(5) of 
+the Exchange Act, which prohibits persons from knowingly circumventing or knowingly failing to 
+implement a system of internal accounting controls, or knowingly falsifying any book, record or 
+account; and Exchange Act Rule 13b2-1, which prohibits persons from directly or indirectly 
+ 5
+falsifying or causing to be falsified any book, record, or account subject to Section 13(b)(2)(A) of 
+the Exchange Act.  
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Tanner's Offer. 
+ Accordingly, it is hereby ORDERED that Respondent Tanner 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 from causing any violations and any future violations of 
+Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 
+and 13a-13 thereunder. 
+ By the Commission. 
+ 
+ 
+ 
+       J o n a t h a n  G .  K a t z  
+       S e c r e t a r y  
\ No newline at end of file
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+              Soulfood Concepts, Inc. and Markova Campbell
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+        Soulfood Concepts, Inc. and Markova Campbell
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19138 / March 16, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2213 / March 16, 2005 
+
+  Securities and Exchange Commission v. Soulfood Concepts, Inc. and Markova Campbell,  No. 04-CV-1731 (JR) (D.D.C.)  
+
+ SEC SETTLES FRAUD CHARGES WITH SOULFOOD CONCEPTS, INC. AND MARKOVA CAMPBELL 
+
+ The Securities and Exchange Commission today announced that the Honorable James Robertson of the United States District Court for the District of Columbia has entered final judgments against Soulfood Concepts, Inc. and its President and Chief Executive Officer, Markova Campbell.  The judgments permanently enjoin Campbell from violating Section 10(b) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, and permanently enjoin Soulfood from violating Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.  In addition, Campbell was permanently barred from serving as an officer or director of any public company.  Based on Campbell's sworn financial statement, no civil penalty was imposed.  Campbell and Soulfood consented to the final judgments without admitting or denying the allegations in the Commission's complaint. 
+ In the complaint, filed October 12, 2004, the Commission alleged that Soulfood filed with the Commission a materially false and misleading annual report and amended annual report for the year ended December 31, 2002, and materially false and misleading quarterly reports for the quarters ended September 30, 2002, and March 31, 2003.  The Commission also alleged that Campbell copied the financial statements included in the reports from prior Commission filings and altered the applicable dates to make the statements appear to be current.  Campbell also was alleged to have included a fictitious independent auditor's report in the annual report and amended annual report.   
+ On November 22, 2004, the Commission revoked the registration of Soulfood's securities pursuant to Section 12(j) of the Exchange Act as a result of separate administrative proceedings.   
+
+
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+Securities Exchange Act of 1934  
+Release No. 51400 / March 21, 2005 
+Accounting And Auditing Enforcement 
+Release No. 2215 / March 21, 2005 
+Administrative Proceeding 
+File No. 3-11862 
+In the Matter of 
+James W. Barge, 
+Pascal Desroches, and 
+Wayne H. Pace, 
+Respondents. 
+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 cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C 
+of the Securities Exchange Act of 1934 (“Exchange Act”) against James W. Barge, 
+Pascal Desroches, and Wayne H. Pace (collectively, “Respondents”).  
+II. 
+In anticipation of the institution of these proceedings, Respondents have 
+submitted Offers of Settlement (the “Offers”) which the Commission has determined to 
+accept. Solely for the purpose of these proceedings and any other proceedings brought 
+by or on behalf of the Commission, or to which the Commission is a party, and without 
+admitting or denying the findings herein, except as to the Commission’s jurisdiction over 
+them and the subject matter of these proceedings, which are admitted, Respondents 
+consent to the entry of this Order Instituting 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.   
+  
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+                                                 
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+ 
+III.
+ 
+On the basis of this Order and Respondents’ Offers, the Commission finds the 
+following1: 
+A. Summary 
+This matter involves Respondents’ roles in the accounting treatment accorded to 
+improperly recognized revenue by Time Warner Inc. (formerly AOL Time Warner Inc., 
+and hereinafter referred to as “AOLTW” or the “Company”), a publicly traded media and 
+entertainment company.  In 2001 and 2002, the AOL Division (“AOLD”) of AOLTW 
+improperly inflated its online advertising revenue by $400 million in connection with 
+transactions with Bertelsmann AG (“BAG”).  In substance, BAG paid $400 million as 
+consideration for amendments to a multi-billion-dollar contract governing AOLTW’s 
+purchase of BAG’s interest in AOL Europe, S.A.   The contract amendments had substantial 
+value, and BAG offered to compensate AOLTW for the amendments.  AOLTW proposed 
+that, in exchange for the two amendments, BAG purchase advertising in the aggregate 
+amount of $400 million.  AOLD then improperly and materially inflated its online 
+advertising revenues by recognizing the $400 million as advertising revenue rather than as 
+consideration received for amending the AOL Europe purchase agreement.  AOLD’s 
+financial results were consolidated in AOLTW’s financial statements, and the $400 million 
+payment was improperly reflected as online advertising revenue in AOLTW’s financial 
+statements that were filed with the Commission. 
+Respondents were corporate-level finance and accounting executives at AOLTW 
+who were responsible for, among other things, reviewing and approving the accounting 
+treatment recommended by the Company’s business units, including AOLD.  
+Respondents approved AOLTW’s accounting for the $400 million as advertising 
+revenue. In doing so, they based their accounting decisions on the form of the 
+transactions and oral and written representations, some of which were false and omitted 
+material facts, by other AOLTW and AOLD employees.  They failed to pursue facts and 
+circumstances that evidenced the true economic substance of the transactions.  As a 
+result, although others were responsible for negotiating the $400 million transactions, 
+Respondents each were a cause of AOLTW’s improperly accounting for the $400 million 
+in annual and periodic reports filed with the Commission.   
+B. Respondents 
+James W. Barge, age 49, served as Vice President and Controller of AOLTW from 
+January 2001 to September 2001, and he served as Vice President in charge of AOLTW’s 
+Financial Planning and Analysis from September 2001 through December 2001.  Since 
+January 2002, Barge assumed both the Controller and Financial Planning and Analysis 
+1 These findings 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
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+             
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+responsibilities, and Barge was promoted to Senior Vice President and Controller.  Prior to 
+the merger of America Online, Inc. (“AOL”) and Time Warner Inc. in January 2001, Barge 
+was Vice President and Controller of Time Warner.  Barge formerly was an audit partner 
+with Ernst & Young LLP and a Professional Accounting Fellow with the Commission’s 
+Office of the Chief Accountant.  Barge is a certified public accountant (“CPA”). 
+Pascal Desroches, age 40, joined AOLTW in 2001 as Assistant Controller and has 
+served as Vice President and Deputy Controller of AOLTW since May 2002.  Desroches 
+formerly was a partner with KPMG LLP and a Professional Accounting Fellow with the 
+Commission’s Office of the Chief Accountant.  Desroches is a CPA.     
+Wayne H. Pace, age 58, has served as Chief Financial Officer (“CFO”) of 
+AOLTW since November 2001.  Prior to assuming that position, Pace had served as CFO 
+of Turner Broadcasting Systems, Inc., an AOLTW subsidiary, since 1993.  Pace formerly 
+was an audit partner with Price Waterhouse LLP.  Pace was a CPA, but he allowed his 
+license to lapse in 1995. 
+C. Relevant Entities 
+Time Warner Inc., the corporate parent of AOLD, is a media and entertainment 
+company.  Time Warner is incorporated in Delaware and headquartered in New York, 
+New York. Time Warner’s common stock is registered with the Commission pursuant to 
+Section 12(b) of the Exchange Act and trades on the New York Stock Exchange.  Time 
+Warner files annual and quarterly reports with the Commission on Forms 10-K and 10-Q.  
+Time Warner was formed by the merger of AOL and Time Warner on January 11, 2001.  
+The merged company was named AOL Time Warner Inc.  It changed its name to Time 
+Warner Inc. on October 16, 2003. 
+AOLD is an Internet service provider.  AOLD provides its subscribers with access 
+to the Internet, e-mail accounts, and content.  AOLD’s headquarters are located in Dulles, 
+Virginia. 
+Bertelsmann AG is a media and entertainment company.  BAG is incorporated in 
+Germany and headquartered in Guetersloh, Germany.   
+D. The Bertelsmann Advertising Contracts 
+AOL’s Purchase of BAG’s Interest in AOL Europe 
+AOL and BAG formed a joint venture in 1995 that created AOL Europe, which 
+owns and operates European Internet services (including AOL UK and AOL Germany).  In 
+March 2000, AOL and BAG entered into a contingent purchase agreement concerning 
+AOL’s acquisition of BAG’s interest in AOL Europe.  The contingent agreement was 
+structured as a put/call option (the “Put/Call Agreement”).  Under the Put/Call Agreement, 
+BAG could exercise an option to “put” its AOL Europe shares to AOL by selling them to 
+AOL for $6.75 billion; if BAG did not exercise its option, AOL could “call” BAG’s AOL 
+3
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+  
+  
+ 
+  
+ 
+ 
+Europe shares by purchasing BAG’s shares for $8.25 billion.  BAG’s Put rights under the 
+Put/Call Agreement had two settlement dates:  January 2002 for 80% of BAG’s AOL 
+Europe shares, and July 2002 for the remaining 20% of BAG’s AOL Europe shares.  
+Following the merger of AOL and Time Warner, AOLTW became AOL’s successor in 
+interest under the contract.  The Put/Call Agreement provided AOLTW the option to pay 
+in cash or stock. AOLTW retained the further option to settle in cash or stock for 12 days 
+after the price of AOLTW stock was fixed for settlement (the “free-look period”).  If 
+AOLTW’s stock price at the end of the free-look period was below the price fixed for 
+settlement under the Put/Call, AOLTW could deliver stock worth less than the Put/Call 
+Agreement price. 
+At the same time in March 2000, BAG and AOL executed an online advertising 
+agreement committing BAG to purchase $150 million in online ads from AOL over four 
+years (the “Premier Ad Deal”).  The Premier Ad Deal provided BAG “premier status,” 
+entitling it to valuable advertising placement and exclusivity rights and “preferred” 
+pricing, defined as rates and terms no worse, when taken as a whole, than those generally 
+offered by AOL to third parties for similar programs.  By December 2000, the parties 
+agreed that BAG was entitled to an across-the-board 40% discount to AOL’s list price 
+under the preferred pricing provision. Unde r the Premier Ad Deal, BAG negotiated the 
+content, placement, and timing of the advertising. 
+$125 Million Put/Call Amendment Deal 
+Shortly after entering into the Put/Call Agreement, BAG attempted to realize some 
+or all of the $6.75 billion it would be due when it exercised its Put rights, which according to 
+the contract could not be settled until 2002.  In the fall of 2000, BAG tried to sell its interest 
+in the Put/Call Agreement to an investment banking firm.  However, the investment bankers 
+were unwilling to purchase BAG’s interest because of the uncertainty inherent in its terms.  
+Specifically, the free-look period put BAG at risk of receiving AOL stock worth 
+substantially less than $6.75 billion, and AOL’s option to pay with stock, rather than cash, 
+created material, and potentially costly, obstacles to the ability of a purchaser of BAG’s 
+interest to realize the value of the stock.  As a result of the uncertainty arising from these 
+circumstances, BAG could not monetize, or realize value from, its rights under the Put/Call 
+prior to settlement.  The most effective way to reduce the uncertainty was to obtain 
+AOLTW’s agreement to pay the Put price in cash rather than stock.  
+In January 2001, BAG proposed to amend the Put/Call Agreement to require 
+AOLTW to pay some or all of the $6.75 billion in cash to enable BAG to monetize its 
+interest. BAG offered to compensate AOLTW with cash, a reduction in the Put/Call 
+Agreement price, or other means.  AOLTW proposed that the consideration take the form of 
+BAG’s purchasing online advertising.  Respondents did not participate in these discussions 
+and relied on others to describe them accurately.  While Barge and Desroches were not 
+directly involved in the process, they learned of the proposed amendment shortly before it 
+was executed, and they were involved, to varying degrees, in approving the manner in 
+which AOLTW accounted for the transaction.  
+4
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+   
+                                                
+ 
+ 
+ 
+From January through March 2001, AOLTW and BAG negotiated the terms of the 
+Put/Call amendment.  Almost all of the negotiations focused on the value and structure of 
+the Put/Call amendment.  There were few, if any, negotiations concerning terms of the 
+advertising deal, other than the overall price, which was determined by the negotiated value 
+of the Put/Call amendment.  During negotiations, AOLTW and BAG consulted with finance 
+experts and investment bankers concerning the value of various Put/Call Amendments, 
+which included the value of the free-look period and the value of avoiding a block sale 
+discount for large blocks of stock. Values asserted by AOLTW during negotiations with 
+BAG ranged from $200 million to $412 million.   
+On March 30, 2001, AOLTW and BAG amended the Put/Call Agreement to require 
+AOLTW to pay at least $2.5 billion in cash if BAG exercised its $6.75 billion Put (the “First 
+Put/Call Amendment”). As consideration for the First Put/Call Amendment, BAG agreed to 
+pay AOLTW $125 million in the form of an advertising purchase (the “March ’01 Deal”).  
+Internal AOLTW documents stated that BAG agreed to enter into the advertising 
+transaction “as compensation for” or “in exchange for” the amendment to the Put/Call. 
+The March ’01 Deal provided online advertising that was qualitatively different 
+from the online advertising provided under the Premier Ad Deal.  Among other things, 
+the March ’01 Deal stripped BAG of the preferred pricing and special rights that it 
+enjoyed under the Premier Ad Deal, and it essentially eliminated BAG’s ability to control 
+the content, placement, and frequency of the advertising delivered pursuant to the March 
+’01 Deal.  Unknown to the Respondents at the time they initially approved the accounting 
+treatment, BAG had no need to enter into the $125 million advertising agreement. 
+AOLTW decided each quarter how much online advertising to run under the 
+March ’01 Deal by determining the amount of online ad revenues it needed during the 
+period to reach its targets. Often, the a dvertising for BAG ran late in the reporting 
+period, after AOL had determined the amounts by which it could not otherwise attain its 
+revenue goals. BAG generally signed the a dvertising purchase orders after AOLTW had 
+already run the advertising. Negotiations, to the extent they occurred, concerned mostly 
+the allocation of the ads among BAG’s various subsidiaries and not the placement or 
+frequency of the ads.2  AOLTW ran the advertising and recorded almost the entire $125 
+million in online advertising revenue from the March ’01 Deal in the first three quarters of 
+2001. 
+2 Unknown to Respondents at the time they initially approved the accounting treatment, 
+AOLD knew that BAG did not need or value the online advertising.  An AOLD internal 
+summary of the March ’01 Deal described the online advertising as “pure gravy” and a 
+“freebie,” explaining “these plans are not to be negotiated.”  A later AOLD internal 
+memorandum described the March ’01 Deal as an “aggressive revenue recognition plan” 
+under which “AOL policy has been focused on maximum revenue recognition without 
+regard to the quality of the carriage or input from the BAG Brands on either participation 
+or carriage.”   
+5
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+ 
+     
+       
+   
+  
+ 
+        
+ 
+ 
+$275 Million Put/Call Amendment Deal 
+In September 2001, BAG asked AOLTW to commit to pay in cash the remaining 
+$4.25 billion under the Put/Call, although doing so reduced AOLTW’s financial flexibility 
+and represented a significant opportunity cost to the Company.  AOLTW again accounted 
+for a payment from BAG for a Put/Call amendment as if it were a purchase of advertising.  
+From late November through mid-December 2001, AOLTW and BAG negotiated 
+the second amendment to the Put/Call.  Virtually all of the negotiations concerned the value 
+and structure of the proposed Put/Call amendment.  There were few, if any, negotiations 
+concerning terms of the advertising deal, other than the overall price, which was determined 
+by the negotiated value of the Put/Call amendment.  Throughout negotiations, AOLTW and 
+BAG consulted with finance experts and investment bankers concerning the value of a 
+second Put/Call amendment.  During negotiations, AOLTW asserted that the value of the 
+amendment ranged from $250 million to $420 million.  Respondents did not participate in 
+these discussions and relied on others to describe them accurately.  While Respondents were 
+not directly involved in the process, they knew of the proposed transaction, and they were 
+involved, to varying degrees, in approving the manner in which AOLTW accounted for the 
+transaction. 
+On December 21, 2001, AOLTW and BAG amended the Put/Call Agreement to 
+require AOLTW to pay the remaining $4.25 billion Put amount in cash (the “Second 
+Put/Call Amendment”). As consideration for the Second Put/Call Amendment, BAG 
+agreed to pay AOLTW $275 million in the form of an advertising purchase (the “December 
+’01 Deal”). Internal AOLTW e-mails stated that BAG agreed to enter into the advertising 
+transaction in “exchange for” the amendments to the Put/Call. 
+Like the March ’01 Deal, the December ’01 Deal stripped BAG of the preferred 
+pricing and special rights that it enjoyed under the Premier Ad Deal, and it essentially 
+eliminated BAG’s ability to control the content, placement, and frequency of the advertising 
+delivered. Unknown to Resp ondents at the time, BAG had no need for additional online 
+advertising. AOLTW administered the December ’01 Deal substantially the same as it did 
+the March ’01 Deal.  AOLTW ran the advertising and booked almost the entire $275 million 
+in online advertising from the December ’01 Deal in 2002. 
+E.	 Respondents were Each a Cause of AOLTW’s Improperly Recognizing 
+Revenue on the Bertelsmann Transactions and Filing Inaccurate 
+Reports with the Commission 
+A fundamental tenet of generally accepted accounting principles (“GAAP”) is that 
+the accounting for a transaction should reflect its economic substance, and the form of a 
+transaction is not necessarily controlling. For example, revenue should not be recorded 
+in a round-trip transaction in which the essence of the transaction is merely a circular 
+flow of cash and the customer does not need the goods or services provided, would not 
+normally purchase the goods or services at that time, or purchases quantities in excess of 
+its needs. For those charged with prepar ing financial statements, an important and 
+6
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+  
+ 
+  
+ 
+ 
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+  
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+ 
+ 
+                                                 
+ 
+ 
+fundamental responsibility is to ensure that companies account for transactions based on 
+their economic substance.  In some cases, this requires looking beyond the terms of the 
+agreements and even beyond assurances from company employees, whose compensation 
+may be affected by the accounting decisions. 
+The economic substance of the exchanges between AOLD and BAG was that 
+BAG paid $400 million for amendments to the Put/Call.  AOLD ignored the substance of 
+these transactions and improperly recognized $400 million of online advertising revenue 
+on these transactions in 2001 and 2002. Th is caused material overstatements of 
+AOLTW’s reported online advertising and commerce revenues, consolidated operating 
+income, and consolidated net income for each reporting period from the quarter ended 
+June 30, 2001 through the year ended December 31, 2002.  Specifically, AOLTW 
+improperly recognized the following amounts: $16.3 million in the first quarter of 2001, 
+$65.5 million in the second quarter of 2001, $39.8 million in the third quarter of 2001, 
+$80.3 million in the first quarter of 2002, $84.4 million in the second quarter of 2002, 
+$51.6 million in the third quarter of 2002, and $58.0 million in the fourth quarter of 2002.   
+Respondents were charged with ensuring that AOLTW filed accurate financial 
+statements presented in conformity with GAAP.  They recognized the possibility that 
+BAG’s payments to AOLD were not advertising revenues, but rather compensation for 
+amendments to the Put/Call.  They consulted with executives of AOLD and AOLTW, 
+including those who negotiated the deals, concerning the nature and terms of the 
+transactions and were provided false and incomplete information.  They were not told 
+that BAG had offered cash or to reduce the purchase price for AOL Europe in exchange 
+for the amendments, and they did not know how the advertising programs were 
+administered.  They requested, and were assured, that the advertising to be provided to 
+BAG would be priced at fair value.
+ 3  However, they were aware of facts and 
+circumstances that called those representations into question.  They knew the following: 
+•	 BAG purchased advertising under the March and December ’01 Deals in 
+exchange for the First and Second Put/Call Amendments.   
+•	 The Put/Call Amendments had significant value to BAG because they provided 
+cash certainty that would be costly to acquire in the marketplace, and cash 
+certainty was important to BAG’s effort to monetize or otherwise borrow against 
+the underlying value of their Put. 
+•	 AOLTW’s agreement to pay in cash rather than stock reduced the Company’s 
+flexibility and represented a significant opportunity cost.   
+3 Desroches, with the concurrence of the other Respondents, also consulted with the 
+Company’s auditors concerning their proposed accounting treatment for the December 
+’01 deal and received the auditors’ approval.  However, at the time of the consultation, 
+the Respondents had not performed an inquiry sufficient to determine the nature of the 
+transaction. 
+7
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+   
+ 
+    
+ 
+•	 The proposed accounting treatment assigned no value to the Put/Call 
+Amendments and recognized $400 million of advertising revenue.  
+•	 Advertising revenue was important to AOLD because of its high profit margin 
+and because analysts and investors considered advertising revenue a key measure 
+of AOLD’s current and future financial performance. 
+•	 The March and December ’01 Deals represented two of the largest purchases of 
+online ads in AOL’s history. 
+In addition, at least Desroches received documents indicating that the $400 million 
+March and December ’01 Deals granted substantially less favorable terms to BAG than 
+the $150 million Premier Ad Deal, and the March and December ’01 Deals deprived 
+BAG of any contractual means to manage or control the advertising it received. 
+Nevertheless, Barge and Desroches did not review the terms of the final 
+agreements for the March and December ’01 Deals before approving the accounting for 
+the transactions. Likewise, Pace did not re view the terms of the agreement for the 
+December ’01 Deal before approving the accounting treatment.  Further, neither Barge 
+nor Desroches reviewed the negotiating history of the Put/Call Amendments or the March 
+and December ’01 Deals before approving the accounting treatment.  Similarly, Pace did 
+not review the negotiating history of the Second Put/Call Amendment or the December 
+’01 Deal before approving the accounting treatment for the $275 million.   
+Barge signed AOLTW’s Forms 10-K filed for 2001 and 2002, and he reviewed 
+AOLTW’s Forms 10-Q for the second quarter of 2001 and the first through third quarters 
+of 2002. Desroches prepared and reviewed  AOLTW’s Forms 10-Q and 10-K from the 
+second quarter of 2001 through year end 2002.  Pace signed AOLTW’s Form 10-K for 
+2001. Pace also signed AOLTW’s Forms 10-Q and 10-K for each period in 2002.   
+In light of matters discussed above and the magnitude of these transactions and 
+their impact on AOLD’s and AOLTW’s financial results, the Respondents should have 
+obtained more information concerning the transactions and should have looked beyond 
+the assurances of employees whose compensation may have been affected by the 
+accounting decisions. Because they failed to obtain more information before they 
+approved the accounting, Respondents lacked a reasonable basis for their accounting 
+conclusion. Thus, each of them was a cause  of AOLTW’s improper accounting for, and 
+reporting of, the BAG revenue. 
+F. Legal Conclusions 
+The Exchange Act and Exchange Act rules require every issuer of registered 
+securities to file reports with the Commission that accurately reflect the issuer’s financial 
+performance and provide other true and accurate information to the public. 
+8
+ 
+  
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+   
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+  
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+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+As a result of the conduct described above, AOLTW violated Section 13(a) of the 
+Exchange Act and Exchange Act Rules 13a-1 and 13a-13 by filing materially misleading 
+annual and quarterly reports with the Commission. 
+Based on the foregoing, Barge, Desroches, and Pace caused AOLTW's violations 
+of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 13a-13. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondents’ Offers. 
+Accordingly, it is hereby ORDERED that: 
+Respondents James W. Barge, Pascal Desroches, and Wayne H. Pace cease and 
+desist from causing any violations and any future violations of Section 13(a) of the 
+Exchange Act and Exchange Act Rules 13a-1 and 13a-13. 
+By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+9
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2216.txt b/raw/aaer/2005/AAER-2216.txt
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+              Time Warner Inc.
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+        Time Warner Inc.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19147 / March 21, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2216 / March 21, 2005 
+
+  SEC v. Time Warner Inc.,  Civil Action No. 1:05CV00578 (GK) (D.D.C.) 
+
+ In the Matter of James W. Barge, Pascal Desroches, and Wayne H. Pace, 
+Exchange Act Rel. No.  34-51400 / March 21, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2215 (March 21, 2005)   
+
+ SEC CHARGES TIME WARNER WITH FRAUD, AIDING AND ABETTING FRAUDS BY OTHERS, AND VIOLATING A PRIOR CEASE-AND-DESIST ORDER; CFO, CONTROLLER, AND DEPUTY CONTROLLER CHARGED WITH CAUSING REPORTING VIOLATIONS 
+
+ Time Warner Agrees to $300 Million Penalty, Antifraud Injunction and Order to Comply with Prior Cease-and-Desist Order; Will Restate Its Financial Results and Engage Independent Examiner 
+
+ CFO, Controller and Deputy Controller Consent to Cease-and-Desist Order 
+
+ The Securities and Exchange Commission today charged Time Warner Inc. (formerly known as AOL Time Warner) with materially overstating online advertising revenue and the number of its Internet subscribers, and with aiding and abetting three other securities frauds.  The Commission also charged that the company violated a Commission cease-and-desist order issued against America Online, Inc. on May 15, 2000.  In a separate administrative proceeding, the Commission charged Time Warner CFO Wayne H. Pace, Controller James W. Barge, and Deputy Controller Pascal Desroches with causing violations of the reporting provisions of the federal securities laws.  
+ Without admitting or denying the allegations in the complaint, Time Warner consented to the entry of a judgment ordering it to comply with the May 15, 2000 cease-and-desist order against AOL and enjoining Time Warner from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 13b2-1.  The judgment also orders Time Warner to pay $300 million in civil penalties, which the Commission will request be distributed to harmed investors.  The penalties cannot be used to offset any judgment or settlement in any related shareholder suit.  In addition, Time Warner agreed to restate its historical financial results to reduce its reported online advertising revenues by approximately $500 million (in addition to the $190 million already restated) for the fourth quarter of 2000 through 2002 and to properly reflect the consolidation of AOL Europe in the company's 2000 and 2001 financial statements.  The company also agreed to engage an independent examiner to determine whether the company's historical accounting for certain transactions was in conformity with generally accepted accounting principles (GAAP). 
+ In the separate administrative action, Pace, Barge, and Desroches consented, without admitting or denying the allegations, to the entry of an administrative order that finds that they caused reporting violations by the company based on their roles in accounting for $400 million paid to the company by Bertelsmann AG in two sets of transaction.  The order directs them to cease-and-desist from causing any violations and any future violations of Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 13a-13.  
+ The Commission's complaint against Time Warner, which was filed in the United States District Court for the District of Columbia, includes the following allegations: 
+ Fraudulent Round-Trip Transactions to Inflate Online Advertising Revenue  
+ Beginning in mid-2000, stock prices of Internet-related businesses declined precipitously as, among other things, sales of online advertising declined and the rate of growth of new online subscriptions started to flatten.  Beginning at this time, and extending through 2002, the company employed fraudulent round-trip transactions that boosted its online advertising revenue to mask the fact that it also experienced a business slow-down.  The round-trip transactions ranged in complexity and sophistication, but in each instance the company effectively funded its own online advertising revenue by giving the counterparties the means to pay for advertising that they would not otherwise have purchased.  To conceal the true nature of the transactions, the company typically structured and documented round-trips as if they were two or more separate, bona fide transactions, conducted at arm's length and reflecting each party's independent business purpose.  The company delivered mostly untargeted, less desirable, remnant online advertising to the round-trip advertisers, and the round-trip advertisers often had little or no ability to control the quantity, quality, and sometimes even the content of the online advertising they received.  Because the round-trip customers effectively were paying for the online advertising with the company's funds, the customers seldom, if ever, complained. 
+ Aiding and Abetting Frauds 
+ Several of the counterparties to the round-trip transactions were publicly traded companies.  Three of these counterparties-Homestore, Inc., PurchasePro.com, Inc., and a California software company- improperly recognized revenue on the round-trip transactions and reported materially misstated financial results to their own investors.    
+ As a consequence, the company aided and abetted the frauds of three public companies.  
+ Fraudulent Use of Bulk Sales to Inflate the Number of AOL Subscribers 
+ The company artificially inflated the number of AOL subscribers in the second, third, and fourth quarters of 2001 so it could report to the investment community that it had met its new subscriber targets, an important metric the market used to evaluate AOL (both before and after its merger with Time Warner).  Specifically, the company counted members from "bulk subscription sales" to corporate customers (for distribution to their employees) when the company knew that the memberships had not, and mostly would not, be activated.  In at least one instance, the company entered into round-trip arrangements to fund the corporate customers' purchases of bulk subscriptions.  Additionally, in last-minute efforts to meet the quarterly targets, the company on at least four occasions shipped non-conforming bulk subscription membership kits to the customers prior to quarter-end with the understanding that it would turn around and replace them at a later date with conforming kits, but it nonetheless counted new subscribers from these sales as of the quarter-end. 
+ Failure to Consolidate AOL Europe 
+ From March 2000 through January 2002, the company failed to properly consolidate the financial results of AOL Europe in its financial statements.  AOL Europe was originally a 50/50 joint venture between AOL and Bertelsmann.  In March 2000, AOL entered into a contingent purchase agreement relating to Bertelsmann's interest in AOL Europe.  The agreement gave AOL broad and direct powers enabling it to control the operations and assets of AOL Europe.  In fact, AOL informed the European Commission (in the context of satisfying EC merger regulations) that Bertelsmann relinquished essentially all control regarding the operations or management of AOL Europe.  GAAP requires consolidation when one entity has a controlling financial interest in another entity.  The company's failure to properly consolidate AOL Europe resulted in material misstatements of its financial results, including overstatements of operating income and free cash flow in 2000 and 2001, overstatements of net income in 2000, understatements of net losses in 2001, and understatements of total debt in 2000 and 2001.    
+ Violations of the Commission's Cease-and-Desist Order 
+ The Commission issued a cease-and-desist order against AOL on May 15, 2000 because AOL violated reporting and books-and-records provisions of the federal securities laws.  Thereafter, the company violated the cease-and-desist order by artificially inflating its online advertising revenue and the number of AOL subscribers, as well as its failure to consolidate AOL Europe's financial statements. 
+ * * * * 
+ Commission's Order Against Pace, Barge, and Desroches 
+ The Commission's cease-and-desist order against Pace, Barge, and Desroches addresses their roles in accounting for transactions with Bertelsmann.  In 2001 and 2002, the company inflated its online advertising revenue by $400 million in connection with transactions with Bertelsmann.  In substance, Bertelsmann paid $400 million as consideration for amendments to the multi-billion-dollar contingent purchase agreement governing the company's purchase of Bertelsmann's interest in AOL Europe.   The contract amendments had substantial value, and Bertelsmann offered to compensate the company for the amendments.  Rather than accept cash in exchange for the amendments, however, the company requested that Bertelsmann purchase advertising in the aggregate amount of $400 million.  The company then improperly and materially inflated its online advertising revenues by recognizing the $400 million as advertising revenue rather than as consideration received for amending the AOL Europe purchase agreement.   
+ Pace, Barge, and Desroches were corporate-level finance and accounting executives at the company who were responsible for, among other things, reviewing and approving the accounting treatment recommended by the company's business units.  In this role, they approved the company's accounting for the $400 million as advertising revenue.  In doing so, they based their accounting decisions on the form of the transactions and oral and written representations, some of which were false and omitted material facts, by other company employees.  They failed to pursue facts and circumstances that evidenced the true economic substance of the transactions.  As a result, although others were responsible for negotiating the $400 million transactions, Pace, Barge, and Desroches each were a cause of the company's improperly accounting for the $400 million in annual and periodic reports filed with the Commission.   
+ * * * * 
+ The Commission's investigation into these matters continues.   
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diff --git a/raw/aaer/2005/AAER-2220.pdf b/raw/aaer/2005/AAER-2220.pdf
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+ 
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+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  51488 / April 6, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2224 / April 6, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11884 
+In the Matter of 
+JOHN D. CLUTTEN, 
+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 John D. Clutten (“Clutten” or “Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+                                                 
+   
+     
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+Facts 
+Team Communications Group, Inc. (“Team”), is a California corporation which had a 
+principal place of business in Los Angeles and operations in the United Kingdom (Team 
+Dandelion) and Germany.  The company produced and distributed movies and television shows.  It 
+was a publicly-held company with securities registered with the Commission pursuant to Section 
+12(g) of the Exchange Act. Team shares traded on the NASDAQ until it was de-listed after the 
+disclosure of the accounting fraud.  Team is currently in Chapter 7 liquidation proceedings. 
+John D. Clutten, age 49, is, and was at all relevant times, a citizen and resident of the 
+United Kingdom. From the fall of 1999 through January 2001, he was Sales Director for Team 
+Dandelion (“Dandelion”), Team’s wholly owned UK subsidiary.  Clutten worked at Dandelion’s 
+office in London, where his responsibilities involved the buying and selling of film and television 
+programming rights, held or owned by Dandelion, to broadcasters and distributors in the United 
+Kingdom, Europe, and Africa.  Clutten’s job responsibilities did not include accounting or 
+financial reporting. 
+Team materially misstated figures reported for its revenue, operating income and net 
+income in its financial statements for the year ended December 31, 1999 and the first three quarters 
+of 2000. Team included its misleading financial results in press releases and its filings with the 
+Commission relating to these periods. 
+Team issued a press release in February, 2001 disclosing that it had begun an internal 
+investigation. Ultimately, Team restated results for 1999.  Team reported a $4.3 million loss; it 
+had previously reported a $1.8 million net profit for 1999.  Team also reported that it had restated 
+more than $20 million in previously reported revenue for 2000, which, in addition to other charges 
+and reserves for doubtful accounts receivable, resulted in a loss of $42.7 million for the year on 
+revenue of approximately $13 million. 
+By the second quarter of 1999, Team was not meeting its sales targets.  Senior executives, 
+in order to conceal the actual performance of the company, devised a scheme improperly to inflate 
+Team’s reported revenues and income.  One part of the scheme during 2000 was for Team to enter 
+into a series of fraudulent sales contracts.  The fraudulent sales contracts were known as 
+“guaranteed minimum distribution contracts”.  Each such contract described below had a 
+contemporaneous side-letter which negated the terms of the contract.  Team recognized revenue 
+based on the guaranteed contract payments, which guarantee was voided by the side letter.   
+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
+ 
+ 
+ 
+ 
+ 
+ 
+Substantially all of Team’s reported revenues for the second and third quarters of 2000 
+were based on “guaranteed minimum” distribution contracts, whereby Team licensed distribution 
+rights to various films to third parties.  Team recorded $6,690,000 in revenue from these contracts 
+in the second quarter and $12,200,000 in revenue in the third quarter.  These falsely inflated results 
+were included in statements to the public and in Team’s filings with the Commission. 
+Clutten was involved in the negotiation or execution of five minimum guarantee contracts 
+between Dandelion and certain independent film distributors.  The contracts were negotiated and 
+executed at various times in or about August 2000, but the contracts were back-dated to June 2000.  
+The contracts were falsely back-dated at the instruction of senior Team executives so that they 
+could be included in Team’s reported second quarter results.   
+Clutten was involved in negotiating or executing the following contracts which were 
+included in Team’s second quarter 2000 results: 
+a. a contract for distribution of certain films in the Middle East, dated June 9, 2000, 
+with a stated guarantee of $500,000 to be paid within one year; 
+b. a contract for distribution of certain films in Australia and Southeast Asia, dated 
+June 15, 2000, with a stated guarantee of $1,940,000 to be paid within one year; 
+c. a contract for distribution of certain film rights in the U.S., dated June 15, 2000, 
+with a stated guarantee of $2,000,000 to be paid within one year; 
+d. a contract for distribution of certain film rights in Eastern Europe, dated June 23, 
+2000, with a stated guarantee of $800,000 to be paid within one year; 
+e. a contract for distribution of certain film rights in Africa, dated June 27, 2000, with 
+a stated guarantee of $1,450,000 to be paid within one year. 
+Each contract described above was modified by a contemporaneous side agreement which 
+cancelled the minimum guarantee obligation.  If disclosed, the side agreements would have 
+prevented Team from immediately recognizing revenue from the distribution contracts.  The side 
+agreements were not disclosed to Team’s independent auditors.  Nor was it disclosed that the 
+contracts had been negotiated and executed in August 2000, well after the end of the second 
+quarter. 
+Senior Team executives, in order to inflate revenue in the third quarter 2000, again resorted 
+to the use of deferred minimum guarantee contracts, with undisclosed side agreements, that were 
+negotiated and executed well after the end of the quarter.  As in the second quarter, these contracts 
+were used falsely to inflate Team’s reported interim financial results in press releases and in filings 
+with the Commission. 
+In November 2000, Clutten was aware of two additional contracts: 
+a. 	 a contract for distribution of certain film rights in Eastern Europe, dated September 
+21, 2000, with a stated guarantee of $2,000,000;  
+3
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+b. 	 a contract for distribution of certain film rights in Africa, dated September 22, 2000, 
+with a stated guarantee of $600,000.  
+Clutten knew or was reckless in not knowing that these contracts  were to be included in 
+Team’s reported second and third quarter results and used by senior Team executives to falsely 
+inflate financial results and to mislead the company’s independent auditors into believing that 
+Team’s reported interim results were materially correct and in conformity with Generally Accepted 
+Accounting Principles. 
+Violations 
+As a result of the conduct described above, Clutten caused violations of Sections 10(b), 
+13(a), 13(b)(2)(A) and (B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-1, 13a-13, 
+13b2-1 and 13b2-2 thereunder.  
+Section 10(b) and Rule 10b-5 thereunder prohibit fraudulent conduct in connection with the 
+purchase or sale of securities.  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) of the 
+Exchange Act].  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 Exchange Act. 
+Clutten knew or was reckless in not knowing that the contracts he negotiated or executed that were 
+to be included in Team’s reported second and third quarter results and used by senior Team 
+executives to falsely inflate financial results.  Such conduct was a cause of violations of Sections 
+10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder. 
+Section 13(a) and Rules 13a-1 and 13a-13 require that issuers with securities registered 
+under Section 12 of the Exchange Act file annual and quarterly reports with the Commission and 
+keep this information current.  The obligation to file such reports embodies the requirement that 
+they be true and correct.  Clutten’s conduct was a cause of Team’s false filings.  
+Section 13(b)(2)(A) requires every issuer which has a class of securities registered pursuant 
+to Section 12 of [the Exchange Act] to make and keep books, records, and accounts which, in 
+reasonable detail, accurately and fairly reflect the transactions and dispositions of the issuer.  
+Section 13(b)(2)(B) requires that such issuers 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.  Clutten caused Team’s books and records to contain inaccurate and incomplete 
+descriptions of the contracts for which he was responsible, which prevented Team from preparing 
+financial statements in conformity with generally accepted accounting principles. 
+4
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+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.  Clutten 
+helped Team officers and directors to make false and misleading statements to its auditor and he 
+thereby was a cause of such officers’ and directors’ violations of Rule 13b2-2. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Clutten’s Offer. 
+Accordingly, it is hereby ORDERED that: Respondent John D. Clutten cease and desist 
+from (1) 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 (2) 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 and 13a-13 thereunder.   
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+5
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2225.pdf b/raw/aaer/2005/AAER-2225.pdf
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+
+
+ 
+ 
+   
+     
+ 
+ 
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+ 
+ 
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+     
+     
+     SEC.gov | Dollar General Corporation, Hurley Calister Turner, Jr., Brian M. Burr, Randy C. Sanderson, and Bobby R. Carpenter 
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+              Dollar General Corporation, Hurley Calister Turner, Jr., Brian M. Burr, Randy C. Sanderson, and Bobby R. Carpenter
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+        Dollar General Corporation, Hurley Calister Turner, Jr., Brian M. Burr, Randy C. Sanderson, and Bobby R. Carpenter
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19174 \ April 7, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2226 \ April 7, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. DOLLAR GENERAL CORPORATION, HURLEY CALISTER TURNER, JR., BRIAN M. BURR, RANDY C. SANDERSON, AND BOBBY R. CARPENTER,  Civil Action No. 3:05-0283 (M.D. Tenn.) (WJH) (filed April 7, 2005) 
+
+ SEC SUES DOLLAR GENERAL CORPORATION AND FIVE INDIVIDUALS FOR ACCOUNTING FRAUD 
+
+ DOLLAR GENERAL AND FOUR INDIVIDUALS SETTLE AND AGREE TO PAY OVER $11.1 MILLION IN PENALTIES AND OVER $400,000 IN DISGORGEMENT AND PREJUDGMENT INTEREST  
+
+ The Securities and Exchange Commission today announced the filing of a settled enforcement action charging Dollar General Corporation ("Dollar General"), a Tennessee-based discount retailer, the company's former Chief Executive Officer, Cal Turner ("Turner"); its former Chief Financial Officer, Brian Burr ("Burr"); its former Controller, Randy Sanderson ("Sanderson"); and its former President, Bobby Carpenter ("Carpenter") with accounting fraud.  The Commission also today issued a settled administrative order against former Accounting Manager Stephen C. Jones ("Jones").  As alleged in the Commission's complaint, during its fiscal years 1998 through 2001, Dollar General engaged in fraudulent or improper accounting practices in violation of Generally Accepted Accounting Principles ("GAAP") which ultimately resulted in a restatement of Dollar General's financial statements in January 2002.  The restatement reduced the Company's pre-tax income by approximately $143 million, or about 30 cents per share, over the restated period.   
+ The Commission's complaint alleges that Dollar General's misconduct included:  (1) intentionally underreporting at least $10 million in import freight expenses for the Company's fiscal year 1999; (2) engaging in an $11 million sham sale of outdated, essentially worthless, Omron cash registers in the Company's fiscal year 2000 fourth quarter; (3) overstating cash accounts; (4) manipulating the Company's reported earnings through the use of a general reserve or "rainy day" account; (5) failing to maintain accurate books and records and filing inaccurate financial reports with the Commission; and (6) failing to maintain adequate internal accounting controls.  The complaint further alleges that some of the fraudulent or improper accounting practices were effected by, or known to, former senior executives and accounting personnel, including Turner, Burr Sanderson and Carpenter and were motivated in part by a desire to report earnings that met or exceeded analysts' expectations and to maintain employee bonuses.    
+ The complaint alleges that, with regard to import freight expenses in 1999 and 2000, Dollar General's accounting staff determined that the Company should have recognized $13.4 million in freight expenses in fiscal 1999.  Rather than recognizing all the expense in fiscal year 1999, Sanderson, Burr, and Carpenter discussed possible ways to account for the $13.4 million in freight expenses that did not entail recognizing all such expenses in fiscal year 1999.  On February 5, 2000, Sanderson sent a memorandum to Carpenter, Burr and others describing a $10 million "variance" in relation to freight expenses, and Dollar General's intention to charge the "$10 million 1999 shortfall" at a rate of $833,000 per month during Dollar General's fiscal year 2000.  At a meeting in March 2000, attended by Carpenter and Turner among others, Sanderson explained that the freight expenses would be gradually expensed in fiscal year 2000.  All three individuals knew that deferring the bulk of the expenses to fiscal year 2000 avoided the negative impact on already announced fiscal year 1999 earnings as well as year-end bonus payments to Dollar General employees, including Sanderson, Burr, and Carpenter.  Turner was informed that the freight expenses relating to activity in Dollar General's fiscal year 1999 were being recorded in 2000, but Turner did not override the decision.  The Commission's complaint alleges that, by deferring the freight expenses, Dollar General met certain targets, including an internal target for employee bonuses and analysts' expectations for the Company's earnings per share for fiscal year 1999.  If Dollar General had recognized the freight expenses in 1999, it would have fallen short of the bonus target and analysts' expectations.   
+ The Commission's Order finds that Sanderson directed Jones to record the freight expenses in the following manner:  (1) write off $4 million of the freight expenses in fiscal year 1999; and (2) recognize the remaining $9.4 million over the course of fiscal year 2000 on a monthly basis.  In an attempt to hide part of the improper deferral from the Company's auditors, Sanderson directed Jones to move $1.3 million of the $9.4 million to the miscellaneous accrued liabilities account, widely known at Dollar General as the "Rainy Day Fund," and $2.7 million of the $9.4 million to corporate bank clearing accounts.  Neither of these accounts had any connection to freight expenses.  Jones knew that this accounting treatment was improper, but he nevertheless followed Sanderson's instructions. 
+ Separately, the complaint also alleges that, by February 26, 2001, Turner knew of serious allegations concerning Sanderson and was reckless in not knowing that these issues were likely to impact the integrity and accuracy of Dollar General's financial statements.  Nevertheless, on February 26, 2001, Dollar General held a conference call announcing its unaudited financial results for fiscal 2000 that Turner knew had been prepared by, among others, Sanderson. 
+ Simultaneously with the filing of the Commission's complaint, and without admitting or denying its allegations, Dollar General consented to the entry of a final judgment permanently enjoining it from future violations of the antifraud, books and records, internal controls, and periodic reporting provisions of the federal securities laws, specifically, Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 thereunder.  In addition, Dollar General will pay one dollar in disgorgement and a civil penalty of $10,000,000.   
+ Turner, Sanderson, and Carpenter also have each agreed to settle the case against them without admitting or denying the allegations in the complaint.  Each has agreed to the entry of a judgment that permanently enjoins them from violating the antifraud, books and records and internal controls provisions of the federal securities laws (Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder), and from aiding and abetting violations of the periodic reporting, books and records and internal controls provisions of the securities laws (Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder).  Sanderson and Carpenter also each agreed to be enjoined from violating Section 17(a) of the Securities Act and the provision prohibiting making false or misleading statements to auditors (Rule 13b2-2) and from aiding and abetting certain other reporting violations (Exchange Act Rules 13a-1 and 13a-13).  In addition, Turner agreed to be enjoined from directly or indirectly controlling any person who violates the antifraud, books and records, internal control and periodic reporting provisions of the federal securities laws (Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13 and 13b2-1 thereunder).  
+ In addition to the injunctive relief, Turner agreed to pay $1 in disgorgement and a civil penalty of $1,000,000, Carpenter agreed to pay $143,455, comprising $33,000 in disgorgement, $10,455 in prejudgment interest and a civil penalty of $100,000, and Sanderson agreed to pay $270,595, comprising $150,000 in disgorgement, $45,595 in prejudgment interest and a civil penalty of $75,000.  Carpenter also agreed to be barred permanently from serving as an officer or director of a public company and Sanderson agreed to be barred for a period of five years. 
+ The settlements are subject to court approval.  The Commission expects that the penalties from the settling defendants will be distributed pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002.    
+ Separately, Jones consented, without admitting or denying the Commission's findings, to the entry of a Commission Order pursuant to which he is ordered to cease and desist from committing violations of the antifraud, books and records and internal controls provisions of the securities laws (Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder), and from causing violations of the books and records, internal controls and periodic reporting provisions of the securities laws (Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder).  The Commission's Order also finds that Jones, a certified public accountant, engaged in improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission's Rules of Practice and that he willfully violated and aided and abetted the violation of provisions of the federal securities laws within the meaning of Rule 102(e)(1)(iii).  Accordingly, the Order denies Jones the privilege of appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after three years.   
+ Burr, Dollar General's former CFO, has not reached a settlement with the Commission.  In its complaint, the Commission charges Burr with insider trading, violating the antifraud, books and records and internal controls provisions of the federal securities laws and aiding and abetting the books and records, periodic reporting and internal controls provisions of the securities laws.  The Commission seeks against Burr a permanent injunction against future violations, disgorgement of ill-gotten gains, prejudgment interest thereon, and civil penalties.  In addition, the Commission seeks an officer and director bar against Burr.  
+
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diff --git a/raw/aaer/2005/AAER-2227.txt b/raw/aaer/2005/AAER-2227.txt
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+                                                 
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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  51506 / April 7, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2227 / April 7, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11887 
+In the Matter of 
+EASYLINK SERVICES
+ 
+CORPORATION, f.k.a. 
+MAIL.COM, INC.
+ 
+and DEBRA McCLISTER, CPA,
+ 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-
+ AND-DESIST PROC EEDINGS 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 pursuant to Section 
+21C of the Securities Exchange Act of 1934 (“Exchange Act”) against EasyLink Services 
+Corporation, f.k.a. Mail.com, Inc. (“EasyLink”) and pursuant to Section 21C of the Exchange Act 
+and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice
+1 against Debra L. McClister, CPA 
+(“McClister”) (collectively, the “Respondents”). 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (“Offers”) which the Commission has determined to accept.  Solely for the purpose 
+of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, 
+1 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may … deny, temporarily or pe rmanently, the privilege of appearing or 
+practicing before it … to any person who is found…to have engaged in … improper professional 
+conduct. 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+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 the Respondents’ Offers, the Commission finds that: 
+A. RESPONDENTS 
+1. EasyLink Services Corporation, f.k.a. Mail.com, Inc.  during the relevant period 
+was a Delaware corporation headquartered in New York City.  The company’s consumer 
+messaging division provided free Internet email accounts and generated revenue by selling 
+advertising. In October 2000, EasyLink announced its intention to sell the consumer messaging 
+division and focus on business messaging; in March 2001, EasyLink completed the sale of its 
+consumer messaging division. In April 2001, the company changed its name from Mail.com to 
+EasyLink and relocated its headquarters to New Jersey.  EasyLink’s stock is registered under 
+Section 12(g) of the Exchange Act and trades on the Nasdaq National Market. 
+2. Debra L. McClister, age 50, was Executive Vice President and Chief Financial 
+Officer of EasyLink from 1998 to March 2004.  McClister received her undergraduate degree in 
+accounting. In the 22 years prior to joining EasyLink, McClister worked for three years at a large 
+public accounting firm, and then held various senior accounting positions at several private and 
+public companies. McClister is, and at all relevant times was, licensed in New Jersey as a certified 
+public accountant. 
+B. SUMMARY 
+In 2000, EasyLink improperly recognized and reported advertising revenue from barter 
+transactions because it failed to comply with Generally Accepted Accounting Principles 
+(“GAAP”), as set forth in Emerging Issues Task Force Issue No. 99-17, “Accounting for 
+Advertising Barter Transactions” (“EITF 99-17”), which became effective on January 20, 2000.  
+EITF 99-17 generally permits recognition of revenue and expense from barter transactions only if 
+the fair value of advertising surrendered in a barter transaction can be determined based on a 
+company’s comparable cash transactions in the prior six months.  In 2000, McClister was unaware 
+of EITF 99-17, and thus failed to apply it to the company’s barter transactions.  By failing to 
+comply with EITF 99-17, EasyLink overstated its revenue for fiscal 2000 by $4.85 million, or 
+8.6% of total revenue.  EasyLink also overstated its revenue for the third quarter of 2000 by 16.1%.  
+(Expenses were also overstated by the same amount, resulting in no impact to net income during 
+these periods.) EasyLink reported its overstated revenue figures in its 2000 Form 10-K and its 
+Form 10-Q for the third quarter of 2000. 
+Because of its overstated barter revenue, EasyLink was able to tout in press releases its 
+increasing advertising revenue and the fact that the company met or exceeded analysts’ revenue 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+expectations during the third quarter and fiscal 2000.  For example, in one press release, EasyLink 
+claimed that third quarter advertising revenue was up 47% from the second quarter.  In fact, third 
+quarter advertising revenue adjusted for the improper recognition of barter revenue had actually 
+declined 32.8% compared with the second quarter. 
+McClister participated in the payment arrangements for some of the barter transactions, and 
+failed to account for the barter deals properly.  She prepared and/or signed EasyLink’s Form 10-K 
+and Form 10-Q that included the overstated barter revenue.    
+C. FACTS 
+During 2000, EasyLink engaged in two types of barter transactions with other Internet-
+related advertising companies – (i) cash barter, in which EasyLink and a counterparty agreed to 
+sell each other advertising on websites they respectively owned or operated, and exchanged 
+invoices, and payment on these invoices, of identical or similar amounts, and (ii) trade barter, in 
+which EasyLink and a counterparty simply exchanged advertising but not invoices or payments.  In 
+the cash barter deals, EasyLink recognized 100% of the stated value of cash barter deals as 
+revenue.  In the trade barter deals, EasyLink used a formula provided by its auditor and typically 
+recognized 60% of the stated value of the deal.  
+1. Trade Barter 
+Trade barter is the only type of barter deal that EasyLink treated as barter during 2000.  
+Prior to the January 20, 2000 effective date of EITF 99-17, EasyLink’s auditor advised the 
+company to estimate the fair market value of trade barter based on the lower of 60% of the face 
+value of the barter deal or the historical average price for comparable cash deals (the “60% Rule”) 
+to determine how much revenue to recognize on trade barter deals.  The 60% Rule is not in 
+conformity with GAAP. 
+In 2000, EasyLink improperly recognized $1.58 million in trade barter revenue, which was 
+2.7% of the company’s total revenue for the year, by applying the 60% Rule rather than 
+EITF 99-17.  EasyLink publicly disclosed its purported revenue from reported “barter transactions” 
+(which consisted only of trade barter) in each Form 10-Q and Form 10-K reporting results for 
+2000. 
+2. Cash Barter 
+During 2000, EasyLink engaged in approximately 42 cash barter transactions with third 
+parties and recognized $3.27 million in revenue from these transactions.  For example, on 
+September 27, 2000, EasyLink and another Internet advertising company each signed orders to 
+purchase $500,000 of advertising from the other.  The next day, the companies swapped checks for 
+$500,000. In the third quarter of 2000, EasyLink recognized $500,000 in total revenue (and an 
+equal amount of expense) from these transactions.  Because EasyLink regarded cash barter 
+transactions as no different from other cash transactions, the nature and volume of cash barter 
+3
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+transactions were never publicly disclosed, and were accounted for improperly in its books and 
+records, including in its financial statements. 
+McClister was aware of the nature and extent of EasyLink’s cash barter deals.  For 
+example, she received emails referencing “check swaps,” signed some of the checks that were 
+swapped, authorized her staff to exchange checks in certain deals, and received several emails 
+analyzing and comparing the revenue effects of check swaps and trade barter deals.  McClister 
+knew that check swap deals in some ways “resembled” trade barter.  McClister also received 
+emails quantifying the total volume of check swaps for various periods of 2000, which revealed 
+that revenue from check swaps was a significant component of EasyLink’s overall revenue for the 
+year. 
+McClister never informed EasyLink’s auditor that EasyLink was engaged in these 
+transactions, and never disclosed to the auditor the volume of revenue generated by these 
+transactions.  During 2000, she caused EasyLink to recognize revenue on the cash barter 
+transactions based on the face value of the transactions.  McClister did not become aware of EITF 
+99-17 until 2003. 
+3. 	 EasyLink Reported Inflated Revenue from the Barter Deals 
+EasyLink’s recognition of revenue from its trade and cash barter transactions was not in 
+conformity with GAAP, and EITF 99-17 in particular.  For the third quarter of 2000, EasyLink 
+improperly recognized $2.58 million in barter revenue, which was a 69.17% overstatement of 
+advertising revenue for the quarter and a 16.14% overstatement of total revenue for the quarter.  
+For fiscal 2000, EasyLink improperly recognized $4.85 million in barter revenue, which was a 
+27.61% overstatement of advertising revenue for the year and an 8.6% overstatement of total 
+revenue for the year. 
+EasyLink reported the overstated revenue in its third quarter 2000 Form 10-Q, filed on 
+November 14, 2000, and its 2000 Form 10-K, filed on February 16, 2001 (as well as in eight 
+registration statements filed from November 15, 2000 to February 20, 2002 and in its quarterly 
+earning releases on October 26, 2000 and February 15, 2001.)  Neither the Form 10-K nor the 
+Form 10-Q, both of which McClister signed, disclosed the scope of EasyLink’s barter transactions 
+or the amounts of barter revenue and barter expense, as required by EITF 99-17.   
+D.	 VIOLATIONS 
+1. 	 Reporting Violations: Section 13(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 
+with securities registered pursuant to Section 12 of the Exchange Act to file, respectively, annual 
+reports on Form 10-K and quarterly reports on Form 10-Q.  Inherent in these provisions is the 
+requirement that such filings be accurate.  United States v. Bilzerian, 926 F.2d 1285, 1298 (2d Cir. 
+4
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+1991).  Rule 12b-20 under the Exchange Act similarly requires that these reports contain any 
+material information necessary to make the required statements made in the reports not misleading.   
+By filing periodic reports with the Commission that improperly included material amounts 
+of revenue from barter for 2000, EasyLink violated Section 13(a) of the Exchange Act and Rules 
+12b-20, 13a-1, and 13a-13 thereunder.  McClister caused EasyLink’s violations of Section 13(a) 
+and Rules 12b-20, 13a-1, and 13a-13 by participating in preparing and signing the periodic filings 
+listed above and supervising the revenue recognition process for the barter deals. 
+2. 	 Record-Keeping Provisions:  Section 13(b)(2)(A) of the Exchange Act and Rule 
+13b2-1 Thereunder 
+Section 13(b)(2)(A) of the Exchange Act requires every issuer that has securities registered 
+pursuant to Section 12 of the Exchange Act to “make and keep books, records, and accounts, 
+which in reasonable detail, accurately and fairly reflect the transactions . . . of the issuer.”  This 
+provision requires issuers to employ and supervise reliable personnel, to ensure that transactions 
+are executed as authorized, to segregate accounting functions, and to have procedures designed to 
+prevent errors and irregularities. SEC v. World Wide Coin Inv. Ltd., 567 F. Supp. 724, 750 (N.D. 
+Ga. 1983). In addition, 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).”   
+EasyLink violated Section 13(b)(2)(A) of the Exchange Act because its books and records 
+for 2000 inaccurately reflected revenue from barter transactions.  McClister violated Rule 13b2-1 
+and caused EasyLink’s violation of Section 13(b)(2)(A).  As set forth above, McClister supervised 
+the recording of revenue for all of the trade barter and cash barter deals, resulting in materially 
+inaccurate books, records and accounts.  
+3. 	 Internal Controls Provision: Section 13(b)(2)(B) of the Exchange Act 
+Section 13(b)(2)(B) of the Exchange Act requires issuers with securities registered pursuant 
+to Section 12 of the Exchange Act to devise and maintain a system of internal accounting controls 
+sufficient to reasonably assure, among other things, that transactions are recorded as necessary to 
+permit preparation of financial statements in conformity with GAAP.   
+EasyLink violated Section 13(b)(2)(B) because it lacked the required internal accounting 
+controls in 2000 necessary to properly record revenue from barter transactions in its books and 
+records and prepare its financial statements in conformity with GAAP.  As discussed above, 
+throughout 2000, EasyLink recorded revenue in its books and records for barter transactions that 
+lacked support under EITF 99-17.  As a result, EasyLink’s financial statements were not prepared 
+in accordance with GAAP. 
+McClister caused EasyLink’s violation of Section 13(b)(2)(B).  As EasyLink’s Chief 
+Financial Officer, McClister was ultimately responsible for ensuring that the company had an 
+adequate system of internal controls in place and that those controls were maintained and properly 
+5
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+utilized. McClister failed to assure that EasyLink maintained an adequate system of internal 
+accounting controls to properly account for revenue from barter transactions. 
+4. Improper Professional Conduct 
+As EasyLink’s Chief Financial Officer, McClister was responsible for internal accounting, 
+including implementing applicable accounting pronouncements and maintaining the books and 
+records; communications with the company’s outside auditors; and financial reporting.  McClister 
+failed to properly account for barter transactions, failed to implement EITF 99-17, failed to inform 
+the outside auditors that EasyLink was engaged in cash barter transactions, and failed to ensure that 
+the company’s financial statements were accurate.  These repeated instances of unreasonable 
+conduct constitute improper professional conduct.    
+E. Findings 
+1. Based on the foregoing, the Commission finds that EasyLink 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. 
+2. Based on the foregoing, the Commission finds that McClister caused EasyLink’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 violated Rule 13b2-1 of the Exchange Act. 
+3. Based on the foregoing, the Commission finds that McClister 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 Respondents’ Offers. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. EasyLink 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. 
+B. McClister 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, 
+13a-1, and 13a-13 thereunder, and from committing or causing any violations and any future 
+violations of Rule 13b2-1 of the Exchange Act. 
+C. McClister is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+6
+ 
+ 
+ 
+ 
+      
+        
+ 
+      
+  
+ 
+               
+ 
+ 
+ 
+    
+ 
+      
+D. After two years from the date of this Order, McClister 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 McClister’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) McClister, or the public accounting firm with which she is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) 
+in accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be 
+effective; 
+(b) McClister, or the registered public accounting firm with which she 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in McClister’s or the firm’s quality control system that would indicate that 
+McClister will not receive appropriate supervision or, if the Board has not conducted an 
+inspection, 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 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) McClister 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) McClister acknowledges her responsibility, as long as McClister 
+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.   
+7
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+E. The Commission will consider an application by McClister to resume appearing 
+or practicing before the Commission provided that her state CPA license is current and she has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, 
+if state licensure is dependent on reinstatement by the Commission, the Commission will 
+consider an application on its other merits.  The Commission’s review may include consideration 
+of, in addition to the matters referenced above, any other matters relating to McClister’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+8
+ 
\ No newline at end of file
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+______________________________ 
+ 
+ 
+UNITED STATES OF AMERICA
+ 
+Before the
+ 
+SECURITIES AND EXCHANGE COMMISSION
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51516 / April 11, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2229 / April 11, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11890 
+: 
+In the Matter of : 
+: ORDER INSTITUTING PUBLIC 
+: ADMINISTRATIVE AND 
+: CEASE-AND-DESIST 
+GREGORY DAVIS, CPA and : PROCEEDINGS PURSUANT TO SECTION 
+BKR METCALF DAVIS : 21C OF THE SECURITIES EXCHANGE ACT 
+: OF 1934 AND RULE 102(e) OF THE 
+: COMMISSION’S RULES OF PRACTICE,   
+: MAKING FINDINGS, AND IMPOSING 
+Respondents. : REMEDIAL SANCTIONS AND A 
+: CEASE-AND-DESIST ORDER 
+______________________________: 
+I. 
+The Securities and Exchange Commission (“Commission” or “SEC”) deems it 
+appropriate that public administrative and cease-and-desist proceedings be, and hereby are, 
+instituted against Gregory Davis, CPA (“Davis”) and BKR Metcalf Davis (“Metcalf Davis”) 
+(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 
+Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may censure a person or deny, temporarily or permanently, the 
+privilege of appearing or practicing before it by any person who is found... to have engaged in 
+improper professional conduct. 
+Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+1 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which 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 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
+3 that: 
+A. RESPONDENTS AND RELATED PARTIES 
+Respondents 
+1. 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 Corporation’s (“Chancellor”) independent auditor from 
+February 1999 to October 2001. 
+2. Davis, age 53, 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 for the 
+firm’s audits of Chancellor’s 1998 and 1999 financial statements as well as the restatements in 
+The Commission may censure a person or deny, temporarily or permanently, the 
+privilege of appearing or practicing before it to any person who is found...to 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 As part of a final resolution of  the Commission’s claims against them, Davis and Metcalf 
+Davis have also agreed to settle a pending civil action by consenting to the entry of a district 
+court judgment ordering Davis to pay a civil monetary penalty of $25,000 and Metcalf Davis to 
+pay a civil monetary penalty of $50,000. SEC v. Chancellor Corp. et. al. (D. Mass., Civil Action 
+No 03-10762-MEL). 
+3 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not 
+binding on any other person or entity in this or any other proceeding. 
+2 
+2000 of its previously filed 1998 and 1999 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. 
+B. FACTS 
+Summary 
+4. Respondents Davis and Metcalf Davis engaged in improper professional conduct 
+in connection with the audits of Chancellor’s 1998 and 1999 financial results, as well as the 
+interim reviews of Chancellor’s quarterly results for the first three quarters of 2000.  Davis and 
+Metcalf Davis aided and abetted Chancellor to materially overstate its revenue, income and assets 
+for 1998 in its Form 10-KSB.  Davis and Metcalf Davis also aided and abetted Chancellor, in 
+two Forms 10-KSB-A for 1998, and in a Form 10-KSB and Form 10-KSB-A for 1999, to 
+materially misrepresent and improperly disclose the nature and substance of fees purportedly 
+owed to a related party, which was the company’s largest shareholder and controlled by the 
+company’s CEO and chairman of the board of directors.  Finally, Davis and Metcalf Davis aided 
+and abetted Chancellor to provide materially misleading disclosure in the Forms 10-QSB for the 
+first three quarters of 2000 related to the use of the proceeds from a line of credit obtained by the 
+company. 
+5. First, along with Chancellor’s management, Davis and Metcalf Davis aided and 
+abetted Chancellor to improperly account for the acquisition of a subsidiary, MRB, Inc. 
+(“MRB”), as a business combination in its 1998 year-end financial statements, although the 
+acquisition was not completed until 1999. This premature consolidation of the subsidiary’s 
+financial results caused Chancellor to overstate its 1998 revenue by $19 million or 177%.  Davis 
+and Metcalf Davis concluded that the 1998 consolidation was properly recorded although it did 
+not conform with GAAP.  Their position was based in significant part on a document that 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.  
+6. Second, in connection with Chancellor’s acquisition of MRB, Davis and Metcalf 
+Davis, along with Chancellor’s management, aided and abetted  Chancellor to record a fee of 
+3
+ 
+ 
+$3.3 million to an entity controlled by the CEO of Chancellor, for purported acquisition 
+consulting services that were never rendered.  The baseless payment was also improperly 
+capitalized rather than being reported as an expense.  As a result, Chancellor reported assets of 
+$29.5 million rather than $26.2 million.  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 income of $850,000. 
+7. Third, after interaction with the Commission’s Division of Corporation Finance, 
+Chancellor submitted two Form 10-KSB-As, amending its original 1998 Form 10-KSB, and one 
+Form 10-KSB-A, amending its 1999 Form 10-KSB.  Davis and Metcalf Davis, along with 
+Chancellor’s management, aided and abetted Chancellor to make misleading disclosures in these 
+filings related to the $3.3 million fee purportedly owed to the related party controlled by 
+Chancellor’s CEO.  In its amended filings, Chancellor took the position that $2.2 million of the 
+fee was actually a contingent liability that did not need to be recorded when the acquisition was 
+consummated because its repayment was based on the future profitability of MRB.  Davis 
+accepted the recharacterization of the fee even though he still had insufficient evidence that it 
+was legitimate. 
+8. Finally, Davis and Metcalf Davis also reviewed and approved language in 
+Chancellor’s Forms 10-QSB for the first three quarters of 2000 that failed to meaningfully 
+disclose the misuse of Chancellor loan proceeds from a line of credit by Chancellor’s CEO, Brian 
+Adley (“Adley”), and they failed to take any steps to determine the nature of the transaction. 
+49.  By their conduct, Davis and Metcalf Davis willfully  violated Section 10A of the
+Exchange Act and willfully aided and abetted Chancellor’s violations of Section 13(a) of the 
+Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and engaged in improper 
+professional conduct under Rule 102(e)(1) of the Commission’s Rules of Practice. 
+Chancellor’s Premature MRB Consolidation 
+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 
+from August 1, 1998 forward in Chancellor’s 1998 reported results.  
+11. Under generally accepted accounting principles (“GAAP”), in order for 
+Chancellor to make the MRB acquisition effective and consolidation proper as of August 1, 
+1998, it was necessary that there be a written agreement giving Chancellor effective control over 
+“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). 
+4
+ 
+4 
+MRB as of that date.5   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, that 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, Adley, and its audit 
+committee 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 results and identified specific 
+deficiencies in the Management Agreement. 
+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 by 
+correcting the deficiencies in the Management Agreement identified by the predecessor auditors. 
+The First Amendment to the Management Agreement 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 to the Management Agreement in August 1998.  Moreover, its terms were 
+inconsistent with the actual relations between the two companies before the January 1999 
+acquisition. Control did not in fact effectively pass to Chancellor until 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 Davis.  The 
+predecessor auditors described to Metcalf Davis the sequence of events by which they received 
+Paragraph 93 of APB No. 16 (Business Combinations) states that the date of acquisition 
+of a company should ordinarily be the date the acquisition agreement is consummated.  However, 
+a business combination may be accounted for as of a designated date before consummation of the 
+agreement “if a written agreement provides that effective control of the acquired company is 
+transferred to the acquiring corporation on that date without restrictions except those required to 
+protect the stockholders or other owners of the acquired company.” 
+5 
+5 
+ 
+the First Amendment (i.e. the prior auditors identified specific deficiencies in the Management 
+Agreement and then the company came forward with the First Amendment that seemed on its 
+face to correct the issues).  Moreover, the predecessor auditors told Metcalf Davis that they had 
+questions about the authenticity of the First Amendment. 
+17. During March 1999, Chancellor gave Davis and 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.  
+Chancellor’s Recording of Vestex’s Improper Consulting Fees 
+18. In connection with its acquisition of MRB, Chancellor improperly recorded $3.3 
+million in consulting fees payable to Vestex, Chancellor’s largest shareholder and 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 requested documents from Adley and other Chancellor employees showing 
+that consulting services had actually been rendered, including bills and time records.  Neither 
+Adley nor anyone else at Chancellor ever provided any such documents to Davis or Metcalf 
+Davis. 
+21. Chancellor recorded the $3.3 million Vestex consulting fee as a capitalized asset 
+of Chancellor, rather than as an expense on Chancellor’s income statement.  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 be expensed.  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 income of $850,000 and overstate its assets by $3.3 million. 
+6
+ 
+ 
+Respondents’ Improper Conduct In the Chancellor Audits 
+22. At the time Chancellor retained Metcalf Davis to audit its 1998 financial 
+statements, Metcalf Davis had three partners (including Davis) and a professional staff of about 
+20 accountants. 
+23. Davis was the engagement partner responsible for auditing Chancellor’s financial 
+statements for 1998 and 1999.  Davis was the sole partner in Metcalf Davis’ commercial 
+auditing department during 1999 and was also the partner responsible for monitoring the firm’s 
+quality control system. 
+24. In addition to Davis, the Chancellor audit team included a concurring partner, a 
+senior manager and a staff accountant. 
+25. Davis, with input from the senior manager, concluded that it was proper under 
+GAAP to record the MRB acquisition as of August 1, 1998 because Chancellor had the necessary 
+control of MRB as of that date.  Davis arrived at this conclusion even though he knew that the 
+predecessor auditor had previously determined that accounting for the acquisition as of August 1, 
+1998 did not comply with GAAP.  
+26. Davis, in reaching his conclusion, relied on the Management Agreement and the 
+First Amendment to the Management Agreement as the evidence of Chancellor’s control even 
+though he knew that there were issues raised as to the authenticity of the First Amendment.  For 
+example, Davis was aware that the senior manager had raised concerns about the authenticity of 
+the First Amendment, which was not referred to in the papers that Metcalf Davis had received 
+from the predecessor auditor on the issue and which seemed to address all of the deficiencies in 
+the Management Agreement raised by the predecessor auditor.   
+27. Neither Davis nor any other Metcalf Davis auditor questioned Adley or any other 
+Chancellor representative about the authenticity of the First Amendment despite their concerns. 
+Nor did Davis or any other Metcalf Davis auditor confirm the existence, date or terms of the First 
+Amendment with the MRB shareholders during the audit.  Indeed, for his part, Davis took little 
+or no steps to confirm the authenticity of the documents on which the 1998 consolidation date 
+depended. 
+28. Davis, the concurring partner and the senior manager were all aware of the 
+possibility that Chancellor’s management had fabricated the First Amendment, if not other 
+documents as well, yet they never attempted to communicate that fact to Chancellor’s audit 
+committee, its board of directors, or the Commission.  Metcalf Davis’ report to Chancellor’s 
+audit committee on the propriety of the August 1, 1998 consolidation date, which was signed by 
+Davis and reviewed by the senior manager and the concurring partner, did not refer to the issue. 
+7
+ 
+29. Davis personally performed the audit fieldwork for Chancellor’s 1998 related 
+party transactions, such as those with Vestex, because he deemed this to be a high-risk audit area. 
+Davis knew that Chancellor had written off $1.1 million in related party fees during 1997 and 
+that substantial adjustments to related party fees had been made as a result of the 1997 audit.  
+The predecessor auditors’ work papers that Davis reviewed stated that adjustments were 
+necessary because, inter alia, the described services had not been performed or there was 
+inadequate documentation for the transactions.  During Davis’ examination of the 1998 related 
+party transactions, Davis questioned Adley about the basis for the $3.3 million in fees payable to 
+Vestex for services received in connection with MRB’s acquisition.  On the last day of his 
+fieldwork at Chancellor, Davis received three documents (all of which had been fabricated) to 
+support the fees: a copy of a board resolution authorizing Chancellor to pay Vestex fees of 
+$3,250,000 for services relating to MRB’s pending acquisition; a copy of a $3,475,000 note 
+payable to Vestex that included $3.3 million owed for services supposedly received in connection 
+with the MRB acquisition; and a purported agreement between Chancellor and Vestex relating to 
+consulting services. 
+30. Davis was aware that the senior manager had raised issues about the Vestex fees, 
+noting that the work papers contained no documentation to support the nature or value of the 
+supposed services for which the fees were being charged.  
+31. Davis questioned Adley and Chancellor’s president, Franklyn E. Churchill 
+(“Churchill”), about the fees, which totaled approximately 70% of the stock transaction, and 
+asked Adley and Chancellor’s controller for invoices or other documents showing that services 
+had, in fact, been rendered.  However, Davis never received those documents, and instead, Davis 
+relied on oral representations from Adley and Churchill that Vestex had performed the services. 
+32. Davis reviewed Chancellor’s draft 1998 Form 10-KSB, including the footnote 
+referring to related party transactions.  This footnote did not comply with GAAP because it did 
+not adequately disclose information necessary to understand the fees for the MRB transaction, 
+including the services purportedly justifying these charges or how the charges were determined. 
+Davis, however, did not ensure that these items were added to the text. 
+33. Davis also approved Chancellor’s improper capitalization of the purported $3.3 
+million MRB fees to Vestex as “incremental costs” payable to an outside consultant in a business 
+combination.  This treatment was inconsistent with GAAP, which provides that fees payable to 
+employees or entities controlled or owned by employees, such as Adley’s entity Vestex, are 
+internal costs that must be expensed.
+6   Davis approved this treatment even though he knew that 
+the capitalized $3.3 million in fees represented approximately 10% of Chancellor’s total reported 
+assets and that capitalizing rather than expensing the fees would cause Chancellor to report a 
+profit rather than a loss for 1998.  
+See Paragraph 76 of APB Opinion No. 16 (Business Combinations) and Interpretation 
+No. 33 of APB 16. 
+8
+ 
+6 
+34. On April 16, 1999, Chancellor filed a Form 10-KSB for the year ended December 
+31, 1998. Chancellor’s financial statements accounted for its acquisition of MRB as of August 1, 
+1998, and consolidated MRB’s financial results with those of Chancellor.  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). 
+35. This accounting treatment did not comport with GAAP because during 1998 
+Chancellor did not have a written agreement establishing effective control nor did it actually have 
+the effective control of MRB needed to justify accounting for MRB’s acquisition as of 1998. 
+36. Chancellor’s 1998 Form 10-KSB 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.  It falsely stated that as part of those services Vestex had 
+obtained $3.5 million in financing for Chancellor.  
+37. 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.  
+38. The 1998 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 almost entirely of consulting fees charged by Vestex.  It did not 
+disclose the lack of any basis for the fees. 
+39.  The $3.3 million MRB-related Vestex fee accrued by Chancellor was included in 
+Chancellor’s reported financial results.  The fee should not have been included because it lacked 
+economic substance.  Even if it had been a legitimate fee, GAAP required that it should have 
+been recorded as an expense.  The fee was improperly capitalized.  As a result, Chancellor 
+overstated its assets at year-end 1998 by 11%. 
+40. Davis signed and authorized issuance of the Metcalf Davis auditors’ report on 
+Chancellor’s 1998 year-end financial statements.  The report falsely stated that Chancellor’s 
+financial statements were fairly presented in conformity with GAAP and that Metcalf Davis’ 
+audit had been performed in accordance with generally accepted auditing standards (“GAAS”). 
+41. Davis also signed Metcalf Davis’s audit reports for both of Chancellor’s 
+restatements of its 1998 financial results in 2000.  After the Commission’s Division of 
+Corporation Finance raised questions about the nature of the $3.3 million in Vestex fees and 
+required that they be expensed, rather than expense the entire $3.3 million, Chancellor took the 
+new position that $2.2 million of the purported fees was actually a contingent liability that did 
+9
+ 
+ 
+not need to be recorded when the acquisition was consummated because its repayment was based 
+on the future profitability of MRB.  Davis accepted Chancellor’s revised position even though he 
+still had insufficient evidence concerning the nature of the Vestex fees and no evidence showing 
+that any services were rendered.  Davis accepted this new position solely on Adley’s oral 
+representations, which was inconsistent with the representations in the original Form 10-KSB 
+and the fabricated supporting documents that Chancellor had provided Davis. 
+42. Davis, with insufficient evidence to support Chancellor’s representations 
+concerning the Vestex fees, and also without a review conducted by the concurring partner, 
+signed a Metcalf Davis audit report containing an unqualified opinion, which was included in 
+Chancellor’s Form 10-KSB-A filed in January 2000 for the year ended December 31, 1998.  The 
+amended Form 10-KSB, which Davis approved, remained materially misleading with respect to 
+the fees, which were improperly disclosed because there was no evidence of Vestex providing 
+the services to justify them. 
+43. Davis continued to fail to substantiate the propriety of Chancellor’s related party 
+disclosures in the financial statements included in the second amended Form 10-KSB-A, filed in 
+June 2000 for the year ended December 31, 1998.  When that filing was being prepared, Adley 
+gave Davis a draft memo that listed the supposed components of the $3.3 million Vestex fees; 
+however, Davis did not take any steps to verify its accuracy.  Davis nevertheless signed the 
+Metcalf Davis audit report, which expressed an unqualified opinion as to Chancellor’s revised 
+restated financial statements.  
+44. Davis signed the Metcalf Davis audit reports for the misleading Forms 10-KSB 
+and 10-KSB-A filed by Chancellor for the year ended December 31, 1999, which continued to 
+falsely reflect the nature and validity of the fees that Vestex was supposed to have earned in 
+connection with the MRB transaction and the fees that it still had the potential to earn. 
+45. Metcalf Davis issued its audit report on Chancellor’s 1998 financial statements 
+before its concurring partner completed his review.  Metcalf Davis also issued unqualified 
+reports on both of Chancellor’s restated 1998 financial statements, filed in 2000, without any 
+concurring partner review.   
+46. Davis reviewed and approved Chancellor’s Forms 10-QSB for the fiscal quarters 
+ended March 31, 1999, June 30, 1999, September 30, 1999, March 31, 2000, June 30, 2000, and 
+September 30, 2000, which, as described above, were materially misleading in their description 
+and treatment of the Vestex fees.  Davis also reviewed and approved language in Chancellor’s 
+Forms 10-QSB for the first three quarters of 2000 which failed to meaningfully disclose Adley’s 
+misuse of Chancellor loan proceeds from a line of credit, without sufficient evidence to 
+determine the nature of the transaction to which the Forms 10-QSB referred. 
+10
+ 
+ 
+Davis and Metcalf Davis Engaged In Improper Professional Conduct 
+47. Davis and Metcalf Davis violated applicable professional standards in connection 
+with the audit of Chancellor’s 1998 and 1999 financial statements, which did not comport with 
+GAAP. They did so knowingly or recklessly, or acted highly unreasonably in circumstances 
+where they knew or should have known that heightened scrutiny was warranted.  
+48. GAAS requires that auditors conducting an audit exercise due professional care 
+and maintain a proper level of professional skepticism. (Codification of Statements on Auditing 
+Standards (1998) (“AU”) - AU 230.01; AU 230.07).  Auditing standards also require auditors to 
+obtain sufficient competent evidential matter to afford a reasonable basis for an opinion 
+regarding the financial statements under audit. (AU 326.01; AU 326.21; AU 326.22).  Under 
+GAAS, representations from management are not a substitute for the application of auditing 
+procedures necessary to afford a reasonable basis for the auditor’s opinion. (AU 333.02)
+.  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. (AU 317.10).  An 
+auditor has a responsibility to perform an audit to obtain reasonable assurance that material 
+misstatements in financial statements due to fraud are detected.  (AU 312.08; AU 316.01).  If 
+management does not provide satisfactory information that there has been no illegal act or if an 
+auditor becomes aware of a possible illegal act, GAAS require additional audit steps to be 
+performed, such as confirming a significant transaction with other parties to the transaction. (AU 
+317.11). 
+49. With respect to related-party transactions, GAAS require that auditors obtain 
+sufficient evidence to understand the purpose, nature, extent and financial statement effect of the 
+transactions. (AU 334.09).  They must plan and perform the audit to obtain reasonable assurance 
+as to whether the financial statements are free of material misstatement.  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 correct information in his reports. (AU 431.03; AU 508.22, 
+508.23; AU 508.35). 
+50.  Davis and Metcalf Davis failed to exercise due professional care or obtain 
+sufficient competent evidential matter to verify that the MRB acquisition was properly recorded. 
+They knew that management’s insistence on a 1998 acquisition date resulted in a significant 
+increase in reported revenues, so that heightened scrutiny of the acquisition date was needed. 
+However, they failed to extend the audit procedures to confirm with the MRB shareholders the 
+existence of control in 1998. 
+51.  Davis and Metcalf Davis failed to critically assess documents they suspected 
+might have been fabricated by Chancellor’s management.  The predecessor auditors described to 
+Metcalf Davis the sequence of events by which they received the First Amendment (i.e. the prior 
+11
+ 
+ 
+auditors identified specific deficiencies in the Management Agreement and then the company 
+came forward with the First Amendment that seemed on its face to correct the issues). 
+Moreover, the predecessor auditors told Metcalf Davis that they had questions about the 
+authenticity of the First Amendment.  Davis and Metcalf Davis did not question anyone at 
+Chancellor about the authenticity of the documents during the audit.  In spite of concern that the 
+documents might have been fabricated by Chancellor’s management, Davis 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.  
+52. Davis and Metcalf Davis further failed to comply with GAAS when they failed to 
+report to Chancellor’s audit committee the possibility that the company’s senior management had 
+fraudulently created the First Amendment. 
+53. Davis and Metcalf Davis further failed to comply with GAAS in connection with 
+the review of the accounting for Chancellor’s fee to Vestex related to the MRB transaction.  They 
+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.  They also failed to exercise the required 
+professional skepticism.  
+54. Davis and Metcalf Davis knew from Chancellor’s 1997 Form 10-KSB, and the 
+prior auditors’ work papers and management letter that fees to Vestex had been written off in the 
+prior years because they were not verifiable and were booked when not earned.  They ignored 
+indications that the MRB-related Vestex fees were similarly unsupportable.  They knew that 
+Chancellor’s management had not responded to Davis’s requests for documents evidencing the 
+services for which the fees were charged.  They improperly relied on management’s unsupported 
+oral representations that the services had been rendered rather than following GAAS by 
+extending audit procedures to Vestex. 
+55. Davis and Metcalf Davis knew that capitalizing the MRB-related Vestex fee 
+resulted in Chancellor materially increasing its reported assets and income.  They recklessly 
+disregarded specific GAAP requirements stating that these costs should be expensed.  They 
+thereby failed to exercise due professional care.  
+56. Metcalf Davis failed to comply with its quality control procedures by filing its 
+report on Chancellor’s 1998 financial statements before its concurring partner had completed his 
+concurring partner review. (AU 161.02).  Metcalf Davis further failed to comply with its 
+procedures by issuing unqualified reports on both of Chancellor’s restated 1998 financial 
+statements filed in 2000, without any concurring partner review. 
+12
+ 
+C. SECURITIES LAW VIOLATIONS
+ 
+57. Section 10A(a)(l) of the Exchange Act requires auditors to design audit 
+procedures that reasonably assure detection of illegal acts that have a material effect on financial 
+statements. Section 10A(b)(1) of the Exchange Act provides that if in the course of an audit an 
+accountant learns that an illegal act may have occurred, the accountant must take further steps 
+and ensure that the issuer’s audit committee is adequately informed of the illegal acts that have 
+been detected. SEC v. Solucorp Industries Ltd., 197 F. Supp. 2d 4, 10 (S.D.N.Y. 2002) (auditor 
+may be found liable for failure to notify audit committee of concern that contract supporting 
+revenue recognition might be backdated; motion for summary judgment on Section 10A count 
+denied). 
+58. Davis and Metcalf Davis 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 determine whether or not senior management had 
+committed fraud. 
+59. Davis and Metcalf Davis willfully violated Section 10A(b)(1) when they failed to 
+inform Chancellor’s audit committee of the suspected senior management fraud.  
+60. 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.  Exchange Act Rule 
+12b-20 requires that all reports filed pursuant to Section 13 contain all additional information 
+necessary to ensure that the statements made in them are not 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). 
+61. Davis’ conduct resulted in issuance of unqualified audit reports on the 1998 and 
+1999 financial statements contained in the Forms 10-KSB, which were materially misleading. 
+He reviewed and approved the company’s 1999 and 2000 quarterly reports.  Davis knew that 
+there was no evidence to support recording the Vestex related party fee in Chancellor’s records 
+and knew or was reckless in not knowing that the accounting treatment for the fee did not 
+conform to GAAP.  In connection with Chancellor’s restatement adjustments, Davis aided and 
+abetted and caused Chancellor’s violations by again issuing an unqualified auditors’ reports on 
+the restatements, even though he knew or was reckless in not knowing that Chancellor’s removal 
+of $2.2 million in fees in the restatements was unsupportable and that there were no documents 
+to support the remaining $1.1 million of expenses recorded in the restatements. 
+62. Metcalf Davis issued audit reports on Chancellor’s 1998 and 1999 financial 
+statements and its restated financial statements filed in 2000, which falsely stated that 
+13
+ 
+ 
+ 
+ 
+ 
+Chancellor’s financial statements were fairly presented in conformity with GAAP and that the 
+firm’s audits had been conducted in accordance with GAAS.  Metcalf Davis aided and abetted 
+and caused the issuance of the misleading financial statements due to a systemic lack of controls 
+at Metcalf Davis.  Davis himself was responsible for the firm’s quality control function.  Further, 
+Metcalf Davis violated its own procedures by issuing its report on Chancellor’s 1998 financial 
+statements before its concurring partner had completed his review and by issuing unqualified 
+reports on both of Chancellor’s restated 1998 and 1999 financial statements without any 
+concurring partner review. 
+63. By filing materially misleading Forms 10-KSB and 10-KSB-A for fiscal years 
+ended December 31, 1998 and December 31, 1999 and 1999 and 2000 quarterly reports, 
+Chancellor violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 and 13a-13 
+thereunder.  Davis and Metcalf Davis willfully aided and abetted and caused Chancellor’s 
+violations of these provisions. 
+D. FINDINGS 
+64. Based on the foregoing, the Commission finds that Davis willfully committed 
+violations of Section 10A of the Exchange Act. 
+65. Based on the foregoing, the Commission finds that Davis willfully aided and 
+abetted and caused Chancellor’s violations of Section 13(a) of the Exchange Act and Rules 12b­
+20, 13a-1 and 13a-13 thereunder. 
+66. Based on the foregoing, the Commission finds that Davis engaged in improper 
+professional conduct pursuant to Rule 102(e)(1)(ii), as defined by Rule 102(e)(1)(iv)(A), of the 
+Commission’s Rules of Practice, by recklessly engaging in conduct that resulted in violations of 
+professional standards in connection with the 1998 and 1999 Chancellor audits.
+7 
+67. Based on the foregoing the Commission finds that Davis, pursuant to Rule 
+102(e)(1)(iii) of the Commission’s Rules of Practice, willfully violated and willfully aided and 
+abetted Chancellor’s violations of the Federal securities laws and rules thereunder. 
+68. Based on the foregoing, the Commission finds that Metcalf Davis willfully 
+committed violations of Section 10A of the Exchange Act. 
+69. Based on the foregoing, the Commission finds that Metcalf Davis willfully aided 
+and abetted and caused Chancellor’s violations of Section 13(a) of the Exchange Act and Rules 
+12b-20, 13a-1 and 13a-13 thereunder. 
+Rule 102(e)(1)(iv)(A) defines “improper professional conduct” under Rule 102(e)(1)(ii) 
+as “intentional or knowing conduct, including reckless conduct, that results in a violation of 
+applicable professional standards.” 
+14
+ 
+7 
+ 70. Based on the foregoing, the Commission finds that Metcalf Davis engaged in 
+improper professional conduct pursuant to Rule 102(e)(1)(ii), as defined by Rule 
+102(e)(1)(iv)(A), of the Commission’s Rules of Practice, by recklessly engaging in conduct that 
+resulted in violations of professional standards in connection with the 1998 and 1999 Chancellor 
+audits. 
+71. Based on the foregoing the Commission finds that Metcalf Davis, pursuant to 
+Rule 102(e)(1)(iii) of the Commission’s Rules of Practice, willfully violated and willfully aided 
+and abetted Chancellor’s violations of the Federal securities laws and rules thereunder. 
+IV. 
+Undertakings 
+Respondent Metcalf Davis has agreed to the following undertakings: 
+1. Metcalf Davis will not perform any audit services for any public company for a 
+period of one (1) year from the date of entry of this order. 
+2. If Metcalf Davis engages in public company accounting, Metcalf Davis will 
+incorporate into its quality control system specific procedures that are 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.  Metcalf Davis 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 relevant to 
+their responsibilities, including but not limited to training in SEC rules and regulations. 
+3 Metcalf Davis will establish for personnel serving public company audit clients 
+minimum qualifications for audit partners, senior managers, audit managers, audit seniors and 
+concurring review partners that focus on experience in public company audits and experience in 
+addressing significant accounting and auditing issues affecting the registrant’s business.  Metcalf 
+Davis will establish procedures for documenting the qualifications, training and current 
+responsibilities of senior audit personnel assigned to each public company audit engagement.  
+4. Metcalf Davis will ensure that personnel assigned to public company audits have 
+the experience, technical training and proficiency required in the circumstances.  Metcalf Davis 
+will assign personnel 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. 
+5. Should Metcalf Davis determine that it desires to engage in activities that require 
+it to be registered with the PCAOB, prior to registering with the PCAOB, Metcalf Davis will hire 
+an independent CPA consultant (the “Independent Consultant”), who is not unacceptable to the 
+15
+ 
+ 
+SEC staff.  Metcalf Davis will require the Independent Consultant to review and ensure the 
+accuracy of the information to be provided to the PCAOB.  Metcalf Davis will require the 
+Independent Consultant to review the firm’s established quality control system, including but not 
+limited to those policies and procedures specific to public company audits.  Metcalf Davis will 
+require the Independent Consultant to assess the adequacy of the design of the firm’s quality 
+control system.  Additionally, Metcalf Davis will require the Independent Consultant to review 
+the required documentation supporting the qualifications of the personnel to be assigned to 
+public company audits.  Thereafter, Metcalf Davis will require the Independent Consultant to 
+issue a report to the SEC and the PCAOB.  
+6. Upon becoming registered with the PCAOB and performing audits of public 
+companies, Metcalf Davis will require the Independent Consultant, during the first such audit, to 
+review the audit to ensure that it is conducted in accordance with professional standards, 
+including the standards of the PCAOB, generally accepted accounting principles and 
+independence requirements.  The review will include, but not be limited to, a review of all audit 
+work papers, discussions with assigned audit personnel and inquiries regarding significant 
+accounting and auditing matters.  Thereafter, Metcalf Davis will require the Independent 
+Consultant to issue a review report to the SEC and the PCAOB that describes the procedures 
+performed.  Further, Metcalf Davis will require the Independent Consultant to provide either a 
+negative assurance that the audit was conducted in accordance with professional standards or, if 
+necessary, indicate that he/she cannot make such an assurance.  Metcalf Davis will require the 
+Independent Consultant to set forth the reasons that he/she was not able to provide a negative 
+assurance. 
+7. Metcalf Davis agrees to require the Independent Consultant, if and when retained, 
+to enter into an agreement that provides that for the period of engagement and for a period of two 
+years from completion of the engagement, the Independent Consultant shall not enter into any 
+employment, consultant, attorney-client, auditing or other professional relationship with Metcalf 
+Davis, or any of its present or former affiliates, directors, officers, employees, or agents acting in 
+their capacity. The agreement will also provide that the Independent Consultant will require that 
+any firm with which he/she is affiliated or of which he/she is a member, and any person engaged 
+to assist the Independent Consultant in performance of his/her duties under this Order shall not, 
+without prior written consent of the staff of the Boston District Office, enter into any 
+employment, consultant, attorney-client, auditing or other professional relationship with Metcalf 
+Davis, 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. 
+16
+ 
+     
+     
+     
+     
+        
+V. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Davis 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 Sections 13(a) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 
+promulgated thereunder; 
+B. Davis is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+C. After five (5) years from the date of this order, Davis 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 Davis’ 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. Davis, or the public accounting firm with which he is associated, is 
+registered with the Public Company Accounting Oversight Board (“PCAOB”) in accordance with 
+the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+b. Davis, or the registered public accounting firm with which he is 
+associated, has been inspected by the PCAOB and that inspection did not identify any criticisms 
+of or potential defects in the respondent’s or the firm’s quality control system that would indicate 
+that the respondent will not receive appropriate supervision; 
+c. Davis has resolved all disciplinary issues, if any, with the PCAOB, 
+and has complied with all terms and conditions of any sanctions imposed by the PCAOB (other 
+than reinstatement by the Commission); and 
+d. Davis acknowledges his responsibility, as long as Davis appears or 
+practices before the Commission as an independent accountant, to comply with all requirements 
+17
+ 
+     
+of the Commission and the PCAOB, including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality control standards.  
+D. The Commission will consider an application by Davis to resume appearing or 
+practicing before the Commission provided that his state CPA license is current and he has 
+resolved all other disciplinary issues, if any, 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 Davis’ 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+E. Metcalf Davis shall cease and desist from committing or causing any violations 
+and any future violations of Section 10A of the Exchange Act; and from committing or causing 
+any violations and any future violations of Sections 13(a) of the Exchange Act, and Rules 12b­
+20, 13a-1 and 13a-13 promulgated thereunder; 
+F. Metcalf Davis is censured pursuant to Rule 102(e)(1). 
+G. Metcalf Davis shall comply with the undertakings set forth in Section IV above. 
+By the Commission. 
+Jonathan G. Katz 
+Secretary 
+18
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2230.txt b/raw/aaer/2005/AAER-2230.txt
new file mode 100644
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19177 / April 11, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2230 / April 11, 2005 
+
+  Securities and Exchange Commission v. Chancellor Corporation, et al.,  (United States District Court for the District of Massachusetts C.A. No. 03-10762 MEL)    
+
+ SEC Settles Civil Action with Former Massachusetts Company's President, Outside Director and Auditors 
+
+ The Securities and Exchange Commission announced today the settlement of civil charges against four defendants named in a pending financial fraud litigation filed against Chancellor Corporation, a now defunct Boston, Massachusetts transportation company, and others in 2003.   The Commission's action alleges that from 1998 through 2001, Chancellor officials schemed to inflate Chancellor's reported assets, revenue and profits using fabricated documents and fraudulent accounting, and that the company's auditors and certain outside directors failed in their responsibilities to address the fraud.  Franklyn E. Churchill, Chancellor's former president/COO, and Rudolph Peselman, a former outside director consented to the entry of judgments barring them from serving as officers or directors of public companies and Churchill agreed to pay a $55,000 civil penalty.   BKR Metcalf Davis, the company's former audit firm, and, Gregory Davis, the Metcalf Davis audit partner on the Chancellor audit, agreed to the entry of judgments requiring civil penalties of $50,000 and $25,000 respectively.  In a separate administrative proceeding, the Commission ordered that BKR Metcalf Davis refrain from public company audits for a period of one year and barred Davis from practicing before the Commission as an accountant, with a right to reapply for admission after five years.  
+ Without admitting or denying the allegations of the Commission's complaint, Churchill and Peselman consented to the entry of permanent injunctions enjoining them from violating the anti-fraud, reporting, record keeping, and internal control provisions of the federal securities laws, specifically: Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act  and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1 and 13b2-2.  Churchill and Peselman also agreed to orders prohibiting them from serving as officers or directors of any public company and Churchill agreed to pay a $55,000 penalty.   
+ Davis and the audit firm, BKR Metcalf Davis, again without admitting or denying the allegations of the Commission's complaint, consented to the entry of judgments requiring Davis to pay a $25,000 civil penalty and BKR Metcalf Davis to pay a $50,000 civil penalty.  The SEC agreed to the dismissal of its fraud claims against Davis and BKR Metcalf Davis in lieu of a settled administrative enforcement proceeding finding non-fraud securities law violations.   Davis and BKR Metcalf consented to the entry of an administrative order, without admitting or denying the findings therein, in which the Commission found that they had willfully violated the provisions of the securities laws related to conducting public company audits and aided, abetted and caused Chancellor's violations of the periodic reporting provisions of the federal securities laws.  The Commission also found that Davis and BKR Metcalf Davis engaged in improper professional conduct pursuant to Rule 102(e) of the Commission's Rules of Practice, by recklessly engaging in conduct that resulted in violations of professional standards.   The Commission ordered that Davis and BKR Metcalf Davis cease and desist from violating the reporting provisions and Section 10A of the Securities Exchange Act of 1934, which requires auditors to take adequate steps to detect and report suspected fraud.  The Commission denied Davis the privilege of appearing or practicing before the Commission as an accountant, with a right to reapply for reinstatement after five years.  Additionally, the Commission censured BKR Metcalf Davis and the firm agreed that it would not perform audit services for any public company for one year.  If, after at least one year, the firm decides to engage in public company accounting, it has agreed to take remedial steps to improve its qualifications, quality control and training, as well as to hire an independent consultant.   
+ The Commission previously settled with six other defendants, including: Chancellor Corporation; the company's former acting Chief Financial Officer, David Volpe; the company's former treasurer, Jonathan Ezrin; a former Chancellor director and member of the audit committee, Michael Marchese; and two other members of the BKR Metcalf Davis audit team, David Decker and, concurring partner, Theodore Fricke.   
+ The Commission's case against the remaining defendant, Brian Adley, Chancellor's former Chairman, CEO and controlling shareholder, is scheduled for trial later this year.   
+ See Securities and Exchange Commission v. Chancellor Corporation, et al.,  Litigation Release No. 18104  / April 24, 2003. 
+
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diff --git a/raw/aaer/2005/AAER-2231.txt b/raw/aaer/2005/AAER-2231.txt
new file mode 100644
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+++ b/raw/aaer/2005/AAER-2231.txt
@@ -0,0 +1,717 @@
+ 
+ 
+ 
+   
+ 
+____________________________________ 
+ 
+ 
+   
+   
+   
+  
+     
+ 
+ 
+ 
+ 
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51517 / April 11, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2231 / April 11, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11891 
+: 
+In the Matter of : 
+: ORDER INSTITUTING CEASE-AND-DESIST 
+GLOBAL CROSSING LTD., : PROCEEDINGS, MAKING FINDINGS, 
+THOMAS J. CASEY, : AND IMPOSING A CEASE-AND- DESIST 
+DAN J. COHRS, and : ORDER PURSUANT TO SECTION 21C 
+JOSEPH P. PERRONE, : OF THE SECURITIES EXCHANGE ACT OF 1934 
+: 
+Respondents.  : 
+____________________________________: 
+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 Global Crossing Ltd. (“GX” or the “company”), Thomas J. Casey 
+(“Casey”), Dan J. Cohrs (“Cohrs”), and Joseph P. Perrone (“Perrone”) (collectively, the “Respondents”). 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers of 
+Settlement (“Offers”), which the Commission has determined to accept.  Solely for the purpose of these 
+proceedings and any other proceedings brought by or on behalf of the Commission or to which the 
+Commission is a party, and without admitting or denying the findings herein, except as to the Commission’s 
+jurisdiction over them and the subject matter of these proceedings, which are admitted, Respondents consent 
+to the entry of this Order Instituting Cease-and-Desist Proceedings, 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 the Respondents’ Offers, the Commission finds that: 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+A. SUMMARY 
+This case concerns the failure of GX and its senior management to ensure that the company provided 
+complete and accurate disclosure to investors concerning certain significant transactions entered into by the 
+company in the first half of 2001.  Because of GX’s inadequate disclosure, investors were not given the 
+opportunity to fairly judge the quality of GX’s financial results and the likelihood that its past performance 
+would be indicative of its future performance.  These significant transactions involved GX’s sales of 
+telecommunications capacity to other carriers that were linked to, and in some cases dependent on, its 
+purchase of capacity from the same carrier.  GX referred to these transactions as “reciprocal transactions.” 
+In early 2001, GX was increasingly reliant on the reciprocal transactions as a substantial source of GX’s 
+announced “pro forma” results, i.e., results of operations that were prepared on a basis defined by GX, and 
+that were not in accordance with generally accepted accounting principles (“GAAP”). For example, GX had 
+a pro forma measurement called “Cash Revenue” that GX defined as revenue calculated in accordance with 
+GAAP, plus the cash portion of the change in deferred revenue.  Without these reciprocal transactions, GX 
+would not have met securities analysts’ estimates for its first and second quarter 2001 pro forma results.   
+In its quarterly filings with the Commission for the first and second quarters of 2001, GX included 
+the money it received from the reciprocal transactions in its pro forma results, and it included the money it 
+received and paid in its statements of cash flows.  Because GX included the cash it received from reciprocal 
+transactions in its pro forma results and its statements of cash flows, it was required to disclose completely 
+and accurately material information regarding the reciprocal transactions and the effect of that information 
+on the interpretation of its financial results.  While GX did disclose (i) that GX sold telecommunications 
+capacity to carriers from which GX also purchased capacity, (ii) the gross dollar amounts of the sales and 
+purchases of capacity, and (iii) that the cash derived therefrom was a significant component of GX’s pro 
+forma results, GX’s disclosure was nevertheless inadequate. 
+Specifically, in the Management’s Discussion and Analysis of Financial Condition and Results of 
+Operations (“MD&A”) portion of its first and second quarter of 2001 Forms 10-Q, GX failed adequately to 
+disclose: 
+•	 That the transactions were reciprocal in nature, i.e., that GX’s sale depended in whole or in part 
+on GX’s purchase from the same carrier; 
+•	 That GX’s pro forma results were increasingly dependent on these reciprocal transactions, and 
+that, given market trends, GX likely would not be able to sustain these results in the future; 
+•	 In presenting its statements of cash flows, that the reciprocal transactions did not enhance GX’s 
+liquidity; and 
+•	 Material information concerning GX’s purchase of capacity as part of certain reciprocal 
+transactions that affected GX’s ability to integrate the purchased capacity into the GX network, 
+including that (1) GX and certain contra parties still had to negotiate and agree upon important 
+additional issues, (2) GX purchased certain capacity that would not be ready for service for a 
+substantial time after the end of the quarter, (3) in certain reciprocal transactions GX had not 
+designated the specific capacity to be purchased, and (4) GX had purchased certain capacity with 
+the stated purpose of reselling the capacity. 
+This information was material to investors because GX ultimately could not sustain its heavy 
+reliance on deriving cash revenue from the reciprocal transactions, as these transactions did not enhance 
+2
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+   
+                                                 
+ 
+GX’s liquidity and, ultimately, GX could not fund the capital commitments required to integrate the 
+purchased capacity into the GX network and thereby derive future service revenues.  Thus, investors were 
+denied material information not contained in its financial statements but nonetheless necessary for a fair 
+understanding of GX’s financial performance and condition in light of the circumstances, namely in light of 
+the pro forma financial information and the information reflected in its statements of cash flows that GX 
+disclosed. 
+GX’s Chief Executive Officer, Thomas J. Casey, its Chief Financial Officer, Dan J. Cohrs, and its 
+Executive Vice President of Finance, Joseph P. Perrone, knew material information regarding the reciprocal 
+transactions and their past and likely future effect on the company’s financial condition and results of 
+operations. Casey, Cohrs, and Perrone reviewed and approved the MD&A portion of GX’s periodic reports 
+which failed to disclose this information.  Although GX’s counsel, independent auditor, and audit committee 
+chairman participated in reviewing the MD&A, Casey, Cohrs, and Perrone each had particular knowledge 
+because of their respective positions that the reciprocal transactions would cause GX’s reported financial 
+information not to be necessarily indicative of its future operating results or financial condition.  The 
+Respondents therefore knew or should have known that the disclosure was inadequate and failed to satisfy 
+their affirmative obligation to ensure that the disclosure was complete and accurate. 
+As a result, GX violated, and Casey, Cohrs, and Perrone caused violations of, the reporting 
+provisions of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder because GX’s 
+MD&A in its first and second quarters Forms 10-Q contained inadequate disclosure regarding the reciprocal 
+transactions. 
+B. RESPONDENTS 
+1. Global Crossing Ltd. is a Bermuda corporation with its principal offices in 
+Hamilton, Bermuda and Florham Park, New Jersey, and formerly in Madison, New Jersey and Beverly 
+Hills, California. GX was founded in 1997, and its initial public stock offering was in 1998. At all relevant 
+times, GX’s common stock was registered with the Commission under Section 12(b) of the Exchange Act.  
+Currently, GX’s common stock is registered with the Commission under Section 12(g) of the Exchange Act 
+and trades on the Nasdaq Stock Market. GX’s common stock previously traded on the Nasdaq Stock 
+Market from August 1998 through November 5, 2000, on the New York Stock Exchange from November 6, 
+2000 through January 28, 2002, and through the OTC Bulletin Board from January 29, 2002 though January 
+21, 2004. On January 28, 2002, GX and certain of its affiliates filed bankruptcy under Chapter 11 of the 
+United States Bankruptcy Code and coordinated proceedings under Bermuda law.  On December 26, 2002, 
+the bankruptcy court entered an order confirming a Joint Plan of Reorganization.  On December 9, 2003, 
+GX emerged from bankruptcy.
+1 
+1 Prior to emergence from bankruptcy, GX filed with the Commission a Form 10-K for the year ended 
+December 31, 2002 which included, among other things, audited financial statements as of and for the years 
+ended December 31, 2002, 2001 and 2000 and selected quarterly data required by Item 302(a) of Regulation 
+S-K, for 2002 and 2001, not having filed a Form 10-K for the year ended December 31, 2001.  After 
+emergence from bankruptcy, a newly formed Bermuda company named Global Crossing Limited (“New 
+GX”) filed Exchange Act reports as successor issuer to GX under the Exchange Act. On December 23, 
+2003, New GX filed with the SEC a Form 8-K which contained an audited balance sheet as of the date of 
+emergence.  On December 23, 2003, New GX filed with the SEC a Form 10-Q for each of the quarters 
+(footnote cont.) 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+    
+ 
+ 
+ 
+                                                                                                                                                                                
+ 
+ 
+2. Thomas J. Casey was GX’s CEO from October 2000 to October 2001, a GX 
+managing director from September 1998 to October 2000, and a GX vice chairman from December 1998 to 
+October 2001. In addition, from September 1998 to October 2000, Casey was president and a managing 
+director of a private merchant bank.  He previously was an investment banker at a major registered broker-
+dealer and a partner at two major law firms.  He also was an attorney at the Federal Communications 
+Commission and at the U.S. Department of Justice.  Casey received a B.A. from Boston College and a J.D. 
+from George Washington University Law School. 
+3. Dan J. Cohrs was GX’s CFO from May 1998 to July 2003, Senior Vice President 
+from May 1998 to December 2000, and a GX Executive Vice President from December 2000 to July 2003.  
+Previously, Cohrs was an officer in the finance departments at several major corporations.  Cohrs also was 
+an assistant professor of finance at the business school of a major university.  Cohrs received a B.S. from 
+Michigan State University and a Ph.D. in Finance from Cornell University, Johnson School of Management.   
+4. Joseph P. Perrone was GX’s Executive Vice President, Finance from December 
+2000 to November 2002 and its Senior Vice President, Finance from May 2000 to December 2000.  He was 
+GX’s Executive Vice President, Business Performance until August 2003.  Previously, Perrone worked for 
+over 30 years at a major accounting firm, at which he was a partner.  He is a certified public accountant 
+licensed in New Jersey. Perrone received a B.S. in accounting from Seton Hall University. 
+C. FACTS
+ 1. Background 
+a. GX’s Business and Reciprocal Transactions 
+GX is a telecommunications company whose business plan, as it evolved over time, was to construct 
+and/or acquire a state-of-the-art global fiber-optic network and to sell fiber optic capacity and 
+telecommunications services (collectively “capacity”) on that network to other providers and users of 
+telecommunications services.  GX sold this capacity through contracts in the form of “Indefeasible Rights of 
+Use,” or “IRUs.” An IRU is an irrevocable right to use a specific amount of capacity for a specified time 
+period. GX also purchased specific capacity in the form of IRUs and used that capacity in part to extend 
+and enhance its network. 
+By early 2001, an increasing number of GX’s carrier customers were requesting that GX buy 
+capacity from them, and it was becoming increasingly difficult for GX to sell capacity to carrier customers 
+unless, at the same time, GX purchased a similar dollar amount of capacity from the same carrier.  In other 
+words, GX’s ability to sell capacity often became linked to, and in some cases dependent on, GX’s 
+simultaneous purchase of a nearly equal dollar amount of capacity.  GX referred to the simultaneous 
+purchase and sale of capacity with other carriers as “reciprocal transactions.” 
+(footnote cont.) 
+ended March 31, 2003, June 30, 2003 and September 30, 2003, with GX not having filed Forms 10-Q since 
+the quarter ended September 30, 2001.  GX has informed the SEC that it and New GX have made such 
+filings under the Exchange Act as are described above.
+ 
+4 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+The purchase and sale of capacity was documented through separate and independent contracts. 
+These contracts typically provided for the purchaser to immediately pay the seller the full purchase price.  
+Accordingly, except in two instances, GX and the other carrier exchanged cash for the IRUs, even if the 
+amounts exchanged were the same or similar.  The purchase and sale contracts did not contain cross-default 
+provisions; thus, they created independently enforceable rights and liabilities as to each party. 
+b. GX’s Reporting of GAAP and Pro Forma Financial Information 
+GX announced its operating results in periodic reports filed with the Commission (as well as in 
+earnings press releases disseminated to the public).  In Forms 10-Q and earnings releases for the first and 
+second quarters of 2001, GX reported financial information that it stated was prepared in accordance with 
+GAAP. The Forms 10-Q included GAAP balance sheets, statements of operations (income statement), and 
+statements of cash flows, while the earnings releases included GAAP results of operations. 
+In addition to its GAAP financial statements, GX also reported “pro forma” financial results.  GX 
+reported to the public two principal measurements of its pro forma financial results – “Cash Revenue” and 
+“Recurring Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization,” also known as 
+“Recurring Adjusted EBITDA.” GX stated in its Form s 10-Q and earnings releases that Cash Revenue 
+consisted of revenue calculated in accordance with GAAP, plus the cash portion of the change in deferred 
+revenue, and that Recurring Adjusted EBITDA consisted of operating income or loss plus goodwill and 
+intangibles amortization, depreciation and amortization, non-cash cost of capacity sold, stock related 
+expense, merger-related expenses, certain other non-recurring expenses, and the cash portion of the change 
+in deferred revenue.  Securities analysts who covered GX analyzed the company’s performance and 
+established target operating results based primarily on its Cash Revenue and Recurring Adjusted EBITDA 
+pro forma results. 
+The principal difference between GX’s pro forma results of operations (i.e., Cash Revenue and 
+Recurring Adjusted EBITDA) and its GAAP results of operations was that Cash Revenue and Recurring 
+Adjusted EBITDA included the entire amount of cash that GX had collected during the period from GX’s 
+IRU sales to other carriers (i.e., the cash portion of the change in deferred revenue).  By comparison, GX’s 
+GAAP revenue did not include the entire amount of cash that GX had collected during the period from IRU 
+sales. Rather, GX recorded a liability (deferred revenue) corresponding to the amount of cash collected 
+during the period from an IRU sale and recognized GAAP revenue ratably over the term of the IRU (often 
+in excess of 20 years) once the circuit was activated. GX realized little to no GAAP net income from 
+reciprocal transactions because GX amortized revenues from IRU sales over many years, and because the 
+revenues recognized from reciprocal sales were in similar amounts to its depreciation of expenses for IRU 
+purchases over the term of the IRUs.  
+GX’s Forms 10-Q also included statements of cash flows that it stated were prepared in accordance 
+with GAAP. In the statements of cash flows, GX included the cash it received from the reciprocal 
+transactions in its cash flows from operating activities and the cash it expended in the reciprocal transactions 
+in its cash flows from investing activities. 
+5
+ 
+ 
+ 
+  
+ 
+ 
+  
+ 
+ 
+  
+ 
+ 
+                                                 
+2. 	 GX’s Reciprocal Transactions in the First and Second Quarters of 
+2001 
+GX’s reciprocal transactions reached their peak in the first and second quarters of 2001. In the first 
+quarter of 2001, GX entered into 43 IRU transactions in which GX sold capacity to other carriers. Nine of 
+these transactions were reciprocal transactions, and they accounted for $375 million of the $567 million (or 
+66%) of the IRU sales included in Cash Revenue and Recurring Adjusted EBITDA that GX reported in the 
+quarter. Reciprocal transactions accounted for 23% of Cash Revenue and 85% of Recurring Adjusted 
+EBITDA for the quarter.  As part of these reciprocal transactions, GX committed to make capital 
+expenditures totaling $625 million, purchasing $383 million in capacity from the other carriers in the first 
+quarter and committing to spend in future quarters another $242 million to purchase additional new capacity 
+from the carriers and to possibly construct a new fiber optic system on which another carrier had committed 
+to purchase capacity. Without these reciprocal transactions, GX would not have met securities analysts’ 
+estimates for Cash Revenue and Recurring Adjusted EBITDA in the first quarter. 
+In the second quarter of 2001, GX entered into 45 IRU transactions in which GX sold capacity to 
+other carriers. Fourteen of these transactions were reciprocal transactions, and they accounted for $516 
+million of the $567 million (or 91%) of IRU sales for the quarter.  Reciprocal transactions accounted for 
+32% of Cash Revenue; without the reciprocal transactions, GX’s Recurring Adjusted EBITDA for the 
+quarter would have gone from the reported $472 million to a negative $43 million.  As part of these 
+reciprocal transactions, GX paid cash or agreed to pay cash totaling $437 million to purchase capacity from 
+its carrier customers in the second quarter.  Without these reciprocal transactions, GX would not have met 
+securities analysts’ estimates for Cash Revenue and Recurring Adjusted EBITDA in the second quarter. 
+3. The Process By Which GX Came to Disclose the Reciprocal Transactions 
+Because GX’s reciprocal transactions had increased significantly in the first quarter of 2001, Perrone 
+came to the conclusion that separate disclosure of the reciprocal transactions should be made.  Various 
+internal discussions among GX management and the chairman of GX’s audit committee ensued during 
+March 2001. Eventually, at an audit committee meeting on April 11, 2001, GX management (including 
+Casey, Cohrs, and Perrone) reviewed the list of IRU transactions provided to the committee and 
+recommended that the reciprocal transactions be separately disclosed, and the Chairman of the Board, the 
+audit committee, the in-house general counsel, and GX’s independent auditor concurred.  The Chairman of 
+the Board stated, and the audit committee concurred, that the chairman of the audit committee should review 
+and approve the disclosure. The disclosure was also raised at a full Board meeting that same day, and the 
+Board also asked that the audit committee or its chairman review the disclosure.   
+Various GX employees participated in drafting the proposed disclosure regarding the first quarter 
+2001 reciprocal transactions. In preparing the di sclosure, GX employees, including Casey, Cohrs, and 
+Perrone, sought review by GX’s in-house counsel, GX’s outside counsel, GX’s independent auditor, and the 
+chairman of the audit committee, among others.  None of those consulted raised any objection to the 
+proposed disclosure with Casey, Cohrs, or Perrone.
+2  The respondents thus relied on a process that had been 
+established for the preparation of the disclosure. 
+2 This process was not repeated in preparing the second quarter 2001 disclosure, as the second quarter’s 
+disclosure essentially mirrored that of the first quarter. 
+6
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+Eventually, Casey, Cohrs, and Perrone reviewed and approved the disclosure for the first and second 
+quarters of 2001. As discussed below, this disclosure was inadequate in several important respects. 
+4. GX’s Disclosure Regarding the Reciprocal Transactions 
+a. First Quarter 2001 
+In a Form 10-Q filed on May 15, 2001 (as well as in an earnings release issued on May 9, 2001, and 
+a conference call with analysts and investors on May 10, 2001), GX reported its first quarter 2001 financial 
+results and made various statements regarding GX’s IRU sales and purchases. 
+GX stated in the Form 10-Q and the earnings release that its quarterly Cash Revenue was $1.613 
+billion, Recurring Adjusted EBITDA was $441 million, and Recurring Net Loss was $608 million, or $0.69 
+per share. These results exceeded the securities analysts’ consensus estimates. The earnings release further 
+reported that Recurring Adjusted EBITDA was up 43% and Cash Revenue was up 39% from the first 
+quarter of 2000. 
+In the footnotes to the financial statements in the Form 10-Q as well as in the earnings release, GX 
+further stated that the Cash Revenue and Recurring Adjusted EBITDA amounts included $375 million 
+received from significant carrier customers who signed contracts during the quarter to purchase $500 
+million of capacity on GX’s network and to whom GX “made substantial capital commitments during the 
+quarter.” 
+In the MD&A portion of the Form 10-Q and in the earnings release, GX stated that it had entered 
+into several agreements with various carrier customers for the purchase of capacity “in order to acquire cost-
+effective local network expansions; to provide for cost-effective alternatives to new construction in certain 
+markets in which [GX] anticipates shortages of capacity; and to provide additional levels of physical 
+diversity in the network as [GX] implements its global mesh architecture.”  The Form 10-Q and the earnings 
+release further stated that GX’s capital commitments under these contracts totaled an estimated $625 
+million.  
+In the statement of cash flows included in GX’s Form 10-Q, GX reported a positive $21 million in 
+net cash from operating activities, which included an increase in cash from the sale of IRUs as compared to 
+the first quarter of 2000. With respect to cash flows from investing activities, GX reported increases over 
+the prior period in its purchases of property and equipment and net cash used in investing activities 
+primarily as a result of GX’s continued expansion of its network. 
+b. Second Quarter 2001 
+In a Form 10-Q filed on August 14, 2001 (as well as in an earnings release issued on August 1, 2001, 
+and a conference call with analysts and investors on August 2, 2001), GX reported its second quarter 2001 
+financial results and made various statements regarding GX’s IRU sales and purchases.  
+GX stated in the Form 10-Q and the earnings release that its quarterly Cash Revenue was $1.620 
+billion, Recurring Adjusted EBITDA was $472 million, and Recurring Net Loss was $607 million, or $0.69 
+per share. These results were close to the analysts’ consensus estimates of $1.674 billion for Cash Revenue 
+7
+ 
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+ 
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+ 
+and $464 million for Recurring Adjusted EBITDA.  The earnings release further reported that Recurring 
+Adjusted EBITDA was up 33% and Cash Revenue was up 26% from the second quarter of 2000. 
+The Form 10-Q and the earnings release further stated that Cash Revenue and Recurring Adjusted 
+EBITDA included $345 million received from significant carrier customers who signed contracts during the 
+quarter to purchase $381 million of capacity on GX’s network and to whom GX made substantial cash 
+commitments during the quarter. 
+Elsewhere in the disclosure, including in the MD&A portion of the Form 10-Q, GX stated that it had 
+entered into several agreements with various carrier customers for the purchase of capacity.  The Form 10-Q 
+and the earnings release again explained that GX entered into these contracts “in order to acquire cost-
+effective local network expansions; to provide for cost-effective alternatives to new construction in certain 
+markets in which [GX] anticipates shortages of capacity; and to provide additional levels of physical 
+diversity in the network as [GX] implements its global mesh architecture.”  The Form 10-Q and the earnings 
+release also stated that GX’s cash commitments under these contracts totaled an estimated $358 million. 
+GX also reported in the Form 10-Q its statement of cash flows for the six months ended June 30, 
+2001. GX reported a positive $677 million in net cash from operating activities, up from $330 million for 
+the same period in 2000, with the increase “primarily due,” among other reasons, to “an increase in revenue 
+from [its] . . . carrier business[] resulting from . . . an increase in the number of capacity agreements 
+executed by [GX’s] carrier customers.”  With respect to cash flows from investing activities in the first and 
+second quarters, GX reported that it had increased its capital spending from the prior year to purchase 
+capacity to build out and complete its network. 
+In reporting the amounts received in reciprocal transactions, GX excluded a reciprocal transaction 
+with one carrier. GX included, however, this transaction in its pro forma metrics, Cash Revenue and 
+Recurring Adjusted EBITDA. This reciprocal transaction related to an earlier IRU transaction between GX 
+and the other carrier. In the second quarter, however, GX and the other carrier renegotiated the earlier 
+transaction and entered into new reciprocal agreements to purchase capacity, under which GX sold $170 
+million in capacity to the other carrier and committed to purchase $79.2 million in capacity from that carrier.  
+Had GX included this transaction in its totals for reciprocal transactions, the amount that GX received from 
+significant carrier customers for capacity would have been $515 million (instead of $345 million), a 49% 
+increase, and the amount that GX paid these carrier customers for capacity would have been $436.9 million 
+(instead of $358 million), a 22% increase.   
+5. 	 The Inadequate Disclosure 
+GX’s first and second quarters Forms 10-Q were inadequate in the following respects:  
+a. 	 Reciprocal Nature of the Transactions and GX’s Increasing Reliance 
+on Them 
+In its disclosures regarding IRUs, GX disclosed that it had sold substantial amounts of capacity to 
+customers to whom it had also made substantial cash commitments.  GX also disclosed the gross dollar 
+amounts of these purchases and sales.  This disclosure, however, was inadequate. GX’s disclosure failed to 
+state explicitly that these IRU transactions were reciprocal in nature, i.e., that GX’s IRU sale depended at 
+least in part on GX’s simultaneous purchase of a similar dollar amount of capacity from the same carrier.  
+8
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+As a result, investors were not provided with the information necessary to adequately judge the quality of 
+GX’s financial results. In addition, investors were not informed that GX’s future sales growth was limited 
+by its ability to incur future capital expenditures. 
+Moreover, GX also did not specify that it was becoming increasingly reliant on the reciprocal 
+transactions as a source of Cash Revenue and Recurring Adjusted EBITDA.  In the first and second quarters 
+of 2001, GX’s Cash Revenue and Recurring Adjusted EBITDA from reciprocal transactions increased 
+significantly from the corresponding periods of 2000. 
+b. The Reciprocal Transactions’ Effect on Liquidity 
+One measure of a company’s liquidity is its cash flows from operating activities in its statements of 
+cash flows. In its first and second quarters Forms 10-Q, GX included the cash that it received from the 
+reciprocal transactions in the cash flows from operating activities and included the cash it spent in the 
+reciprocal transactions in its cash flows from investing activities.  By presenting the reciprocal transactions 
+in the statements of cash flows in this manner and not disclosing adequately the reciprocal nature of the 
+transactions, GX failed to disclose that the reciprocal transactions did not enhance its liquidity from 
+operating activities. 
+Specifically, GX disclosed in its statements of cash flows net cash provided by operating activities of 
+$21 million for the first quarter and $677 million for the first and second quarters.  GX, however, did not 
+disclose adequately in its MD&A that these amounts included as proceeds from reciprocal transactions $375 
+million in the first quarter and $890 million in the first and second quarters and that, without these 
+reciprocal transactions, GX would have had a negative cash flow from operating activities of $354 million 
+in the first quarter and a positive cash flow from operating activities of only $213 million in the first and 
+second quarters. 
+With respect to GX’s cash flow from investing activities, GX reported purchases of property and 
+equipment of $1.262 billion in the first quarter and $2.286 billion in the first and second quarters.  GX, 
+however, did not disclose adequately in the statements of cash flows, or in the notes to the financial 
+statements, that these items included the amounts disclosed as the cash commitments made in connection 
+with reciprocal transactions ($383 million (or 30% of the total) in the first quarter and $819 million (or 35% 
+of the total) in the first and second quarters). 
+c. Information Concerning the Purchased Capacity 
+GX’s disclosure regarding its purchases of capacity was also deficient because it failed to disclose 
+material information about those transactions.  First, in five reciprocal transactions, although GX had 
+written arrangements which GX regarded as binding with its contra parties, GX and the contra party still had 
+to negotiate and agree upon important additional operational or business issues, including, in some cases, 
+what capacity was to be exchanged between the parties and when they were to do so. 
+Second, in eight reciprocal transactions, GX purchased capacity that would not be ready for service 
+until sometime after the end of the quarter, and in some cases not for weeks, months or, occasionally, even a 
+year or more, because the capacity was not yet constructed, was still under construction (including in one 
+instance because the carrier was in severe financial difficulty and in danger of declaring bankruptcy), 
+required governmental approvals, and/or required substantial future additional capital expenditures by GX. 
+9
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+Third, in four reciprocal transactions, GX had not designated the specific capacity that it was 
+purchasing at the time of the purchase.  Rather, GX entered into commitments to purchase capacity 
+anywhere on the other carrier’s network, on certain segments of those networks, or for certain types of 
+capacity, the specifics of which GX would designate in the future. Under these transactions, GX had 
+substantial amounts of time to designate the actual capacity. 
+Finally, in five reciprocal transactions, GX purchased capacity in which the stated purpose for the 
+capacity was to resell it to other carriers. In some of these reciprocal transactions, GX was, at the time of 
+the purchase, negotiating with other carriers to resell the capacity; however, GX never completed these 
+negotiations and did not resell any of this capacity. 
+GX did not disclose this information in its first and second quarter 2001 Forms 10-Q.  This 
+information was material to investors because it affected GX’s ability to integrate the purchased capacity 
+into the GX network and thereby derive future revenues.  Moreover, GX failed to disclose to investors that, 
+in light of GX’s increasing dependence on reciprocal transactions for the sale of IRUs, the limitations on its 
+ability to integrate its purchased capacity could adversely impact its ability to sustain its increasing reliance 
+on reciprocal IRU transactions. 
+6. 	 The Individual Respondents’ Knowledge of the Reciprocal Transactions 
+and Responsibility for the Disclosure 
+Casey, Cohrs, and Perrone knew of GX’s reciprocal transactions and of the business purposes for the 
+purchases and understood that in many instances GX could not sell the capacity to the other carriers without 
+also concurrently purchasing capacity from the other carriers.  Casey and Cohrs also knew that a factor in 
+determining whether to buy capacity from another carrier was the fact that the other carrier was concurrently 
+buying capacity from GX.  Casey, Cohrs, and Perrone were also aware of the amount of reciprocal 
+transactions in the first and second quarters, and that in most of the reciprocal transactions, the amount of 
+GX’s sale was close to the amount of GX’s purchase. Casey, Cohrs, and Perrone knew that GX needed the 
+reciprocal transactions to meet analysts’ estimates in the first and second quarters of 2001. 
+Casey, Cohrs, and Perrone also knew that in some of the reciprocal transactions, GX had purchased 
+capacity (1) that would not be ready for service until substantially after the end of the quarter; (2) in the first 
+quarter from another carrier that then was in severe financial difficulty; and (3) that GX could designate for 
+use in the future. In addition, Perrone knew that in some of the reciprocal transactions, although GX and the 
+contra party had written arrangements that Perrone regarded as binding, GX and the contra party had yet to 
+negotiate and agree upon important additional operational or business issues.   
+Casey, Cohrs, and Perrone reviewed and approved the disclosure regarding the reciprocal 
+transactions. Although they knew that GX’s counsel, its independent auditor, and its audit committee 
+chairman had also participated in reviewing the disclosure and had not expressed any objections to them or 
+anyone else at GX about the disclosure, they had an affirmative obligation to go beyond the established 
+procedures (including the legal and accounting advice they received) to ensure the accuracy and 
+completeness of GX’s periodic reports.  In light of their particular knowledge about the reciprocal 
+transactions and their past and likely future effect on the company’s financial condition and results of 
+operations, the respondents knew or should have known that the disclosure was inadequate. 
+10
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+D. 	 LEGAL ANALYSIS: VIOLATIONS OF THE REPORTING PROVISIONS OF 
+SECTION 13(a) OF THE EXCHANGE ACT AND RULES 12b-20 AND 13a-13 
+THEREUNDER 
+Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers of securities 
+registered pursuant to Section 12 of the Exchange Act, like GX, to file certain quarterly reports with the 
+Commission.  Implicit in these provisions is the requirement that the reports accurately reflect the issuer’s 
+financial condition and operating results. See SEC v. IMC Int’l, Inc., 384 F. Supp. 889, 893 (N.D. Tex.), 
+aff’d mem., 505 F.2d 733 (5th Cir. 1974). Rule 12b-20 under the Exchange Act 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.  A fact is material if 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); TSC Indus., Inc. v. Northway, Inc., 426 U.S. 
+438, 449 (1976). Information concerning a company’s financial condition is material.  See, e.g., SEC v. 
+Murphy, 626 F.2d 633, 653 (9th Cir. 1980). No showing of scie nter is required to establish a violation of 
+Section 13(a) of the Exchange Act. See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1167 (D.C. Cir. 1978). 
+Form 10-Q requires MD&A disclosure that includes information required by Item 303 of Regulation 
+S-K. 17 C.F.R. § 229.303. Item 303 requires that manageme nt discuss and analyze the registrant’s financial 
+condition, changes in financial condition, and results of operations, with a specific focus on “material events 
+and uncertainties known to management that would cause reported financial information not to be 
+necessarily indicative of future operating results or of future financial condition.”  17 C.F.R. § 229.303(a), 
+Instruction 3. Among other things, Item 303 requires management to (1) “[i]dentify any known trends or 
+any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to 
+result in the registrant’s liquidity increasing or decreasing in any material way”; and (2) “[d]escribe any 
+known trends or uncertainties that have had or that the registrant reasonably expects will have a material 
+favorable or unfavorable impact on net sales or revenues or income from continuing operations.”  17 C.F.R. 
+§ 229.303(a)(1), (3)(ii). 
+The purpose of MD&A is “to give the investor an opportunity to look at the company through the 
+eyes of management by providing both a short and long-term analysis of the business of the company.”  
+SEC Interpretation: Management’s Discussion and Analysis of Financial Condition and Results of 
+Operations; Certain Investment Company Disclosures, Exchange Act Release No. 26831 (May 18, 1989) 
+(“MD&A Release”); see also In re Caterpillar Inc., Exchange Act Release No. 30532 (Mar. 31, 1992). As 
+the Commission has stated, “It is the responsibility of management to identify and address those key 
+variables and other qualitative and quantitative factors which are peculiar to and necessary for an 
+understanding and evaluation of the individual company.”  MD&A Release. 
+One of MD&A’s primary objectives is to enhance overall financial disclosure and provide the 
+context within which financial information should be analyzed. In the absence of complete and accurate 
+MD&A, a company’s financial statements and accompanying footnotes “may be insufficient for an investor 
+to judge the quality of earnings and the likelihood that past performance is indicative of future 
+performance.”  MD&A Release. 
+While counsel, an auditor, or other third party may review the MD&A section, the substance of the 
+MD&A remains firmly the non-delegable responsibility of management.  See MD&A Release. 
+“Management has a unique perspective on its business that only it can present.”  Interpretation: 
+11
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+ 
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+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and 
+Results of Operations, Exchange Act Release No. 48960 (Dec. 29, 2003). 
+Corporate officers have “affirmative responsibilities . . . to ensure that the shareholders whom they 
+serve receive accurate and complete disclosure of information required by the proxy solicitation and 
+periodic reporting provisions of the federal securities laws.”  Report of Investigation Pursuant to Section 
+21(a) of the Securities Exchange Act of 1934 Concerning the Conduct of Certain Former Officers and 
+Directors of W.R. Grace & Co., Exchange Act Release No. 39157 (Sept. 30, 1997). “Officers . . . who 
+review, approve, or sign their company’s proxy statements or periodic reports must take steps to ensure the 
+accuracy and completeness of the statements contained therein, especially as they concern those matters 
+within their particular knowledge or expertise.” Id.  “To fulfill this responsibility, officers . . . must be 
+vigilant in exercising their authority throughout the disclosure process.” Id. 
+1. GX 
+GX violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder, which 
+require issuers of securities registered pursuant to Section 12 of the Exchange Act, like GX, to file accurate 
+and not misleading quarterly reports with the Commission.  GX failed to adequately disclose material 
+events, trends, and uncertainties relating to its past and future financial condition and results of operations. 
+GX thus failed to provide the context within which financial information should be analyzed.  As a result, 
+investors did not have the ability to judge the quality of GX’s financial results and the likelihood that its past 
+performance would be indicative of future performance. 
+Specifically, GX omitted to disclose in its MD&A in the first and second quarters Forms 10-Q the 
+reciprocal nature of a substantial amount of its IRU transactions, its increased use of reciprocal transactions, 
+and its increasing reliance on such reciprocal transactions as a source of Cash Revenue and Recurring 
+Adjusted EBITDA. 
+In addition, in presenting its statements of cash flows, GX omitted to disclose that the reciprocal 
+transactions did not enhance GX’s liquidity from operating activities.  By including reciprocal transaction 
+sales in the cash flows from operating activities, GX reported cash flows from operating activities of a 
+positive $21 million for the first quarter and $677 million for the first and second quarters.  GX did not 
+disclose in its statements of cash flows that a substantial amount of the cash flows from operating activities 
+resulted from reciprocal transaction sales and that the reciprocal purchases were reported as part of cash 
+flows from investing activities. 
+GX also omitted to disclose that in the reciprocal transactions, it often purchased capacity that would 
+not be able to be integrated into its network, and thereby derive future service revenues, for some time.  In 
+particular, GX failed to disclose that in certain of these reciprocal transactions, GX had not completely 
+negotiated important operational and business issues, including what was to be exchanged between the 
+parties and when they were to do so; GX had purchased capacity that would not be ready for service until 
+sometime after the quarter, and in some cases not for weeks, months or, occasionally, even a year or more; 
+in the first quarter, GX had purchased capacity from another carrier that was then in severe financial 
+difficulty and in danger of declaring bankruptcy; and GX had purchased capacity that GX could designate 
+for use in the future. 
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+The omitted information was material because it was necessary for a complete understanding of 
+GX’s financial results, the quality of its financial results, reasons for purchasing assets, and its ability to 
+integrate the purchased capacity into the GX network and thereby derive future service revenues. 
+Reasonable investors would have considered this information important in making an investment decision. 
+2. Casey, Cohrs, and Perrone 
+Casey, Cohrs, and Perrone were a cause of GX’s violations of Section 13(a) of the Exchange Act and 
+Rules 12b-20 and 13a-13 thereunder. Casey, Cohrs, a nd Perrone knew that a substantial amount of GX’s 
+IRU sales in the first and second quarters were part of reciprocal transactions and, as discussed above, that 
+in certain of the reciprocal transactions, GX (1) had purchased capacity that would not be ready for service 
+until sometime after the quarter; (2) in the first quarter, had purchased capacity from another carrier that was 
+then in severe financial difficulty; (3) had purchased capacity that GX could designate for use in the future; 
+and/or (4) had not completely negotiated important operational or business issues.  Casey, Cohrs, and 
+Perrone also knew that GX needed the reciprocal transactions to meet analysts’ estimates for the first and 
+second quarters of 2001. Despite knowing this information, they reviewed and approved the disclosure in 
+the MD&A in the Forms 10-Q that omitted this material information. 
+E. GX’S COOPERATION 
+During the course of its investigation, the Commission staff received significant cooperation from 
+GX, including waivers of the attorney-client privilege concerning certain key transactions and the 
+company’s public disclosure process. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in 
+the Respondents’ Offers.
+3 
+Accordingly, it is hereby ORDERED that: 
+A. GX cease and desist from committing or causing any violations and any future violations of 
+Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+B. Casey, Cohrs, and Perrone cease and desist from causing any violations and any future 
+violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+By the Commission. 
+      J o n a t h a n G . K a t z
+ Secretary 
+3 Casey, Cohrs, and Perrone have each agreed to pay a $100,000 civil penalty in connection with a parallel 
+civil action. 
+13
+ 
\ No newline at end of file
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+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51607 / April 26, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2238 / April 26, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11911 
+In the Matter of 
+DELOITTE & TOUCHE LLP, 
+STEVEN H. BARRY, CPA, and 
+KAREN T. BAKER, CPA, 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS AND IMPOSING 
+REMEDIAL SANCTIONS 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against Deloitte & Touche LLP 
+(“Deloitte”), Steven H. Barry, CPA (“Barry”) and Karen T. Baker, CPA (“Baker”) (collectively, 
+the “Respondents”) pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.
+1 
+II. 
+In anticipation of the institution of these proceedings, each Respondent has submitted an 
+Offer of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, Respondents consent to the entry of this Order Instituting Public Administrative 
+Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making Findings and 
+Imposing Remedial Sanctions (“Order”), as set forth below.   
+1 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or 
+practicing before it to any person who is found . . . to have engaged in unethical or improper professional conduct. 
+ 
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+                                                
+ 
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds2 that: 
+A. SUMMARY 
+1. This matter concerns improper professional conduct within the meaning of Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice by the Respondents in connection with the 
+audit of Just for Feet, Inc.’s (“Just for Feet” or the “Company”) financial statements for the 
+Company’s 1998 fiscal year ended January 30, 1999 (the “1998 financial statements”). 
+2. Just for Feet’s 1998 financial statements included in its annual report for fiscal 1998 
+on Form 10-K, filed with the Commission on April 30, 1999, were materially false and misleading, 
+overstated net income and net assets, and failed to comply with generally accepted accounting 
+principles (“GAAP”).  Just for Feet falsified its financial statements by (1) improperly recognizing 
+unearned and fictitious receivables and revenue from its vendors, (2) failing to properly account for 
+and to disclose problems with obsolete inventory, and (3) improperly recording as income the 
+value of display booths provided by its vendors.  These fraudulent financial statements were also 
+included in a Form S-8 registration statement Just for Feet filed with the Commission on May 3, 
+1999, through the incorporation by reference of the Company’s 1998 Form 10-K.  They were also 
+included in a Form S-4 registration statement the Company filed with the Commission on June 14, 
+1999. 
+3. The Respondents reasonably  should have known that Just for Feet’s 1998 financial 
+statements had not been prepared in accordance with GAAP.  They nonetheless issued an 
+unqualified audit report on Just for Feet’s 1998 financial statements that represented that Just for 
+Feet’s financial statements were free of material misstatements and were presented in conformity 
+with GAAP and that the auditors had adhered to generally accepted auditing standards (“GAAS”) 
+when they performed the 1998 audit.  This audit report was included in Just for Feet’s 1998 Form 
+10-K and was incorporated by reference in the Form S-8 registration statement.  The audit report 
+was also included in the Form S-4 registration statement. Deloitte issued consent letters agreeing to 
+the inclusion of its audit report with these registration statements. 
+4. The Respondents did not comply with GAAS in the conduct of the audit and 
+engaged in improper professional conduct as described herein within the meaning of Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice through repeated instances of unreasonable 
+conduct. 
+2 The findings herein are made pursuant to the Respondents’ Offers of Settlement and are not 
+binding on any other person or entity in this or any other proceeding. 
+2
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+B. RESPONDENTS 
+5. Deloitte & Touche LLP is a national accounting firm headquartered in New York, 
+New York with offices located throughout the United States, including Birmingham, Alabama. 
+6. Steven H. Barry, CPA, 52, of Birmingham, Alabama, is licensed as a certified 
+public accountant in Alabama.  He joined the Birmingham office of Touche Ross and Co. 
+(“Touche Ross”), a Deloitte predecessor firm, in 1976, becoming a partner in 1988.  He became 
+the managing partner of Deloitte’s Birmingham office in 1996 and remains in that position. Barry 
+was the engagement partner during Deloitte’s audit of Just for Feet’s 1998 financial statements.  
+7. Karen T. Baker, CPA, 43, of Birmingham, Alabama, is licensed as a certified 
+public accountant in Alabama.  She joined the Birmingham office of Touche Ross in 1989, 
+becoming a manager in 1995. Baker was initially assigned to the Just for Feet engagement in 1993 
+as an audit senior and became the Just for Feet audit manager in 1995. She was the audit manager 
+during Deloitte’s audit of Just for Feet’s 1998 financial statements.  
+C. THE COMPANY 
+8. Just for Feet, Inc., a Delaware corporation based in Birmingham, Alabama, was a 
+national retailer of athletic and outdoor footwear and apparel. The Company was founded in 1977 
+and hired Deloitte as its independent auditor in 1993. Deloitte was Just for Feet’s independent 
+auditor when Just for Feet went public in 1994 and audited Just for Feet’s financial statements for 
+the Company’s fiscal years between January 31, 1995 and January 30, 1999.  Just for Feet 
+expanded rapidly during these years, showing rising asset, revenue and earnings trends between 
+1994 and 1998 that reflected this rapid growth. The Company’s common stock was traded on the 
+NASDAQ National Market System. Just for Feet’s fiscal 1998 financial statements included a 
+balance sheet with assets of $689.4 million and an income statement showing net income of $26.6 
+million, based on revenues of $774.9 million. Just for Feet claimed in its fiscal 1998 Form 10-K 
+that it had become the leading operator of large format superstores specializing in brand-name 
+athletic and outdoor footwear and apparel.  In November 1999, only a few months after presenting 
+this positive financial picture, Just for Feet filed for protection under Chapter 11 of the Bankruptcy 
+Code.  Deloitte resigned as Just for Feet’s auditor in December 1999, after earning $351,756 in 
+fees for its work on the fiscal 1998 audit.  Just for Feet’s bankruptcy case was converted to a 
+Chapter 7 liquidation proceeding in 2000.  
+9. After Just for Feet filed for bankruptcy protection, it emerged that several of the 
+Company’s officers had been fraudulently increasing its income by using a variety of schemes, at 
+times in collusion with outside vendors who provided false confirmation responses to Deloitte, 
+from at least late 1996 through the filing of the fiscal 1998 Form 10-K in April 1999.  The 
+revelation of these schemes has resulted in a number of civil and criminal prosecutions by the 
+Commission and the Department of Justice, respectively. 
+3
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+ 
+D.	 JUST FOR FEET AS A “GREATER THAN NORMAL” ENGAGEMENT RISK AUDIT 
+CLIENT 
+10. In connection with the audit of Just For Feet’s financial statements for fiscal year 
+1997, the Respondents identified Just for Feet’s engagement risk as “greater than normal.”  One 
+workpaper stated that Just for Feet’s “management accepts high levels of risk, places significant 
+emphasis on earnings, and has historically interpreted accounting standards aggressively.” The 
+workpaper further stated that there had been a “significant number of misstatements noted in past 
+audits.” Another Deloitte audit workpaper assessing fraud and engagement risk stated that Just for 
+Feet’s management appeared willing to accept unusually high levels of risk, appeared to place 
+undue emphasis on achieving the planned amount of earnings or growth targets, had excessive 
+interest to maintain the entity’s stock price through the use of unusually aggressive accounting 
+practices, and engaged in unique and highly complex transactions close to year end.  Another 
+Deloitte audit workpaper from fiscal 1997 entitled “Risk Factors Worksheet” indicated that Just for 
+Feet management had “one man rule (autocrat)” and that Just for Feet practiced “creative 
+accounting.” 
+11. The Respondents were therefore aware of numerous risk factors prior to and during 
+the audit of the 1998 financial statements.  The audit workpapers prepared as part of that audit and 
+reviewed by Barry and Baker listed some of the same risk factors that had been identified the 
+previous year and rated the level of audit risk as “greater than normal.” 
+12. Deloitte maintained a National Risk Management Program for audit engagements 
+assessed to have “much greater than normal” audit risk and for select engagements assessed to 
+have “greater than normal” audit risk.  Just for Feet was included in this program beginning in 
+1997 and continuing after that.  Under this program, a Deloitte partner designated as a National 
+Review Partner was to provide an additional level of consultation and review.  This partner’s duties 
+included discussing specific risk areas and plans to respond to them, consulting with the 
+engagement and concurring partners, reviewing the audit workpapers concerning risk areas of the 
+engagement, and reviewing the financial statements and Deloitte’s audit report with an emphasis 
+on the identification of specific risk areas as well as the adequacy of the audit report and 
+disclosures regarding these risk areas.  At the end of an engagement, the National Review Partner 
+was to complete a memorandum to Deloitte’s National Office confirming that he had completed 
+his duties as National Review Partner and assessing whether adequate attention and resources had 
+been dedicated to the management of the risks of the engagement.   
+13. The Respondents were also aware of two specific identified audit risk areas that 
+pertained to Just for Feet.  Deloitte’s audit procedures manual included a 1996 Risk Alert 
+identifying vendor allowances as a high risk area for retailers in general.  The Risk Alert 
+specifically stated that “Although there are variations in practice for the treatment of vendor 
+allowances, we would assume that most allowances would be regarded as a reduction of 
+merchandise cost in order that the inventory is carried at the lowest and most conservative value.  
+However, in practice many retailers will treat allowances for reimbursement of advertising costs 
+and market development as a direct offset to the P&L.”  Just for Feet’s disclosed practice was to 
+4
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+  
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+treat its allowances as reductions in advertising expense. In addition, “Client Risk Profile” forms 
+prepared by Deloitte concerning Just for Feet for 1997 and 1998 each identified inventory 
+valuation as a risk area. 
+14. In planning for the audit of Just for Feet’s fiscal 1998 financial statements, the 
+Respondents appropriately identified risks presented by the audit and planned the conduct of the 
+audit to address them.  However, the Respondents did not properly implement this plan in that they 
+failed to exercise due professional care and skepticism, failed to obtain sufficient competent 
+evidential matter, and placed undue reliance on estimates provided by Just for Feet’s management.  
+As a result, Respondents improperly stated that they had conducted their audit in accordance with 
+GAAS and that the Just for Feet financial statements were prepared in conformity with GAAP.  
+Further, as to Deloitte, the firm’s National Risk Management Program did not function adequately 
+in connection with this audit. 
+E. JUST FOR FEET’S 1998 VENDOR ALLOWANCES AND CO-OP RECEIVABLES 
+15. Just for Feet incurred large amounts of advertising expenses. Most of the 
+Company’s vendors offered financial assistance through unwritten agreements to Just for Feet to 
+help pay for these expenses. This assistance was termed “advertising co-op” or “vendor 
+allowances.”  After Just for Feet advertised a product and paid for the advertising, the Company 
+often was required to submit an advertisement to the vendor for approval before a co-op credit was 
+recorded. Each vendor limited the amount of advertising co-op dollars it allowed to Just for Feet 
+over a given period of time because co-op dollars were usually based on the amount of 
+merchandise that Just for Feet purchased from that particular vendor.  Another type of co-op 
+described as “discretionary” co-op was only provided at the discretion of the vendor.  Still another 
+type of co-op known as “margin enhancement” was provided by vendors to assist retailers when 
+profit margins on goods sold were not as great as expected.   
+16. Generally, Just for Feet was required by GAAP to refrain from recognizing these 
+vendor allowances and the related receivables until the revenue was earned or realizable.  By 
+booking unearned and bogus vendor allowances, often recorded as discretionary or margin 
+enhancement co-op, and by offsetting all of these vendor allowances against advertising expense, 
+the Company overstated its net assets and net income before taxes by at least $19 million for fiscal 
+1998. 
+17. The Respondents identified these vendor allowances as a specific identified risk 
+area in which Just for Feet might recognize invalid receivables and income, but nonetheless 
+failed to comply with GAAS by failing to obtain sufficient, competent evidential matter to 
+determine whether these co-op receivables and the related income were actually earned.  
+Deloitte, Barry and Baker were presented with a series of factors that called for heightened 
+professional skepticism.  These factors included: 
+a. Just for Feet claimed that it had approximately $28.9 million in outstanding 
+co-op credits due to it on January 30, 1999, the end of fiscal 1998.  This figure was more 
+than seventy times greater than the $408,000 in outstanding co-op credits due to Just for 
+5
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+  
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+Feet at the end of the previous fiscal year.  Just for Feet reported total co-op credits of 
+$32.7 million for fiscal year 1998 and $14.4 million for fiscal year 1997. 
+b. Of the total amount claimed, $23.8 million, purportedly due from forty 
+vendors, was booked with the involvement of a particular Just for Feet Vice-President (the 
+“Vice-President”) who worked in neither the Accounting nor the Advertising Departments. 
+c. Of this $23.8 million, $14.4 million, equivalent to one-third of Just for 
+Feet’s claimed pre-tax income, was the result of adjustments recorded approximately five 
+weeks after the end of the 1998 fiscal year. 
+d. Just for Feet’s Director of Financial Reporting brought to Baker’s attention 
+a journal entry recording $11.3 million in co-op receivables on which he noted that the 
+Vice President would provide supporting information to justify recording the receivable. 
+No such information was provided to Respondents. 
+e. Just for Feet collected none of these purported co-op receivables due to it 
+from the January 30, 1999 end of its fiscal 1998 year through April 23, 1999, the date of 
+Deloitte’s audit report. 
+f. The Respondents were aware that Just for Feet offset its co-op receivables 
+against advertising expense or cost of sales, allowing them to be used to increase income 
+immediately.  This was troublesome because many of the purported receivables were for 
+“discretionary” or “margin enhancement” co-op, both of which depended on merchandise 
+purchases by Just for Feet.  In a Risk Alert issued in January 1996, Deloitte specifically 
+identified vendor allowance transactions as a risk factor.  The Risk Alert stated, “Although 
+there are variations in practice for the treatment of vendor allowances, we would assume 
+that most allowances would be regarded as a reduction of merchandise cost in order that the 
+inventory is carried at the lowest and most conservative value.  However, in practice many 
+retailers will treat allowances for reimbursement of advertising costs and market 
+development as a direct offset to the P&L.”  The Risk Alert noted that offsetting 
+allowances against advertising expense could cause a retailer to get “ahead” by reducing its 
+operating expense faster than the allowances were actually earned. 
+18. The Respondents decided to confirm the receivables claimed from thirteen of the 
+vendors who purportedly owed $22 million of the $28.9 million.  As part of this process, the 
+auditors sent out thirteen confirmation requests in March 1999 relating to the claimed receivables.  
+Each letter asked that the recipient confirm that Just for Feet had a credit due of a particular 
+amount as of January 30, 1999 and that these amounts related to advertising that ran or 
+merchandise sold prior to January 30, 1999.  Five vendors returned non-standard letters that, 
+instead of unambiguously confirming amounts owed to Just for Feet at the end of the fiscal 1998 
+year, as requested by the auditors, provided ambiguous information on amounts of co-op that the 
+Company had earned, accrued, or had available during the year.  One of the letters affirmatively 
+stated that the “total amount, according to [the vendor allowance] agreement is $741,271.00.  No 
+additional funds are due to JFF” and included information listing the credits that had been awarded 
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+during the year.  If the Respondents had more fully evaluated this vendor response, they would 
+have seen that it was related to vendor allowances other than those they were trying to confirm.  
+Another vendor returned a confirmation prior to the date of the audit report for only a portion of 
+Just for Feet’s claimed receivable.  This vendor returned a confirmation for the amount Just for 
+Feet had earned during the year approximately six weeks after Just for Feet filed its fiscal 1998 
+Form 10-K. Despite having no written confirmation of the entire purported receivable, the 
+Respondents accepted the amount claimed by Just for Feet.  Despite these and other flaws, the 
+Respondents nonetheless accepted these letters as confirming approximately $16 million in 
+receivables claimed by Just for Feet.  Certain vendors, acting in collusion with members of Just for 
+Feet’s management, deliberately returned letters that falsely confirmed to Deloitte amounts of co-
+op receivables that their companies purportedly owed to Just for Feet. 
+19. The Respondents issued the audit report despite the presence of unresolved 
+questions. In May 1999, an audit senior sent an e-mail message to Just for Feet’s Vice President, 
+which was copied to Barry and Baker, updating the Vice President on the status of the 
+confirmations and noting the need for explanations of discrepancies in the amounts confirmed by 
+some vendors and the lack of responses from others.  In early October 1999, another audit senior 
+sent an e-mail message to the Vice-President asking for his assistance in resolving a number of 
+open items that remained from the audit.  One of the open items was “Explanations of differences 
+in CO-OP confirmations received and amounts recorded.”  Thus, approximately five months after 
+the filing of Just for Feet’s fiscal 1998 Form 10-K, and several months after Deloitte’s audit report 
+was included in Just for Feet’s Forms S-8 and S-4, the Respondents were still attempting to resolve 
+questions concerning co-op receivables that should have been addressed before the auditors issued 
+their report. The Respondents did not perform alternative procedures with respect to differences in 
+confirmation amounts or non-replies sufficient to resolve such questions. 
+F. JUST FOR FEET’S INVENTORY REPORTING AND OBSOLESCENCE RESERVE 
+20. Just for Feet had a material amount of excess or obsolete inventory at the end of 
+fiscal 1998, but failed to disclose this in its Form 10-K for that year and also failed to adjust its 
+inventory obsolescence reserve to reflect the increase in its excess and unsaleable inventory. The 
+Company left its inventory obsolescence reserve at $150,000, the same level it had been the 
+previous year, despite the fact that its reported inventory almost doubled during fiscal 1998 from 
+$206 million to $400 million.  GAAP states that when the utility of goods is no longer as great as 
+cost, due to obsolescence or other causes, the difference should be recognized as a loss in the 
+current period by valuing the goods at market.  Just for Feet failed to value its inventory at the lower 
+of cost or market as required by GAAP.   
+21. The Respondents’ testing of Just for Feet’s inventory and its proposed reserve was 
+inadequate and did not comply with GAAS.  Just for Feet and its officers, at the end of fiscal 1998, 
+failed to prepare an aging analysis of the Company’s inventory, a tool for determining obsolescence 
+and in recording the value of inventory at the lower of cost or market.  Deloitte’s audit manual 
+provided guidance that auditors should review inventory aging to determine what part of the 
+inventory might be obsolete and, if an aging report did not exist, should inquire as to what 
+7
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+methodology the retailer used to age its inventory so they could measure the quality and 
+performance of the inventory. 
+22. Deloitte tested Just for Feet’s obsolescence reserve for fiscal 1997 by testing the 
+reasonableness of Just For Feet’s three-prong methodology for determining its reserve: (1) shoe 
+styles and types with only four pairs or less, (2) shoes and apparel selling for less than cost, and (3) 
+items that had not been sold in the previous twelve months.  All of these items were to be written 
+down to the lower of cost or market as required by GAAP.  For the fiscal 1998 audit, the 
+Respondents documented Just for Feet’s methodology and listed the same three assumptions as 
+elements to be used in determining the reasonableness of the reserve.  The Respondents, however, 
+did not effectively test items that had not been sold in the previous twelve months. 
+23. For fiscal 1998, the Respondents accepted a reserve analysis that was prepared by 
+the Company’s Vice President. This analysis, however, explicitly included only two of the items 
+used in the three-prong test from the previous year.  Just for Feet provided no information to the 
+Respondents establishing that this analysis included goods that had not sold within the last year but 
+that had not been written down to the lower of cost or market. Nonetheless, the Respondents 
+accepted this analysis. 
+24. At the end of its fiscal 1998, Just for Feet stored $11.1 million in merchandise 
+inventory in a warehouse location in northern New Jersey.  While the inventory in this warehouse 
+was observed by Deloitte personnel, it was not included in the reserve analysis because this 
+warehoused inventory was not included in the Company’s inventory system, a feature reflected in a 
+Deloitte workpaper. As a result, this inventory was not in the inventory analysis provided by the 
+Vice President and accepted by the auditors. 
+25. Even using the flawed inventory analysis provided by the Vice President and the 
+deficient inventory information that excluded the goods in the New Jersey warehouse, the 
+Respondents concluded that Just for Feet’s obsolescence reserve should have been in the range of 
+$441,000 to over $1 million. While the Respondents proposed that the obsolescence reserve be 
+increased by $441,000, Just for Feet did not increase its reserve.   
+G. JUST FOR FEET’S ACCOUNTING FOR VENDOR BOOTH DISPLAYS 
+26. Just for Feet encouraged its merchandise vendors to set up their own display booths 
+inside Just for Feet stores to showcase products. Although Just for Feet and the vendors held 
+periodic meetings to determine the number of booths each vendor would provide to Just for Feet, 
+there were no written contracts and very little documentation concerning the booths.   
+27. In December 1996, Just for Feet developed a fraudulent accounting scheme 
+concerning these display booths that enabled it to increase net income.  Just for Feet ostensibly 
+began to “buy” the booths it had previously received free of charge from the vendors. The 
+Company did this by having each vendor bill Just for Feet for the booths it supplied while issuing 
+to Just for Feet a corresponding “booth” co-op credit which could be applied against the cost of a 
+merchandise purchase.  This credit had the effect of reducing advertising expense and thereby 
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+increasing net income. These booth transactions were so structured for the purpose of generating 
+income, and were not accounted for in conformity with GAAP.  
+28. For the fiscal 1998 year, Just for Feet changed its process of accounting for booth 
+assets and income to eliminate the involvement of the vendors. During the first month of fiscal 
+year 1998, the Vice President simply estimated the dollar amount of booths that he expected Just 
+for Feet to receive during the year, divided the amount by twelve months, and started recording 
+$174,362 per month of booth income.  When it recognized this income, Just for Feet also claimed a 
+corresponding increase in its assets through its “purchase” of the booths. At the October 31, 1998 
+end of the third quarter, in addition to the $174,362 per month, Just for Feet recorded another $5.2 
+million of booth income for a total of approximately $5.4 million for that month. Just for Feet then 
+recorded an additional $2.2 million of booth income over the remaining three months of the fiscal 
+year. Although no cash or co-op credits actually changed hands between Just for Feet and the 
+vendors during fiscal year 1998, the Company nonetheless increased its income before taxes by $9 
+million during that fiscal year, approximately 20% of pre-tax income, through its new method of 
+accounting for vendor booths. 
+29. Although the Respondents received indications of how Just for Feet was accounting 
+for booths, they failed to respond accordingly.  An audit workpaper dated March 25, 1999, 
+described Just for Feet’s accounting methodology for booths.  An analysis at the end of the 
+workpaper, which Baker reviewed, showed that the net effect of Just for Feet’s booth-related journal 
+entries was to increase assets with a corresponding increase in income.  The Respondents performed 
+no further analysis to determine the basis and propriety of these journal entries.  The Respondents 
+accepted management representations that pre-existing co-op credits were being used to pay for the 
+booths and that the booth transactions therefore did not affect net income. 
+30. Because the vendors did not bill Just for Feet for the booths during fiscal 1998, and 
+because it received no corresponding co-op credits during the year, neither the Company nor the 
+auditors had internal evidence supporting the recording of $9 million of booth assets. To 
+substantiate this $9 million asset amount, the Company’s Vice President or the auditors prepared 
+confirmation requests to the vendors to verify $8.4 million in amounts purportedly owed by Just 
+for Feet for the booths.  The Vice President determined the amounts on the requests and another 
+Just for Feet officer signed and sent them to various sales directors and corporate officers of the 
+vendors.     
+31. The confirmation requests asked the vendors to confirm that “the balance owed by 
+Just for Feet, Inc. as of January 30, 1999 for store booths and fixtures shipped to them during the 
+year ended January 30, 1999 is $[amount varied by vendor].”  Although the letters actually were 
+intended to confirm “payables,” the Respondents used the confirmation replies from the vendors to 
+verify the value of the booths on Just for Feet’s books and records. They compiled a running total 
+of these confirmations as they were returned as proof that Just for Feet had purchased the specified 
+amount of booths.  The Respondents used the confirmations to support the recorded $9 million 
+booth asset amounts, which was equal to the amount of income Just for Feet had already recorded 
+relating to its acquisition of the booths.  
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+32. As with the co-op receivables, the Respondents also received and accepted 
+ambiguous replies to Just for Feet’s requests that its vendors confirm the amounts Just for Feet 
+purportedly owed for the booths.  One vendor, for example, in response to a confirmation request 
+sent a letter stating the value of the booths Just for Feet had received in 1998, but failed to confirm 
+any amount the Company purportedly owed for these booths at the end of the year.  A second 
+vendor supplied confirmations for differing amounts thereby causing Respondents to propose an 
+adjustment to the financial statements.  Another vendor replied to a confirmation request by stating 
+that Just for Feet had in fact billed the vendor for booth construction costs when Just for Feet’s 
+claim was that it had bought the booths from the vendor.  An audit senior reviewed these 
+confirmations and informed Barry and Baker that she was in some cases sending multiple 
+confirmation requests to the vendors because many of their initial responses came back in forms 
+different from that requested.  The Respondents failed to discover from these indications that Just 
+for Feet might not actually be purchasing the booths as it claimed.   
+H.	 OTHER ASPECTS OF THE JUST FOR FEET AUDIT 
+33. Just for Feet’s inclusion in Deloitte’s National Risk Management Program required 
+the appointment of a National Review Partner to assist in planning the audit of specific risk areas, 
+review the workpapers related to these areas, review the financial statements and Deloitte’s report 
+regarding these areas and complete a memorandum to the National Office assessing whether 
+adequate attention had been devoted to these risk areas. 
+34. In connection with the audit of Just for Feet’s fiscal 1998 financial statements, 
+Deloitte did not determine that the National Review Partner had performed his prescribed 
+procedures.  There is no documentation showing that the National Review Partner reviewed the 
+audit workpapers relating to the specific risk areas identified for Just for Feet.  Moreover, the 
+National Review Partner did not prepare a post-audit memorandum, as required by Deloitte’s 
+procedures, assessing Deloitte’s efforts to address the audit risks associated with the Just for Feet 
+engagement. This lack of a written assessment by the National Review Partner is particularly 
+notable as to Just for Feet’s inventory valuations and vendor allowances, as these were identified as 
+risk areas in the Just for Feet audit.   
+I. 	 THE RESPONDENTS ENGAGED IN IMPROPER PROFESSIONAL CONDUCT 
+WITHIN THE MEANING OF RULE 102(e) OF THE COMMISSION’S RULES OF 
+PRACTICE 
+35. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in part, that the 
+Commission may censure or deny, temporarily or permanently, the privilege of appearing or 
+practicing before the Commission to any person who is found by the Commission to have engaged 
+in improper professional conduct.  Rule 102(e)(1)(iv) defines improper professional conduct with 
+respect to persons licensed to practice as accountants. 
+36. As applicable here, improper professional conduct means “[r]epeated instances of 
+unreasonable conduct, each resulting in a violation of applicable professional standards, that 
+indicate a lack of competence to practice before the Commission.”  Rule 102(e)(1)(iv)(B)(2).  As 
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+stated below, the Respondents acted unreasonably in failing to require Just for Feet to comply with 
+GAAP and in failing to comply with GAAS during its audit of the Company’s fiscal 1998 financial 
+statements. 
+(a) Professional Care and Skepticism, Evidential Matter and Management 
+Representations and Estimates. 
+37. GAAS provides that “[d]ue professional care is to be exercised in the planning and 
+performance of the audit and the preparation of the report.”  AU § 230.01.  Among other things, 
+due professional care requires that an auditor exercise professional skepticism, defined as “an 
+attitude that includes a questioning mind and a critical assessment of the audit evidence.” AU § 
+230.07. “Gathering and objectively evaluating audit evidence requires the auditor to consider the 
+competency and sufficiency of the evidence.”  AU § 230.08. “In exercising professional 
+skepticism, the auditor should not be satisfied with less than persuasive evidence because of a 
+belief that management is honest.”  AU § 230.09.  
+38. GAAS also requires that "sufficient competent evidential matter is to be obtained 
+through inspection, observations and confirmations to afford a reasonable basis for an opinion 
+regarding the financial statements under audit." AU § 326.01. “To be competent, evidence, 
+regardless of its form, must be both valid and relevant.”  AU § 326.21.   In addition, the auditor 
+should recognize "the possibility that the financial statements may not be fairly presented in 
+conformity with generally accepted accounting principles" and should "consider relevant evidential 
+matter regardless of whether it appears to corroborate or contradict the assertions in the financial 
+statements."  AU § 326.25. Management representations “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.”  AU § 333.02. 
+39. For information obtained through the confirmation process to be competent, it must 
+be reliable and relevant. AU § 330.11.  “When the auditor has not received replies to positive 
+confirmation requests, he or she should apply alternative procedures to the nonresponses to obtain 
+evidence necessary to reduce audit risk to an acceptably low level.”  AU § 330.31.  For accounts 
+receivable, alternative procedures may include an examination of subsequent cash receipts.  
+Alternative procedures for accounts payable may include an “examination of subsequent cash 
+disbursements, correspondence from third parties, or other records to provide evidence for the 
+completeness assertion.”  AU § 330.32. Finally, after any alternative procedures have been 
+performed, the auditor should evaluate the combined evidence provided by the confirmations and 
+alternative procedures, considering in particular “the nature of any exceptions, including the 
+implications, both quantitative and qualitative, of those exceptions. . . .”  AU § 330.33.    
+40. AU § 342 provides guidance on obtaining sufficient competent evidential matter to 
+audit significant accounting estimates in an entity’s financial statements.  “The auditor is 
+responsible for evaluating the reasonableness of accounting estimates made by management in the 
+context of the financial statements taken as a whole.”  AU § 342.04.   
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+41. The Respondents departed from these GAAS standards in each of the areas at issue 
+in the audit of Just for Feet’s 1998 financial statements: (1) the co-op receivables; (2) the reserve 
+for excess or obsolete inventory; and (3) booth accounting.   
+42. Regarding the co-op receivables, the Respondents failed to exercise professional 
+care and skepticism and failed to obtain sufficient, competent evidential matter either in the form 
+of reliable and relevant confirmations or through alternative means.  They accepted certain co-op 
+receivable confirmations as confirming amounts owed to Just for Feet when in fact they contained 
+information that was ambiguous at best about how much co-op the Company had accrued or had 
+available. The Respondents failed to respond adequately to an assertion from one vendor that it 
+owed “[n]o additional funds” to Just for Feet and failed to consider this language as an exception to 
+the confirmation request and its implications.  They accepted Just for Feet’s recognition of another 
+co-op receivable it claimed after receiving a written confirmation for only part of the amount 
+claimed; a confirmation for the full amount the Company had earned during the year was finally 
+received seven weeks after the date of the audit report.  They performed no alternative procedures, 
+such as determining if any of these claimed receivables had been collected, to verify the amount of 
+receivables Just for Feet claimed.  In addition, except to confirm that other vendor allowances were 
+related to “advertising that ran or merchandise sold prior to January 30, 1999,” the Respondents 
+failed to adequately consider whether Just for Feet’s practice of offsetting discretionary and margin 
+enhancement co-op allowances against advertising expense or cost of sales, thus immediately 
+increasing income, complied with GAAP. 
+43. Regarding Just for Feet’s reserve for excess or obsolete inventory, the Respondents 
+failed to exercise due professional care and skepticism, failed to obtain sufficient, competent 
+evidential matter, substituted management’s representations for such competent evidential matter 
+and, to that extent, failed adequately to evaluate management’s estimates in the context of the 
+financial statements as a whole.  They failed to test Just for Feet’s reserve adequately to the extent 
+they accepted a defective obsolescence reserve estimate from management and relied upon an 
+inventory system that failed to include certain warehoused goods.   
+44. Regarding Just for Feet’s booth accounting, the Respondents failed to exercise 
+professional care and skepticism and failed to obtain sufficient, competent evidential matter in the 
+form of reliable and relevant confirmations or through alternative means.  The Respondents did not 
+heed sufficiently indications that Just for Feet may have been improperly recognizing income 
+through the acquisition of vendor display booths and failed to consider that this would mean that 
+the financial statements did not conform to GAAP.  They accepted management representations 
+that pre-existing co-op credits were being used to pay for the booths and that the booth transactions 
+therefore did not affect net income.  Respondents also accepted confirmations from vendors that 
+confirmed amounts payable by Just for Feet rather than amounts purportedly spent buying the 
+display booths and, in some instances, that contained evidence contradicting Just for Feet’s 
+representations. 
+45. GAAS requires that an auditing firm should establish “quality control policies and 
+procedures to provide it with reasonable assurance of conforming with generally accepted auditing 
+standards in its audit engagements.”  AU § 161.02. An auditing firm should have in place a 
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+process to provide it with “reasonable assurance that its personnel comply with applicable 
+professional standards and the firm’s standards of quality.”  AICPA Professional Standards, QC § 
+20.03. As part of its system of quality control, an audit firm is required to establish policies and 
+procedures to provide it with “reasonable assurance that the work performed by engagement 
+personnel meets applicable professional standards [and] regulatory requirements.”  QC § 20.17. In 
+connection with the fiscal 1998 audit, Deloitte’s National Risk Management Program was not 
+adhered to and did not function properly, and so did not determine if identified risk areas had been 
+adequately addressed, despite Just for Feet's status as a “greater than normal” risk client. 
+(b) Standards of Reporting 
+46. GAAS provides that “[t]he report shall state whether the financial statements are 
+presented in accordance with generally accepted accounting principles.”  AU § 410.01.  GAAS 
+also requires that the auditor’s report express an opinion on the financial statements as a whole and 
+contain a clear indication of the character of the auditor’s work.  AU § 508.04.  An auditor can 
+issue an audit report with an unqualified opinion only if he has conducted the audit in accordance 
+with GAAS. AU § 508.07.  The Respondents departed from these GAAS provisions through the 
+expression of the opinion that Just for Feet’s financial statements were presented in conformity 
+with GAAP and through the statement that the auditors had conducted the audit in accordance with 
+GAAS. As discussed above, the Respondents should reasonably have known that Just for Feet’s 
+financial statements were not presented in conformity with GAAP and that they had not conducted 
+their audit in accordance with GAAS.   
+K. CONCLUSION AND UNDERTAKING 
+47. Based on the foregoing, the Commission finds that the Respondents engaged in 
+improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules 
+of Practice.  Specifically, the Respondents engaged in repeated instances of unreasonable conduct, 
+each resulting in a violation of applicable professional standards, that indicate a lack of competence 
+to practice before the Commission 
+48. Within 10 days of the issuance of this Order, Deloitte undertakes to pay $375,000 
+to the U.S. Treasury. The payment shall be de livered or mailed to the Office of Financial 
+Management, Securities and Exchange Commission, Operations Center, 6432 General Green 
+Way, Mail Stop 0-3, Alexandria, Virginia 22312, and shall be accompanied by a letter 
+identifying Deloitte as a respondent in this action, setting forth the title and Exchange Act 
+Release Number of this action and specifying that payment is made pursuant to this undertaking.  
+49. In determining to accept Deloitte’s offer, the Commission has considered the 
+undertaking set forth above and Deloitte’s willingness to undertake measures to enhance its 
+National Risk Management Program as detailed in another order issued simultaneously concerning 
+Deloitte’s audit of the financial statements of Adelphia Communications Corporation entitled In 
+the Matter of Deloitte & Touche LLP, Exchange Act Release No. 34-51606 (April 26, 2005). 
+13
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in the Respondents’ Offers. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Deloitte is censured pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+B. Barry and Baker are each denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+C. After two years from the date of the Order, Barry 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 Barry’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) Barry, or the public accounting firm with which he is associated, is 
+registered with the Public Company Accounting Oversight Board (the “Board”) in accordance with 
+the Sarbanes-Oxley Act of 2002, and such registration continues to be effective;  
+(b) Barry, or the registered 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 Barry’s or the firm’s quality control system that would indicate that Barry 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) Barry 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) Barry acknowledges his responsibility, as long as he appears or practices 
+before the Commission as an independent accountant, to comply with all requirements of the 
+14
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+   
+Commission and the Board, including, but not limited to, all requirements relating to registration, 
+inspections, concurring partner reviews and quality control standards. 
+D. The Commission will consider an application by Barry 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 Barry’s character, integrity, professional conduct, or 
+qualifications to appear or practice before the Commission. 
+E. After one year from the date of the Order, Baker 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 Baker’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) Baker, or the public accounting firm with which she is associated, is 
+registered with the Public Company Accounting Oversight Board (the “Board”) in accordance with 
+the Sarbanes-Oxley Act of 2002, and such registration continues to be effective;  
+(b) Baker, or the registered accounting firm with which she is associated, has 
+been inspected by the Board and that inspection did not identify any criticisms of or potential 
+defects in Baker’s or the firm’s quality control system that would indicate that Baker will not 
+receive appropriate supervision or, if the Board has not conducted an inspection, 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 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) Baker 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) Baker acknowledges her responsibility, as long as she 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. 
+15
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+F. The Commission will consider an application by Baker to resume appearing or practicing 
+before the Commission provided that her state CPA license is current and she has resolved all other 
+disciplinary issues with the applicable state boards of accountancy.  However, if state licensure is 
+dependent on reinstatement by the Commission, the Commission will consider an application on 
+its other merits. The Commission’s review may include consideration of, in addition to the matters 
+referenced above, any other matters relating to Baker’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+16
+ 
\ No newline at end of file
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+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+     
+  
+   
+    
+ 
+ 
+ 
+ 
+ 
+    
+    
+ 
+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 51647 / May 2, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2241 / May 2, 2005 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-8093 
+: 
+In the Matter of 
+Robert R. Berti, CPA 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+: 
+On July 13, 1993, Robert R. Berti ("Berti") 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 Berti pursuant to then Rule 2(e) of the Commission's Rules 
+of Practice. This order is issu ed in response to Berti’s application for reinstatement to practice 
+before the Commission as an independent accountant.
+1 
+Berti was found to have engaged in improper professional conduct with respect to the 
+annual audit of Convenient Food Mart, Inc.’s (“Convenient”) 1987 consolidated financial 
+statements.  The Commission’s order found that Berti accepted $2,256,000 in unsubstantiated 
+entries without adequate evidential support.  After the audit staff was unable to find justification 
+for these entries, Berti accepted management’s representation that documentation for the entries 
+1 See Accounting and Auditing Enforcement Release No. 465 dated July 13, 1993.  Berti was permitted, pursuant to 
+the order, to apply for reinstatement as an independent accountant after five years upon making certain showings. 
+His suspension from practice as a preparer or reviewer, or a person responsible for the preparation or review, of 
+financial statements required to be filed with the Commission expired automatically five years after the date of the 
+order. 
+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). 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+existed but had been misplaced.  Some of these unsubstantiated entries were reversed when 
+Convenient restated its 1987 consolidated financial statements on February 1, 1989.  The 
+Commission’s order also found that Berti accepted management’s representations of material 
+amounts by which intercompany accounts were out of balance.  He then improperly shifted 
+reserves to make up for the out of balance accounts.  This improper accounting had the effect of 
+materially overstating income. 
+Berti has met all of the conditions set forth in his suspension order and, in his capacity as 
+an independent accountant, has stated that he will comply with all requirements of the 
+Commission and the Public Company Accounting Oversight Board, including, but not limited to 
+all requirements relating to registration, inspections, concurring partner reviews and quality 
+control standards. 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”  This “good cause” determination is 
+necessarily highly fact specific. 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Berti, it appears that he has complied with the terms of the July 13, 1993 order suspending 
+him from practice before the Commission as an accountant, that no information has come to the 
+attention of the Commission relating to his character, integrity, professional conduct or 
+qualifications to practice before the Commission that would be a basis for adverse action against 
+him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that Berti 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 
+Robert R. Berti, CPA is hereby reinstated to appear and practice before the Commission as an 
+accountant. 
+By the Commission. 
+Jonathan G. Katz 
+Secretary 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2244.txt b/raw/aaer/2005/AAER-2244.txt
new file mode 100644
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+++ b/raw/aaer/2005/AAER-2244.txt
@@ -0,0 +1,94 @@
+ 
+ 
+ 
+ 
+ 
+ 
+  
+                                                 
+     
+ 
+ 
+ 
+ 
+    
+    
+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 51686 / May 12, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2244 / May 12, 2005 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-10516 
+: ORDER GRANTING APPLICATION FOR 
+: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT 
+: RESPONSIBLE FOR THE PREPARATION OR Walter Cercavschi, CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+: TO BE FILED WITH THE COMMISSION 
+On June 19, 2001, Walter Cercavschi ("Cercavschi") 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 Cercavschi pursuant to Rule 102(e)(3) of the 
+Commission's Rules of Practice.1  This order is issued in response to Cercavschi’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. 
+For each of the years 1994 through 1996, Cercavschi was a partner at Arthur Andersen 
+and a member of the Waste Management, Inc. engagement team.  The Commission’s complaint 
+alleged that Cercavschi knew of Waste Management’s quantified misstatements and of 
+accounting practices that gave rise to further possible misstatements.  Still, he approved the 
+issuance of an unqualified audit report. Furthermore, the complaint alle ged that Cercavschi 
+knew, or was reckless in not knowing, that the unqualified audit reports for the years 1994 
+through 1996 were materially false and misleading.  Finally, it was alleged that Cercavschi knew 
+1 See Accounting and Auditing Enforcement Release No. 1408 dated June 19, 2001.  Cercavschi 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). 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+that these unqualified audit reports would be incorporated into one or more registration 
+statements filed with the Commission.  He consented to the entry of an order of permanent 
+injunction and a Rule 102(e) suspension order. 
+In his capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Cercavschi 
+attests that he will undertake to have his work reviewed by the independent audit committee of 
+any company for which he works, or in some other manner acceptable to the Commission, while 
+practicing before the Commission in this capacity.  Cercavschi 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, Cercavschi’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 Cercavschi, it appears that he has complied with the terms of the June 19, 2001 order 
+suspending him from practice before the Commission as an accountant, that no information has 
+come to the attention of the Commission relating to his character, integrity, professional conduct 
+or qualifications to practice before the Commission that would be a basis for adverse action 
+against him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that Cercavschi, 
+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 
+Walter Cercavschi, 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 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2245.txt b/raw/aaer/2005/AAER-2245.txt
new file mode 100644
index 0000000000000000000000000000000000000000..6d22eed56856b10c030526fc839893c04426cbe6
--- /dev/null
+++ b/raw/aaer/2005/AAER-2245.txt
@@ -0,0 +1,27 @@
+1/ James Thomas McCurdy, CPA, Securities Exchange Act Rel. No. 49182, 82 SEC Docket
+271.
+2/ McCurdy v. SEC, 396 F.3d 1258.
+UNITED STATES OF AMERICA
+before the
+SECURITIES AND EXCHANGE COMMISSION
+SECURITIES EXCHANGE ACT OF 1934
+Rel. No. 51660 / May 5, 2005
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT
+Rel. No. 2245 
+Admin. Proc. File No. 3-10509
+In the Matter of 
+JAMES THOMAS MCCURDY, CPA
+ORDER SETTING DATE OF SANCTION
+On February 4, 2004, we issued an order denying James Thomas McCurdy the privilege
+of appearing or practicing before the Commission as an accountant for one year.  1/  The
+effectiveness of our order was staying pending the determination of McCurdy's appeal to the
+United States Court of Appeals for the District of Columbia Circuit.  On February 8, 2005, the
+Court affirmed our decision.  2/  The Court has issued its mandate, and we must now set a date
+for the commencement of the one-year period.
+Accordingly, IT IS ORDERED that James Thomas McCurdy be, and he hereby is, denied
+the privilege of appearing or practicing before the Commission as an accountant for a period of
+one year, effective at the opening of business on May 19, 2005.
+By the Commission.
+Jonathan G. Katz
+    Secretary
\ No newline at end of file
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@@ -0,0 +1,1381 @@
+
+
+ 
+ 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19230 /  May 19, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2247 / May 19, 2005 
+
+  SEC v. Dennis O'Connor,  Civil Action No. 05 C 2980 (N.D. Ill.) (Grady, J.) 
+
+ SEC Charges Former CFO of National Equipment Services, Inc. with Fraud and other Violations of the Federal Securities Laws 
+
+ The Securities and Exchange Commission today filed a complaint in the Northern District of Illinois charging Dennis O'Connor, a resident of Lake Bluff, Illinois, with fraud and other violations of the federal securities laws based on his failure to take appropriate actions to correct significant unsubstantiated account balances when he was the CFO of National Equipment Services, Inc.  As a result, National Equipment Services, Inc. overstated its assets and net income in its periodic filings with the Commission for 1999, 2000 and the first three quarters of 2001. 
+ According to the Commission's complaint, O'Connor learned that significant balances for accounts receivable, rental equipment and inventory at two subsidiaries could not be substantiated at the end of 2000.  O'Connor also learned that those two subsidiaries carried old and uncollectible accounts receivable.  Although local financial employees recommended writing-off the unsubstantiated and uncollectible account balances at the end of 2000, O'Connor did not authorize the proposed write-offs until the fourth quarter of 2001.  O'Connor also failed to fully disclose the amount of the proposed write-offs to National Equipment Services, Inc.'s independent auditors.  National Equipment Services, Inc. subsequently determined that the unsubstantiated and uncollectible balances should have been written off earlier and restated its previously reported results for 1999, 2000 and the first three quarters of 2001.  The restatement materially reduced National Equipment Services, Inc.'s net income for 2000 from $11.009 million to $6.053 million.  The complaint alleges that, as a result of the foregoing, O'Connor violated the antifraud provisions and aided and abetted the reporting, record keeping and internal controls provisions of the federal securities laws. 
+ O'Connor agreed to a resolution of this matter, subject to the Court's approval.  Without admitting or denying the allegations of the complaint, O'Connor consented to a permanent injunction from future violations of Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and from aiding and abetting future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  O'Connor also agreed to pay a civil penalty of $25,000. 
+ For further information, contact:  Thomas J. Meier (312) 353-7426. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2249.txt b/raw/aaer/2005/AAER-2249.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4594b2c093ed8b0e18c5c7778229c4db0fab6683
--- /dev/null
+++ b/raw/aaer/2005/AAER-2249.txt
@@ -0,0 +1,271 @@
+  
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+   
+UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51724 / May 20, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2249 / May 20, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11933 
+In the Matter of 
+DIAGNOSTIC PRODUCTS 
+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 Diagnostic Products Corporation (“DPC” 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 finds1 that: 
+1. DPC , a California corporation based in Los Angeles, develops and manufactures 
+medical diagnostic test systems and related test kits.  DPC sells its products through subsidiaries 
+and distributors in over 100 countries, and overseas sales have accounted for over 70% of its 
+annual revenues.  DPC’s common stock is registered with the Commission pursuant to Section 
+12(b) of the Exchange Act and are traded on the New York Stock Exchange.   
+2. In October 1991, DPC established DePu Biotechnological & Medical Products 
+Inc. (“DePu”) in Tianjin, China as a joint venture.  Initially, DPC owned 90% of DePu and the 
+joint venture partner was a local Chinese government entity.  In 1997, DePu became a wholly- 
+owned subsidiary of DPC. Throughout the relevant period, the financial results of DePu were a 
+component of the consolidated financial statements included in DPC's filings with the 
+Commission. 
+3. As discussed below in Paragraph 6, the Foreign Corrupt Practices Act (“FCPA”) 
+prohibits public companies from making improper payments to foreign officials for the purpose of 
+influencing their decisions in order to obtain or retain business.  DePu’s customers are primarily 
+state-owned hospitals in China.  From 1991 through 2002, DPC through DePu routinely made 
+improper commission payments totaling approximately $1.6 million to doctors and laboratory 
+employees who controlled purchasing decisions at these state-owned hospitals.  The commissions 
+represented a certain percentage of sales to the hospitals (typically 3% to 10%), and DePu 
+determined the percentages based on the prevailing rate in the customer’s region, the sales amount, 
+and the prior relationship with the customer.  In most cases the payments were made in cash and 
+delivered by DePu’s sales employees by mail or wire transfer.  During the relevant period, DePu’s 
+then management knew about, approved, and administered the payment of these commissions.   
+4. From 1991 through 2002, DePu improperly recorded the payments as legitimate 
+sales expenses in its books and records. 
+5. In late October 2002, DePu’s auditors raised certain Chinese tax issues related to 
+the commission payments.  In November 2002, DePu’s then senior manager discussed the 
+payments and the tax issues in a monthly report to current DPC management, which led to 
+DPC’s discovery of these payments.  In January 2003, DPC instructed DePu management to stop 
+all commission payments.  DPC also took remedial measures, revised its code of ethics and 
+compliance procedures, and established a compliance program with respect to the FCPA.   
+6. The FCPA, enacted in 1977, added Section 30A to the Exchange Act to prohibit 
+public companies from, among other things, making improper payments to foreign officials for the 
+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
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+  
+ 
+ 
+ 
+ 
+                                                 
+ 
+purpose of influencing their decisions in order to obtain or retain business. The FCPA also added 
+to the Exchange Act Sections 13(b)(2)(A) and (B), which require public companies to keep 
+accurate books and records and have sufficient internal controls.  Public companies are responsible 
+for ensuring that their foreign subsidiaries comply with Sections 13(b)(2)(A) and (B), and 30A of 
+the Exchange Act. 
+7. Throughout the relevant period, the individuals who received improper payments 
+from DePu were foreign officials within the meaning of the FCPA, and the hospitals were 
+instrumentalities of a foreign government within the meaning of the FCPA.  The purpose of the 
+improper payments was to influence these individuals’ official decisions and to induce them to use 
+their influence with the hospitals to assist DPC to obtain or retain business. 
+8. As a result of the conduct described above with respect to the payments of improper 
+commissions to individuals, DPC violated Section 30A of the Exchange Act, which prohibits 
+making improper payments to foreign officials for the purpose of influencing their decisions in 
+order to obtain or retain business. 
+9. As a result of the conduct described above with respect to the booking of the 
+improper payments as legitimate sales expenses, DPC 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. 
+10. In addition, as evidenced by the duration of the improper payments made by DePu 
+and the improper recording of such payments in DePu’s books and records, DPC violated Section 
+13(b)(2)(B) of the Exchange Act, which requires all reporting companies to devise and maintain a 
+system of internal accounting controls sufficient to provide reasonable assurances that: (i) 
+transactions are executed in accordance with management's general or specific authorization; and 
+(ii) transactions are recorded as necessary to permit preparation of financial statements in 
+conformity with generally accepted accounting principles or any other criteria applicable to such 
+statements, and to maintain accountability for assets.  
+DPC’s Remedial Efforts 
+In determining to accept the Offer, the Commission considered remedial acts 
+promptly undertaken by Respondent and cooperation afforded the Commission staff. 2 
+Undertakings
+ Respondent has undert aken the following: 
+2 The Commission also has taken into consideration that DPC will pay a criminal penalty 
+in the amount of $2 million in the Department of Justice prosecution for the same conduct 
+described in this Order. 
+3
+ 
+ 
+ 
+ 
+ 
+1. Within 30 days after the date of this Order, DPC shall retain a qualified 
+independent compliance consultant (the "Compliance Consultant"), not unacceptable to the staff 
+of the Commission, to review annually DPC's compliance with its FCPA policies and procedures 
+for a period of three years from the date of engagement.  DPC shall cause the Compliance 
+Consultant to complete its review and submit a report annually on the anniversary date of its 
+engagement, in which it shall document its findings and, if necessary, make recommendations 
+(the "Report") to DPC’s Board of Directors, a copy of which shall be transmitted 
+contemporaneously to the staff of the Commission.  In the event a Report contains any 
+recommendation for further action by DPC, within 90 days after receiving the Report, DPC's 
+Board of Directors shall advise the staff of the Commission, in writing, of all decisions and 
+determinations it has made as a result of the Report.   
+2. In the event DPC is acquired by another company and becomes a wholly-owned 
+subsidiary of the acquiring company before it has fully complied with all of the terms of the 
+above paragraph 1, DPC's obligations under paragraph 1 shall remain in effect only as to DPC as 
+a wholly-owned subsidiary and only as to DPC's Board of Directors as constituted following the 
+acquisition. In the event DPC is acquired by anot her company and ceases to be a wholly-owned 
+subsidiary of such acquiring company before DPC has fully complied with all of the terms of this 
+paragraph, DPC's obligations under paragraph 1 shall terminate upon the Compliance 
+Consultant’s submission of a report acceptable to the staff of the Commission certifying that (i) it 
+has reviewed the FCPA compliance program of the acquiring company; (ii) such program is 
+adequate; and (iii) DPC’s operations are adequately integrated into such compliance program, 
+otherwise, the acquiring company shall assume DPC’s obligations under paragraph 1.  
+3. DPC (i) shall not have the authority to terminate the Compliance Consultant 
+without the prior written approval of the majority of DPC’s independent board members and the 
+staff of the Commission; (ii) shall compensate the Compliance Consultant, and persons engaged 
+to assist the Compliance Consultant, for services rendered pursuant to the Order at their 
+reasonable and customary rates; and (iii) shall not be in and shall not have an attorney-client 
+relationship with the Compliance Consultant and shall not seek to invoke the attorney-client 
+privilege or any other doctrine or privilege to prevent the Compliance Consultant from 
+transmitting any information, reports, or documents to the board members or staff of the 
+Commission.  
+4. DPC shall require the Compliance 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 Compliance Consultant shall not enter into any employment, consultant, 
+attorney-client, auditing or other professional relationship with DPC, or any of its present or 
+former affiliates, directors, officers, employees, or agents acting in their capacity as such.  DPC 
+shall require that any firm with which the Compliance Consultant is affiliated, and any person 
+engaged to assist the Compliance Consultant in performance of his or her duties under this 
+Order, shall not, without prior written consent of the independent board members and the staff of 
+the Commission, enter into any employment, consultant, attorney-client, auditing or other 
+professional relationship with DPC, 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. 
+4
+ 
+ 
+ 
+ 
+  
+ 
+ 
+   
+ 
+   
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent DPC’s Offer. 
+Accordingly, it is hereby ORDERED that: 
+A. Respondent DPC cease and desist from committing or causing any violations and 
+any future violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 30A of the Exchange Act. 
+B. Respondent DPC shall, within 10 days of the entry of this Order, pay disgorgement 
+in the amount of $2,038,727, and prejudgment interest thereon in the amount of $749,895, for a total 
+payment of $2,788,622 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 
+Diagnostic Products Corporation 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 Michele Wein 
+Layne, Assistant Regional Director, Pacific Regional Office, Securities and Exchange 
+Commission, 5670 Wilshire Boulevard, 11
+th Floor, Los Angeles, California 90036. 
+ C. Respondent shall comply with the undertakings enumerated in Section III above. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+5
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2250.txt b/raw/aaer/2005/AAER-2250.txt
new file mode 100644
index 0000000000000000000000000000000000000000..82d0231ddf13fe0da8a898b8d621638a19553d92
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@@ -0,0 +1,1371 @@
+
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+ 
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+     SEC.gov | David G. Barford, Kent D. Kalkwarf, David L. Mccall and James H. Smith III 
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+           
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+        David G. Barford, Kent D. Kalkwarf, David L. Mccall and James H. Smith III
+       
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19240 / May 26, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2250 
+
+  UNITED STATES OF AMERICA v. DAVID G. BARFORD, KENT D. KALKWARF, DAVID L. MCCALL AND JAMES H. SMITH III ,  (United States District Court for the Eastern District of Missouri, Crim. No. 4:03 CR 00434 CEJ) 
+
+ FORMER OFFICERS OF CHARTER COMMUNICATIONS, INC. SENTENCED FOR PERPETRATING FINANCIAL REPORTING SCHEMES 
+
+ On April 22, 2005, the Honorable Carol E. Jackson of the United States District Court in St. Louis, Missouri sentenced David G. Barford, Kent D. Kalkwarf, David L. McCall and James H. Smith III for their roles in two financial reporting schemes that were the subject of a July 2004 Commission action against Charter Communications, Inc, one of the largest cable television operators in the United States.  One scheme caused Charter to report inflated subscriber numbers during certain periods in fiscal year 2001 and the other scheme resulted in inflated revenue and operating cash flow figures for fiscal year 2000. 
+ In the criminal case, Barford, Charter's former Chief Operating Officer, pled guilty to one count of conspiracy to commit wire fraud and was sentenced to one year and one day in prison and was ordered to serve two years of supervised release after the prison term and to pay a $200,000 fine.  Kalkwarf, Charter's former Chief Financial Officer, pled guilty to one count of wire fraud and was sentenced to 14 months in prison and was ordered to serve two years of supervised release after the prison term and to pay a $200,000 fine.  McCall, a former Charter Senior Vice President of Operations, pled guilty to one count of conspiracy to commit wire fraud and was sentenced to two years of probation and ordered to pay a $200,000 fine.  Smith, a former Charter Senior Vice President of Operations, pled guilty to one count of conspiracy to commit wire fraud and was sentenced to two years probation and ordered to pay a $175,000 fine.  
+ In their plea agreements, Barford, McCall and Smith stipulated to certain facts, including that they knowingly participated in a scheme to defraud Charter's stockholders by causing Charter to materially inflate the number of subscribers that it reported to the public in press releases and in filings with the Commission.  The purpose of the scheme was to meet internal and Wall Street analysts' subscriber growth forecasts.  The number of subscribers and subscriber growth were material factors to prospective buyers and sellers of Charter's stock.  Barford and others at Charter instructed employees to stop or postpone for longer than normal the disconnection of subscribers who had not paid their bills or subscribers who requested that their service be terminated.  McCall and Smith were directed to use these manipulative means to meet the forecasted subscriber numbers and in turn, they instructed Charter employees to hold disconnects.  As a result of this conduct, Charter reported materially inflated subscriber numbers to the public in press releases and in Forms 10-Q filed for the second and third quarters of fiscal year 2001 and in Form 10-K filed for fiscal year 2001.  Charter would not have been able to meet its quarterly subscriber growth forecasts without holding the disconnects. 
+ As part of his plea agreement, Kalkwarf stipulated that from on or about August 2000 to on or about February 11, 2001, he and others knowingly devised a scheme to defraud Charter's stockholders by falsely inflating Charter's year-end revenue and operating cash flow in order to meet internal and Wall Street analysts' projections for those financial measures and ultimately to artificially inflate Charter's stock price.  After realizing in or about August 2001 that Charter's fiscal year 2000 year-end cash flow would be lower than projected, Kalkwarf, on behalf of Charter, entered into an agreement with two set top box suppliers that would generate the needed cash flow.  Specifically, the agreement provided that Charter would pay $20 more for each set top box purchased from the suppliers but then receive the same $20 back from the suppliers as advertising revenue. The purpose of this transaction was not to confer an economic benefit on these suppliers or on Charter, but rather to increase Charter's reported revenue and cash flow.  As a result of the agreement, during the fourth quarter of 2000, Charter overpaid approximately $17 million to the suppliers for set top boxes and received the same amount back from the suppliers in advertising revenue.  Charter reported the $17 million as revenue and cash flow in its Form 10-K for fiscal year 2000 that it filed with the Commission.   
+ On July 27, 2004, the Commission issued an Order requiring Charter, pursuant to its consent, to cease and desist from committing or causing any violations and any future violations of certain reporting, books and records, and internal control provisions of the federal securities laws and required Charter to undertake significant improvements in its internal controls designed to prevent and detect future instances of the alleged misconduct.  The undertakings include adopting a zero tolerance policy on holding disconnects to inflate subscriber numbers, prohibiting the consideration of achieving subscriber growth targets as a component of employees bonuses and replacing its top-down budget process with a bottom-up approach which eliminates industry analysts' projections as a component of setting Charter's budget goals. 
+ For additional information, see Exchange Act Rel. 34-50098 (July 27, 2004);  
+
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diff --git a/raw/aaer/2005/AAER-2251.txt b/raw/aaer/2005/AAER-2251.txt
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+UNITED STATES OF AMERICA 
+BEFORE THE 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 8579 / June 2, 2005 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51781 / June 2, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2252 / June 2, 2005 
+ADMINISTRATIVE PROCEEDING                                                                                                      
+FILE NO. 3-11940 
+In the Matter of 
+HUNTINGTON BANCSHARES, INC., 
+THOMAS E. HOAGLIN, 
+MICHAEL J. MCMENNAMIN, and 
+JOHN VAN FLEET, CPA 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933 AND 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 AND RULE 
+102(e) OF THE COMMISSION’S RULES 
+OF PRACTICE, MAKING FINDINGS, 
+IMPOSING A CEASE-AND-DESIST 
+ORDER, IMPOSING REMEDIAL 
+SANCTIONS, AND OTHER RELIEF
+ I. 
+The Securities and Exchange Commission (“SEC” or “Commission”) deems it 
+appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 
+8A of the Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange 
+Act of 1934 (“Exchange Act”), against Huntington Bancshares, Inc. (“Huntington” or the 
+“Bank”), Thomas E. Hoaglin (“Hoaglin”), Michael J. McMennamin (“McMennamin”), and John 
+Van Fleet (“Van Fleet”) (collectively “Respondents”) and that public administrative proceedings  
+ 
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+be, and hereby are, instituted against Van Fleet pursuant to Rule 102(e)(1)(iii) of the  
+Commission’s Rules of Practice.1 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public 
+Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 
+1933 and Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the 
+Commission’s Rules of Practice, Making Findings, Imposing a Cease-and-Desist Order, Imposing 
+Remedial Sanctions, and Other Relief (“Order”) as set forth below. 
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds2 that: 
+A. RESPONDENTS 
+HUNTINGTON BANCSHARES, INC. is a Maryland corporation headquartered in 
+Columbus, Ohio.  Its common stock is registered with the Commission pursuant to Section 12(g) 
+of the Exchange Act and is traded on the NASDAQ stock market.  As of December 31, 2003, 
+Huntington had 229,008,088 shares of common stock outstanding and 27,764 shareholders of 
+record. 
+THOMAS E. HOAGLIN has been president and chief executive officer of Huntington 
+since February 15, 2001 and its chairman since August 16, 2001. 
+MICHAEL J. MCMENNAMIN was Huntington’s treasurer from November 2000 until 
+February 15, 2005 and its chief financial officer from November 2000 until August 9, 2004.  He 
+was Huntington’s vice chairman from November 2000 until he retired from the Bank and 
+resigned all duties effective March 31, 2005.  
+JOHN VAN FLEET, who was a CPA licensed in Illinois and Ohio until September 
+2003, was Huntington’s corporate controller from August 2001 until August 9, 2004.   
+1  Rule 102(e)(1)(iii) provides, in pertinent part, that:   
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+it . . . to any person who is found…to have willfully viol ated, 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 Respondents’ Offers and are not binding on any other person or entity in 
+this or any other proceeding. 
+- 2 -
+
+ 
+ 
+ 
+ 
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+ 
+ 
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+ 
+ 
+      
+ 
+                                                 
+      
+B. SUMMARY 
+This matter involves financial reporting fraud in connection with Huntington’s financial 
+statements included in the annual reports the Bank filed with the Commission for fiscal years 2001 
+and 2002 in violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act.3  In both years, 
+Huntington reported inflated earnings in its financial statements, enabling the Bank to meet or exceed 
+Wall Street analyst earnings per share (“EPS”) expectations and to meet internal EPS targets (“Target 
+EPS”) that determined the bonuses of senior management.  Using improper accounting that was 
+qualitatively material, Huntington overstated 2001 operating earnings by $8.5 million ($.04 per share) 
+and 2002 operating earnings by $17.1 million ($.08 per share).  Without the misstatements, 
+Huntington’s earnings would have fallen short of analyst operating earnings expectations in both years 
+and in 2002 bonuses for Hoaglin and McMennamin, the Bank’s CEO and CFO, respectively, would 
+have been eliminated and the bonus for Van Fleet, the Bank’s controller, would have been reduced.  In 
+2001 and 2002, Huntington offered and sold securities pursuant to Forms S-3 and S-8 registration 
+statements filed with the Commission under the Securities Act.  The registration statements 
+incorporated by reference materially misleading reports filed under Section 13(a) of the Exchange Act 
+and Rule 13a-1 thereunder containing the above-described overstatements of earnings. 
+Beginning in August 2002 and continuing through January 15, 2003, Huntington conducted 
+seven due diligence meetings for the purpose of addressing financial reporting and accounting issues 
+relevant to the certification of financial statements by Hoaglin and McMennamin, as required by the 
+Commission under its order dated June 27, 2002 and the Sarbanes-Oxley Act of 2002 (the “Act”), 15 
+U.S.C. §§ 7201 et seq. The Act required Hoaglin and McMennamin, the Bank’s signing officers, to 
+each certify that he had reviewed the financial reports at issue and that the statements of material fact 
+contained therein were true, that no statement of material fact had been omitted, and that, based on 
+such officer’s knowledge, the financial statements and other financial information included in the 
+report fairly presented in all material respects the financial condition and results of operations of 
+Huntington. Van Fleet, in consultation with outside counsel, initiated this due diligence process. 
+On or about March 20, 2003, following the due diligence meetings, Hoaglin and 
+McMennamin signed and certified Huntington’s 2002 Annual Report on Form 10-K under the 
+provisions of the Act. At that time, Hoaglin and McMennamin signed and certified the 2002         
+Form 10-K, which contained untrue statements of material fact and omitted to state material facts 
+necessary to make the statements made, in light of the circumstances under which such statements 
+were made, not misleading. 
+In connection with the 2001 and 2002 annual reports filed with the Commission and 
+disseminated to the public, Huntington engaged in improper accounting practices, enabling it to 
+meet or exceed analysts’ expectations and to pay incentive based bonuses.  Those practices included 
+up front recognition of loan and lease origination fees that were required by accounting rules to be 
+deferred and amortized over the term of the loan or lease; improper capitalization of commission 
+expenses and deferral of pension costs which were required to be recognized in the period incurred; 
+misstated reserves; improper deferral of income; and misclassification of non-operating income as 
+operating income.  As a result of its accounting misstatements, Huntington overstated 2001 
+3 Establishing violations of Section 17(a)(2) and 17(a)(3) does not require a showing of scienter.  Aaron v. SEC, 446 
+U.S. 680, 697 (1980).   
+- 3 -
+
+ 
+ 
+      
+   
+  
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+operating earnings of $293.5 million by $8.5 million ($.04 per share) and 2002 operating earnings of 
+$328.5 by $17.1 million ($.08 per share).  Had it not been for the accounting misstatements, 
+Huntington’s reported operating EPS for 2001 and 2002 would have been $1.13 and $1.27, 
+respectively, short of Wall Street analyst expectations and senior management’s EPS bonus targets, 
+instead of the $1.17 operating EPS it actually reported for 2001 and the $1.35 operating EPS reported 
+for 2002. 
+As a consequence of these actions, Huntington violated Sections 17(a)(2) and 17(a)(3) of 
+the Securities Act and Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act, and Rules 
+12b-20 and 13a-1 thereunder. With respect to fiscal year 2002, Hoaglin, as Chief Executive 
+Officer, caused Huntington’s violations of Section 17(a)(2) of the Securities Act and Sections 
+13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder and 
+directly violated Exchange Act Rule 13a-14.  McMennamin and Van Fleet violated Sections 
+17(a)(2) and 17(a)(3) of the Securities Act, Section 13(b)(5) of the Exchange Act and Rule 13b2­
+1 thereunder, and caused Huntington’s violations of Sections 13(a) and 13(b)(2)(A) and (B) of 
+the Exchange Act and Rules 12b-20 and 13a-1 thereunder, and McMennamin directly violated 
+Exchange Act Rule 13a-14. 
+C. FACTS 
+1. Overview of Accounting Principles 
+The SEC Staff Accounting Bulletin No. 99 (“SAB 99”), issued in August 1999, states 
+that qualitative factors may cause a misstatement of an item in a financial statement of a 
+quantitatively small amount to be material, including, particularly relevant to Huntington, 
+whether the misstatement hides a failure to meet analysts’ consensus expectations and whether 
+the misstatement has the effect of increasing management’s compensation by satisfying 
+requirements for the award of bonuses or other forms of incentive compensation. 
+During 2001 and 2002, Huntington failed to account for fees received in connection with 
+the origination of automobile lease financing and loans, in accordance with generally accepted 
+accounting principles (“GAAP”), as required by Statement of Financial Accounting Standards 
+No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring 
+Loans and Initial Direct Costs of Leases (“FAS 91”). FAS 91 require s that “[l]oan origination 
+fees shall be deferred and recognized over the life of the loan as an adjustment of yield (interest 
+income)” unless the difference between this method and an alternative accounting treatment is 
+not material.  Contrary to this requirement, beginning in 1997, with the concurrence of its outside 
+auditors, Huntington recognized all such fees as income in the period received. 
+During 2001 and 2002, Huntington also improperly deferred, rather than expensed, sales 
+commissions paid to Bank employees for obtaining certain new deposit accounts.  Under GAAP, 
+as stated in ¶ 86b of Statement of Financial Accounting Concepts No. 5, Recognition and 
+Measurement in Financial Statements of Business Enterprises, “[m]any expenses, such as selling 
+and administrative salaries, are recognized during the period in which cash is spent or liabilities 
+are incurred for goods and services that are used up either simultaneously with acquisition or 
+soon after.” Huntington began this  practice in 1997, with the concurrence of its outside auditors. 
+- 4 -
+
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+       
+  
+ 
+ 
+In 2002, Huntington changed its method of accounting for pension settlement costs from 
+immediately expensing the cost in the period incurred to deferring the cost and amortizing it over 
+approximately eight years.  This accounting change was not disclosed in the Bank’s financial 
+statements.  Accounting Principles Board (“APB”) Opinion No. 20, states: 
+The Board concludes that in the preparation of financial statements 
+there is a presumption that an  accounting principle once adopted 
+should not be changed in accounting for events and transactions of 
+a similar type. Consistent use of  accounting principles from one 
+accounting period to another enhan ces the utility of financial 
+statements to users by facilitating analysis and understanding of 
+comparative accounting data ... the presumption that an entity 
+should not change an accounting principle may be overcome only 
+if the enterprise justifies the use of an alternative acceptable 
+accounting principle on the basis that  it is preferable ... the nature 
+of and justification for a change  in accounting principle and its 
+effect on income should be disclosed in the financial statements of 
+the period in which the change is made.  The justification for the 
+change should explain clearly why the newly adopted accounting 
+principle is preferable. 
+Huntington did not justify or explain why its newly adopted accounting method for pension 
+settlement costs was preferable in its 2002 financial statements.  
+Huntington historically maintained a “leakage reserve” in its financial statements to cover 
+uninsured losses incurred when the decline in value of leased automobiles at lease expiration 
+exceeded expectations.  For the first time, at year-end 2002, the Bank discounted the reserve 
+under a present value concept, in violation of GAAP.  FAS 5, Accounting for Contingencies, 
+contains the relevant standards for accruing probable losses, such as Huntington’s leakage 
+reserve.  FAS 5 requires that, “[a]n estimated loss from a loss contingency … shall be accrued by 
+a charge to income” if it is probable that a liability had been incurred and the amount of loss can 
+be reasonably estimated.  FAS 5 does not permit present value techniques to be used to estimate 
+the range of loss. 
+2. The Management Incentive Plan 
+Huntington’s compensation of its senior management personnel included a bonus 
+component calculated in accordance with its Management Incentive Plan (the “Plan”).  Prior to 2001, 
+Huntington’s senior officer bonuses were determined by corporate performance as measured by return 
+on shareholder equity.  In 2001, the Compensation Committee, based on Hoaglin’s 
+recommendation, changed the Plan for Group 1 participants to a single benchmark: EPS.  In 2001, 
+under the Plan, bonuses were triggered if specific EPS targets were met:  EPS of $1.15 for the 
+minimum bonus, $1.18 for the target bonus, and $1.25 or above for the maximum bonus (with 
+differing amounts due at each cent of differential earnings within those ranges).  Although 
+Hoaglin was a Group 1 participant in 2001, under his employment contract he was guaranteed a 
+minimum bonus of $420,000 for that year.  In 2001, while other performance based factors also 
+affected the bonuses of McMennamin and Van Fleet, 75% of McMennamin’s bonus and 25% of 
+Van Fleet’s bonus were based on the EPS targets. 
+- 5 -
+
+ 
+ 
+ 
+ 
+   
+ 
+ 
+  
+ 
+In 2002, Group 1 bonuses were based entirely on meeting EPS targets:  EPS of $1.32 
+for the minimum bonus, $1.35 for the target bonus, and $1.40 or above for the maximum bonus 
+(again, with differing amounts due at each cent of differential earnings within those ranges).  
+That year, bonuses for Hoaglin and McMennamin were based entirely on the EPS targets and 
+40% of Van Fleet’s bonus was based on the EPS targets. 
+Under the Plan, Huntington’s Compensation Committee could reduce or eliminate an 
+award in light of “extraordinary events,” including asset write-downs; litigation or claim 
+judgments or settlements; the effect of changes in the law, accounting principles or other 
+provisions affecting reported results; accruals for reorganization and restructuring programs; 
+capital gains and losses; special charges in connection with mergers and acquisitions; and any 
+extraordinary, non-recurring items as described in APB No. 30.  In 2001, the Compensation 
+Committee based the EPS component of management bonuses on Huntington’s operating EPS, 
+excluding approximately $115 million of restructuring and special charges and $14 million in 
+losses from the sale of the Bank’s Florida operations from the bonus computations.  In 2002, 
+according to a memorandum from Hoaglin dated March 29, 2002 summarizing the plan for 
+beneficiaries, “any special charges or significant accounting rule changes that occur in 2002, will 
+neither benefit nor negatively effect the [EPS] calculation under this plan….”  In 2002, the 
+Compensation Committee again based the EPS aspect of management bonuses strictly on the 
+Bank’s operating EPS, excluding approximately $73 million in gains (realized from the sale of 
+Florida operations and Huntington’s merchant services business) and approximately $38 million 
+in losses (recorded for restructuring and special charges) from the bonus computations. 
+3. Huntington’s Earnings Guidance to the Public 
+In both 2001 and 2002, Huntington released predictions to analysts and the public for 
+expected “operating earnings” for the year.  The guidance was reviewed and revised in quarterly 
+earnings announcements and analyst calls.  Based in part on these predictions, Wall Street 
+analysts estimated what they believed would be Huntington’s operating EPS.  The average of the 
+estimates of the analysts was commonly referred to as the “consensus estimate.”  In July 2001, 
+after Hoaglin became CEO, Huntington estimated operating EPS of $1.15 to $1.17 for the 2001 
+year. The analyst consensus operating EPS estima te for 2001 was $1.17 per share.  In a January 
+2002 press release, Huntington announced it anticipated 2002 EPS of $1.32 to $1.36 per share. In 
+April 2002 and again in July 2002, Hoaglin told the public that he was comfortable with the 
+previous guidance. On October 17, 2002, in discussing Huntington’s quarterly numbers on a 
+conference call, Hoaglin said that Huntington expected EPS of $.34 to $.35 for the fourth 
+quarter. The analyst consensus estimate for the fourth quarter was $.35 per share and $1.33 for 
+the full year 2002. 
+4. Huntington's 2001 Form 10-K 
+Pursuant to FAS 91, the Bank was required to recognize loan and lease origination fees 
+and costs over the life of the loan or lease unless the difference between this method and an 
+alternative method was not material.  Despite the materiality of the difference in method, the 
+Bank recognized the fees as income in the period received and deferred the associated costs.  In 
+- 6 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+   
+         
+        
+1997, before Hoaglin and McMennamin joined the Bank and before Van Fleet became controller 
+at the Bank, Huntington changed its historical practice, which complied with FAS 91, and began 
+recognizing origination fees as income entirely in the period received while deferring the related 
+costs paid to automobile dealers for placing leases with Huntington.  Huntington continued its 
+improper non-GAAP accounting for loan and lease origination fees and costs in 2001 and 2002.   
+Huntington’s disclosure of its accounting policy for origination costs and fees in its 2001 
+Form 10-K at Note 1 to the financial statements stated “[n]et direct loan origination costs/fees, 
+when material, are deferred and amortized over the term of the loan as a yield adjustment.”  
+However, until August 2002, Huntington failed to determine whether the difference between its 
+changed accounting treatment of loan and lease origination fees and the treatment required under 
+FAS 91 was material, and deferred no loan origination fees at all in 2002. 
+Beginning about 1997, Huntington also changed its historical practice of expensing 
+sales commissions paid to employees for originating deposit accounts in the year paid, and began 
+amortizing them over the expected life of the accounts.  Although not specifically addressed in 
+the accounting pronouncements, it is a generally accepted accounting practice to expense sales 
+commissions in the period paid.  Huntington continued this improper non-GAAP practice in 
+2001 and 2002. 
+Huntington learned in the fourth quarter of 2001 that it had a gain resulting from an 
+increase in the cash surrender value of certain bank owned insurance life insurance (“BOLI”) on 
+the lives of key bank officers, of which the Bank was beneficiary.  In November 2001, 
+McMennamin recommended to Hoaglin that, rather than recognizing the gain in that period, 
+Huntington “save it” for 2002, because Huntington would meet the street earnings consensus 
+EPS estimates in 2001 without the gain.  Accordingly, Huntington improperly postponed 
+recognition of the 2001 gain to 2002.  This accounting item was never discussed or reviewed at 
+any of the 2002 due diligence meetings. 
+5. Impact of 2001 Accounting Misstatements on Operating Earnings and EPS 
+Huntington’s 2001 accounting misstatements increased its operating earnings in 2001 and 
+enabled it to meet analyst consensus estimates of $1.17 per share. The extent of the 
+misstatements on earnings and EPS is set forth in the table below: 
+Year Amount (in 
+thousands) 
+Operating 
+EPS 
+ 2001 Huntington’s operating earnings in Form 10-K $293,522 $1.17 
+Improper accounting for loan origination fees (9,847)   (.04) 
+Improper accounting for commission expenses (1,582)   (.01) 
+- 7 -
+
+ 
+         
+  
+  
+  
+ 
+ 
+ 
+  
+ 
+ 
+Improper accounting for officers’ life insurance 2,882    .01 
+Actual operating earnings $284,975 $1.13 
+6. The 2002 Earnings Initiative 
+McMennamin prepared Full Year Forecasts (“FYF”) to track operating earnings and EPS.  
+The FYF prepared for January 2002 revealed that earnings were anticipated to be materially less 
+than the guidance Hoaglin and McMennamin had given analysts.  McMennamin prepared a 
+memorandum dated March 17, 2002, entitled “2002 Earnings Initiative,” summarizing the 
+earnings to date and the projections for the rest of 2002.  The memorandum made clear that first 
+quarter EPS of $.28, was short of the $.31 EPS guidance previously given to analysts and that 
+substantial additional initiatives would be needed in order to meet analyst earnings expectations 
+for the year. McMennamin recommended to Hoaglin  that the Bank revise its earnings guidance 
+to disclose the lower than projected earnings.  Thereafter, the Bank made a series of accounting 
+adjustments, eliminating the forecast of earnings shortfall and allowing Huntington to report to 
+investors and analysts that first quarter operating EPS were $.31 as projected. 
+7. The 2002 CEO/CFO Certification Due Diligence Meetings 
+On July 26, 2002, Huntington’s outside counsel sent a memorandum to Hoaglin, 
+McMennamin, Van Fleet, and other Huntington executives, addressing the certification 
+requirements ordered by the SEC in June 2002.  The memorandum lays out the materiality 
+requirements specified by SAB 99 and states that to determine materiality of an accounting 
+misstatement or omission required the Bank to consider qualitative factors, including whether the 
+impact of the accounting misstatements or omissions affected executive compensation or hid a 
+failure to meet analyst consensus expectations.  
+On August 4, 2002, senior executives from Huntington began a series of “due diligence” 
+meetings in anticipation of the signing and filing of the certifications by Hoaglin and 
+McMennamin, as the Bank’s CEO and CFO, respectively.  McMennamin, Van Fleet, and senior 
+members of Huntington’s legal department attended the August 4, 2002 meeting as did the 
+Bank’s outside audit senior manager and Huntington’s outside counsel.  The senior executives in 
+attendance were cognizant of the qualitative as well as quantitative standards for determining 
+materiality, as described in the memorandum from outside counsel dated July 26, 2002.  The 
+consensus was that the only possibly relevant SAB 99 qualitative materiality factor was whether 
+the item under consideration concerned a segment or other portion of business that had been 
+identified as playing a significant role in the Bank’s operations or profitability as it related to the 
+potential impact of FAS 91 on the accounting treatment of loan and lease acquisition fees. 
+An additional due diligence meeting was held on August 8, 2002 to follow up on the FAS 
+91 issues. The senior managers, executives a nd others in attendance, including the Bank’s 
+outside audit engagement partner, decided that the FAS 91 issues, including the issue related to 
+deposit commissions, were not material either individually or in the aggregate.  Additional due 
+diligence meetings were held on August 12, and then in October 2002, November 2002, and 
+- 8 -
+
+ 
+ 
+ 
+  
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+  
+ 
+January 2003. Each of the aforementioned acco unting misstatements made by Huntington that 
+had the effect of overstating operating earnings, other than its failure to properly recognize the 
+gain on the increase in the value of BOLI in 2001 rather than 2002, was discussed at the due 
+diligence meetings.  In the final due diligence meeting held on January 15, 2003, which Hoaglin, 
+McMennamin, Van Fleet, senior members of Huntington’s legal department, and the Bank’s 
+outside auditor all attended, the group reviewed each of the accounting misstatements (other than 
+BOLI) and decided that none of the items was material.  However, the senior executives of the 
+Bank failed to follow the procedures for determining materiality under SAB 99 provided by 
+Huntington’s outside counsel. At the time of their participation in the due diligence meetings, 
+Hoaglin, McMennamin, and Van Fleet all knew or should have known the impact the accounting 
+misstatements had on bonuses and the Bank’s ability to meet analyst expectations. 
+8. Huntington’s 2002 Form 10-K 
+In 2002, the Bank continued the non-GAAP accounting practice of recording as income 
+in the period received the entire amount of loan and lease origination fees and deferring the costs 
+associated with those fees.  In 2002, Huntington continued its non-GAAP accounting practice of 
+capitalizing and amortizing the costs of deposit commissions rather than expensing the costs in 
+the period paid. Huntington also improperly recognized as income in 2002 the gain resulting 
+from the increase in the cash surrender value of BOLI that the Bank had realized in 2001.   
+In October 2002, Huntingon’s pension actuary advised Van Fleet that there would be a 
+pension settlement loss of $3.4 million.  After conferring with the Bank’s outside auditors, who 
+concluded that the change was not inappropriate and was not sufficiently material to require 
+disclosure, McMennamin and Van Fleet changed the Bank’s accounting method from expensing 
+the loss in the period incurred to deferring the loss and amortizing it against income over eight 
+years, thereby increasing Huntington’s 2002 reported after-tax earnings by $2.2 million, or one 
+cent per share. Even though qualitatively materi al, the accounting change was not disclosed in 
+Huntington’s 2002 financial statements as required by GAAP.  Huntington failed to apply its 
+accounting policy for pension settlement costs consistently from year to year and failed to 
+disclose in its financial statements, as required by APB No. 20, the nature of and justification for 
+its change in accounting principle, and the effect on income. 
+Just before Huntington’s books were closed on January 4, 2003, they reflected operating 
+EPS of $1.338, short of Huntington’s internal operating EPS target of $1.35.  That same day, 
+Van Fleet directed the Assistant Controller to release $2.2 million from a previously analyzed 
+restructuring reserve ($1.4 million on an after tax basis), thereby increasing earnings per share by 
+$.008 and boosting full year operating earnings per share to $1.346.  That number was rounded 
+up to $1.35, precisely the target operating EPS.  Although the amount of the reduction in the 
+reserve may have been appropriate, Huntington improperly reported the $2.2 million reserve 
+reversal as operating income in its financial statements even though the reserves established in 
+2001 and 2002 had been recorded as non-operating special charges.  The misclassification 
+allowed Huntington to meet its target EPS of $1.35 per share and materially affected senior 
+management bonuses. 
+- 9 -
+
+ 
+ 
+ 
+   
+  
+ 
+   
+            
+              
+           
+             
+           
+Each quarter, Huntington and its risk management group estimated a “leakage reserve” to 
+cover uninsured losses incurred when the decline in value of leased automobiles at lease 
+expiration exceeded the insured value.  Historically, the reserve was set within the range 
+estimated by the Bank’s risk management group.  On January 6, 2003, Huntington’s risk 
+management group completed its analysis of the reserve, estimating it to range from $22.9 to 
+$33.26 million.  Setting the reserve at $22.9 million, the low end of that range, would have 
+required Huntington to record an expense of $2.7 million (the difference between the $22.9 
+million and the then balance on the books of $20.2 million), which would have reduced 
+Huntington’s operating earnings on an after tax basis by $1.8 million, or one cent per share.  Van 
+Fleet was advised that on a present value basis the low end of the range for the reserve would be 
+approximately $21.2 million.  Van Fleet used this information to prepare a schedule given to the 
+January 15 due diligence participants, which showed that using a 5% discount rate, the present 
+value of the estimated range for the leakage reserve ranged from $21.2 million to $30.8 million.  
+The Bank had never before discounted the reserve in this manner.  The book balance of $20.2 
+million, which was still $1 million less than the amount calculated improperly using the present 
+value analysis remained unchanged.  By failing to adjust its books and records and financial 
+statements to properly reflect the calculated reserve, Huntington violated GAAP.  Hoaglin, who 
+received a copy of the January 11 meeting minutes and attended the January 15 meeting at which 
+the issue was discussed, and McMennamin and Van Fleet, who attended both meetings, all knew 
+about the misstatement before the 2002 Form 10-K was filed.  By failing to make the adjustment, 
+Huntington overstated its 2002 operating earnings by $1.8 million, or one cent per share. 
+9. Impact of 2002 Accounting Misstatements on Operating Earnings and EPS 
+In 2002, the accounting misstatements enabled Huntington to report operating earnings 
+per share of $1.35, beating consensus analyst estimates for 2002 by $.02 and precisely meeting 
+Target EPS bonus levels. The impact of the misst atements on earnings and earnings per share is 
+set forth in the table below: 
+Y
+ear Amount (in 
+thousands) 
+Operating 
+EPS 
+2002 Reported operating earnings in Form 10-K $328,522 $1.35 
+Improper accounting for loan origination fees (7,957) (.037) 
+Improper accounting for commission expenses (875) (.003) 
+Improper accounting for officers’ life insurance  (2,882) (.01) 
+Improper accounting for pension expense  (2,193) (.01) 
+Improper classification of restructuring reserve  (1,430) (.01) 
+- 10 -
+
+ 
+           
+  
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+Improper accounting for auto residual reserve   (1,755) (.01) 
+Actual operating earnings $311,430 $1.27 
+10. The November 14, 2003 Restatement 
+On July 17, 2003, Huntington issued a press release announcing a series of voluntary 
+steps in reaction to the Commission’s investigation, including a decision to restate its earnings to 
+address certain accounting issues. On Novemb er 14, 2003 Huntington filed an amended Form 
+10-K with the Commission which restated its 2001 and 2002 earnings.  The restatement 
+corrected the improper accounting for loan and lease origination fees and costs, commission 
+expenses, pension settlement costs, and officer’s life insurance gain. 
+D. LEGAL ANALYSIS 
+Section 17(a)(2) of the Securities Act prohibits obtaining money or property by means of 
+untrue statements of material fact or misleading omissions of material fact in the offer or sale of 
+securities. Section 17(a)(3) of the Securities Act prohibi ts engaging in transactions, practices or 
+courses of business which operate or would operate as a fraud or deceit upon the purchaser in the 
+offer or sale of securities.  Information is material where there is a substantial likelihood that a 
+reasonable investor would consider the information important in making an investment decision.  
+Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988). Establishing violations of Sections 17(a)(2) 
+and 17(a)(3) does not require a showing of scienter.  Aaron v. SEC, 446 U.S. 680, 697 (1980). 
+Under SAB 99, misstatements in financial statements of even a small magnitude may be material 
+depending on the surrounding facts and circumstances.  See Ganino v. Citizens Utilities Co., 228 
+F.3d 154, 162-64 (2d Cir. 2000) (rejecting holding that 1.7% overstatement of revenues was 
+immaterial as a matter of law).  And SAB 99 notes that materiality is defined in qualitative as 
+well as quantitative terms and states that accounting adjustments that affect executive 
+compensation or hide a failure to meet analyst consensus expectations may be material.  
+Moreover, materiality of misstatements in financial statements can be established by subsequent 
+corrective accounting action (such as a restatement).  See In re Peritus Software Services, Inc. 
+Securities Litigation, 52 F. Supp.2d 211, 223 (D. Mass. 1999). Form 10-K requires included 
+financial statements to contain the information required by Regulation S-X, which in turn 
+provides that financial statements in Commission filings that do not comply with GAAP are 
+presumed misleading.  See Regulation S-X, 17 C.F.R. Section 210.4-01(a)(1). 
+Huntington, McMennamin, and Van Fleet violated Sections 17(a)(2) and 17(a)(3) of 
+the Securities Act in 2001 and 2002. Hoaglin caused Huntington’s 2002 violation of Section 
+17(a)(2) of the Securities Act.  Huntington’s November 14, 2003 amended Form 10-K restated 
+its financial condition at December 31, 2002 and 2001 and its results of operations for each of 
+the three years ended December 31, 2002 to (1) apply on a retroactive basis, deferral accounting 
+for loan and lease origination fees and costs as required under FAS 91; (2) correct for the errors 
+in deferring fees paid to originate deposits; (3) recognize the gain on BOLI in 2001 rather than 
+- 11 -
+
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+2002; and (4) recognize the $2.2 million pension settlement cost in 2002.  Huntington’s 
+restatements are admissions of material errors in violation of GAAP, which requires restatement 
+only for material financial misstatements.  In addition to the four restated items, Huntington 
+misstated a special non-operating reserve for restructuring its Florida banking and insurance 
+operations, and its auto residual value or “leakage reserve,” enabling the Company to meet 
+analysts’ expectations and triggering executive bonuses.  All of Huntington’s accounting 
+adjustments were qualitatively material misstatements.  All of the accounting adjustments 
+directly or indirectly increased reported income during a period by causing improper recording 
+of revenue or deferring of expenses. Hunti ngton’s decisions to improperly recognize revenue 
+and defer expenses, fail to disclose changes in accounting methods, and misclassify earnings 
+enabled the Bank to meet or exceed analysts’ expectations and increase management bonuses. 
+Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require all issuers with 
+securities registered under Section 12 of the Exchange Act to file annual reports.  Exchange Act 
+Rule 12b-20 further requires that, in addition to the information expressly required to be included 
+in such reports, the issuer must include such additional material information as may be necessary 
+to make the required statements, in light of the circumstances under which they were made, not 
+misleading.  The obligation to file these periodic reports includes the obligation that they be 
+complete and accurate in all material respects. See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 
+1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979); United States v. Bilzerian, 926 
+F.2d 1285, 1298 (2d Cir.), cert. denied, 502 U.S. 813 (1991). No showing of scienter is 
+necessary to establish a violation of Section 13(a) of the Exchange Act and Rules 13a-1 and 12b­
+20. See Savoy Indus., Inc., 587 F.2d at 1167; SEC v. Wills, 472 F. Supp. 1250, 1268 (D.D.C. 
+1978). Rule 13a-1 requires the filing of annual reports that comply with the Commission’s 
+Regulation S-X, which requires that financial statements be presented in conformity with GAAP. 
+Huntington violated Section 13(a) of the Exchange Act and Exchange Act Rules 12b-20 
+and 13a-1 by incorporating materially false and misleading financial statements in its annual 
+reports for 2001 and 2002. The financial statemen ts were false and misleading because they 
+were not presented in conformity with GAAP.  The financial statements improperly recognized 
+loan and lease origination fees as income, improperly capitalized commission expenses, 
+improperly deferred pension costs, misstated reserves, improperly deferred income, and 
+misclassified non-operating income, enabling the Company to meet analysts’ expectations and 
+triggering management bonuses for Hoaglin, McMennamin, Van Fleet, and others.  By engaging 
+in the conduct described above, McMennamin and Van Fleet caused Huntington’s 2001 and 
+2002 violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder 
+and Hoaglin caused Huntington’s 2002 violations of Section 13(a) of the Exchange Act and 
+Rules 12b-20 and 13a-1 thereunder. 
+Section 13(b)(2)(A) of the Exchange Act requires issuers to “make and keep books, 
+records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions 
+and dispositions of the assets of the issuer.”  Section 13(b)(2)(B) of the Exchange Act requires 
+issuers to devise and maintain a system of internal accounting controls sufficient to provide 
+reasonable assurances that transactions are recorded as necessary to permit the preparation of 
+financial statements in conformity with GAAP and to maintain the accountability of assets.  No 
+showing of scienter is necessary to establish a violation of Section 13(b)(2)(A) or 13(b)(2)(B).  
+- 12 -
+
+ 
+ 
+        
+ 
+ 
+  
+                                                 
+  
+      
+  
+ 
+See SEC v. World-Wide Coin Investments, Ltd., 567 F. Supp. 724, 749-51 (N.D. Ga. 1983). 
+Section 13(b)(5) of the Exchange Act prohibits any person from knowingly circumventing or 
+knowingly failing to implement a system of internal accounting controls or knowingly falsifying 
+any book, record, or account required to be made and kept by Section 13(b)(2) of the Exchange 
+Act. Rule 13b2-1 prohibits any person from direc tly or indirectly falsifying or causing to be 
+falsified any book, record, or account subject to Section 13(b)(2)(A) of the Exchange Act.  
+Huntington violated Sections 13(b)(2)(A) and (B) in 2001 and 2002 by failing to maintain 
+sufficient internal accounting controls.  In 2001 and 2002, McMennamin and Van Fleet violated 
+Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and caused Huntington’s 
+violations of Sections 13(b)(2)(A) and (B) of the Exchange Act.  Hoaglin caused Huntington’s 
+violations of Sections 13(b)(2)(A) and (B) of the Exchange Act in 2002.   
+Rule 13a-14 of the Exchange Act requires an issuer’s Chief Executive Officer and Chief 
+Financial Officer to certify the financial information contained in the issuer’s quarterly and 
+annual reports. Huntington’s CEO and CFO, Hoaglin and McMennamin, violated Exchange Act 
+Rule 13a-14 by certifying to the Commission that Huntington’s Form 10-K for 2002:  (1) was 
+complete and accurate; (2) fairly presented the financial condition of Huntington; and (3) did not 
+contain any untrue statements.  The certifications were inaccurate because, as discussed above, 
+the report contained material misstatements and omissions, the financial statements did not fairly 
+present Huntington’s true financial condition, and the procedures utilized by Huntington in 
+support of the certifications were deficient.  
+Based on the foregoing, the Commission finds that:  (i) Huntington violated Section 
+17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) and (B) of the 
+Exchange Act, and Rules 12b-20 and 13a-1 thereunder; (ii) Hoaglin caused Huntington’s 
+violations of Section 17(a)(2) of the Securities Act and Sections 13(a) and 13(b)(2)(A) and (B) of 
+the Exchange Act, and Rules 12b-20 and 13a-1 thereunder; (iii) McMennamin and Van Fleet 
+violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, Section 13(b)(5) of the Exchange 
+Act, and Rule 13b2-1 thereunder and caused Huntington’s violations of Sections 13(a) and 
+13(b)(2)(A) and (B) of the Exchange Act, and Rules 12b-20 and 13a-1 thereunder; (iv) Hoaglin 
+and McMennamin violated Exchange Act Rule 13a-14; and (v) Van Fleet willfully
+4 violated 
+Sections 17(a)(2) and 17(a)(3) of the Securities Act, Section 13(b)(5) of the Exchange Act, and 
+Rule 13b2-1 thereunder. 
+E. UNDERTAKING 
+McMennamin undertakes and agrees that for a period of five years from the date of the 
+issuance of the Order that he will not act as an officer or director of any issuer that has a class of 
+securities registered pursuant to Section 12 of the Exchange Act [15 U.S.C. § 78(l)] or that is 
+required to file reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)].  In 
+4 “Willfully” as used in this Order means intentionally committing the act that 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 or she is violating one of the Rules or Acts. 
+- 13 -
+
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+determining whether to accept McMennamin’s Offer, the Commission has considered this 
+undertaking. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act 
+and Section 21C of the Exchange Act that: 
+A. Respondent Huntington shall cease and desist from committing or causing any violations 
+and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 
+13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.  
+B. Respondent Huntington shall, within thirty (30) days of the entry of this Order, pay 
+disgorgement of $1 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 Huntington Bancshares, Inc. as a Respondent in these proceedings, the file number 
+of these proceedings, a copy of which cover letter and money order or check shall be sent to 
+Alan M. Lieberman, Assistant Chief Litigation Counsel, Division of Enforcement, Securities and 
+Exchange Commission, 450 5th Street N.W., Washington, D.C. 20549-0911. 
+C. Respondent Hoaglin shall cease and desist from committing or causing any violations and 
+any future violations of Section 17(a)(2) of the Securities Act and Rule 13a-14 under the 
+Exchange Act, and from causing any violations and any future violations of Sections 13(a), 
+13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. 
+D. Respondent Hoaglin shall, within thirty (30) days of the entry of this Order, pay 
+disgorgement of $480,000 and prejudgment interest of $37,609.29, for a total amount of 
+$517,609.29, to the United States Treasury. Such paym ent 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 Thomas E. Hoaglin as 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 Alan M. 
+Lieberman, Assistant Chief Litigation Counsel, Division of Enforcement, Securities and 
+Exchange Commission, 450 5th Street N.W., Washington, D.C. 20549-0911. 
+E. Respondent McMennamin shall cease and desist from committing or causing any 
+violations and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and 
+Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13a-14 thereunder and from causing 
+- 14 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+      
+   
+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 thereunder. 
+F. Respondent McMennamin shall, within thirty (30) days of the entry of this Order, pay 
+disgorgement of $240,000 and prejudgment interest of $25,215, for a total amount of $265,215, 
+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 
+Michael J. McMennamin as 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 Alan M. 
+Lieberman, Assistant Chief Litigation Counsel, Division of Enforcement, Securities and 
+Exchange Commission, 450 5th Street N.W., Washington, D.C. 20549-0911. 
+G. Respondent Van Fleet shall cease and desist from committing or causing any violations 
+and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Section 
+13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and from causing any violations and 
+any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and 
+Rules 12b-20 and 13a-1 thereunder. 
+H. Respondent Van Fleet shall, within thirty (30) days of the entry of this Order, pay 
+disgorgement of $25,000 and prejudgment interest of $1,660, for a total amount of $26,660, 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 John 
+Van Fleet as 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 Alan M. Lieberman, Assistant Chief 
+Litigation Counsel, Division of Enforcement, Securities and Exchange Commission, 450 5th 
+Street N.W., Washington, D.C. 20549-0911. 
+I. It is also Ordered, pursuant to Rule 102(e)(1) of the Commission’s Rules of Practice that 
+Respondent Van Fleet is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+J. After two years from the date of this order, Respondent Van Fleet 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 
+- 15 -
+
+ 
+ 
+ 
+ 
+      
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+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 Van Fleet, or the public accounting firm with which he 
+is associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+(b) Respondent Van Fleet, or the registered public accounting firm 
+with which he is associated, has been inspected by the Board and that inspection did not identify 
+any criticisms of or potential defects in the respondent’s or the firm’s quality control system that 
+would indicate that the respondent will not receive appropriate supervision or, if the Board has 
+not conducted an inspection, has received an unqualified report relating to his, or the firm’s, most 
+recent peer review conducted in accordance with the guidelines adopted by the former SEC 
+Practice Section of the American Institute of Certified Public Accountants Division for CPA 
+Firms or an organization providing equivalent oversight and quality control functions; 
+(c) Respondent Van Fleet has resolved all disciplinary issues with the 
+Board, and has complied with all terms and conditions of any sanctions imposed by the Board 
+(other than reinstatement by the Commission); and 
+(d) Respondent Van Fleet acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards. 
+K. The Commission will consider an application by Respondent Van Fleet 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 Van Fleet’s character, integrity, professional conduct, or qualifications to appear or 
+practice before the Commission. 
+L. There shall be, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, a Fair 
+Fund established for the funds described in Section IV. 
+By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+- 16 -
+
+ 
+ 
+- 17 -
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+ 
+ 
+ 
+ 
+ 
+                                                              
+ 
+ 
+  
+ 
+ 
+ 
+ 
+  
+ 
+                                                              
+ 
+ 
+  
+ 
+ 
+UNITED STATES OF AMERICA 
+ Before the 
+   SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 8580 / June 7, 2005 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51797 / June 7, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2254 / June 7, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11944 
+: 
+In the Matter of : 
+: ORDER INSTITUTING CEASE-AND-DESIST 
+MOUNT SINAI MEDICAL : PROCEEDINGS, MAKING FINDINGS, AND 
+CENTER OF FLORIDA, INC., : IMPOSING CEASE-AND-DESIST ORDER 
+M. BROOKS TURKEL and : PURSUANT TO SECTION 8A OF THE 
+HARVEY W. SMITH : SECURITIES ACT OF 1933 AND SECTION 
+: 21C OF THE SECURITIES EXCHANGE ACT 
+: OF 1934 
+Respondents. : 
+: 
+: 
+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 Mount Sinai Medical Center of Florida, Inc. (“Mount Sinai”), M. 
+Brooks Turkel (“Turkel”) and Harvey W. Smith (“Smith”) (collectively, “Respondents”). 
+II. 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 
+these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order 
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+Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange 
+Act of 1934 (“Order”), as set forth below. 
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission  finds1 that: 
+Respondents
+ 1. Respondent Mount Sinai is a not-for-profit corporation located in Miami 
+Beach, Florida, which operates a multi-campus hospital, including a 701 bed teaching and research 
+hospital and various satellite outpatient facilities and physician offices. 
+2. Respondent Turkel, age 40, was Chief Financial Officer (“CFO”) of Mount 
+Sinai from January 1999 through mid-July 2001, and served as Mount Sinai’s chief planning officer 
+from mid-July 2001 until he was terminated in October 2001.   
+3. Respondent Smith, age 58, served as chief operating officer (“COO”) of 
+Mount Sinai from May 2000 until he was administratively suspended in December 2001 by Mount 
+Sinai and officially terminated in January 2002.  Smith, as COO, was responsible for oversight of the 
+CFO in Mt. Sinai’s administrative line of authority.  
+Mount Sinai’s 2001 Bond Offering 
+4. On May 24, 2001, Mount Sinai, through the City of Miami Beach Health 
+Facilities Authority (the “Authority”), issued three series of municipal bonds (Series 2001A, Series 
+2001B and Series 2001C) totaling approximately $184 million (the “2001 bonds”).  The purpose of 
+the issuance was primarily to re-finance Mount Sinai’s acquisition of the Miami Heart Institute and 
+Medical Center, purchased by Mount Sinai in June 2000. The 2001 bonds were limited obligations 
+of the Authority payable solely from payments made by Mount Sinai pursuant to a loan agreement 
+between Mount Sinai and the Authority. The bonds were rated “BBB,” “Baa3,” and “BBB+” by 
+Standard & Poor’s (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”) and Fitch, Inc. (“Fitch”), 
+respectively. 
+5. The Official Statements to the bond offerings contained Mount Sinai’s 
+audited financial statements for the years 1999 and 2000.  The Official Statements also included 
+Mount Sinai’s forecasted financial statements, as of March 30, 2001, for the years 2001 through 
+2003. The forecasted financial statements projected operating losses totaling $7.5 million for fiscal 
+year 2001, losses totaling $2.6 million for fiscal year 2002, and operating income of $2.5 million for 
+fiscal year 2003. 
+The findings herein are made pursuant to Respondents’ Offers and are not binding on any other person or 
+entity in this or any other proceeding. 
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+6. The Official Statements contained an anti-fraud certificate, signed by Mount 
+Sinai’s former Chief Executive Officer (“CEO”), wherein the CEO certified on behalf of Mount 
+Sinai that: (i) the statements and information contained in the Official Statement were true, correct 
+and complete in all material respects; (ii) the Official Statement did not contain any untrue or 
+incorrect statements or omissions of material fact; and (iii) Mount Sinai’s financial condition had not 
+materially or adversely changed since December 31, 2000.     
+7. In addition, the Official Statements contained another certificate, executed by 
+Turkel, in which he certified to Mount Sinai’s bond counsel that the Official Statements did not 
+contain any untrue statements or omissions of a material fact.   
+8. The terms of the bond covenants required Mount Sinai to file quarterly 
+reports with various repositories, which would then be available for review by current and 
+prospective investors. Accordingly, on August 24, 2001, Mount Sinai filed its second quarter report 
+for the quarter ended June 30, 2001. The second quarter report was signed by Turkel. 
+Misrepresentations and Omissions in the Official Statement 
+9. Mount Sinai, through Turkel, Smith and other former senior management, 
+failed to disclose the hospital’s deteriorating financial condition at the time of the offering.  
+Specifically, Mount Sinai failed to disclose in the Official Statements that the hospital was 
+experiencing a significant deterioration in its cash position and was in the midst of a severe liquidity 
+problem.  Indeed, Mount Sinai’s financial condition began to materially decline after it underwent a 
+computer conversion in December 2000 to update its patient accounting system within its business 
+office. The computer conversion gave rise to major problems that substantially impacted Mount 
+Sinai’s billing and collection process. For example, Mount Sinai experienced substantial delays in 
+billings and a significant rise in failed billings to third party payors. In addition, the hospital’s 
+patient accounts receivable grew substantially -- increasing from approximately $70 million at the 
+end of December 2000 to over $90 million by June 30, 2001.  As a direct result of its billing and 
+collections problems, Mount Sinai’s cash position began to materially worsen after December 2000 
+and continued to worsen through at least the time of the issuance of the 2001 bonds in May.   
+10. In addition, Mount Sinai, at the direction of Turkel and other former 
+senior management, falsely represented in the Official Statements that eight of its high volume 
+managed care contracts had been renegotiated, and that the renegotiated contracts were expected 
+to contribute approximately $10 million of additional revenue for the hospital on an annual basis 
+beginning in 2001. In fact, at the time of the issuance of the 2001 bonds, only three of the eight 
+major contracts had actually been renegotiated as claimed.   
+11. Moreover, the financial statements forecasting the hospital’s anticipated 
+revenue through the end of 2003, which were included in the Official Statements, were 
+fraudulent. The forecasted financial statements projected operating losses for 2001 and 2002 
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+totaling $7.5 million and $2.6 million, respectively, and a relatively small surplus in 2003.  The 
+forecasted financials included net patient service revenue and accounts receivable projections that 
+were calculated using Mount Sinai’s 2001 contractual deduction rate.2  That contractual 
+deduction rate, however, was fraudulent because it was partly based on the false notion that 
+Mount Sinai had renegotiated all of its eight largest managed care contracts.   
+12. Given the facts known by Mount Sinai’s former senior management, the 
+representations made by its CEO and Turkel in the anti-fraud certificates accompanying the Official 
+Statements were false and misleading.  The representations in the anti-fraud certificates that the 
+Official Statements did not contain any untrue statements or omissions of a material fact, and that 
+Mount Sinai’s financial condition had not materially or adversely changed since fiscal year 2000, 
+were clearly contradicted by Mount Sinai’s deteriorating financial situation, the false statements 
+made regarding the renegotiation of the managed care contracts and the false projections included in 
+the forecasted financial statements.  
+False and Misleading Statements to 
+Institutional Investors and Bond Rating Agencies
+ 13. Mount Sinai, through Turkel, Smith and other former senior management, 
+made materially false and misleading statements during a presentation given to prospective 
+institutional bond investors on April 30, 2001. During that presentation, Mount Sinai represented 
+that it had been successful in renegotiating all eight of its largest managed care contracts and that the 
+renegotiated rates would result in a $10 million improvement to revenue beginning in 2001.  In fact, 
+as mentioned above, only three of the contracts had been renegotiated.  Mount Sinai, also provided 
+institutional investors with baseless projections concerning the hospital’s net patient service revenue 
+and accounts receivable. 
+14. In March and April 2001, Mount Sinai, through Turkel, Smith and other 
+former senior management, gave similar presentations to certain bond rating agencies during which 
+Mount Sinai again falsely represented that it had renegotiated all eight of its largest managed care 
+contracts resulting in an annual improvement in revenues of $10 million.  
+Misrepresentations and Omissions in Mount Sinai’s Second 
+Quarter Report for the Period Ended June 30, 2001
+ 
+Contractual deductions are an estimate of the deductions that the hospital expects will not be paid based on 
+contracts or other arrangements with its third party payors.  Mount Sinai recorded net patient service revenue based 
+on a percentage number that reflected the average of all of the hospital’s contractual deductions with its third party 
+payors.  This percentage is called the “contractual deduction rate.” 
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+ 15. Mount Sinai’s second quarter report for the period ended June 30, 2001, 
+reflected a $5 million write-off in accounts receivable Mount Sinai recorded in June 2001.  Although 
+the second quarter report discussed the $5 million write-off, Mount Sinai failed to adequately 
+disclose in the report the circumstances requiring the write-off.   By the time of the filing of the 
+second quarter report, Turkel, Smith and other senior management at Mount Sinai knew that the 
+managed care contracts had not been renegotiated and that Mount Sinai may have been using a 
+contractual deduction rate for recording net patient service revenue that was too low. Mount Sinai 
+nevertheless failed to disclose this information to investors in its second quarter report.  
+16. Mount Sinai also failed to disclose in the second quarter report that by the 
+time of the filing of that report, Turkel, Smith and other senior management knew additional write-
+offs of accounts receivable would be necessary, and that those write-offs could be as high as $20 
+million.  Mount Sinai ultimately recorded a $21 million reduction in net patient service revenue and 
+accounts receivable in September 2001, which was mostly the result of the improper contractual 
+deduction rate used by Mount Sinai for the first nine months of 2001. 
+17. Additionally, Mount Sinai failed to disclose in the second quarterly report 
+that, at the time of its filing, Mount Sinai continued to struggle with its cash flow situation.  Finally, 
+the report failed to disclose the fact that an accounting firm began running Mount Sinai’s business 
+office because of the problems with its billing and collection process.   
+Knowledge of Mount Sinai’s Former Senior Management 
+18. Turkel, Smith and other former senior management at Mount Sinai were 
+aware that Mount Sinai’s cash position had materially declined prior to the bond offering, and 
+that the cash situation at the hospital continued to be a major concern up until the date of the 
+bond offering. They nevertheless failed to disclose this cash crisis or update its financial 
+information.  To the contrary, Mount Sinai’s CEO falsely certified that Mount Sinai’s financial 
+condition had not materially or adversely changed since December 31, 2000.  As Mount Sinai’s 
+CFO, Turkel further falsely certified to bond counsel that the Official Statement did not contain any 
+untrue statements or omissions of a material fact. In light of the severe cash crisis and growing 
+accounts receivable problem that they knew the hospital was experiencing before the bond offering, 
+these certifications were plainly false. 
+19. Additionally, Turkel, Smith and other former senior management knew, or 
+were reckless in not knowing, that prior to the bond offering Mount Sinai had only renegotiated 
+three of its major managed care contracts and that the hospital would not receive an additional 
+$10 million in revenue for fiscal year 2001.  They also knew, or were reckless in not knowing, 
+that the net patient service revenue and accounts receivable projections contained in the Official 
+Statement and provided to investors and bond rating agencies during presentations were baseless 
+because they were based on a false contractual deduction rate. 
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+20. Moreover, by the time Mount Sinai’s second quarter report was filed in 
+August 2001, Turkel, Smith and other former senior management also knew, or were reckless in 
+not knowing, that Mount Sinai was using an improper contractual deduction rate for recording 
+net patient service revenue, and that substantial write-offs – far in excess of the $5 million 
+recorded in the second quarter report – would be necessary. Yet Mount Sinai failed to disclose 
+any of this information in its second quarter report.   
+Violations 
+21. As a result of the conduct described above, Mount Sinai violated Section 
+17(a) of the Securities Act, which prohibits fraudulent conduct in the offer or sale of securities. 
+22. Also as a result of the conduct described above, Mount Sinai 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.  
+23. As a result of the conduct described above, Turkel violated, and caused 
+Mount Sinai’s violations of, Section 17(a) of the Securities Act, which prohibits fraudulent 
+conduct in the offer or sale of securities. 
+24. As a result of the conduct described above, Turkel violated, and caused 
+Mount Sinai’s violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which 
+prohibit fraudulent conduct in connection with the purchase or sale of securities. 
+25. As a result of the conduct described above, Smith violated, and caused 
+Mount Sinai’s violations of, Section 17(a) of the Securities Act, which prohibits fraudulent 
+conduct in the offer or sale of securities. 
+26. As a result of the conduct described above, Smith violated, and caused 
+Mount Sinai’s violations of, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which 
+prohibit fraudulent conduct in connection with the purchase or sale of securities. 
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+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents Offers. 
+Accordingly, it is hereby ORDERED that: 
+A. Respondent Mount Sinai 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. 
+B. Respondent Turkel 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. 
+C. Respondent Smith 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. 
+By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+7
+ 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19259 / June 9, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2258 / June 9, 2005 
+
+  Securities and Exchange Commission v. Roys Poyiadjis, Lycourgos Kyprianou et al.,  Civil Action No. 01 CV 8903 (S.D.N.Y.) 
+
+ FORMER AREMISSOFT CHIEF EXECUTIVE OFFICER CONSENTS TO PERMANENT INJUCTIVE RELIEF AND OFFICER-AND-DIRECTOR BAR 
+
+ POYIADJIS PAYS APPROXIMATELY $200 MILLION 
+
+ Roys Poyiadjis ("Poyiadjis"), a former Chief Executive Officer at AremisSoft Corporation ("AremisSoft"), which was a software company with offices in New Jersey, London Cyprus, and India, has consented to final resolution of the Commission's securities fraud charges against him brought in October 2001.  Poyiadjis agreed to disgorge approximately $200 million of unlawful profit from his trading in AremisSoft stock, and to entry of a final judgment that prohibits him from acting as an officer or director of a public company.  The judgment, which was entered on April 20, 2005, permanently enjoins him from future violation, or conduct giving rise to violation, of the antifraud, reporting, and other provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 16a-2, and 16a-3 under that Act).  The disgorged funds will be distributed to defrauded investors pursuant to a distribution plan for beneficiaries of the AremisSoft post-bankruptcy estate.  Poyiadjis' consent is without admitting or denying the allegations in the Commission's complaint.  
+ The Commission's complaint, filed in the United States District Court for the Southern District of New York on October 4, 2001, charged that AremisSoft, its co-chairmen and co-CEOs Poyiadjis and Lycourgos Kyprianou, made fraudulent statements in public filings and press releases, including:  1) reporting in AremisSoft's 2000 financial statements millions of dollars in sales to entities that either did not exist as operating businesses or did not purchase product from AremisSoft; 2) reporting in AremisSoft's 1999 and 2000 financial statements that the company paid a total of $32.7 million to acquire three software companies, when in fact the actual purchase prices paid ranged from approximately $100,000 to $300,000; and 3) misrepresenting the value of and revenue earned from a contract with Bulgaria's Health Insurance Fund in press release and public filings.  The complaint further alleged that Poyiadjis and Kyprianou, acting through offshore entities, engaged in massive insider trading during the period of the fraud, selling millions of shares of AremisSoft stock.  Olympus Capital Investments, Inc. and Oracle Capital, Inc. were charged as relief defendants.   
+ On October 19, 2001, the Honorable Charles S. Haight, Jr. entered a preliminary injunction against Poyiadjis, Kyprianou, and the relief defendants that, among other things, froze proceeds of their illegal AremisSoft stock sales and directed all defendants to repatriate the tainted funds to the United States.  Kyprianou failed to answer the complaint or comply with the Court's order and remains a fugitive from justice. 
+ On July 22, 2002, the Honorable Charles L. Brieant of the United States District Court for the Southern District of New York issued a Final Judgment of Permanent Injunction and Other Relief on consent against AremisSoft, prohibiting AremisSoft and its successor, Softbrands, Inc., from violating the antifraud and reporting provisions of the federal securities laws.  As part of the resolution, AremisSoft consented to a Commission Order, pursuant to Exchange Act Section 12(j), revoking registration of its common stock.  AremisSoft neither admitted nor denied the allegations in the Commission's complaint or the findings in the Commission's Order. 
+ On March 15, 2002, AremisSoft filed a petition for relief under Chapter 11 of the Bankruptcy Code.  On July 15, 2002, the Honorable Joel A. Pisano of the United States District Court for the District of New Jersey entered an order confirming AremisSoft's Chapter 11 Plan and authorizing AremisSoft to enter into the settlement with the Commission.   
+ On March 22, 2002, the United States Attorney's Office for the Southern District of New York initiated a civil in rem forfeiture action in the United States District Court for that district, seeking forfeiture of funds frozen by the High Court of Justice of the Isle of Man in four bank accounts located there.  The freeze order was secured by the Isle of Man Attorney General at the request of the United States Attorney General on the basis of information provided by the Commission.  After the New York Court entered a default judgment in the civil forfeiture action on June 3, 2002, the Isle of Man Attorney General, again at the request of the United States Attorney General, applied to the High Court for registration of the civil forfeiture judgment, preliminary to an order repatriating the funds to the United States.  On June 24, 2002 a superseding indictment issued against Poyiadjis, Kyprianou, and another former AremisSoft officer, M.C. Mathews, charging securities fraud, money laundering and conspiracy to commit securities fraud, mail fraud, wire fraud, and money laundering.  
+ The Commission acknowledges the assistance of the Isle of Man Attorney General in this matter. 
+
+    
+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2260.txt b/raw/aaer/2005/AAER-2260.txt
new file mode 100644
index 0000000000000000000000000000000000000000..52751e19ee754453ca09744d7ff71e6ab06080d7
--- /dev/null
+++ b/raw/aaer/2005/AAER-2260.txt
@@ -0,0 +1,300 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+     
+ 
+ 
+  
+ 
+  
+     
+ 
+  ______________________________  
+ 
+ 
+UNITED STATES OF AMERICA 
+BEFORE THE 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 8581 / June 9, 2005 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51809 / June 9, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2260 / June 9, 2005 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-11947 
+:
+ : ORDER INSTITUTING CEASE-AND- 
+In the Matter of : DESIST PROCEEDINGS, MAKING 
+: FINDINGS, AND IMPOSING A CEASE- 
+: AND-DESIST ORDER PURSUANT TO 
+Robert M. Blau, : SECTION 8A OF THE SECURITIES 
+: ACT OF 1933 AND SECTION 21C OF  
+: THE SECURITIES EXCHANGE ACT 
+Respondent. : OF 1934 
+: 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate 
+that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of 
+the Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange 
+Act of 1934 (“Exchange Act”) against Robert M. Blau (“Blau” or “Respondent”). 
+II. 
+In anticipation of the institution of this proceeding, Respondent has submitted an 
+Offer of Settlement (the “Offer”) that 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 in 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., Respondent, without 
+admitting or denying the findings contained herein, except that Respondent admits to the 
+jurisdiction of the Commission over him and over the subject matter of this proceeding, 
+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 
+(“Order”). 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+A. RESPONDENT 
+Robert M. Blau, 50, of Long Beach, New York, has been Vice President of Sales 
+at Take-Two Interactive Software, Inc. (“Take-Two” or the “Company”) since July 1998, 
+and held that position during the relevant period. 
+B. RELEVANT ENTITY 
+Take-Two is a Delaware corporation headquartered in New York, New York.  
+Take-Two develops, markets and publishes interactive entertainment software games for 
+the personal computer as well as video game consoles.  Take-Two’s common stock is 
+registered with the Commission pursuant to Section 12(g) of the Exchange Act and is 
+currently listed on NASDAQ under the symbol “TTWO.”  For its fiscal year ended 
+October 31, 2003, Take-Two reported over $1 billion in revenue. 
+C. SUMMARY 
+This proceeding against Blau arises from his participation in a financial and 
+accounting fraud by Take-Two. Take-Two in flated its revenues during its 2000 and 2001 
+fiscal years through fraudulent sales and improper accounting practices, including 
+numerous “parking” transactions in which the Company shipped several hundred 
+thousand video games to different distributors at or near the end of a fiscal quarter or 
+fiscal year, fraudulently recorded revenue from the shipments as if they were sales, and 
+then accepted returns of the shipments in subsequent reporting periods.  Some of the 
+returns associated with this practice were not accounted for by the Company as returns in 
+the later reporting period (i.e., they were not netted against sales).  Instead, these returns 
+were disguised as the purchase of new inventory.  Take-Two used these artifices to 
+materially inflate its reported revenues and profits.  The parking transactions allowed 
+Take-Two to consistently meet or exceed analysts’ predictions regarding its earnings per 
+share during all four quarters of fiscal year 2000. 
+Take-Two’s parking transactions were largely orchestrated by the Company’s 
+Chief Operating Officer (“COO”) but Blau, at the COO’s direction, arranged several of 
+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
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+ 
+ 
+the parking transactions and created the necessary paperwork to disguise the returns as 
+purchases of new inventory.2 
+Through the fraudulent transactions that Blau participated in, Take-Two was able 
+to materially overstate its reported revenue and/or earnings on two annual and five 
+quarterly reports filed with the Commission in fiscal years 2000 and 2001.  In February 
+2002, Take-Two restated its financial statements for its fiscal year ended October 31, 
+2000 and the first three quarters of its fiscal year 2001 to correct for the parking 
+transactions that the Company had used to inflate its revenues.3 
+As a result of the conduct described above and detailed below, Blau violated 
+Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and 
+Exchange Act Rules 10b-5 and 13b2-1. Blau al so caused 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 13b2-2.
+4 
+D. FACTS 
+From 2000 through July 31, 2001 Take-Two engaged in parking transactions with 
+video game distributors Capitol Distributing (“Capitol”), Corner Distributors (“Corner”), 
+SJS Group LTD (“SJS”), About Time Distributors (“About Time”), and Pioneer 
+Distributors (“Pioneer”). Thes e parking transactions resulted in Take-Two’s recognition 
+of approximately $60 million of fraudulent revenue. 
+Take-Two conducted the largest parking transactions with Capitol.  On October 
+31, 2000, Take-Two’s fiscal year end, Take-Two shipped 230,000 video games to Capitol 
+with the understanding that the entire shipment would be returned.  Take-Two improperly 
+recorded $5.4 million as revenue from the shipment – which at that time was Take-Two’s 
+largest sale ever. In subsequent reporting periods, Capitol returned the entire shipment, 
+2  Simultaneously with the issuance of this Order, the Commission filed a settled civil 
+action in the United States District Court for the Southern District of New York against 
+Take-Two’s COO, Larry Muller, for his role in the Company’s fraud. 
+3  In February 2004, Take-Two again restated its financial statements, this time to correct 
+for its failure to set aside reserves for future price concessions during fiscal year 2000  
+through the end of the third quarter of fiscal year 2003.  The Company’s February 2004 
+restatement also corrected for the improper accounting treatment of approximately 88 
+additional sales transactions during 2000 and 2001 that had inflated its revenues. 
+4  Simultaneously with the issuance of this Order, the Commission filed a settled civil 
+complaint against Blau in the United States District Court for the Southern District of 
+New York. Blau has consented to a judgmen t in that action (which alleges that he 
+violated Section 13(b)(5) of the Exchange Act) ordering him to:  (a) pay disgorgement in 
+the amount of $52,653, plus prejudgment interest thereon and (b) pay a civil penalty in 
+the amount of $50,000. 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+ 
+and the Company arranged for the return to be made through an affiliate of Capitol.  
+Take-Two disguised the return as a purchase of “assorted product” from that Capitol 
+affiliate with an invoice that made no reference to specific titles or descriptions of the 
+product. 
+Blau, at the direction of the Company’s COO, contacted Capitol’s owner/operator 
+to arrange the parking transactions and to arrange for the returns to be made through a 
+Capitol affiliate. Blau actually approved the returns and utilized fraudulent “assorted 
+product” invoices and purchase orders to disguise the returns as purchases of new 
+inventory. 
+On February 23, 2001, the COO emailed Blau that, in order to “spike” the 
+business before the end of the month, a substantial order had to ship to Capitol in the next 
+three days. Five days la ter, on February 28, 2001, Take-Two shipped approximately 
+175,000 video games to Capitol and improperly recorded $4.6 million in revenue – Take-
+Two’s second largest sale at that time.  The entire shipment was subsequently returned.  
+Again, in an effort to conceal the fact that the original shipment was not an actual sale, 
+Blau arranged for the return to be made through the same Capitol affiliate and utilized an 
+invoice that made no reference to specific titles or descriptions to disguise the return as a 
+purchase of “assorted product.” 
+In all, Take-Two executed approximately $15 million of parking transactions with 
+Capitol. Take-Two executed similar parking transactions with other distributors as 
+follows: (1) eleven transactions with Corner for over $10 million; (2) ten transactions 
+with SJS for over seven million dollars; (3) nine transactions with About Time for nearly 
+seven million dollars; and (4) fourteen transactions with Pioneer for over five million 
+dollars.  In these transactions, similar to the Capitol transactions, Blau arranged the 
+shipments, approved the returns and utilized misleading “assorted product” invoices and 
+purchase orders to disguise the returns as purchases of new inventory.
+5 
+E. LEGAL ANALYSIS 
+Section 17(a) of the Securities Act prohibits a person, in connection with the offer 
+or sale of a security, from making untrue statements of a material fact or omitting to state 
+a material fact necessary to make the statements made, in light of the circumstances 
+under which they were made, not misleading.  To violate Section 17(a)(1) of the 
+Securities Act, a party 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). Blau violated Section 17(a) by partic ipating and acquiescing in sales transactions 
+with knowledge or reckless disregard of their fraudulent nature from at least 2000 
+through most of 2001.  These transactions resulted in fraudulent recognition of millions 
+5  Blau received emails discussing returns from Pioneer between 2000 and 2001, 
+including one referring to video games as “Take 2’s parked goods.” 
+4
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+of dollars of revenue from the false characterization of parking and returns as purported 
+sales of nearly $60 million worth of video games, and material misrepresentation of the 
+Company’s financial position to investors. 
+Section 10(b) of the Exchange Act and Rule 10b-5 thereunder proscribe 
+fraudulent practices in connection with the purchase or sale of securities.  An issuer or 
+individual violates these provisions by intentionally or recklessly making material 
+misstatements or omissions in Commission filings which may be relied upon by investors 
+in purchasing the issuer’s securities.  Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 
+(1988). To violate Section 10( b) and Rule 10b-5, a party must act with scienter.  See 
+Aaron, 446 U.S. 680. Blau violated Section 10(b) and Rule 10b-5 by his knowing or 
+reckless participation in fraudulent sales and parking transactions, which permitted Take-
+Two to materially misrepresent its financial position to investors. 
+Exchange Act Section 13(b)(5) prohibits knowing falsification of corporate 
+books, records, or accounts and circumvention of internal controls.  Exchange Act Rule 
+13b2-1 prohibits direct or indirect falsification or causing falsification of books, records, 
+or accounts subject to Section 13(b)(2)(A).  Blau violated Section 13(b)(5) and Rule 
+13b2-1 by knowingly employing fraudulent purchase orders to disguise returns as 
+purchases of new inventory, resulting in falsification of Take-Two’s books, records and 
+accounts subject to Section 13(b)(2)(A). 
+Section 13(a) of the Exchange Act and Exchange Act Rules 13a-1 and 13a-13 
+thereunder require all issuers with securities registered under Section 12 of the Exchange 
+Act to file annual and quarterly reports on Forms 10-K and 10-Q respectively.  Rule 12b-
+20 requires that, in addition to the information expressly required to be included in such 
+reports, the issuer must include such additional material information as may be necessary 
+to make the required statements, in light of the circumstances under which they were 
+made, not misleading.  The obligation to file these periodic reports includes the 
+obligation to ensure that they are complete and accurate in all material respects.  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 regarding the financia l condition of a company is presumptively 
+material.  SEC v. Blavin, 760 F.2d 706, 711 (6
+th Cir. 1985). 
+Take-Two filed materially false and misleading annual reports on Forms 10-K 
+with the Commission, attributable directly to its parking transactions, for the fiscal years 
+ending October 31, 2000 and October 31, 2001. Th e Company filed materially false and 
+misleading quarterly reports on Forms 10-Q with the Commission, attributable directly to 
+its parking transactions, for the quarters ending January 31, April 30 and July 31, 2000, 
+and April 30 and July 31, 2001. Blau caused th ese violations of Section 13(a) and Rules 
+13a-1, 13a-13 and 12b-20 by substantially assisting the fraud through his participation, 
+knowledge and acquiescence in parking transactions which resulted in the filing of 
+materially false and misleading reports with knowledge that his conduct was part of an 
+overall activity that was improper. 
+5
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+        
+ 
+ 
+ 
+ 
+   
+    
+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 the 
+preparation of financial statements in conformity with GAAP and to maintain the 
+accountability of assets. Take-Two failed to make and keep such books, records and 
+accounts and to devise and maintain the required internal accounting controls.  Blau 
+caused Take-Two’s violations by his participation, knowledge and acquiescence in 
+fraudulent sales and parking transactions that he knew, or was reckless in not knowing, 
+would cause such violations. 
+Exchange Act Rule 13b2-2 prohibits a director or officer of an issuer from, 
+directly or indirectly, making or causing to be made a materially false or misleading 
+statement to an accountant in connection with an audit, review, or examination of the 
+issuer’s financial statements. Blau participated in, knew of and acquiesced in fraudulent 
+sales and parking transactions that he knew, or was reckless in not knowing, would result 
+in false representations to accountants during an audit or review of Take-Two’s financial 
+statements.  Blau, therefore, caused Take-Two’s officers to violate Rule 13b2-2. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent Blau’s Offer. 
+Accordingly, it is hereby ORDERED that: 
+Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange 
+Act, Respondent Blau shall cease and desist from committing or causing any 
+violation and any future violation of Section 17(a) of the Securities Act, Sections 
+10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13b2-1 
+and 13b2-2; and from 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 Exchange Act Rules 
+13a-1, 13a-13 and 12b-20. 
+By the Commission. 
+        J o n a t h a n G . K a t z
+        S e c r e t a r y 
+6
+ 
\ No newline at end of file
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+ 
+ 
+ 
+ 
+ 
+ UNITED STATES  OF AMERICA 
+ BEFORE THE 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  51895 / June 21, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2262 / June 21, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-11960 
+      
+ 
+      :  
+ :  
+ :  
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+    James H. David, Jr ., CPA,   : 102(e) OF THE COMMISSION’S RULES OF 
+      : PRACTICE, MAKING FINDINGS, AND 
+    Respondent.    : IM POSING REMEDIAL SANCTIONS 
+      :  
+      :  
+____________________________________ :  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against James 
+H. David, Jr., CPA (“David” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.
+1   
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public  interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III 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 Respon dent’s Offer, the Commission finds that: 
+ 
+ 1. David, age 40, is and has been a certified public accountant licensed to 
+practice in the State of New York.  He served as Chief Financial Officer of Take-Two Interactive 
+Software, Inc. (“Take-Two”) from July 2000 until December 2001, at which time he became head 
+of the Credit and Collection department at Take-Two until his resignation in February 2002. 
+ 
+ 2. Take-Two was, at all relevant ti mes, a Delaware corporation with its 
+principal place of business in New York, New York.  Take-Two develops, markets and publishes 
+interactive entertainment software games for the personal computer as well as video game consoles. 
+At all relevant times, Take-Two’s common stock was registered with the Commission pursuant to 
+Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”), and is currently listed on 
+NASDAQ under the symbol “TTWO.”  For its fiscal year ended October 31, 2003, Take-Two 
+reported over $1 billion in revenue. 
+ 
+ 3. On June 13, 2005, a fi nal judgment was entered against David, permanently 
+enjoining him from future violations of Section 17(a) of the Securities Act of 1933 (“Securities 
+Act”), Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 
+thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the 
+Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, in the civil action entitled 
+Securities and Exchange Commission v. Take-Two Interactive Software, Inc., et al.
+, Civil Action 
+Number 05-civ-5443 (DLC), in the United States District Court for the Southern District of New 
+York.  David was also barred from serving as an officer or director of any public company for 10 
+years, and was ordered to pay $641,620 in disgorgement of ill-gotten gains from his sales of stock 
+while participating in the fraud, plus prejudgment interest thereon, and a $200,000 civil money 
+penalty. 
+ 
+   4.  The Commission’s Complaint alleged, among other things, that David 
+engaged in a fraudulent video game parking and accounting scheme during Take-Two’s 2000 
+and 2001 fiscal years which resulted in Take-Two filing materially false and misleading 
+ 3
+financial statements in the company’s annual report on Form 10-K for the fiscal year ended 
+October 31, 2000, and in the company’s quarterly reports on Forms 10-Q for the quarters ended 
+July 31, 2000, April 30, 2001, and July 31, 2001.  The Complaint alleged that David engaged in 
+a number of fraudulent accounting practices that materially increased Take-Two’s annual and 
+quarterly revenue and net income in a departure from generally accepted accounting principles 
+(“GAAP”).  These practices included, among other things:  (1) recognizing revenue on 
+fraudulent sales; (2) discussing with other officers the fraudulent sales and parking transactions 
+during 2000 and 2001 – including the disguising of returns as purchases of new inventory as 
+well as the impact of those transactions on Take-Two’s reported financials; and (3) signing 
+quarterly and annual reports with knowledge of the parking-related material misrepresentations 
+contained therein.  In addition, the Complaint alleged that David made materially misleading 
+statements to Take-Two’s independent auditors by signing management representation letters 
+falsely certifying that no fraud existed at the Company. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent David’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. David is suspended from appearing or practicing before the Commission as an 
+accountant. 
+ 
+ B. After ten 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 pe rson 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 acco untant.  Such an application must satisfy the 
+Commission that: 
+ 
+   (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be 
+effective; 
+ 
+   (b) Respondent, or the public accounting firm with which he is 
+associated, has been inspected by the Board and that inspection did not identify any 
+ 4
+criticisms of or potential defects in the respondent’s or the firm’s quality control system that 
+would indicate that the respondent will not receive appropriate supervision; 
+ 
+   (c) Respondent has resolved all disciplinary issues with the Board, 
+and has complied with all terms and conditions of any sanctions imposed by the Board (other 
+than reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, 
+all requirements relating to registration, inspections, concurring partner reviews and quality 
+control standards. 
+ 
+ C. The Commission will consider an a pplication 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. 
+ 
+ 
+ 
+       J o n a t h a n  G .  K a t z  
+       S e c r e t a r y  
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2263.txt b/raw/aaer/2005/AAER-2263.txt
new file mode 100644
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@@ -0,0 +1,1367 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19280 / June 23, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2263 / June 23, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION V. HEALTHSOUTH CORPORATION ET AL.,  Civil Action No. CV-03-J-0615-S 
+
+ FINAL JUDGMENT ENTERED AGAINST HEALTHSOUTH CORP., INCLUDES ANTI-FRAUD INJUNCTION, $100 MILLION PENALTY, CREATION OF INSPECTOR GENERAL REPORTING TO AUDIT COMMITTEE OF THE BOARD, AND OTHER RELIEF IN CONNECTION WITH THE HEALTHSOUTH CORP. ACCOUNTING FRAUD 
+
+ On June 22, 2005, the Honorable Inge Prytz Johnson, United States District Judge for the Northern District of Alabama, entered a final judgment against HealthSouth Corporation, enjoining it from violating Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.  The judgment will also require HealthSouth to (i) pay a civil penalty of $100 million, with $12.5 million payable by October 15, 2005, and additional payments of $12.5 million by April 15, 2006, $25 million by October 15, 2006,  $25 million by April 15, 2007 and $25 million by October 15, 2007; (ii) disgorge $100; (iii) pay the costs of any distribution of disgorgement and penalties to investors; (iv) retain a consultant to review its corporate governance practices; (v) retain a consultant to review its accounting controls, or as an alternative to an accounting consultant, provide to the Commission's staff communications from HealthSouth's auditors and others regarding its controls and report on its actions to correct deficiencies; (vi) appoint and provide staff for an Inspector General to report to the audit committee of HealthSouth's board of directors; (vii) implement training programs for officers and employees involved in accounting and financial reporting and for senior operations executives at the corporate, division and subsidiary levels, to educate such officers and employees and prevent future violations of the securities laws; and (viii) continue to cooperate with the on-going government investigations. The Commission's complaint, filed on March 19, 2003 and amended April 3, 3003, alleged that shortly after the company became public in 1986, the company began to artificially inflate its earnings to meet Wall Street analysts' expectations and maintain the market price for HealthSouth's stock and that since 1999, HealthSouth systematically overstated its earnings by at least $1.4 billion.   
+ HealthSouth, in consenting to the judgment, neither admitted nor denied the allegations of the complaint. HealthSouth provided substantial cooperation in connection with the investigation of this matter. The penalty amount will be distributed to defrauded investors pursuant to the Fair Funds provision of Sarbanes-Oxley.  
+ See also: L. R. 18,044/March 20, 2003; L.R. 18059/April 1, 2003; L.R. 18060/April 1, 2003; AAER No. 1749/April 1, 2003; L.R. 18070/April 4, 2003; L.R. 18339/September 10, 2003; L.R. No. 18700 and AAER No. 2004/May 10, 2004; L.R. 18843/August 23, 2004; L.R. No. 18904/September 28, 2004 
+
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diff --git a/raw/aaer/2005/AAER-2264.txt b/raw/aaer/2005/AAER-2264.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cfe4173af7a211248aeebdb16f88af6ce57854e8
--- /dev/null
+++ b/raw/aaer/2005/AAER-2264.txt
@@ -0,0 +1,1175 @@
+SECURITIES AND EXCHANGE COMMISSION
+Washington, D.C.
+SECURITIES EXCHANGE ACT OF 1934
+Rel. No. 51920 / June 24, 2005
+ACCOUNTING AND AUDITING ENFORCEMENT
+Rel. No. 2264 / June 24, 2005    
+Admin. Proc. File No. 3-9793
+In the Matter of
+ROBERT W. ARMSTRONG, III
+OPINION OF THE COMMISSION
+CEASE-AND-DESIST AND RULE 102(e) PROCEEDINGS
+ 
+Grounds for Remedial Action
+Violations of Antifraud, Reporting, and Recordkeeping Provisions
+Accountant for subsidiary computed and supplied figures necessary to execute parent
+company's scheme to achieve predetermined growth rates and convey false appearance of
+a smooth growth trend.  Accountant willfully violated and was a cause of violations of the
+antifraud, reporting, and recordkeeping provisions of the federal securities laws and rules. 
+Held, it is in the public interest to order that accountant cease and desist from committing
+or causing any violations or future violations of the applicable laws and rules.
+APPEARANCES:
+Marc B. Dorfman and Bryan B. House, of Foley & Lardner LLP, for Robert W.
+Armstrong, III.
+Robert K. Levenson, for the Division of Enforcement.
+Appeal filed: April 27, 2004
+Last brief received: July 2, 2004
+Oral argument: March 29, 2005
+2
+1/ 15 U.S.C. § 78j.
+2/ 17 C.F.R. § 240.10b-5.
+3/ 15 U.S.C. § 78m(a).
+4/ 17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-13.
+5/ 15 U.S.C. § 78m(b)(5).
+6/ 17 C.F.R. § 240.13b2-1.
+7/ 15 U.S.C. § 78m(b)(2).
+8/ 17 C.F.R. § 201.102(e).
+I.
+Robert W. Armstrong, III and the Division of Enforcement each appeal from the decision
+of an administrative law judge.  The law judge found that Armstrong, formerly controller of
+National Medical Care, Inc. ("NMC"), a subsidiary of W.R. Grace & Co. ("Grace"), participated
+in a scheme to manipulate Grace’s reported earnings to achieve predetermined targets.  The
+scheme involved improperly recording excess earnings as reserves and later using the excess
+reserves to bolster earnings, thereby creating the false impression that Grace had a steady,
+consistent growth in income over a period of several years.  The law judge found that Armstrong
+willfully violated Section 10(b) of the Securities Exchange Act of 1934 1/ and Exchange Act
+Rule 10b-5 2/ and that he was a cause of Grace's violations of those provisions. 
+The law judge also concluded that, as a result of the scheme to manipulate Grace's
+earnings, Grace's periodic reports during the relevant period included financial statements that
+were not in accordance with Generally Accepted Accounting Principles ("GAAP") and that were
+materially misleading in violation of the periodic reporting requirements contained in Exchange
+Act Section 13(a) 3/ and Exchange Act Rules 12b-20, 13a-1, and 13a-13. 4/  The law judge
+found that Armstrong was a cause of these violations.  The law judge further found that the
+scheme resulted in Armstrong violating the recordkeeping requirements of Exchange Act Section
+13(b)(5) 5/ and Exchange Act Rule 13b2-1, 6/ and causing Grace's violation of these provisions
+and of Exchange Act Section 13(b)(2). 7/  The law judge imposed a cease-and-desist order on
+Armstrong.  
+The law judge dismissed the charges brought pursuant to Commission Rule of Practice
+102(e).  8/  The law judge recognized that Armstrong had willfully violated the federal securities
+laws and the Commission’s rules within the meaning of Rule 102(e)(1)(iii), but held that Rule
+102(e) applied only to persons appearing or practicing before the Commission.  She concluded
+3
+9/ The law judge also dismissed the charges brought by the Division pursuant to Rule
+102(e)(1)(ii) on the basis that the Division failed to establish the professional standards to
+which Armstrong was subject under that Rule.  The Division has not appealed this ruling.
+10/ Armstrong was a certified public accountant ("CPA") in Massachusetts from 1977
+through 1983 at which time he allowed his license to expire.  Armstrong worked as an
+auditor and supervisor at Touche Ross & Company, a major accounting firm, from 1975
+until 1980.  Armstrong joined NMC in 1980 and held several positions, including
+managing the audit department and directing financial reporting and budgeting.  In 1983,
+Armstrong briefly left NMC, but he rejoined the company in 1985 as vice president and
+controller.
+that Armstrong had not been appearing or practicing before the Commission and dismissed the
+Rule 102(e)(1)(iii) charges on this basis.  9/
+Armstrong argues that the law judge erred when she concluded that he violated and
+caused Grace's violations of the federal securities laws and the Commission’s rules.  Armstrong
+contends that he was in no position to assess whether Grace’s financial statements complied with
+GAAP because he had no responsibility for Grace’s statements and did not know the details of
+how Grace prepared those statements.  Armstrong maintains that there is no basis in the public
+interest for the imposition of a cease-and-desist order. 
+   
+The Division argues that the law judge erred when she implicitly concluded that Rule
+102(e)(1)(iii) requires that a person be appearing or practicing before the Commission at the time
+of the violative conduct.  The Division maintains that, in any event, Armstrong was appearing
+and practicing before the Commission within the meaning of Rule 102(e)(1)(iii) when he
+committed the alleged violations.  The Division seeks to deny permanently to Armstrong the
+privilege of appearing or practicing before the Commission.  We base our findings on an
+independent review of the record, except with respect to those findings not challenged on appeal.
+II.
+A.  The Participants
+Armstrong
+Armstrong was vice president and controller of NMC from January 1985 until his
+resignation in May 1997.  During this time, he was NMC's chief accounting officer and was
+responsible for NMC's financial reporting on a monthly, quarterly, and annual basis.  Armstrong
+was also responsible for supervising NMC's internal audit department and for supervising the
+preparation and consolidation of the financial reports of NMC's operating subsidiaries.  10/
+4
+11/ On August 12, 2003, the Commission issued an order in which Hampers consented to
+cease and desist from committing or causing violations of the securities laws requiring
+the maintenance of accurate books and records and prohibiting false filings.  Jean-Paul
+Bolduc, et al., Exchange Act Rel. No. 48325 (Aug. 12, 2003), 80 SEC Docket 3111. 
+12/ On August 12, 2003, the Commission issued an order in which Nogelo consented to cease
+and desist from committing or causing violations of the securities laws requiring the
+maintenance of accurate books and records.  Jean-Paul Bolduc, et al., Exchange Act Rel.
+No. 48326 (Aug. 12, 2003), 80 SEC Docket 3115.
+13/ On February 27, 2003, the Commission issued an order in which Bolduc consented to
+cease and desist from committing or causing violations of the antifraud provisions of the
+federal securities laws.  Jean-Paul Bolduc, et al., Exchange Act Rel. No. 47416 (Feb. 27,
+2003), 79 SEC Docket 2576.  
+After leaving NMC in 1997, Armstrong continued to work as a financial executive,
+holding positions as a chief financial officer, an accounting officer, and a consultant for large
+public and private companies.  Since 2002, Armstrong has been the chief financial officer of a
+privately-held manufacturing company.  He intends to continue working as a corporate financial
+executive in the future.
+NMC 
+NMC was founded in 1968.  NMC first became a subsidiary of Grace in 1984 and was a
+non-reporting wholly-owned subsidiary of Grace throughout the period at issue in this
+proceeding.  NMC's principal business was kidney dialysis services, but it also had divisions
+engaged in manufacturing specialized medical products and providing home health care services.
+Constantine Hampers co-founded NMC.  He was NMC's chief executive officer from
+1973 through 1996, and he was a Grace director from 1985 through 1996.  11/  Miles Nogelo
+was a vice president and chief financial officer of NMC from 1984 until September 1995. 12/ 
+Armstrong reported to Nogelo.
+Grace
+Grace was a multinational public corporation with a variety of businesses.  It had
+revenues of $5 to $6 billion during the relevant period. As a public corporation, Grace was
+required to file, and did file, quarterly and annual periodic reports with the Commission.  Jean-
+Paul Bolduc was Grace's president and chief executive officer from 1991 through early 1995. 13/ 
+5
+14/ On July 15, 2002, the Commission issued an order in which Smith consented to cease and
+desist from committing or causing violations of the antifraud provisions of the federal
+securities laws.  Jean-Paul Bolduc, et al., Exchange Act Rel. No. 46205 (July 15, 2002),
+78 SEC Docket 60.
+15/ On March 28, 2003, the Commission issued an order in which Sukenik consented to
+cease and desist from committing or causing violations of the antifraud, reporting, and
+recordkeeping provisions of the federal securities laws.  Jean-Paul Bolduc, et al.,
+Exchange Act Rel. No. 47597 (Mar. 28, 2003), 79 SEC Docket 3541.
+16/ On July 15, 2002, the Commission issued an order dismissing the cease-and-desist
+proceedings against Ryan subject to certain conditions under which the Commission
+could reinstate the proceedings and impose a cease-and-desist order.  Jean-Paul Bolduc,
+et al., Exchange Act Rel. No. 46206 (July 15, 2002), 78 SEC Docket 65.
+17/ Hampers testified that "It [NMC] was the healthcare group."  Nogelo testified that NMC
+constituted most of the Health Care Group and that "it was well over 90 percent" of the
+Health Care Group.  Ryan testified that "[i]f you looked at it from a revenue perspective,
+it [NMC] was all of the revenue [of the Health Care Group].  There were no sales and
+revenues reported from the other three components.  And in terms of income, be it
+measured net income or pre-tax income, it was probably greater than 100 percent of the
+healthcare group given that two of those three components were expenses . . . ."
+Brian J. Smith was Grace's chief financial officer until August 1995. 14/  Richard Sukenik was
+Grace's controller.  15/  Phillip J. Ryan, III was Grace's assistant controller.  16/
+One of Grace's core businesses was its Health Care Group.  Grace reported the Health
+Care Group as a separate business segment in its consolidated financial statements.  The Health
+Care Group was Grace's fastest growing division; in 1991 and 1992 it contributed approximately
+40 percent of Grace's revenue and 60 percent of its profit.  Many analysts regarded the Health
+Care Group as the driving force behind Grace's stock price.  Grace executives also publicly
+touted the significance of the Health Care Group's contributions to Grace's income.
+NMC was Grace's main health care subsidiary.  17/  NMC submitted monthly, quarterly,
+and annual reports to Grace's financial reporting division.  These reports included revenues, cost
+of revenues, operating expenses, and balance sheets.  Armstrong directed the preparation of
+NMC's monthly, quarterly, and annual financial results.  He also prepared and reviewed the
+Health Care Group's financial results at the end of each quarter during the relevant period. 
+  
+Price Waterhouse
+Price Waterhouse LLP was Grace's auditor at the time of the events in question in this
+proceeding.  Accountants in Price Waterhouse's Boston office ("Price Waterhouse NMC") did
+not perform full scope audits on NMC's books and records from 1991 through the first part of
+6
+18/ Armstrong testified that Price Waterhouse NMC conducted "a level two examination or
+review, which is where they would go in and review certain balance sheet accounts in
+certain areas . . . ."  Warren Barnes, a Price Waterhouse NMC accountant, described the
+review as "agreed-upon procedures based on instructions from [the] PW Grace audit
+team."  These procedures focused on examining revenues and receivables.
+19/ On June 30, 1999, Gaughan consented to the entry of an order directing him to cease and
+desist from committing or causing violations of the securities laws relating to the
+maintenance of books and records and false filings with the Commission.  Eugene F.
+Gaughan, C.P.A., Exchange Act Rel. No. 41580 (June 30, 1999), 70 SEC Docket 177.
+20/ On June 30, 1999, Scanlon consented to the entry of an order directing him to cease and
+desist from committing or causing violations of the securities laws relating to the
+maintenance of books and records and false filings with the Commission.  Thomas J.
+Scanlon, C.P.A., Exchange Act Rel. No. 51481 (June 30, 1999), 70 SEC Docket 184.
+21/ As discussed infra, no one disputes that the accounting treatment of the income at issue
+violated GAAP or that the use of the income to manipulate growth rates constituted fraud. 
+Rather, the sole issue in this case is Armstrong's legal liability for his admitted conduct.
+22/ NMC did not indicate the source of these deposits on its books and records.
+1995, but they did conduct certain reviews of NMC's financial statements during this period at
+the instructions of Price Waterhouse accountants auditing Grace.  18/  George Jamieson was the
+Price Waterhouse partner who oversaw the reviews of NMC's financial statements.  Accountants
+in Price Waterhouse's New York and Fort Lauderdale offices ("Price Waterhouse Grace") audited
+Grace's consolidated financial statements.  Price Waterhouse Grace provided unqualified
+opinions on Grace's consolidated financial statements throughout the relevant period.  Eugene
+Gaughan was the Price Waterhouse partner who oversaw the audits of Grace's consolidated
+financial statements from 1989 through 1994. 19/  Thomas Scanlon became the lead Price
+Waterhouse partner on the Grace audit for 1995. 20/
+B.  The Scheme
+The facts underlying the scheme to defraud are not in dispute.  Neither is Armstrong's
+conduct as part of the scheme.  21/ 
+ 
+Decision to Record Excess Income as Reserves
+Beginning in late 1990 or early 1991, NMC began to realize income in excess of
+budgeted amounts ("excess income") due to changes in Medicare reimbursement for treatment of
+dialysis patients.  NMC recorded this increased revenue in the physicians' compensation accrual
+account ("Compensation Account") within the dialysis services division.  22/  This account
+represented a reserve account for NMC's potential obligations under its incentive compensation
+7
+agreements with the physicians who managed NMC's dialysis clinics, and the excess income
+recorded in this reserve account was in addition to amounts projected as necessary to cover
+potential obligations ("excess reserves").   Hampers, Armstrong, and other managers at NMC
+decided not to report the excess amounts as revenue to Grace until the dialysis services division
+determined how much additional revenue NMC might earn and for how long.
+By August 1991, at least $10 million in excess income had accumulated in the
+Compensation Account, and the dialysis services division determined that the account would
+continue to accumulate excess income at a rate of $4 million to $5 million per month. 
+Armstrong concluded that the excess reserves would cause a material misstatement of NMC's
+financial statements if they were not reported as revenue and discussed this fact with Hampers
+and Nogelo.  Hampers then instructed Armstrong and Nogelo to disclose the existence of the
+additional revenue and excess reserves to Smith, Grace's chief financial officer.
+In approximately September 1991, Armstrong and Nogelo called Smith and told him
+about the excess income.  Smith ordered Armstrong and Nogelo to report only enough income to
+establish the Health Care Group's earnings at a 24 percent growth rate for 1991 and to record any
+revenue that would result in a growth rate above 24 percent as reserves in the Compensation
+Account.  According to Armstrong, Smith told him and Nogelo that "Grace would not get credit
+for additional growth rate beyond that 24 percent."  Nogelo testified that Smith wanted earnings
+that were not needed to achieve that growth rate put into reserves to be used to achieve future
+growth rate targets.  Ryan testified that Smith did not believe that NMC's extraordinary growth
+rate in the early 1990s could be sustained, and that Smith was concerned about a future drop in
+earnings.  Nogelo said that Smith "wanted to report consistent earnings for Grace and the
+healthcare segment rather than have volatile earnings," and that Smith "felt that Wall Street and
+investors valued consistency."
+Armstrong's Role in Implementing the Scheme
+Armstrong executed Smith's instruction to meet the 24 percent growth rate target.  He
+calculated the amount to be held in excess reserves and instructed his staff accordingly. 
+Armstrong then supplied Grace with NMC financial reports that contained these misstated
+income figures.  Armstrong knew that Grace used the numbers that he submitted with respect to
+NMC's earnings to compile drafts of Grace's public filings related to the Health Care Group. 
+Armstrong reviewed drafts of the Health Care Group's disclosures that were included in Grace's
+financial statements and confirmed that the financial results included in those disclosures
+reflected the numbers he had submitted to Grace.
+ 
+The excess reserves in the Compensation Account reached approximately $22 million by
+the end of 1991.  Without diverting the revenue to the reserve account, the Health Care Group
+would have reported enough revenue to show a 35 percent growth rate in 1991 rather than the 24
+percent growth rate targeted by Smith.
+8
+23/ A net effects schedule documents the significant accounting issues uncovered by the
+auditor during its review of a client's books and records and lists proposed adjustments.
+24/ The parties agree that the applicable accounting standards are contained in Financial
+Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No.
+5 ("FAS 5").  FAS 5 permits the non-recognition of revenue or the accrual of income in a
+reserve account when two conditions related to a future contingency are met: the
+contingency is both probable and reasonably estimable.  Armstrong admitted that no
+probable or reasonably estimable liabilities justified accruing the excess income in the
+Compensation Account and that he could not justify the excess reserves in that account
+on the basis of any actual contingencies.
+25/ Price Waterhouse NMC informed Price Waterhouse Grace about the excess reserves.  In
+November of 1991, Eugene Gaughan, the Price Waterhouse partner in charge of the audit
+of Grace's financial statements, first relayed to Smith his concerns that the excess reserves
+were not justified under GAAP.  In early 1992, Gaughan and Thomas Scanlon, another
+Price Waterhouse accountant, met with Smith and Bolduc and told them that the reserves
+were not justified under GAAP and should be reported as income.  Price Waterhouse
+Grace ultimately concluded, however, that the total effects of the excess reserves were not
+material to Grace's financial statements and issued an unqualified audit opinion. 
+Armstrong knew Price Waterhouse Grace issued clean opinions but did not know Price
+Waterhouse Grace's rationale for allowing the reserves.
+Armstrong's Communications with Price Waterhouse Concerning the Excess Reserves
+In approximately November 1991, Price Waterhouse NMC discovered the excess
+reserves in the Compensation Account while reviewing NMC's books and records.  At the
+conclusion of its review, Price Waterhouse NMC prepared a net effects schedule containing all
+accounting entries in NMC's financial statements with which it disagreed. 23/  The 1991 NMC
+net effects schedule contained an entry noting that the excess reserves should be eliminated from
+the Compensation Account. 24/  George Jamieson discussed this schedule at a meeting with
+Armstrong, Nogelo, and Hampers, and Armstrong admits that he knew that Price Waterhouse
+NMC had indicated that the excess reserves should be eliminated.  Neither Hampers, Nogelo, nor
+Armstrong effectuated the change recommended by Price Waterhouse NMC.  Consequently, the
+results that NMC sent to Grace, Grace's consolidated financial statements, and the segment
+disclosure for the Health Care Group in Grace's financial statements contained the targeted
+income figures achieved by diverting actual income to the Compensation Account.  25/
+Armstrong Continues to Record Excess Reserves
+Smith continued to instruct Armstrong to manipulate reported income in 1992.  Smith
+directed NMC to report a growth rate of between 27 and 28 percent for the Health Care Group's
+income for 1992.  To comply with Smith's directive, Armstrong increased the excess reserves in
+the Compensation Account to $48.7 million.  Armstrong and other NMC officers also recorded
+9
+26/ No audit opinion was required because NMC was a wholly-owned subsidiary of Grace
+and not itself a reporting company.
+27/ Gaughan and Scanlon, the lead Price Waterhouse Grace accountants, continued to object
+to the excess reserves.  Nevertheless, the Price Waterhouse audit team issued audit
+reports containing unqualified opinions that Grace's consolidated financial statements
+were in accordance with generally accepted auditing standards ("GAAS") and GAAP. 
+Gaughan and Scanlon each consented to entry of an order directing them to cease and
+desist from committing or causing violations or future violations of the securities laws
+relating to maintenance of books and records and false filings with the Commission.  See
+supra notes 19 and 20. 
+28/ Accordingly, the amount of excess reserves in the Compensation Account remained
+relatively steady from 1993 to the first quarter of 1995, increasing in some quarters and
+decreasing in others, but generally remaining at approximately $50 million.  The excess
+reserves totaled $49.9 million at the end of 1993 and $48.9 million at the end of 1994. 
+29/ The use of the reserves to bolster earnings was effectuated by Armstrong instructing his
+staff to make entries reducing the amount of the excess reserves by the amount of
+additional income Grace said it required to meet its target.  The record is not entirely clear
+about where the income was recorded, but it indicates that Armstrong would also instruct
+his staff to make entries increasing the income of the Health Care Group.
+an additional $7.1 million of excess reserves in NMC's home care division, resulting in total
+excess reserves of almost $56 million.  As a result, Grace reported a 27 percent growth rate for
+the Health Care Group in 1992 as Smith had directed.
+During 1992, Price Waterhouse NMC continued to express concern over the excess
+reserves.  In July 1992, Jamieson met with Armstrong and Nogelo and told them that the excess
+reserves would be a problem if they were significantly higher than in 1991.  When Jamieson
+became aware that the 1992 excess reserves were almost $56 million, he told Armstrong and
+Nogelo that the excess reserves were so large that he would be unable to issue an audit report
+containing an unqualified opinion on NMC's stand-alone financials were he required to do so. 26/ 
+Price Waterhouse NMC again made entries on its year-end net effects schedule noting that it
+believed the excess reserves were improper and should be eliminated.  27/
+Beginning in 1993, the excess reserves were used from time to time pursuant to Smith's
+instructions to bolster earnings.  28/  For example, NMC and Grace took $2.5 million from the
+excess reserves and recorded it as income in each of the second, third, and fourth quarters of
+1993.  In addition, Grace and NMC used an additional $6 million in excess reserves during that
+year to mask revenue shortfalls.  As a result of the excess reserves being added to income, the
+Health Care Group was able to report a growth rate of 34.6 percent in 1993 instead of a growth
+rate of 14 percent.  29/
+10
+30/ In 1995, NMC filed a Form 10 with the Commission in connection with Grace's plan to
+spin off NMC.  The Form 10 contained stand-alone financial statements for NMC for the
+previous three years.  The excess reserves were returned to income in the financial
+statements filed with the Form 10 at Armstrong's insistence.
+31/ 15 U.S.C. § 78j.
+In this way, Smith was able to use the excess reserves to reduce the fluctuations in the
+Health Care Group's reported earnings and to present a picture of a steadier earnings trend.  From
+1991 through 1995, Grace reported income growth for the Health Care Group of 22.7 percent to
+37.1 percent.  Without using the reserves to adjust income, the Group’s income would have
+ranged from a loss of 7.9 percent to a gain of 60.5 percent.
+Armstrong voiced concerns to Price Waterhouse NMC accountants and his superiors at
+NMC and Grace about the excess reserves throughout the period at issue.  30/  Armstrong did not
+believe that the reserves were recorded in accordance with GAAP or with FAS 5, and he would
+not have recorded the reserves had Smith not instructed him to do so.  He nevertheless achieved
+the required earnings targets by determining the amount of revenues that should be recorded as
+reserves and instructing his staff accordingly.  He did so even though he believed that no
+probable or reasonably estimable liabilities or exposures justified those reserves in the
+Compensation Account.  Armstrong was aware that Smith's only reason for recording the excess
+reserves was to achieve a targeted growth rate.
+III.
+The Division alleges that Armstrong participated in Grace's scheme to manipulate
+reported earnings by preparing books and records that falsely reported NMC’s income and by
+providing these false figures to Grace.  The Division contends that Armstrong violated, and was a
+cause of Grace's violations of, the antifraud provisions of the federal securities laws as a result of
+this conduct.  It further contends that through this conduct Armstrong violated or was a cause of
+Grace's violations of various recordkeeping requirements and of Grace's periodic reporting
+requirements.  The Division asks that we enter a cease-and-desist order against Armstrong.  It
+also seeks an order denying Armstrong the privilege of appearing or practicing before the
+Commission pursuant to Rule of Practice 102(e)(1)(iii) on the basis of Armstrong's alleged
+willful violations of the federal securities laws. 
+   
+A. Violations of the Antifraud Provisions
+Exchange Act Section 10(b) authorizes the Commission to prescribe rules, "as necessary
+or appropriate in the public interest or for the protection of investors," making it "unlawful for
+any person, directly or indirectly," to "use or employ in connection with the purchase or sale of
+any security . . . any manipulative or deceptive device or contrivance."  31/  Consistent with
+Section 10(b), Exchange Act Rule 10b-5(a) makes it unlawful for "any person," "directly or
+indirectly," to "employ any device, scheme, or artifice to defraud."  Rule 10b-5(c) makes it
+11
+32/ 17 C.F.R. § 240.10b-5.
+33/ Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 475-76 (1977).
+34/ United States v. O'Hagan, 521 U.S. 642, 659 (1997).
+35/ Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 173
+(1994).
+36/ Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199 n.20 (1976); see also Cooper v. Pickett,
+137 F.3d 616, 624-25 (9th Cir. 1997) (holding that plaintiffs could allege primary liability
+through a scheme to defraud because Rule 10b-5(a) makes it unlawful to employ any
+device, scheme, or artifice to defraud); Greenberg v. Bear Stearns & Co., 220 F.3d 22, 28
+(2d Cir. 2000) ("Knowing participation in a fraudulent scheme may render a participant
+liable under Section 10(b).").  
+Armstrong contends that misrepresentation cases must allege that a defendant made a
+material misstatement or omission while market manipulation cases can be proved by a
+showing that a person participated in a fraudulent scheme, citing Thomson Kernaghan &
+Co. v. Global Intellicom, Inc., 2000 WL 640653 at *4-5 (S.D.N.Y.), an unreported
+decision.  The significance of this assertion is unclear.  A plaintiff may state a claim for a
+fraudulent scheme under subsections (a) and (c) of Rule 10b-5 even when not alleging
+"market manipulation."  See In re Global Crossing Ltd. Sec. Litig., 322 F. Supp. 2d 319,
+336-37 (S.D.N.Y. 2004).  Subsections (a) and (c) encompass much more than the illegal
+trading activity typically involved in a manipulation of the market for a stock:  they
+encompass the use of "any device, scheme or artifice," or "any act, practice, or course of
+business" used to perpetrate a fraud on investors.  Id. at 336 (emphasis original). 
+Schemes used to artificially inflate the price of stocks by creating phantom revenue fall
+squarely within both the language of section 10(b) and its broad purpose, to "prevent
+practices that impair the function of stock markets in enabling people to buy and sell
+securities at prices that reflect undistorted (though not necessarily accurate) estimates of
+the underlying economic value of the securities traded," and nothing in the language of
+section 10(b) or Rule 10b-5 or in the case law interpreting them shields a defendant from
+liability for direct participation in such a scheme.  Id. at 337 (citations omitted).
+unlawful for "any person," "directly or indirectly," to "engage in any act, practice, or course of
+business which operates or would operate as a fraud or deceit upon any person . . . ."  32/
+The Supreme Court has stated that Section 10(b) encompasses deceptive "practices," 33/
+deceptive "conduct," 34/ and deceptive "acts," 35/ and that its prohibition against employing "any
+manipulative or deceptive device or contrivance" includes a scheme to defraud.  36/  A person's
+conduct as part of a scheme constitutes a primary violation when the person directly or indirectly
+12
+37/ See, e.g., Cooper, 137 F.3d at 624 (stating that Central Bank does not preclude liability
+based on allegations that a group of defendants acted together to violate the securities
+laws, as long as each defendant committed a manipulative or deceptive act in furtherance
+of the scheme); In re Enron Corp. Sec. Litig., 258 F. Supp. 2d 576, 627 n.56 (S.D. Tex.
+2003) (holding that a plaintiff must allege that each defendant in a scheme committed a
+manipulative or deceptive act in furtherance of the scheme to state a claim against that
+defendant); In re Lernout & Hauspie Sec. Litig., 236 F. Supp.2d 161, 173 (D. Mass.
+2003) (authorizing primary liability for "any person who substantially participates in a
+manipulative or deceptive scheme by directly or indirectly employing a manipulative or
+deceptive device . . . intended to mislead investors, even if a material misstatement by
+another person creates the nexus between the scheme and the securities market").
+38/ See, e.g., In re Global Crossing Ltd. Sec. Litig., 322 F. Supp. 2d 319, 336 (S.D.N.Y.
+2004); Brown v. Kinross Gold, U.S.A., 343 F. Supp. 2d 957, 963 (D. Nev. 2004); see also
+In re Enron Corp. Sec. Litig., 235 F. Supp. 2d 549, 592 (S.D. Tex. 2002) ("If a plaintiff
+meets the requirements of pleading primary liability as to each defendant, i.e., alleges
+with factual specificity (1) that each defendant made a material misstatement (or
+omission) or committed a manipulative or deceptive act in furtherance of the alleged
+scheme to defraud, (2) scienter, and (3) reliance, that plaintiff can plead a scheme to
+defraud and still satisfy Central Bank.").  The Division is not required to prove reliance. 
+SEC v. North American Research and Development Corp., 424 F.2d 63, 84 (2d Cir.
+1970); SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985); SEC v. Rana Research, Inc., 8
+F.3d 1358, 1363-64 (9th Cir. 1993).
+39/ A fact is material if there is 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) (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).  A
+reasonable investor would have considered the true volatility of Grace's earnings to be
+important.  The Division's expert testified that the value of a corporation's shares depends
+heavily on its growth rate and the smoothness of the trend of that growth rate.  As a result
+of the false income figures Armstrong submitted to Grace, Grace reported income growth
+for the Health Care Group of 22.7 percent to 37.1 percent from 1991 through 1995, but
+would have reported a loss of 7.9 percent to a gain of 60.5 percent without using the
+(continued...)
+engages in a manipulative or deceptive act as part of the scheme.  37/  Accordingly, a person may
+be primarily liable for violating Section 10(b) and Rule 10b-5 when he (1) engages in a
+manipulative or deceptive act as part of a scheme to defraud (2) with scienter.  38/
+1. F raudulent scheme
+Allocating a portion of NMC's income to excess reserves in 1991 to 1992 and using the
+reserves to inflate falsely and materially 39/ Grace's stated income in 1993, 1994, and the first
+13
+39/ (...continued)
+excess reserves.  Armstrong does not contest the materiality of this information to Grace's
+financial statements.
+40/ See, e.g., Cooper, 137 F. 2d at 624 (holding that plaintiffs stated a claim against company
+and analysts for primary liability under Section 10(b) where company made false
+statements to analysts and analysts issued reports based on statements that they knew
+were false as part of scheme to defraud company's shareholders by falsely presenting the
+company's current and future business prospects); Cf. Global Crossing, 322 F. Supp. 2d at
+336 (holding that plaintiffs stated a claim against accounting firm for primary liability
+under Section 10(b) where accounting firm directed misleading accounting scheme and
+sham swap transactions used to circumvent GAAP and inflate companies' revenues,
+actively participated in structuring each swap, and directly participated in the creation of
+misleading numbers that concealed these practices from investors); Lernout & Hauspie,
+236 F. Supp. 2d at 172-74 (holding that plaintiffs stated a claim against defendants for
+primary liability under Section 10(b) where defendants participated in scheme to hide
+research and development expenses, create fictitious revenue, and ultimately overstate
+(continued...)
+quarter of 1995 constituted a fraudulent scheme.  The purpose of the scheme was to create
+publicly-filed financial statements that deceived analysts and investors by portraying the Health
+Care Group's rate of income growth as steadier than in reality, and as consistent with analyst
+expectations.
+Armstrong is primarily liable for his role in this deception.  It was Armstrong who
+calculated the amounts of income necessary to be held as excess reserves in order to achieve the
+falsified earnings and who recorded the excess reserves on NMC's financial statements. 
+Armstrong then directed his staff to make entries booking the necessary reserve amounts when
+NMC's income exceeded Grace's targets.  Later, he also instructed his staff to reduce reserves and
+increase income for the Health Care Group by the necessary amounts when Grace needed to use
+the reserves to meet earnings targets.  Finally, Armstrong submitted this inaccurate revenue
+information to Grace knowing that Grace would incorporate it into its financial statements and
+that the incorporation of this information would materially alter Grace's revenue as stated in its
+public filings.  Armstrong's conduct in thus falsifying NMC's revenues was the mechanism by
+which Grace achieved its goal of deceiving investors and analysts as to its income stream.  The
+principal purpose of these actions, reporting figures with respect to NMC's revenues and earnings
+that Armstrong knew to be false, was to create the false appearance that Grace had steady,
+consistent growth in income over a period of several years.  Armstrong also reviewed drafts of
+the Health Care Group's disclosures that were included in Grace's financial statements and
+confirmed that the financial results included in those disclosures conformed with the false and
+misleading numbers he had submitted to Grace.  The materially misleading revenue amounts
+reported in Grace's financial statements were caused entirely by the false figures reported by
+Armstrong.  We conclude that Armstrong engaged in deceptive acts as part of a scheme to
+defraud.  40/
+14
+40/ (...continued)
+profits by setting up, funding, and operating shell companies knowing that these
+companies were designed solely to inflate profits artificially).
+41/ 152 F.3d 169 (2d Cir. 1998), cert. denied, 525 U.S. 1104 (1999).
+42/ 123 F.3d 717 (2d Cir. 1997).
+43/ United States v. O'Hagan, 521 U.S. 642, 664 (1997); see also Affiliated Ute Citizens v.
+United States, 406 U.S. 128, 152-53 (1972) (stating that court of appeals erred when it
+held that there was no violation of Rule 10b-5 unless the record disclosed evidence of
+reliance on material fact misrepresentations because, although Rule 10b-5(b) requires the
+making of an untrue statement of material fact or the omission to state a material fact,
+Rule 10b-5(a) and (c), addressing schemes, devices, and courses of business, are not so
+restricted).
+44/ See SEC v. U.S Environmental, Inc., 155 F.3d 107, 112 (2d Cir. 1998) (distinguishing
+Shapiro and Central Bank and holding defendant primarily liable because he "participated
+in the fraudulent scheme" by "himself committ[ing] a manipulative act") (citations
+omitted).
+ Armstrong contends, relying principally on Wright v. Ernst & Young LLP 41/ and
+Shapiro v. Cantor 42/, that the Division's case against him fails because the Division did not
+establish that Armstrong directly made a false or misleading statement to Grace’s investors.  The
+Supreme Court has rejected the contention that Section 10(b) "covers only deceptive statements
+or omissions." 43/  Since Wright and Shapiro are limited to analyses of culpability for misleading
+statements and do not address liability with respect to a fraudulent scheme, they are of limited
+relevance here.  44/
+Moreover, even if Armstrong's liability were examined under Rule 10b-5(b) – which
+makes it unlawful for any person to “directly or indirectly” “make any untrue statement of a
+material fact” “in connection with the purchase of sale of a security” – Wright and Shapiro offer
+little to further his argument.  In Wright, the court held that an accounting firm was not primarily
+liable under Section 10(b) for misstatements in its client's press release when the firm had done
+nothing more than orally assure the company that its financial results were accurate.  The court
+held that the press release disseminating those financial results attributed no assurances to the
+accounting firm and explicitly stated that the results were unaudited.  Here, Armstrong actually
+calculated the false data, recorded it, and submitted it to Grace knowing that it would be
+incorporated into Grace’s financial statements and make them materially false and misleading,
+and he reviewed drafts of documents included in Grace’s financial statements and confirmed that
+15
+45/ The Wright court’s requirement that a false statement be publicly attributed to the
+defendant was motivated by a desire not to undermine the reliance element of a private
+action under Rule 10b-5(b).  As noted, see supra note 38, the Division, unlike a private
+plaintiff, is not required to prove reliance.  Thus, the principal basis for the attribution
+requirement in Wright is not present here.
+46/ See, e.g., In re Enron Corp. Sec. Litig., 235 F. Supp. 2d 549, 588 (S.D. Tex. 2002)
+(adopting Commission’s proposed test for liability under Rule 10b-5(b) that a person is
+primarily liability when he, acting alone or with others, creates a misrepresentation or
+writes misrepresentations for inclusion in a document to be given to investors); In re
+ZZZZ Best Sec. Litig., 864 F. Supp. 960, 970 (C.D. Cal. 1994) (holding that anyone
+intricately involved in the creation of misstatements and the resulting deception to
+investors should be liable under Rule 10b-5(b)); In re Software Toolworks, 50 F.3d 615,
+628 n.3, 629 (9th Cir. 1994) (holding that accounting firm could be primarily liable under
+Section 10(b) when it reviews and plays a significant role in drafting and editing letters to
+the Commission containing misstatements);  Cashman v. Coopers & Lybrand, 877 F.
+Supp. 425, 432 (N.D. Ill. 1995) (holding that accounting firm may be primarily liable for
+its central role in the drafting and formation of misstatements incorporated into
+company’s prospectus); McNamara v. Bre-X Minerals Ltd., 57 F. Supp. 2d 396, 429
+(E.D. Tex. 1999) (stating that, in amending their complaint, plaintiffs will adequately
+state a claim against defendants who allegedly played a significant role in developing
+allegedly false statements made by issuer).  In this case, Armstrong, by communicating
+the false information to Grace, was, if not directly, at least indirectly, making the false
+statements that appear in Grace’s financial statements.
+those documents conformed with the false data he had previously submitted.  45/  In Shapiro, the
+court held that an accounting firm was not primarily liable for its client's failure to disclose the
+material information that one of the client's principals had been convicted of fraud.  The court
+held that the accounting firm had no duty to disclose such information, and that the only
+information prepared by the firm in the client's offering memoranda, the client's financial
+projections, did not include any material misstatements.  Again, this case is distinguishable from
+the instant case, where Armstrong calculated, recorded, and then submitted to Grace the
+materially false information that was incorporated into Grace's financial statements.  A person
+can be primarily liable under Section 10(b) and Rule 10b-5 for directly or indirectly making an
+untrue statement of fact if that person, acting alone or with others, creates a false statement that
+reaches investors.  46/
+Armstrong further argues that he cannot be held liable for violating Section 10(b) or Rule
+10b-5 because he merely followed Smith's directions to carry out the fraudulent acts.  Case law
+does not support Armstrong's claim.  Courts have repeatedly affirmed that someone who
+participates in a fraudulent scheme by following his superior's instructions to carry out fraudulent
+16
+47/ See SEC v. U.S. Environmental, Inc., 155 F.3d at 112 (holding that someone who
+participates in a fraudulent scheme by committing manipulative acts may be liable as a
+primary violator despite the fact that someone else directed the scheme); see also In re
+Enron Corp. Sec. Litig., 235 F.Supp. 2d at 588 (holding that a person can be a primary
+violator provided the person writes misrepresentations for inclusion in a document to be
+given to investors even if the person did not initiate the misrepresentations and the idea
+for the misrepresentations came from someone else).
+48/ See Aaron v. SEC, 446 U.S. 680, 695, 697 (1980); Ernst & Ernst v. Hochfelder, 425 U.S.
+185, 193 (1976); Steadman v. SEC, 603 F.2d 1126, 1134 (5th Cir. 1979), aff'd, 450 U.S.
+91 (1981). 
+49/ Ernst & Ernst v. Hochfelder, 425 U.S. at 193.  Reckless behavior satisfies the scienter
+requirement.  See, e.g., SEC v. Dain Rauscher, Inc., 254 F.3d 852, 856 (9th Cir. 2001);
+C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1435 (10th Cir. 1988); see also SEC v. U.S.
+Environmental, 155 F.2d at 111.
+50/ For this reason, we find disingenuous Armstrong’s arguments that he lacked scienter
+because he did not know NMC’s false financial results would cause Grace’s periodic
+(continued...)
+acts can be liable as a primary violator under Section 10(b) and Rule 10b-5. 47/  Armstrong
+carried out Smith's instructions to make fraudulent entries in NMC's books and records.  As
+discussed above, Armstrong's calculation of the false figures constituted deceptive acts as part of
+a fraudulent scheme.
+Armstrong suggests that finding him liable will result in horrific consequences since any
+individual who discovers misstatements and investigates or inquires about them but fails to
+prevent their publication will henceforth be liable for antifraud violations.  Armstrong ignores a
+critical distinction between this hypothetical conduct and his own.  Armstrong did not merely
+discover potential misstatements; he determined the amounts necessary to be held in reserve, he
+prepared NMC's fraudulent financial results, and he provided these figures to Grace.  He also
+reviewed Grace's financial statements and confirmed that the fraudulent results he had submitted
+were included in the Health Care Group segment disclosures.  Thus, Armstrong was an active
+participant in the fraudulent scheme rather than an innocent bystander.
+2. Scienter
+Scienter is a necessary element of a violation of Exchange Act Section 10(b) and
+Exchange Act Rule 10b-5. 48/  Scienter has been defined by the United States Supreme Court as
+a "mental state embracing intent to deceive, manipulate or defraud." 49/  The record contains
+abundant undisputed evidence that Armstrong acted with scienter.  Armstrong testified that he
+knew that Smith's sole reason for establishing the NMC excess reserves was to create the
+appearance of a growth rate for Grace's income that was different from Grace's true rate.  50/ 
+17
+50/ (...continued)
+reports to contain material misstatements, he did not know what other liabilities existed
+for which the excess reserves might be needed, and he could reasonably assume that
+Grace’s consolidation process would result in financial statements that did not contain
+material misstatements.  Armstrong knew that the principal purpose and effect of the
+scheme was to deceive investors by creating materially false financial statements. 
+51/ We also note that the record does not indicate that Armstrong ever raised his concerns
+specifically with Price Waterhouse Grace.
+Armstrong calculated the amounts to be allocated to the excess reserve accounts in order to
+achieve the income growth rate targeted by Smith and provided NMC's financial results to Grace
+knowing that they contained the falsely calculated income and reserve figures.  Armstrong
+conceded that no known contingencies justified the excess reserves and that the excess reserves
+did not accord with GAAP.  Armstrong also knew at the time he recorded the excess reserves
+that those reserves would be used to increase income artificially at some later point.  He was also
+aware that Grace used the NMC reports containing the misleading figures that he submitted to
+compile its financial statements and the Health Care Group segment disclosures in its Forms 10-
+K and 10-Q.  Armstrong reviewed Grace's draft Forms 10-K and 10-Q and confirmed that they
+contained the earnings numbers that NMC submitted to Grace.  He also knew that Price
+Waterhouse NMC believed that the excess reserves should be eliminated.  We conclude that
+Armstrong knowingly participated in the fraudulent scheme.
+Armstrong argues that a finding that he acted with scienter is inappropriate because he
+repeatedly discussed his belief that the excess reserves did not accord with GAAP with his
+supervisors at NMC, senior management at Grace, Grace's internal audit staff, and Price
+Waterhouse NMC.  Armstrong's expressed concerns about the scheme, however, while
+establishing that he perhaps acted reluctantly, make clear that he acted knowingly.  51/
+Armstrong's testimony about his conversations with others at NMC, Grace, and Price
+Waterhouse demonstrates that he knew that the excess reserves did not accord with GAAP but he
+nevertheless recorded the reserves and submitted reports to Grace that included these entries.
+Armstrong next contends that he reasonably relied on the auditors at Price Waterhouse
+who issued unqualified audit opinions with respect to Grace's consolidated financial statements. 
+This argument is without merit.  When a respondent knows financial statements are false and
+misleading, he cannot "rely" in good faith on an auditor's willingness to issue an unqualified
+18
+52/ United States v. Erickson, 601 F.2d 296, 305-06 (7th Cir. 1979); see also Marksman
+Partners, L.P. v. Chantal Pharm. Corp., 927 F. Supp. 1297, 1314 n.13 (C.D. Cal. 1996);
+SEC v. DCI Telecommunications, Inc., 122 F. Supp. 2d 495, 500 n.2 (S.D.N.Y. 2000);
+Cf. Howard v. SEC, 376 F.3d 1136, 1147 (D.C. Cir. 2004) (stating that where respondent
+can show that he relied reasonably on the advice of an attorney, this may be evidence that
+respondent acted in good faith).
+53/ See, e.g., United States v. Evangelista, 122 F.3d 112, 117 (2d Cir. 1997) (rejecting good
+faith reliance defense in tax evasion case where defendant's conduct was contrary to
+accountant’s advice).
+54/ Armstrong acted willfully in violating the antifraud provisions.  Acting willfully means
+intentionally committing the act that constitutes the violation.  There is no requirement
+that the actor also be aware that he is violating one of the Rules or Acts.  Arthur Lipper
+Corp. v. SEC, 547 F.2d 171, 180 (2d Cir. 1976) (quoting Tager v. SEC, 344 F.2d 5, 8 (2d
+Cir. 1965)); Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Gearhart &
+Otis, Inc. v. SEC, 348 F.2d 798, 803 (D.C. Cir. 1965)); V.F. Minton Securities, Inc., 51
+S.E.C. 346, 352 (1993), aff'd, 18 F.3d 937 (5th Cir. 1994) (Table). Armstrong acted
+willfully because he intentionally committed the deceptive acts.  
+audit opinion with respect to those statements.  52/  Armstrong knew that the excess reserves did
+not accord with GAAP and that the excess reserves caused misstatements of the Health Care
+Group's results in Grace's financial statements.  Armstrong also knew that Price Waterhouse
+NMC believed that the excess reserves did not accord with GAAP and wanted them removed and
+returned to earnings.  53/
+Armstrong recorded the excess reserves and submitted them to Grace knowing that they
+did not accord with GAAP and that Grace desired the reserves for the purpose of earnings
+management.  He also made entries reducing the reserves and increasing income when Grace
+instructed NMC to provide it with more income.  Armstrong also knew that Grace used the
+numbers he submitted to compile drafts of its public filings related to the Health Care Group.  He
+admits that he reviewed these drafts to confirm that the financial results included in those
+disclosures reflected the numbers he had reported to Grace.  Finally, he acknowledges that he
+knew that the financial statements that Grace filed with the Commission reflected the excess
+reserves.  Based on this extensive record evidence, we conclude that Armstrong participated with
+scienter in the fraudulent scheme to falsify Grace's earnings. 
+Armstrong committed deceptive acts as part of a scheme to defraud.  He engaged in these
+acts with a high degree of scienter.  Accordingly, we find that Armstrong willfully violated
+Section 10(b) of the Exchange Act and Rule 10b-5.  54/
+19
+55/ Robert M. Fuller, Exchange Act Rel. No. 48406 (Aug. 25, 2003), 80 SEC Docket 3539,
+3545.
+56/ United States v. Bilzerian, 926 F.2d 1285, 1298 (2d Cir. 1991).
+57/ The Rockies Fund, Inc., Exchange Act Rel. No. 48590 (Oct. 2, 2003), 81 SEC Docket
+703, 729, reconsideration denied, Exchange Act Rel. No. 49788 (June 1, 2004), 82 SEC
+Docket 3764.
+58/ See SEC v. Falstaff Brewing Corp., 629 F.2d 62, 72 (D.C. Cir.) (holding that company
+violated Rule 12b-20 by failing to update Form 10-K that did not disclose certain material
+facts related to litigation), cert. denied, 449 U.S. 1012 (1980).
+B. Causing Violations of the Antifraud Provisions
+Armstrong also was a cause of violations of the antifraud provisions of the securities
+laws.  An individual is a cause of a violation if 1) a primary violation occurred; 2) the individual
+committed an act or omission that was a cause of the violation; and 3) the individual knew or
+should have known that his conduct would contribute to the violation.  55/   Armstrong
+participated in and caused a fraudulent scheme in violation of Section 10(b) of the Exchange Act
+and Rule 10b-5, whereby Grace issued financial statements that contained material
+misstatements.   Armstrong was a cause of these violations by calculating and providing Grace
+with the figures that enabled it to report the fraudulent growth rates.  Armstrong knew that his
+conduct would contribute to these violations because he knew that Grace incorporated these
+figures into its financial statements.  As a result, Armstrong is liable as a cause of violations of
+the antifraud provisions.
+C. Periodic Reporting Requirement Violations
+Exchange Act Section 13(a) and Exchange Act Rules 13a-1 and 13a-13 require public
+companies whose securities are registered pursuant to Exchange Act Section 12 to file annual
+and quarterly reports with the Commission.  The obligation to file these reports includes an
+obligation that the filings be accurate.  56/  The rules require that the reports comply with
+Regulation S-X, which in turn requires that financial statements be prepared in conformity with
+GAAP.  57/  Rule 12b-20 requires an issuer to provide any additional information in the reports
+necessary in order to make the reports not misleading.  58/
+Grace violated Exchange Act Section 13(a) and Rules 12b-20, 13a-1 and 13a-13 because
+its Form 10-K and Form 10-Q filings included financial statements that were materially false and
+misleading and that did not accord with GAAP.  Armstrong was a cause of these violations
+because he calculated and recorded the excess reserves, submitted financial reports containing
+the effect of the reserves to Grace and, through his subsequent review of Grace's financial
+statements, ensured that his false figures had been incorporated into those statements.  Armstrong
+knew that his conduct would contribute to the violations because he knew that Grace used these
+20
+59/ The law judge cites both Exchange Act Section 13(b)(2)(A) and 13(b)(2)(B) before
+concluding that Armstrong caused violations of Section 13(b)(2).  Section 13(b)(2)(B) of
+the Exchange Act requires every reporting company to devise and maintain a system of
+internal accounting controls sufficient to provide reasonable assurances that transactions
+are recorded as necessary to permit the preparation of financial statements in conformity
+with GAAP.  The Order Instituting Proceedings charged Armstrong with being a cause of
+Grace's violations of Section 13(b)(2) generally, and the parties did not address whether
+Armstrong was a cause of a violation of Section 13(b)(2)(B).  Accordingly, we do not
+reach the issue of whether Armstrong caused a violation of Section 13(b)(2)(B).
+statements in preparing its public filings.  As a result, we find that Armstrong was a cause of
+Grace's violations of its periodic reporting requirements.
+D. Recordkeeping Violations
+Exchange Act Section 13(b)(2)(A) requires issuers of securities registered pursuant to
+Exchange Act Section 12 to make and keep books, records, and accounts which, in reasonable
+detail, accurately and fairly reflect the transactions and dispositions of assets of the issuer. 59/  
+Exchange Act Section 13(b)(5) provides that no person shall knowingly falsify any book, record,
+or account subject to Section 13(b)(2)(A).  Exchange Act 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). 
+Grace violated Exchange Act Sections 13(b)(2)(A) and 13(b)(5) and Rule 13b2-1 by
+recording the false and misleading entries concerning the excess reserves on its books and
+records and therefore maintaining books and records that did not accurately and fairly reflect its
+transactions and assets.  Armstrong was a cause of Grace's violations of these provisions because
+he recorded the excess reserves on NMC's books knowing that they misstated NMC's financial
+results and transmitted these entries to Grace knowing that Grace would incorporate this
+information into its own books and records.  Armstrong himself violated Exchange Act Rule
+13b2-1 because he caused Grace's books and records to be falsified as a result of these actions.
+E. Rule 102(e)
+Rule 102(e)(1)(iii) provides that the "Commission may censure a person or deny,
+temporarily or permanently, the privilege of appearing or practicing before it in any way to any
+person who . . . (iii) willfully violated . . . any provision of the Federal securities laws or the rules
+and regulations thereunder."  Armstrong contends that, even if he is found to have willfully
+violated the securities laws, the Rule is nevertheless inapplicable to his conduct in this matter. 
+Armstrong argues (1) that the Rule requires that he appear or practice before the Commission at
+the time of the misconduct underlying the willful violations and that his actions did not constitute
+appearing or practicing before the Commission; and (2) that the Rule applies only to licensed
+accountants and that he was no longer licensed as an accountant at the time of the misconduct.
+21
+60/ 17 C.F.R. § 201.102(f).
+1. Appearing and Practicing Before the Commission
+The law judge found that Armstrong did not appear or practice before the Commission
+and that such a finding is necessary in order for the Commission to deny a person the privilege of
+appearing or practicing before it pursuant to Rule 102(e)(1)(iii).  We reject that conclusion. 
+ 
+Even if Rule 102(e) is construed to require a person to have been appearing or practicing
+before the Commission while violating the securities laws, we reject the law judge’s conclusion
+that Armstrong did not appear or practice because he was not an officer of a public company and
+did not prepare any of the reports that Grace filed with the Commission because he did not
+actually draft them.  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. 60/ 
+The text of the Rule does not specify that a person must sign a document filed with the
+Commission.  Moreover, the term "preparation" of a document is, we believe, sufficiently broad
+to encompass the preparation of data to be included in a document filed with the Commission, at
+least where, as here, the data was prepared for the express purpose of being included in such a
+document. 
+The law judge's holding would allow accountants to escape discipline under Rule 102(e)
+simply by instructing someone else to draft, sign, and file fraudulent documents.  The Rule,
+however, recognizes that financial statements often incorporate information created, compiled, or
+edited by accountants who are not responsible for signing or filing the financial statements. 
+Thus, practicing before the Commission includes computing the figures and supplying the data
+incorporated into Commission filings and consenting to their incorporation.  As a result,
+Armstrong appeared and practiced before the Commission because he computed the amounts of
+income needed to be held in reserve to achieve Grace’s targeted growth rates, prepared the
+materially false financial reports based on these figures, and submitted this information to Grace
+knowing that Grace would incorporate it into its Commission filings.  Armstrong consented to
+the inclusion of these figures because he reviewed Grace's draft financial statements containing
+these figures, confirmed that the figures reconciled with the numbers that he had submitted, and
+suggested no changes to the numbers.
+22
+61/ Congress embraced our application of Rule 102(e) by codifying the rule substantially
+verbatim in Section 4C of the Exchange Act as a result of the Sarbanes-Oxley Act of
+2002.  It is well established that when Congress revisits a statute giving rise to a
+longstanding administrative interpretation without pertinent change, the "congressional
+failure to revise or repeal the agency's interpretation is persuasive evidence that the
+interpretation is the one intended by Congress."  Commodity Futures Trading Comm’n v.
+Schor, 478 U.S. 833, 846 (1986) (citations omitted); see also Lorillard v. Pons, 434 U.S.
+575, 581 (1978) ("Congress is presumed to be aware of an administrative or judicial
+interpretation of a statute and to adopt that interpretation when it re-enacts a statute
+without change[.]  So too, where, as here, Congress adopts a new law incorporating
+sections of a prior law, Congress normally can be presumed to have had knowledge of the
+interpretation given to the incorporated law, at least insofar as it affects the new statute.")
+(citations omitted);  Cf. Herman & MacLean v. Huddleston, 459 U.S. 375, 384-85 (1983)
+(stating that Congress’s decision to leave Section 10(b) intact while comprehensively
+revising the securities laws suggested that Congress ratified the well-established judicial
+interpretation of the implied private right of action under Section 10(b)); Davis v.
+Michigan Dep’t of Treasury, 489 U.S. 803, 813 (1989) ("When Congress codifies a
+judicially defined concept, it is presumed, absent an express statement to the contrary,
+that Congress intended to adopt the interpretation placed on that concept by the courts.").
+62/ Touche Ross & Co. v. SEC, 609 F.2d 570, 582 (2d Cir. 1979).
+63/ Id.
+64/ Id. at 581.
+Our conclusion comports with the remedial purpose of Rule 102(e).  61/   The
+Commission disciplines professionals pursuant to Rule 102(e) in order to "protect the integrity of
+its own processes."  62/  The Rule "provides the Commission with the means 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." 63/  The reliability
+of the disclosure process is impaired if incompetent or unethical accountants are permitted to
+certify financial statements.  64/  The reliability of the disclosure process is equally impaired if
+such accountants are permitted to participate in the preparation of financial statements certified
+and filed with the Commission.  As a result, disciplining accountants pursuant to Rule 102(e) for
+effecting a fraudulent scheme by computing the figures and providing the information
+incorporated into Commission filings furthers the Rule’s remedial purpose of protecting the
+integrity of the Commission’s processes.
+This interpretation also accords with the settled cases in which we have denied the
+privilege of appearing or practicing before the Commission to accountants serving as officers of
+privately-held subsidiaries of public companies who participated in fraudulent schemes to
+misstate the parent company's financial statements by providing fraudulent figures that were
+23
+65/ Robert S. Barton, Exchange Act Rel. No. 41181 (Mar. 18, 1999), 69 SEC Docket 1053
+(denying privilege of appearing and practicing before Commission to vice president of
+finance of a private, wholly-owned subsidiary of a public reporting company who
+recorded fictitious assets and entries on the subsidiary's books to meet earnings targets);
+Maria Mei Wenner, Exchange Act Rel. No. 40290 (July 31, 1998), 67 SEC Docket 2157
+(denying privilege of appearing and practicing before Commission to chief financial
+officer of privately-held subsidiary of public reporting company who prepared and sent to
+parent company monthly and quarterly reports that included fraudulent entries); Gary A.
+Prince, Exchange Act Rel. No. 38765 (June 24, 1997), 64 SEC Docket 2154 (denying
+privilege of appearing or practicing before Commission to accountant whose license had
+lapsed who served as officer of privately-held subsidiary of public reporting company and
+who participated in fraudulent scheme to overstate parent company's revenues).
+The facts of Maria Mei Wenner are very similar to those presented here.  Wenner was the
+chief financial officer of a privately-held subsidiary of a public reporting company who
+was responsible for compiling the subsidiary's sales and financial data which was then 
+forwarded to the parent company.  Wenner participated in a fraudulent scheme,
+orchestrated by her superiors, to overstate the parent company's revenue by booking
+millions of dollars of fictitious sales.  She then prepared and sent to the parent company
+monthly reports and quarterly financial statements that included the fraudulent entries. 
+The parent company's financial statements that were filed with the Commission included
+the effect of these fraudulent entries.  We held that Wenner violated the federal securities
+laws and denied her the privilege of appearing or practicing before us as an accountant.
+66/ While the cited authorities are settled cases, they reflect the Commission’s established
+view that officers of privately-held subsidiaries of public companies who provide
+fraudulent figures that are incorporated into public company reports filed with the
+Commission are subject to Rule 102(e).  See Herbert Moskowitz, Exchange Act Rel. No.
+45609 (Mar. 21, 2002), 77 SEC Docket 481, 495-96 (rejecting respondent’s suggestion
+that no precedent supported liability because settled cases reflected Commission's view
+that liability was appropriate in respondent's situation).
+incorporated into the parent company’s reports filed with the Commission.  65/  Signing
+fraudulent statements filed with the Commission was not a prerequisite in any of these cases
+either for a person to have been appearing or practicing before the Commission or for a finding
+that discipline was warranted pursuant to Rule 102(e).  66/
+In any event, the text of Rule 102(e) contains no requirement that a person must be
+appearing and practicing before the Commission at the time of the conduct on which the
+Commission's findings are based.  Rule 102(e)(1) provides that a person may be denied the
+privilege of appearing or practicing before the Commission once the Commission makes one of
+three findings:  (i) that the person does not possess the requisite qualifications to represent others;
+(ii) that the person lacks character or integrity or has engaged in unethical or improper
+professional conduct; or (iii) that the person has willfully violated or willfully aided and abetted
+24
+67/ See Duncan v. Walker, 533 U.S. 167, 173 (2001).
+the violation of any provision of the federal securities laws or rules and regulations thereunder. 
+Denying the person the privilege of appearing or practicing before the Commission is the
+authorized remedy once the Commission makes one of the findings specified in Rule
+102(e)(1)(i)-(iii); appearing or practicing before the Commission at the time of the misconduct is
+not the precondition to imposing that remedy.  Armstrong provides no compelling reason for
+imputing a requirement that a person must be appearing or practicing before the Commission at
+the time of the misconduct.  Accordingly, we conclude that we have the authority to suspend
+Armstrong pursuant to Rule 102(e) because he willfully violated the federal securities laws.
+ 
+We conclude that Armstrong in fact appeared or practiced before the Commission
+(assuming that Rule 102(e) imposes such a requirement) because he computed the figures and
+provided the data included in Grace's financial statements filed with the Commission and
+consented to the inclusion of this information.  We further conclude that the Commission may
+discipline individuals pursuant to Rule 102(e) even if those individuals did not appear or practice
+before the Commission while committing willful violations of the securities laws.
+2. Definition of Accountant
+Armstrong’s contention that Rule 102(e)(1)(iii) is limited to persons licensed to practice
+as accountants is incorrect.  The text of the Rule contains no such restriction.  Rule 102(e)(1)(iii)
+provides that the Commission may censure "any person" or deny "any person" the privilege of
+appearing or practicing before it if it finds that such person willfully violated the federal
+securities laws.  The Rule does not limit the definition of "any person" to a person licensed to
+practice accounting.  The integrity of the Commission’s processes would be threatened,
+moreover, if unlicensed accountants or accountants whose licenses lapsed could escape discipline
+for willfully violating the federal securities laws.  These accountants often serve as corporate
+officers, and the integrity of the Commission’s processes is threatened when they execute
+fraudulent schemes by providing falsified financial information just as when licensed accountants
+engage in this conduct.   We find that Armstrong's request that we limit the Rule to persons
+licensed to practice as accountants contradicts the plain language and the purpose of Rule 102(e).
+Armstrong argues that the reference in subsection (e)(1)(iv) to "persons licensed to
+practice as accountants" indicates that the Commission intended to limit Rule 102(e) to licensed
+accountants.  That subsection, however, merely defines the term "improper professional conduct"
+for purposes of Rule 102(e)(1)(ii).   This definition is inapplicable to Rule 102(e)(1)(iii).
+Armstrong's suggested reading of Rule 102(e) is contrary to principles of statutory
+construction.  Drafters are presumed to act intentionally and purposely in including particular
+language in one section of a statute or rule but omitting it in another section of the same statute
+or rule.  67/  Where one subsection of a statute contains a phrase limiting that subsection and
+other subsections do not, courts generally have been reluctant to limit the other subsections
+because the drafters could have included the phrase had they intended the other subsections to be
+25
+68/ See Florida Public Telecommunications Ass'n, Inc. v. FCC, 54 F.3d 857, 860 (D.C. Cir.
+1995) (refusing to circumscribe subsection's applicability where other subsections
+contained a phrase limiting those subsections because Congress could have included the
+same phrase had it intended to circumscribe similarly that subsection).
+69/ This reading of the Rule also conforms with past settled cases in which we have
+suspended accountants under Rule 102(e)(1)(iii) who either were not licensed or who had
+allowed their licenses to lapse at the time of their misconduct.  James A. Terrano,
+Exchange Act Rel. No. 39485 (Dec. 23,1997), 66 SEC Docket 494 (lapsed license); Elliot
+Stumacher, Exchange Act Rel. No. 39124 (Sept. 24, 1997), 65 SEC Docket 1356 (not
+licensed); Gary A. Prince, 64 SEC Docket 2154 (lapsed license); Aura Systems, Inc.,
+Securities Act Rel. No. 7352 (Oct. 2, 1996), 62 SEC Docket 2814 (lapsed license);
+Gerald M. Kudler, Exchange Act Rel. No. 36598 (Dec. 18, 1995), 60 SEC Docket 2871
+(not licensed); Alan S. Goldstein, Exchange Act Rel. No. 34641 (Sept. 6, 1994), 57 SEC
+Docket 1544 (lapsed license).
+70/ Section 2462 provides a five-year statute of limitations for "an action, suit, or proceeding
+for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise."  In
+Johnson v. SEC, the D.C. Circuit held that Section 2462 applied to a Commission
+administrative proceeding imposing a censure and suspension.  87 F.3d 484 (D.C. Cir.
+1996).
+71/ See Sharon M. Graham, 53 S.E.C. 1072, 1089 n.47 (1998), aff’d, 222 F.3d 994 (D.C. Cir.
+2000).
+similarly circumscribed.  68/  Thus, the fact that the drafters of the Rule included the phrase
+"person licensed to practice as accountants" in one subsection, even assuming that phrase was
+meant to limit the meaning of accountants rather than delineate the application of "improper
+professional conduct," does not mean that other subsections should be similarly limited.  As a
+result, we reject Armstrong’s contention that Rule 102(e)(1)(iii) applies only to persons licensed
+to practice as accountants and hold that he may be disciplined pursuant to that Rule.  69/   The
+Commission therefore has the ability to deny Armstrong the privilege of appearing or practicing
+before it pursuant to Rule 102(e).
+IV.
+Armstrong challenges our authority to decide this action on two grounds.  Armstrong first
+contends that the five-year statute of limitations provided in 28 U.S.C. § 2462 and applied in
+Johnson v. SEC precludes us from considering violations that occurred before December 22,
+1993.  70/  He states that the Commission instituted this proceeding on December 22, 1998, but
+the fraudulent scheme began before December 22, 1993.  Armstrong's argument is without merit. 
+We may consider acts outside the limitations period as evidence of a respondent’s motive, intent,
+or knowledge in committing violations within the limitations period.  71/  The violations in this
+case were ongoing, and substantial portions of the misconduct underlying the findings of willful
+26
+72/ The pre-1994 conduct may be used to establish Armstrong’s motive, intent, and
+knowledge.  Moreover, Rule 102(e) proceedings and cease-and-desist proceedings are
+remedial in nature.  See, e.g., McCurdy v. SEC, 396 F.3d 1258, 1264-65 (D.C. Cir.
+2005); Herbert Moskowitz, Exchange Act Rel. No. 45609 (Mar. 21, 2002), 77 SEC
+Docket 481, 500.  Such proceedings are not subject to Section 2462.  See Johnson, 87
+F.3d at 489-90.
+73/ Armstrong observes that the Commission recently dismissed charges against a respondent
+based on the potential applicability of Section 2462 to all but a brief period of
+respondent’s conduct.  See Clarke T. Blizzard, Investment Advisers Act Rel. No. 2253
+(June 23, 2004), 83 SEC Docket 362, 377-78.  In Blizzard, we exercised our equitable
+discretion and dismissed charges against one of the respondents because of the potential
+applicability of Section 2462 to all but one week of the alleged misconduct and because
+we concluded that the conduct that occurred during that week was insufficient to find the
+respondent liable.  Here, in contrast, at least a year of Armstrong's conduct occurred
+inside the limitations period and that period included some of Armstrong's most
+egregious misconduct in which he deceived investors by using excess reserves to inflate
+Grace's income.
+74/ To the extent Armstrong is arguing that this proceeding is barred by laches, the defense of
+laches is not available against federal agencies acting to protect the public interest.  See
+United States v. Alvarado, 5 F.3d 1425, 1427 (11th Cir. 1993); David Disner, 52 S.E.C.
+1217, 1223 (1997).  Armstrong would also be required to establish prejudice if laches
+applied.  See Danjac LLC v. Sony Corp., 263 F.3d 942, 954-56 (9th Cir. 2001).
+75/ Section 555(b) provides that "[w]ith due regard for the convenience and necessity of the
+parties or their representatives and within a reasonable time, each agency shall proceed to
+conclude a matter presented to it."  5 U.S.C. § 555(b).
+violations occurred within the limitations period.  72/  In fact, the misconduct occurring within
+the limitations period resulted in the deception of investors by grossly inflating Grace's income. 
+As a result, Armstrong committed willful violations within the limitations period, and neither the
+cease-and-desist nor Rule 102(e) proceedings are time barred.  73/
+Armstrong next argues that the Commission should dismiss this proceeding because it
+has not been decided within a "reasonable period of time" as required by Section 555(b) of the
+Administrative Procedure Act ("APA").  74/  He contends that the two and a half year delay
+occasioned by the Commission's interlocutory review of the law judge's dismissal of the Rule
+102(e) charges constituted unreasonable delay.  Armstrong contends erroneously that the
+interlocutory review served no purpose.  The Commission's order directing the law judge to
+reinstate the Rule 102(e) charges avoided a subsequent second hearing on those charges after the
+conclusion of the initial hearing and the appeal therefrom.  Armstrong's reliance on Section
+555(b), moreover, is misplaced.  75/  The requirement that agencies act within a reasonable
+period of time is enforced through Section 706(1) of the APA which permits courts to compel
+27
+76/ Section 706(1) provides that a court shall "compel agency action unlawfully withheld or
+unreasonably delayed." 5 U.S.C. § 706(1).
+77/ See, e.g., In re International Chemical Workers Union, 958 F.2d 1144 (D.C. Cir. 1992)
+(ordering OSHA to issue rule); see also Public Citizen Health Research Group v.
+Comm’r, Food and Drug Administration, 740 F.2d 21, 32 (D.C. Cir. 1984) ("These
+provisions give courts authority to review ongoing agency proceedings to ensure that they
+resolve the questions in issue within a reasonable time."), disapproved on other grounds,
+TRAC v. FCC, 750 F.2d 70 (D.C. Cir. 1984).
+78/ See United States v. Popovich, 820 F.2d 134, 138 (5th Cir.) (stating that the plain
+language of the APA indicates that Section 555 and 706 may be used to compel but may
+not be used to dismiss agency action unreasonably delayed), cert. denied, 484 U.S. 976
+(1978).  But see Kenneth Sebren, 1998 EPA ALJ Lexis 116 (Oct. 7, 1998) (dismissing
+enforcement action for violating Section 555(b)); Health Care Products, 1996 EPA ALJ
+Lexis 142 (June 13, 1996) (same).
+79/ Panhandle Coop. Ass’n v. EPA, 771 F.2d 1149, 1153 (8th Cir. 1985).
+80/ See Feeley & Willcox Asset Management Corp. and Michael J. Feeley, Order Denying
+Motion for Reconsideration, Securities Act Rel. No. 8303 (Oct. 9, 2003), 81 SEC Docket
+919, 923 n.15 (finding no prejudice from respondent’s assertion that years-long delay
+rendered his professional livelihood and ability to continue making a living uncertain).
+81/ See Anthony A. Adonnino and Thomas Cannizzaro, Exchange Act Rel. No. 48618 (Oct.
+9, 2003), 81 SEC Docket 981, 997 (finding no prejudice despite applicants’ claim that
+delay rendered witnesses unavailable and impaired memories because applicants did not
+identify witnesses who became unavailable or point to specific instances of material
+memory lapses), aff’d, No. 03-41111 (2d Cir. 2004).  Armstrong cites one witness’s
+faded memory but fails to show that this lapse prejudiced his case.  See Jacob Wonsover,
+Exchange Act Rel. No. 41123 (Mar. 1, 1999), 69 SEC Docket 694, 715 ("'[N]ot every
+loss, and particularly not every loss of memory, will prejudice the defense of a case.'")
+(citation omitted), petition denied, 205 F.3d 408 (D.C. Cir. 2000).
+agency action.  76/  These provisions typically are used to ensure agency action in rulemaking
+proceedings.  77/  Section 555(b) may not authorize dismissing enforcement proceedings.  78/
+ 
+ In any event, Armstrong has not made the required showing of prejudice resulting from a
+delay.  79/  Neither Armstrong’s claim that the proceeding’s pendency harmed his career  80/ nor
+his generalization that the long delay rendered witnesses unavailable and caused memory lapses
+establishes prejudice.  81/  Armstrong specifies three witnesses who became unavailable due to
+death or disability.  He alleges that their testimony that Grace’s senior management and auditors
+vetted the reserves would have bolstered his defense.  Our finding that Armstrong acted with
+28
+82/ See Mark H. Love, Exchange Act Rel. No. 49248 (Feb. 13, 2004), 82 SEC Docket 686, 
+695-96 (finding no prejudice from death or infirmity of potential witnesses because
+NASD based its decision on undisputed facts and therefore these individuals’ testimony
+was immaterial); Kingsley, Jennison, McNulty & Morse, Inc., 51 S.E.C. 904, 911 (1993)
+(finding no prejudice from death of key potential witness because Commission based its
+findings on other testimony).
+83/ See, e.g., Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 188-89 (1973) ("The
+fashioning of an appropriate and reasonable remedy is for the Secretary [of Agriculture],
+not the court. The court may decide only whether under the pertinent statute and relevant
+facts, the secretary made 'an allowable judgement in [his] choice of the remedy.'")
+(quoting Jacob Siegel Co. v. FTC, 327 U.S. 608, 612 (1946)).
+84/ Section 21C provides that the Commission may order any person who violated any
+provision of the Exchange Act or rule or regulation thereunder, or caused such violation,
+to cease and desist from committing or causing such violation and any future violation of
+the same provision, rule, or regulation.  15 U.S.C. § 78u-3(a). 
+85/ KPMG Peat Marwick LLP, Exchange Act Rel. No. 43862 (Jan. 19, 2001), 74 SEC
+Docket 384, 436, reconsideration denied, Exchange Act Rel. No. 44050 (Mar. 8, 2001),
+74 SEC Docket 1351, petition denied, 289 F.3d 109 (D.C. Cir. 2002).
+scienter despite any reliance on Grace’s management or auditors belies this notion.  82/  As a
+result, dismissal is unwarranted because Armstrong demonstrates no prejudice from any alleged
+delay. 
+V.
+The Commission has broad discretion to set sanctions in administrative proceedings. 83/ 
+Armstrong maintains that there is no basis in the public interest for the imposition of a cease-and-
+desist order.  84/  He contends that he had no responsibility for Grace's financial statements and
+that he acted reasonably under the circumstances.  Conversely, the Division contends that the
+cease-and-desist order imposed by the law judge is warranted and that we should also deny
+Armstrong the privilege of appearing or practicing before the Commission.  The Division
+contends that Armstrong remains a threat to the integrity of the Commission's processes.
+A. Cease-and-Desist Order 
+In KMPG Peat Marwick LLP, we stated that the range of traditional factors relevant to a
+determination that a sanction is in the public interest guide our discretion in imposing a cease-
+and-desist order.  85/  These factors are:
+the seriousness of the violation, the isolated or recurrent nature of the violation, the
+respondent’s state of mind, the sincerity of the respondent’s assurances against future
+29
+86/ Id.; see also Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff’d, 450 U.S. 91
+(1981).
+87/ KPMG Peat Marwick LLP, 74 SEC Docket at 429.  The risk of future violations required
+to support a cease-and-desist order is significantly less than that required for an
+injunction.  Id. at 435.  We consider the entire record because 28 U.S.C. § 2462 does not
+apply to cease-and-desist proceedings.  See Edgar B. Alacan, Exchange Act Rel. No.
+49970 (July 6, 2004), 83 SEC Docket 842, 870.
+88/ See Geiger v. SEC, 363 F.3d 481, 489 (D.C. Cir. 2004) (affirming cease-and-desist order
+because respondent’s egregious conduct justified inference that violation would be
+repeated and respondent’s assertion that he did nothing wrong did little to dispel this
+inference).  In Geiger, respondent acted egregiously even though others devised the
+scheme because he participated despite numerous indicators suggesting an unregistered
+distribution.  See Charles F. Kirby, Exchange Act Rel. No. 47149 (Jan. 9, 2003), 79 SEC
+Docket 1081, 1104-06.  Similarly, Armstrong acted egregiously even though Grace
+directed the scheme because he created the fraudulent entries despite several indications
+that his conduct constituted growth rate manipulation.  See also Alacan, 83 SEC Docket
+at 868 (imposing cease-and-desist order based on respondent’s egregious conduct raising
+a sufficient risk of future violation).  
+violations, the respondent’s recognition of the wrongful nature of his or her conduct, and
+the respondent’s opportunity to commit future violations. In addition, we consider
+whether the violation is recent, the degree of harm to investors or the marketplace
+resulting from the violation, and the remedial function to be served by the cease-and-
+desist order in the context of any other sanctions being sought in the same proceedings. 
+This inquiry is a flexible one and no one factor is dispositive.  86/ 
+Moreover, we held that, in imposing a cease-and-desist order, we must determine that there is
+some risk of future violation.  87/ 
+Applying the above factors to Armstrong's violations, we find that most of them weigh in
+favor of a cease-and-desist order.  The principal purpose and effect of Armstrong's conduct was
+to deceive investors through the filing with the Commission of materially misstated financial
+statements for Grace for all of its required periodic filings from the end of 1991 until the first
+quarter of 1995.  88/  As discussed above in finding that Armstrong violated the antifraud
+provisions, he acted with the highest degree of scienter.  He knowingly engaged in conduct that
+he knew would result in materially false filings with the Commission.  He knew that the purpose
+of the fraudulent scheme was to mislead investors as to Grace's true income growth rates.
+Armstrong has not offered any assurances against future violations.  In fact, his failure to 
+recognize the wrongful nature of his conduct and his continued insistence that he acted
+appropriately raise troubling questions about his understanding of his obligations under the
+securities laws.  His occupation presents ample opportunities to commit future violations. 
+30
+89/ Dissemination of false or misleading information by companies to members of the
+investing public may distort the efficient workings of the securities markets and injure
+investors who rely on the accuracy and completeness of the company’s public disclosures. 
+SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1377 (D.C. Cir.), cert. denied, 449 U.S. 993
+(1980).  Indeed, in addition to the heavy sanctions obtained against the other corporate
+officers of both Grace and NMC, the Commission obtained a cease-and-desist order
+against Grace together with an order requiring Grace to establish a fund of $1 million to
+be used to further awareness and education relating to financial statements and generally
+accepted accounting principles.  W.R. Grace & Co., Exchange Act Rel. No. 41578 (June
+30, 1999), 70 SEC Docket 170.
+90/ Cf. Schellenbach v. SEC, 989 F.2d 907, 913 (9th Cir. 1993) ("An action brought by the
+Commission, however, unlike a private damage suit, need not include proof of harm.  
+Securities regulations are designed to protect the general public.  Schellenbach's
+falsification of records exposed Brook's customers to undue risk and it deprived investors
+of the protections that Congress and the executive branch have put in place . . . . Thus,
+Schellenbach's depiction of his crime as a victimless offense is inaccurate.”) (citations
+omitted).
+91/ See, e.g., City of Miami, Florida, Exchange Act Rel. No. 47552 (Mar. 21, 2003), 79 SEC
+Docket 3362, 3382-83 (imposing cease and desist order despite age of the misconduct
+because cease-and-desist order helps prevent future violations where respondent made
+repeated misrepresentations in its financial statements, respondent’s misstatements
+caused investors to purchase respondent’s bonds without full information, and respondent
+shifted blame to others without taking any responsibility for its own conduct).
+Armstrong currently works as a chief financial officer for a private company and intends to
+continue working as a financial executive. 
+The harm to investors and the marketplace when corporate officers misrepresent company
+earnings cannot be overstated.  89/  Investors who buy or sell stock based on the erroneous
+information are harmed greatly.  The public’s confidence in the marketplace erodes when the
+fraudulent scheme is exposed.  90/
+The only KPMG factor that militates against imposition of a cease-and-desist order is that
+Armstrong’s violations are not recent.  We find, however, that this consideration is outweighed
+by the other factors previously discussed.  91/  An additional factor, not mentioned in KPMG,
+deserves consideration here.  While we disagree with Armstrong that his efforts to express his
+concerns about the impropriety of the excess reserves absolves him of liability for his
+participation in the scheme, there is no dispute that he did make such efforts.  Given, however, 
+31
+92/ The Commission does not have the authority to seek additional sanctions against
+Armstrong in an administrative proceeding, see Exchange Act Section 15, 15 U.S.C.  §
+78o, but the Commission could have sought injunctive and further relief in court.  See
+Exchange Act Section 21, 15 U.S.C. § 78u.  Rule 102(e) is not used as an additional
+weapon in the Commission's enforcement arsenal but rather to determine whether a
+person's professional qualifications, including his character and integrity, are such that he
+is fit to appear and practice before the Commission.  Touche Ross, 609 F.2d at 579.
+93/ See Charles K. Seavey, Advisers Act Rel. No. 2119 (Mar. 27, 2003), 79 SEC Docket
+3455, aff’d, 111 Fed. Appx. 911 (9th Cir. 2004).  In Seavey, we imposed sanctions,
+including a cease-and-desist order, on a mutual fund manager who sent investors a letter
+knowing that the letter contained material misstatements and omissions.  We recognized
+that the respondent attempted to persuade his supervisors to disclose the problems with
+the fraudulent transaction and tried to undo the damage caused by the fraudulent scheme,
+but we imposed the sanctions because the respondent’s arguments demonstrated a lack of
+appreciation for his responsibility as an associated person of an investment adviser.
+that no additional sanctions have been sought against Armstrong 92/ and the degree to which the
+other factors weigh in favor of a cease-and-desist order, we believe that the public interest
+warrants a cease-and-desist order.  93/
+We conclude that Armstrong’s misconduct demonstrates a sufficient risk of future
+violations and that it is in the public interest to order Armstrong to cease and desist from
+committing or causing any violations or future violations of the applicable provisions of the
+federal securities laws and the Commission's rules.
+B. Rule 102(e) suspension
+These same factors could provide a basis for us to conclude that Armstrong should be
+disciplined pursuant to the Commission's Rule 102(e).  Rule 102(e) is designed to protect the
+integrity of the Commission's processes, and we fulfill this mandate by suspending accountants
+who violate the antifraud provisions of the securities laws.  Nonetheless, in light of the unique
+32
+94/ 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.
+ circumstances here, we have determined, as an exercise of our equitable discretion, not to
+impose any suspension pursuant to Rule 102(e)(1)(iii) here. 
+An appropriate order will issue. 94/
+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
+SECURITIES EXCHANGE ACT OF 1934
+Rel. No.51920 / June 24, 2005
+ACCOUNTING AND AUDITING ENFORCEMENT
+Rel. No. 2264 / June 24, 2005
+Admin. Proc. File No. 3-9793
+In the Matter of
+ROBERT W. ARMSTRONG, III
+ORDER IMPOSING REMEDIAL SANCTIONS
+On the basis of the Commission's opinion issued this day, it is
+ORDERED that Robert W. Armstrong, III cease and desist from committing or causing
+any violations or future violations of Section 10(b) of the Securities Exchange Act of 1934 and
+Rules 10b-5 and 13b2-1 thereunder; and from causing any violations or future violations of
+Sections 13(a), 13(b)(2), and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13
+thereunder.
+By the Commission.
+Jonathan G. Katz
+     Secretary   
+ 
\ No newline at end of file
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19290 / June 30, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2270 / June 30, 2005 
+
+  Securities and Exchange Commission v. David M. Hurley,  Civil Action No. 1:05CV01306 (JR) (D.D.C.)  
+
+ SEC SUES FORMER AAIPHARMA INC. EXECUTIVE DAVID HURLEY  
+
+ HURLEY SETTLES, AGREEING TO AN INJUNCTION, PERMANENT OFFICER-AND-DIRECTOR BAR, AND PENALTY 
+
+ The Securities and Exchange Commission today filed a civil action against David M. Hurley ("Hurley"), former chief operating officer of aaiPharma, Inc. ("aaiPharma"), a publicly-traded pharmaceutical company headquartered in Wilmington, North Carolina, for fraudulent transactions designed to inflate the company's reported sales revenue in 2003.  Hurley has agreed to settle this matter by agreeing to entry of a judgment enjoining him from violations of the antifraud, recordkeeping, internal controls, and other provisions of the federal securities laws (Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder and aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-11, and 13a-13 thereunder).  He also consented to a permanent bar prohibiting him from acting as an officer or director of a public company and to paying a civil penalty in an amount to be determined by the Court at a later date.  Hurley's consent, subject to Court approval, is without admitting or denying the allegations in the Commission's complaint.  
+ In its complaint, the Commission alleges that prior to aaiPharma's 2003 fiscal third quarter end, Hurley arranged three fraudulent sales transactions with customers to create the illusion that aaiPharma had met or exceeded its sales goals for the quarter.  Although the sales Hurley arranged were either consignment sales or other types of non-final sales, aaiPharma falsely recorded the sales as final.  These fraudulent sales, totaling approximately $20.6 million, were reflected in aaiPharma's financial statements included in filings made with the Commission and publicly disseminated in November 2003 and February 2004.  
+ The complaint further alleges that in the fourth quarter of 2003, Hurley arranged another fraudulent sales transaction with an aaiPharma customer.  Although the transaction gave the customer the right to return the product, aaiPharma falsely recorded it as a final sale.  As a result, aaiPharma reflected fraudulent sales of approximately $8 million in a Form 8-K filed with the Commission in February 2004 that announced the company's financial results for its fiscal fourth quarter and fiscal year ended 2003.   
+ The United States Attorney's Office for the Western District of North Carolina also previously announced that Hurley had agreed to plead guilty to a criminal charge based, in part, on conduct described in the Commission's complaint.   
+ The Commission acknowledges the assistance of the United States Attorney's Office for the Western District of North Carolina and the Federal Bureau of Investigation's Charlotte, North Carolina Field Office in this matter. 
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diff --git a/raw/aaer/2005/AAER-2271.txt b/raw/aaer/2005/AAER-2271.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8e2aaac8406419fa39ed73f008758e2740e059ab
--- /dev/null
+++ b/raw/aaer/2005/AAER-2271.txt
@@ -0,0 +1,1001 @@
+SECURITIES AND EXCHANGE COMMISSION
+Washington, D.C.
+SECURITIES EXCHANGE ACT OF 1934
+Rel. No. 51950 / June 30, 2005
+ACCOUNTING AND AUDITING ENFORCEMENT
+Rel. No.  2271 / June 30, 2005
+Admin. Proc. File No. 3-11330
+In the Matter of 
+RITA J. McCONVILLE
+OPINION OF THE COMMISSION
+CEASE-AND-DESIST PROCEEDING
+Grounds for Remedial Action
+Antifraud and reporting violations
+Corporate officer, who served as chief financial officer and then corporate controller,
+falsely represented to auditors that corporation's consolidated financial statements were in
+conformity with generally accepted accounting principles and that no events had occurred
+within stated period that had a material effect on financial statements or should have been
+disclosed in order to keep statements from being misleading; made misleading statements
+and omitted to state facts that would make representations in corporation's annual report
+not misleading; and failed to see that corporation implemented adequate internal controls,
+resulting in inaccuracies in corporation's books, records, and accounts, thereby violating
+and causing the corporation to violate antifraud and reporting provisions of the federal
+securities laws and rules thereunder.  Held, it is in the public interest for respondent to be
+ordered to cease and desist from committing or causing further antifraud and reporting 
+violations.
+2
+1/ Rule of Practice 451(d), 17 C.F.R. § 201.451(d), provides that a member of the
+Commission who does not attend an oral argument may participate in the decision of the
+proceeding if that member reviews the oral argument transcript.  Commissioner
+Glassman, who did not attend the oral argument in this matter, has performed the
+requisite review.
+2/ The Financial Accounting Standards Board promulgates GAAP, which are the
+"conventions, rules, and procedures that define accepted accounting practice."  Barron's
+Dictionary of Finance and Investment Terms 234-35 (5th ed. 1998).   Regulation S-X, 17
+C.F.R. § 210.1-02(d), requires that the financial statements of a public corporation must
+be audited by an accountant in accordance with generally accepted auditing standards. 
+United States v. Arthur Young & Co., 465 U.S. 805, 811 n.6 (1984).
+3/ 15 U.S.C. §§ 78j(b), 78m(b)(5).
+4/ 17 C.F.R. §§ 240.10b-5, 240.13b2-1, 240.13b2-2.
+APPEARANCES:
+Kenton E. Knickmeyer and John S. Kingston, of Thompson Coburn LLP, for Rita J.
+McConville.
+Polly A. Atkinson and Elizabeth E. Krupa, for the Division of Enforcement.
+Appeal filed:  October 19, 2004 
+Last brief received:  January 18, 2005 
+Oral argument:  May 23, 2005  1/
+I.
+Rita J. McConville appeals from the decision of an administrative law judge.  The law
+judge found that McConville had significant responsibility for the financial statements in the
+Form 10-K for the year ended December 31, 2000 (the "2000 Form 10-K") filed by her employer,
+Akorn, Inc. ("Akorn" or "the Company"), which materially inflated Akorn's accounts receivable,
+net sales, and assets; caused Akorn to maintain inaccurate books and records; and falsely assured
+Akorn's auditors that the financial statements in the 2000 Form 10-K complied with Generally
+Accepted Accounting Principles ("GAAP") and that she did not know of any events that would
+materially impact those financial statements.  2/  In so doing, the law judge found, McConville
+violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934  3/ and Rules 10b-5,
+13b2-1 and 13b2-2 thereunder,  4/ and caused Akorn to violate Sections 13(a) and 13(b)(2) of the
+3
+5/ 15 U.S.C. §§ 78m(a), 78m(b)(2); 17 C.F.R. §§ 240.12b-20, 240.13a-1.
+6/ Harris was a respondent in this proceeding.  The law judge found that he willfully
+violated Rule 13b2-2 and that he willfully aided and abetted and caused Akorn's
+violations of Exchange Act Section 13(a) and Rules 13a-1, 13a-13, and 12b-20.  She
+declined to impose sanctions on Harris.  Rita J. McConville, Initial Decision Rel. No. 259
+(Sept. 27, 2004), 83 SEC Docket 3325, 3364-73.
+7/ 15 U.S.C. § 78m.
+Exchange Act and Rules 12b-20 and 13a-1 thereunder.  5/  The law judge ordered McConville to
+cease and desist from violating and causing violations of these provisions, and to pay
+disgorgement in the amount of $115,858, plus prejudgment interest.  We base our findings on an
+independent review of the record, except with respect to those findings not challenged on appeal.
+ 
+II.
+Background
+McConville served as chief financial officer ("CFO") of Akorn from February 28, 1997
+until March 20, 2001, when she was succeeded by Kevin M. Harris.  6/  From March 21 to July,
+2001, McConville was employed by Akorn as corporate controller.  During most of the time in
+question,  McConville reported to Floyd Benjamin, Akorn's president and chief executive officer
+("CEO").  As CFO, McConville supervised Akorn's corporate controller and its finance
+department, and was responsible for working with Deloitte & Touche LLP ("Deloitte"), Akorn's
+auditors.  As CFO, McConville, together with Akorn's controller, Thomas Costello, was
+responsible for Akorn's filings with the Commission.  In its 2000 Form 10-K,  filed with the
+Commission pursuant to Section 13(a) of the Exchange Act,  7/  Akorn reported net income of
+$2,187,000 in 2000.  Akorn reported current assets of $42,123,000 as of December 31, 2000, and
+accounts receivable of $24,144,000, which amounted to approximately 57% of Akorn's current
+assets.  
+At all relevant times, Akorn was a corporation that, among other things, manufactured
+and sold diagnostic and therapeutic pharmaceuticals.  Although Akorn's customers included both
+pharmaceutical wholesalers and direct or end-use customers, a large portion of its sales were
+made to wholesale distributors.  In 2000, Akorn's sales to five such distributors (the "top five
+wholesale customers") accounted for 43% of its total sales in 2000 and approximately 60% of its
+gross accounts receivable as of December 31, 2000. 
+Akorn's Problems With Tracking Customer Account Status
+Both Akorn's computer system and some of its business practices made keeping track of
+its customer accounts problematic.  When McConville arrived at Akorn in 1997, the company
+4
+8/ Kevin Harris, who succeeded McConville as CFO, testified that a 22-page remittance
+advice would be considered short.  The credits, which were available under various terms
+with varying deadlines,  included chargebacks, or credits for the difference between the
+list price wholesalers were billed for products and the contract price to certain end users
+who had special contractual arrangements with Akorn, as well as various rebates. 
+9/ McConville testified that chargebacks, for example, were identified by product batch
+number, not invoice number, and that the same batch number could appear on 150 or
+more invoices.  Thus, matching a chargeback to an invoice was impossible.  Customers
+did not always use the same numbers Akorn used, which created further problems. 
+Mario Delgado, a Deloitte auditor involved with Akorn's fiscal year 2000 audit, testified
+that the Macola system "didn't link together a debit with a credit that may have
+subsequently been issued or a payment that may have been subsequently received." 
+Delgado explained: 
+Typically  . . . you would want to link all that together and . . . simply understand
+what is this customer still owing.  So I invoice them $100 and subsequently issued
+a credit for $10 and a subsequent payment of $90, what you really are concerned
+about is they owe zero.  . . .  Most companies do link those three together and 
+just . . . wouldn't show anything for that customer because it's paid off.
+billed customers and processed cash remittances and credit claims against invoices at three
+different finance offices, each of which used a different accounting software system.  By late
+1999, however, Akorn had centralized its finance, billing, and accounts receivable records on a
+software program called Macola.  Later, primarily during 2000, Akorn shifted many of its
+records, at all of its locations, onto a J.D. Edwards software package, which allowed more
+sophisticated information recording.  In connection with this transition, Akorn recorded new
+receivables on the J.D. Edwards software, but did not transfer existing accounts receivable due to
+concerns that conversion might not preserve the integrity of the data.
+  
+Akorn's terms of sale varied among customers, with payment schedules of between 30
+and 90 days.  Wholesalers generally enjoyed longer payment terms than direct customers.  Akorn
+did not charge interest on overdue bills.  Akorn classified its aging reports as current, 30-60 days
+past due, 60-90 days past due, and over 90 days past due.
+Extensive paperwork was involved in keeping track of customer orders and payments. 
+With each shipment to a wholesaler, Akorn issued and sent an invoice.  A 25- or 30-page invoice
+was not uncommon.  A customer payment to Akorn was accompanied by a remittance advice of
+up to 400 lines in length, which explained the payment and asserted claims, where applicable, to
+a variety of credits.  8/  Akorn was unable to match customer payments or credits to invoice
+numbers, so it could not post a receipt against a particular invoice.  9/  
+5
+10/ Although Akorn did not charge interest on overdue bills, the age of receivables was
+nonetheless important because, as testified by Jack Maire, a consultant brought in to
+analyze Akorn's receivables, the older a receivable is, the more difficult it becomes to
+collect it.  Moreover, the passage of time sometimes made it difficult for Akorn to
+produce documentation to prove what it was owed.  Nancy Phillips, Akorn's assistant
+controller from March 1999 to September 2001, testified that proofs of delivery were
+often unobtainable after nine months to a year and that Akorn "pretty often" lacked
+documentation to support its assertion of amounts due.  Phillips also testified that in her
+experience, wholesalers in some instances purposely waited to pay until the nine months
+or year had passed so that proofs of delivery would be unobtainable.
+11/ As Delgado explained:  "[A]n invoice would typically be issued first and would age based
+on the invoice date.  Subsequent to that a credit might be issued, say, a month later.  And
+subsequent to that a payment might be received, let's say, a month after that.  In that
+scenario the invoice would age one month before the credit which would age one month
+before the payment.  And so you could find yourself in a situation where you could have
+an invoice . . . in one aging bucket, a credit issued in a subsequent bucket, and a payment
+issued in a third more recent bucket."
+12/ Akorn generated some summary aging reports, but Delgado testified that the reports had
+"little or no value."
+Using the Macola software to review the aging of accounts receivable presented particular
+difficulties.  10/  In Macola as used at Akorn, the age of receivables was determined from when
+the invoices were issued.  The Macola software also kept track of payments, credits, and rebates,
+based on when they were applied to the account.  Akorn used the term "aging" indiscriminately
+to apply to receivables, payments, credits, and rebates, categorizing them in "buckets" or brackets
+to indicate how recently the invoice had been issued or the payment, credit, or rebate had been
+applied.  Thus, related items (original invoice, payment, and credit) often appeared in different
+aging "buckets" depending on the dates of the transactions.  11/  An "aging" report for a single
+customer, showing all transactions with that customer, by date, could have as many as 4000 lines. 
+Additionally, the Macola system was incapable of handling certain tasks that involved a high
+volume of transactions without ceasing to function.   Thus, a detailed review of the age of
+accounts receivable in Macola was virtually impossible.  12/
+McConville's Awareness Of And Attempts to Address Problems With Tracking Customer
+Accounts
+On February 25, 2000, Deloitte sent a letter to Akorn's board of directors, to which it
+attached a report prepared in connection with Deloitte's audit of Akorn's financial statements for
+the year ended December 31, 1999.  The report commented on, among other things, Akorn's
+internal controls.  Under the heading "Accounts Receivable," the report noted management's
+failure to review the accounts receivable in detail, misapplication of credits and payments to
+6
+13/ Witnesses explained the discrepancy as due in part to Akorn's practice of booking a
+receivable as soon as the invoice was issued, while Cardinal forwarded the invoices it
+received to its distribution centers for verification before submitting them for processing,
+thus occasioning some delay.  Moreover, Cardinal did not record the invoice as a payable
+until it was due, as much as 90 days later.  Additionally, McConville testified that some
+of the invoices shown on Akorn's records did not appear on Cardinal's records.
+14/ McConville testified that she believed she took only invoices for more than $10,000.  
+Other evidence suggests that the invoices were for more than $50,000. 
+15/ In an e-mail following up on the meeting, Cardinal stated that it had been unable to
+research some of the 1999 invoices, but that those "accounted for immaterial amounts
+(continued...)
+customer accounts, and failure to collect on outstanding balances effectively and efficiently. 
+Deloitte recommended reconciling customer accounts with the customers, starting with the
+wholesaler accounts.  The corresponding section of the report captioned "Management
+Response," which was drafted in part by McConville, stated that management had begun an
+effort to reconcile all customer accounts and pursue payment of aged balances, with a goal of
+"significant collection resolution by June 30, 2000 and complete cleanup by August 31, 2000." 
+This management goal was not met.
+Concerns were also expressed at both board and audit committee meetings that as Akorn's
+sales were growing, more and more receivables were moving into the older aging "buckets," i.e.,
+were remaining uncollected for longer times.  At McConville's request, Akorn's controller and its
+accounts receivable manager analyzed the available data and posited that a major factor for the
+increase in aging was the increase in percentage of sales to wholesalers, who were allowed more
+time to pay than Akorn's direct customers.  Nonetheless, the aging of receivables remained a
+management and audit committee concern.
+    
+During 2000, Akorn realized approximately 12% of its net sales from Cardinal Health,
+Inc. ("Cardinal") , and Cardinal's accounts receivable balance represented approximately 22% of
+gross accounts receivable.  This made Cardinal both Akorn's largest customer and the customer
+with the largest accounts receivable balance.  In the fourth quarter of 2000,  John Kapoor,
+chairman of the board of Akorn and a major stockholder, instructed McConville and Benjamin to
+meet with Cardinal and try to collect some of the money Cardinal owed to Akorn.  In February,
+2001, when the meeting took place, Akorn's records showed that Cardinal owed it approximately
+$4 million, based on invoices going back at least as far as 1999.  Cardinal's own records showed
+that the balance was approximately $800,000 in Cardinal's favor, yielding a discrepancy of nearly
+$5 million.  13/  McConville took with her to the meeting copies of open invoices from various
+dates, selecting the invoices involving the largest dollar amounts so that resolution would yield
+the biggest results.  14/  After the meeting, Cardinal sent Akorn a check for approximately
+$913,000, which it viewed as resolving all open issues from the meeting.  15/  Cardinal informed
+7
+15/ (...continued)
+relative to the other invoices." 
+16/ Although it is unclear from the record that McConville saw Benjamin's March 15 letter,
+she clearly knew that there was a $5 million discrepancy between Akorn's and Cardinal's
+accounting prior to the payment of the $913,000 check. 
+17/ The record is unclear as to when McConville told Deloitte about the $913,000 check. 
+Delgado testified that he received assurances "throughout our audit [that] things were
+positive and the conversations indicated that collections were reasonable."
+18/ It is unclear from the record whether Akorn had defaulted on an existing loan or whether
+the bank insisted on the additional investment as a condition of extending or renewing a
+line of credit.
+Akorn that, having sent the $913,000 check, it regarded itself as in a credit position vis-a-vis
+Akorn. 
+Although Cardinal thought the issues raised by the meeting had been resolved, Akorn
+believed that many issues were still outstanding.  A March 15, 2001 letter from Benjamin to
+Cardinal stated that there was still a discrepancy of more than $5 million to be reconciled
+between the Akorn records and the Cardinal records, opining that the $913,000 check represented
+only resolution of certain individual open invoices and there were still smaller open invoices to
+reconcile, as well as issues involving rebates.  16/ 
+ 
+Despite the uncertainty of the situation, McConville told Deloitte that Cardinal had
+agreed to send Akorn a $913,000 check, and that indications were positive in terms of
+receivables.  17/  McConville also told Deloitte that there was little past due money owing from
+wholesalers because most of the old bills were offset by more recent credits. 
+ 
+At around the time of McConville's and Benjamin's meeting with Cardinal,  Kapoor
+received a telephone call from The Northern Trust Company ("Northern Trust"), with which
+Akorn had a banking relationship, raising questions about Akorn's financial condition and
+requesting that Kapoor make an additional equity investment in Akorn of $3 million.  18/ 
+Kapoor promptly arranged to meet with Akorn management and its board of directors.  In a
+memorandum dated March 7, 2001, Kapoor assigned McConville and Harris to work with Jack
+Maire, a consultant brought in by Kapoor, on a thorough analysis of Akorn's accounts receivable
+and to submit a report discussing any potential write-offs of the receivables by the end of March.
+The Maire Report
+By mid-March, 2001, Maire concluded that Akorn's need for a quick infusion of cash
+could not be satisfied by collecting past due receivables.  In a draft memorandum to Kapoor,
+8
+19/ McConville testified that she did not see the memorandum while employed at Akorn.
+20/ Maire thought that Akorn staff did not have sufficient skills and experience to handle the
+work.  
+Maire concluded that "there are no quick fixes available" (emphasis in original).  19/  Maire
+indicated that, due to the scope and complexity of the receivables problem, he was unable at that
+time to provide an assessment of what was collectible and what the magnitude of write-offs
+might be.  He concluded that "a determination on the collectibility will require a substantial
+amount of time (months) and work."
+Maire recognized that, because Akorn's accounts receivable were concentrated among its
+top five wholesale customers, it might appear "that it should be relatively easy to collect on those
+five accounts and achieve the quick infusion of cash that we are looking for."  His analysis,
+however, revealed that this was not the case:
+[T]he wholesaler accounts have never been worked. We are talking about an
+accumulation of problems over a 3 or 4 year period.  This provides us with a legacy of
+pages and pages of A/R reports on each of those five accounts, consisting of a maze of
+transactions including:  open invoices, partially paid invoices, billbacks, credits for return
+goods, credits for damaged goods, credits for shipments not received, credits for billing
+errors, rebate credits, chargeback credits, deductions taken arbitrarily by the wholesaler,
+situations where the wholesaler used credits multiple times, and unapplied cash.  These
+transactions go back as far as 1996.
+(Emphasis in original).  In Maire's view, the failure to have systematically reconciled the
+accounts receivable "magnifies the task to an incredibly detailed undertaking."  20/  He identified
+"a wide array of process and system issues that severely complicate matters," including the
+following:
+! The Macola system and the J.D. Edwards system operated simultaneously, with
+the pre-2001 accounts receivable on Macola.  "This duplicates work and
+complicates matters considerably."
+! "No management reports exist that trend sales, cash, A/R aging, reserves,
+unbilled, or [days sales outstanding].  Therefore, the A/R could not have been
+properly monitored."
+! "A/R aging reports have not been previously printed.  The staff has had no way to
+set collection priorities.  Producing a simple aging report in descending dollar
+sequence proved to be a week-long task to accomplish, and then only with outside
+consulting help because no one within the building knew how to do it."
+9
+21/ McConville admitted in investigative testimony that she reviewed a draft of the 2000
+Form 10-K as CFO.  Additionally, McConville's expert witness testified that McConville
+"performed her normal procedures as a reviewer of the draft financial statements in
+February" and that "she had seen drafts of the financial statements prior to her demotion"
+(continued...)
+! "Daily reports need to be published to monitor all facets affecting receivables,
+including unbilled, chargebacks processing backlogs, cash posting backlogs, and
+returns good credit processing.  If any one of these is failing to be processed
+timely, the customer will not pay.  The wholesaler will go ahead and take a
+deduction in the absence of a timely credit due him, which only complicates the
+maze of transactions already on the A/R." 
+Maire also noted, among other matters, problems with staffing, and stated that "[c]hargebacks
+may be a problem area." 
+On March 20, 2001, the board voted to dismiss Benjamin as CEO, making him a vice
+president of Akorn, and to dismiss McConville as CFO.  Kapoor became interim CEO, and
+Kevin Harris, who had been asked by Kapoor to help address Akorn's financial situation
+following the telephone call from Northern Trust, was appointed interim CFO.  McConville was
+initially asked to work under Harris's direction on various projects, but shortly thereafter Harris
+asked her to work with him, Maire, and several other Akorn employees on reconciling the
+Cardinal account.  As of the end of April, 2001, McConville had identified Cardinal receivables
+totaling nearly $1.5 million from Akorn's aging report that were not included in a report showing
+amounts due and payable that she had obtained from Cardinal.
+  
+McConville's Involvement With The Fiscal Year 2000 Audit
+While McConville was working on reconciling the Cardinal account, Deloitte was
+proceeding with work on its audit of Akorn for the year ended December 31, 2000.  As noted
+above, McConville's responsibilities as CFO had included working with Deloitte auditors as
+Deloitte performed Akorn's annual audits and quarterly reviews.  McConville attended meetings
+with Deloitte before Deloitte began its field work; at these meetings, Deloitte reviewed the
+proposed scope of the audit and projected time frames.  During the course of the field work,
+which Deloitte completed on February 23, 2001, McConville was generally available for
+discussions with Deloitte.  She attended the meetings at the end of the field work at which
+Deloitte discussed its findings.  She also attended audit committee meetings, which were held at
+the end of each quarter.  
+McConville had begun preparation of Akorn's 2000 Form 10-K while serving as CFO.  
+She wrote a press release, dated February 20, 2001, that announced Akorn's fourth-quarter results
+and provided year-end net income and sales figures.  During February and early March, she
+reviewed drafts of the 2000 financial statements.  21/   The financial statements included the
+10
+21/ (...continued)
+(from the position of CFO).  Although McConville testified at the hearing that she no
+longer believed that she had reviewed a draft of the financial statements, the record
+supports the conclusion that she did review a draft.  Moreover, the law judge, who had a
+chance to observe McConville's demeanor at the hearing, cited her denial that she
+reviewed the Form 10-K as one of a number of instances where McConville was not
+credible.  The credibility determination of an initial fact finder is entitled to considerable
+weight and deference because it is based on hearing the witnesses' testimony and
+observing their demeanor.  See, e.g., Daniel Joseph Alderman, 52 S.E.C. 366, 368 (1995),
+aff'd, 104 F.3d 285 (9th Cir. 1997); Jonathan Garrett Ornstein, 51 S.E.C. 135, 137 (1992). 
+McConville contends that the law judge's determination that she reviewed a draft of the
+Form 10-K is clearly erroneous "because it has no basis in evidence and is the product of
+an impermissible inference drawn from Kevin Harris' Answer to the [Order Instituting
+Proceedings ("OIP)]."  This characterization of the law judge's finding is inaccurate.  In
+concluding that McConville reviewed a draft of the Form 10-K, the law judge cited,
+quoted from, and discussed both McConville's investigative testimony that she believed
+she had reviewed a draft of the Form 10-K and the testimony of McConville's expert
+witness, as noted above.  The law judge's reference to Harris's Answer was not in
+connection with her finding that McConville reviewed a draft of the Form 10-K, but
+rather in connection with her finding that McConville had significant responsibility for it. 
+Based on our de novo review of material in the record other than Harris's Answer, and
+including the law judge's credibility determination, we find that McConville reviewed a
+draft of the Form 10-K.
+22/ Disclosures regarding Akorn's relationship with The Northern Trust Company were
+subsequently added.
+numbers for year-end 2000 from the February 20 press release that McConville had authored.  By
+March 20, McConville's last day as CFO, the financial statements to be included in the Form 10-
+K were largely completed,  22/ and a draft of the Form 10-K had already been prepared.  The
+filing of the Form 10-K was delayed, however, while Akorn sought to resolve the questions
+raised by The Northern Trust Company. 
+On approximately April 17, 2001, McConville was asked to sign, and did sign, two
+management representation letters, as corporate controller, in connection with Deloitte's annual
+audit of the financial statements filed with the 2000 Form 10-K.  The first letter, dated February
+23, 2001, stated that it was provided in connection with Deloitte's audit of Akorn's consolidated
+balance sheets as of December 31, 2000 and 1999, and the related consolidated statements of
+income, shareholders' equity, and cash flows for each of the three years in the period ended
+December 31, 2000.  The letter represented that, to the best of the knowledge and belief of those
+signing,
+11
+23/ Akorn appears to have used the terms "allowance for uncollectibles" and "allowance for
+doubtful accounts" interchangeably.  As indicated above, the allowance was reflected on
+the financial statements as a reduction of the accounts receivable balance; it thus directly
+affected Akorn's total assets.
+24/ McConville did not sign the 2000 Form 10-K.  
+(1)  The consolidated financial statements . . . are fairly presented in conformity with
+[GAAP]. . . .
+(18) Other than those disclosed, no events have occurred subsequent to December 31,
+2000 that require consideration as adjustments to or disclosures in the consolidated
+financial statements. 
+(19)  The Company is responsible for determining and maintaining the adequacy of the
+allowance for doubtful accounts receivable, chargebacks, rebates, returns and cash
+discounts as well as estimates used to determine such amounts.  Management believes the
+allowances are adequate to absorb currently estimated uncollectible receivables in the
+account balances.  
+The second letter, dated April 17, 2001, represented that, to the best of the knowledge and
+belief of the signers,
+(1)  Other than the events described in paragraph 4 of Note G [relating to an April 6, 2001
+amendment of the revolving credit agreement with The Northern Trust Co.], there are no
+events which have occurred subsequent to February 23, 2001 that have a material effect
+on the financial statements that are in the filing or that should be disclosed in order to
+keep those statements from being misleading.
+On April 17, 2001, Akorn filed the 2000 Form 10-K in which, as noted above, it reported
+net income of $2,187,000 and current assets of $42,123,000.  Akorn's current assets included
+$24,144,000 of "trade accounts receivable (less allowance for uncollectibles of [$801,000])."  23/ 
+Although sales to the top five wholesaler customers accounted for approximately 60% of Akorn's
+gross accounts receivable, the allowance for uncollectible accounts did not include any amount
+related to those customers.  Moreover, the Form 10-K did not note any impairment of the
+receivables.  Deloitte understood from McConville and others in Akorn management that the top
+five wholesaler customers did not present a collection risk because they had both the ability and
+the intent to pay.  In the Independent Auditors' Report, which was included in the Form 10-K,
+Deloitte repeated the assertion from the February 23, 2001 management representation letter that
+the consolidated financial statements presented Akorn's financial position fairly, in conformity
+with GAAP.  Deloitte issued an unqualified opinion as to the financials that were part of Akorn's
+Form 10-K for 2000.  24/ 
+12
+25/ Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976).  
+26/ Id., 425 U.S. at 193 n.12. 
+27/ We do not base our findings as to McConville's liability on the February 20, 2001 press
+release, even though the press release contained figures that were incorporated into the
+(continued...)
+On May 22, 2001, slightly more than a month after filing the Form 10-K, Akorn filed its
+quarterly report, Form 10-Q, for the quarter ended March 31, 2001.  In its Form 10-Q, Akorn
+increased its allowance for doubtful accounts by $7,520,000.  On October 7, 2002, Akorn
+restated its financial statements for 2000 and 2001 by filing a Form 10-K/A.  The Form 10-K/A
+stated that Akorn "had not adequately considered all of the information available with respect to
+certain disputed receivables in establishing its allowance for uncollectible accounts as of
+December 31, 2000," that the $7,520,000 increase in its allowance for doubtful accounts should
+have been recorded at year end 2000 rather than in the first quarter of 2001, and that the bad debt
+expense in the 2000 financial statement was understated by a corresponding amount.  As a result
+of these adjustments, Akorn's restated financials for 2000 reported a net loss of $2.4 million, or
+$0.13 per share. 
+III.
+A. McConville violated Section 10(b) and Rule 10b-5.
+Exchange Act Section 10(b) makes it unlawful "for any person, directly or indirectly, by
+the use of any means or instrumentality of interstate commerce or the mails, . . . [t]o use or
+employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive
+device or contrivance in contravention of such rules and regulations as the Commission may
+prescribe as necessary or appropriate in the public interest or for the protection of investors." 
+Rule 10b-5 prohibits fraud, misleading statements or omissions, and any act, practice or course of
+business that operates as a fraud "in connection with the purchase or sale of any security."  To
+establish a violation of Section 10(b) and Rule 10b-5, it must be shown that a person acted with
+scienter, or "a mental state embracing intent to deceive, manipulate, or defraud."  25/  Reckless
+behavior satisfies the scienter requirement.  26/
+1. Akorn's 2000 Form 10-K contained materially misleading statements and
+omissions.
+The financial statements in Akorn's 2000 Form 10-K overstated Akorn's accounts
+receivable and current assets because its allowance for doubtful accounts did not include any
+amounts for Akorn's five largest wholesale customers.  Additionally, the balance sheet 
+overstated Akorn's accounts receivable, which represented 57% of Akorn's current assets, by
+failing to note the likelihood of a loss contingency.  27/ 
+13
+27/ (...continued)
+2000 Form 10-K.  The OIP did not charge misstatements in the press release.
+28/ Financial Accounting Standards Board, Original Pronouncements, vol. I, 34 (FAS  5,
+par. 1) (2003/2004 edition).
+29/ Id. (FAS 5, par. 4).
+30/ Id., vol. I, 35 (FAS 5, par. 8)
+As noted above, Akorn's current assets as reported in the 2000 Form 10-K included
+accounts receivable of approximately $24 million, with 60% of its gross accounts receivable
+attributable to the top five wholesale customers.  With a sum of approximately $5 million to be
+reconciled between Akorn and Cardinal alone, and with ample evidence that Akorn would not be
+able to collect on the entire amount it believed it was due, the amounts at issue were material.  
+The material overstatements rendered the financial statements materially false and misleading.
+  
+The statement in the Form 10-K that the financial statements were prepared in accordance
+with GAAP was also materially false and misleading.  GAAP includes Statement of Financial
+Accounting Standards Number 5 ("FAS 5"), which deals with accounting for contingencies. 
+Under FAS 5, a loss contingency is defined as "an existing condition, situation, or set of
+circumstances involving uncertainty as to possible . . . loss . . . to an enterprise that will
+ultimately be resolved when one or more future events occur or fail to occur."  28/  Collectibility
+of receivables is given as an example of a loss contingency.  29/  FAS 5, paragraph 8, provides
+that an estimated loss from a loss contingency must be accrued by a charge to income if two
+conditions are met:
+a. Information available prior to issuance of the financial statements indicates that it
+is probable that an asset has been impaired or a liability has been incurred at the
+date of the financial statements.  It is implicit in this condition that it must be
+probable that one or more future events will occur confirming the fact of the loss.
+b. The amount of loss can be reasonably estimated.  30/
+If information available prior to issuance of the financial statements indicates that it is probable
+that an asset has been impaired (satisfying paragraph 8(a)), but the amount of the loss cannot be
+reasonably estimated (as required by paragraph 8(b)), FAS 5 paragraph 10 requires that
+"disclosure of the contingency shall be made when there is at least a reasonable possibility that a
+14
+31/ Id., vol. I, 35-36 (footnote omitted) (FAS 5 par. 10).
+32/ Id., vol. I, 34 (FAS 5 par. 3(b)).
+33/ FAS 5 states that a future event is "probable" if it is "likely to occur."
+34/ McConville argues that she did not have adequate notice that the Division's allegations
+regarding GAAP violations were based on an omitted disclosure concerning Akorn's
+chargeback and rebate reserves.  Since we do not base our finding on this theory, we need
+not reach this issue.  We note, however, that the OIP is replete with references to Akorn's
+accounts receivable records, and that the treatment of chargebacks and rebates is an
+aspect of Akorn's accounts receivable accounting.
+loss . . . may have been incurred."  31/  "Reasonably possible" is defined as meaning that "[t]he
+chance of the future event or events occurring is more than remote but less than likely."  32/
+Information available before the financial statements were issued on April 17, 2001
+demonstrated that it was not only reasonably possible, but probable, that Akorn would fail to
+collect 100% of the receivables from its top five wholesale customers.  33/  Akorn's accounting
+records as to accounts receivable were in a shambles.  Akorn management knew that the 
+receivables were increasingly growing more aged, but it lacked the detailed, accurate reports that
+would permit a thorough analysis of aging.  Akorn was unable to tell which invoices had been
+paid (or offset by credits), so it could not convincingly demonstrate to its customers what
+payment was still owed.  Because Akorn had not monitored accounts receivable properly for
+years, it was not able to provide proofs of delivery for some shipments.  Akorn knew that
+reconciling its accounts receivable would be an enormous task.  And it knew that the one
+customer account that it had most thoroughly reviewed, the Cardinal account, still presented
+significant obstacles to collection, with Cardinal contesting approximately $5 million of the
+amount Akorn claimed was owing.  Thus, even if the amount of loss could not reasonably be
+estimated by April 17, the likelihood that complete collection would not be possible was
+sufficiently great that impairment should have been indicated.  Because no such impairment was
+noted, the financial statements were not in accordance with GAAP.  34/  Moreover, the failure to
+disclose that the receivables were impaired was an omission of a material fact necessary to
+ensure that the figures in the financial statements were not misleading. 
+2. McConville is liable for the material misrepresentations and omission in Akorn's
+2000 Form 10-K.
+McConville, as CFO, (working with Costello as controller) oversaw the drafting of the
+2000 Form 10-K, and reviewed a draft of the Form 10-K that was virtually identical to the 2000
+Form 10-K that Akorn filed with the Commission, which incorporated the fourth-quarter and
+year-end results that she included in the February 20, 2001 press release that she authored.  She
+also knew that Akorn's allowance for doubtful, or uncollectible, accounts as reported in the Form
+15
+35/ The subsequent event noted in the April 17 letter was the April 16, 2001 amendment of
+Akorn's revolving credit agreement with The Northern Trust Company.
+36/ The record does not address whether McConville reviewed the draft Form 10-K at the
+time she signed the representation letters, or at any time after she reviewed the draft that 
+incorporated the erroneous numbers from the February press release.  Given the
+assurances about the financial statements provided in those letters, however, it was at
+least reckless if McConville did not actually review the documents about which she was
+making representations.
+37/ The law judge found McConville's assertion that she did not remember exactly when
+Akorn's board became concerned about the increased aging of the receivables not
+credible, since she was responsible for reporting Akorn's financial results to the board
+and, in 1999 and 2000, Akorn's accounts receivable were increasing at a much faster rate
+than sales.  McConville also prepared the management response to the concerns about
+accounts receivable expressed by Deloitte in its February 25, 2000 report to Akorn's
+(continued...)
+10-K did not contain any reserve with respect to Akorn's five largest customers, and that the
+Form 10-K omitted to disclose any impairment of the accounts receivable.  McConville signed
+the management representation letters reassuring Deloitte that the financial statements were in
+accordance with GAAP and that, with one exception not relevant here,  35/  no events had
+occurred subsequent to February 23, 2001 that had a material effect on the financial statements
+that are in the filing or that should be disclosed in order to keep those statements from being
+misleading.  At the time she signed the letters, McConville knew, or was reckless in not
+knowing, that the statements in those letters were false,  36/ and that Deloitte would rely on them
+in issuing the audit opinion that was included in the Form 10-K.
+Well before the filing of the Form 10-K on April 17, 2001 McConville knew that Akorn's
+accounts receivables accounting was in terrible disarray.  Akorn's adoption of the Macola and
+J.D. Edwards software packages happened during McConville's tenure as CFO.  She was aware
+that there were accounts receivable records on each of those systems, and that Macola ran into
+problems and would not function when processing transactions that involved large volumes of
+data.  She knew that Akorn invoices were lengthy, that remittances were not matched with
+invoices, and that it was impossible to determine aging patterns accurately.  She knew from
+Deloitte's February 25, 2000 report that Deloitte was concerned about management's failure to
+review the accounts receivable in detail, misapplication of credits and payments to customer
+accounts, and failure to collect on outstanding balances effectively and efficiently.  She also
+knew that management had undertaken to achieve "significant collection resolution by June 30,
+2000 and complete cleanup by August 31, 2000," and she knew that these goals were not
+accomplished.  McConville further knew that as sales were growing, the distribution of the aging
+of receivables was getting older, and that during 2000, an increasingly large dollar amount was
+going uncollected for an increasingly long time.  37/  McConville knew that her February 2001
+16
+37/ (...continued)
+board.  We find that McConville, who attended both board and audit committee meetings,
+was aware of those concerns well before the 2000 Form 10-K was filed. 
+38/ McConville argues that the alleged misstatements in the Form 10-K are opinion
+statements and as such are protected by the "bespeaks caution" doctrine.  We assume
+McConville is relying on the cautionary language contained in Note A to the 2000 Form
+10-K, which generally states that the preparation of financial statements requires
+management to use estimates and assumptions and that actual results could differ
+materially from estimates.  (McConville cites Note G on page 30 of the Form 10-K, but
+this reference appears to have been an error on her part because Note G, which refers to
+covenants involved in a revolving credit agreement, is irrelevant to the issues in this
+case.)  The "bespeaks caution" doctrine does not permit a company to avoid Rule 10b-5
+liability by the insertion of "boilerplate" cautionary language, like that contained in Note
+A, into a filing.  See, e.g.,  In re Trump Casino Sec. Litig., 7 F.3d 357, 371-72 (3d Cir.
+1993) (boilerplate disclaimer that merely warns that investment has risks will ordinarily
+be inadequate to prevent misinformation; instead, cautionary statements must be
+substantive and tailored to specific future projections, estimates, or opinions challenged). 
+Moreover, many of the material misstatements in the Form 10-K are statements of fact
+rather than opinion, including statements of the Company's annual net sales, net income,
+and year-end accounts receivable.  
+meeting with Cardinal resulted in payment by Cardinal of only $913,745 (at a time when she
+believed that Cardinal owed Akorn approximately $4 million), that after paying the $913,745
+Cardinal considered that it was in a credit position with Akorn, and that Akorn's records were in
+such disarray that Akorn would be unlikely to be able to provide proofs of delivery to
+substantiate at least some of the allegedly unpaid invoices. 
+ 
+McConville knew that, in part because of computer problems and the volume of
+paperwork involved, reconciling the accounts receivable would be a monumental task. 
+Moreover, after her February meeting with Cardinal and Cardinal's response, she knew or was
+reckless in not knowing that Akorn was not going to be able to collect the entire amount Akorn
+believed was due from Cardinal and Akorn's other top wholesale customers, and that the failure
+to collect would adversely impact Akorn's financial statements.  Given this knowledge, we find
+that McConville acted with scienter in connection with her involvement in the preparation and
+filing of the 2000 Form 10-K.  38/
+3. McConville's misstatements and omissions were "in connection with" the
+purchase or sale of a security, and the misstatements were made by jurisdictional
+means.
+The filing of false or misleading Forms 10-K with the Commission satisfies the
+requirement that misstatements or omissions be made "in connection with" the purchase or sale
+17
+39/ See SEC v. Rana Research, Inc., 8 F.3d 1358, 1362 (9th Cir. 1993). 
+40/ McConville's situation is thus distinguishable from that in Zoelsch v. Arthur Andersen &
+Co., 824 F.2d 27 (D.C. Cir. 1987) and Wessel v. Buhler, 437 F.2d 279 (9th Cir. 1971), on
+which she relies. 
+of a security.  39/   McConville argues, however, that her involvement in the preparation of the
+financial statements contained in the Form 10-K was not sufficiently "in connection with" the
+purchase or sale of a security.  McConville argues that statements made to auditors "that might
+eventually find their way into a document distributed to investors" do not satisfy the "in
+connection with" requirement. 
+ 
+McConville misperceives the basis of her liability.  Her liability under Section 10(b) and
+Rule 10b-5 is not based on statements to auditors that unexpectedly ended up in documents
+distributed to investors; it is based on misstatements and omissions in the financial statements
+contained in the 2000 Form 10-K filed with the Commission, which she was involved in drafting
+and reviewing.  40/  McConville prepared the press release containing the year-end figures that
+were included in the financial statements contained in the 2000 Form 10-K.  She reviewed a draft
+of the financial statements as part of the drafting of the 2000 Form 10-K; this draft was virtually
+identical to the financial statements that were ultimately filed with the Commission.  Between
+March and the April 17 filing of the Form 10-K, her substantial work on the reconciliation of the
+Cardinal account informed her that a significant portion of Cardinal's receivables would not be
+collectible.  She signed the management representation letters relied on by Deloitte stating that
+the financial statements were in accordance with GAAP and that no events had transpired that
+would require adjustments or disclosures in the financial statements.  This involvement in the
+dissemination of false and misleading information to investors was sufficient to satisfy the "in
+connection with" requirement. 
+In a similar vein, McConville argues that the violations of Section 10(b) and Rule 10b-5
+charged were not established because the record does not show that any of her misleading
+statements to Deloitte were made by the use of jurisdictional means.  However, as discussed
+above, the misleading statements for purposes of Section 10(b) and Rule 10b-5 are not
+misstatements to Deloitte, but rather misstatements and omissions in the financial statements
+contained in the 2000 Form 10-K, which was filed with the Commission by electronic filing, 
+18
+41/ McConville does not deny that numerous cases find liability under Section 10(b) and
+Rule 10b-5 against persons who did not personally "push the button" to transmit a filing
+to the Commission.  See, e.g., Rana Research, 8 F.3d 1358 (consultant liable under
+Section 10(b) and Rule 10b-5 for misrepresentations in press release that was transmitted
+by facsimile by office manager).  She contends, however, that those cases do not present a
+finding of violation by a person who "properly objects" to the failure of proof that he or
+she used jurisdictional means in the manner prescribed by Section 10(b) and Rule 10b-5. 
+We cannot discern from the opinions in question whether an objection to the use of
+jurisdictional means was raised during those proceedings.  The cases hold that liability
+attaches against persons whose involvement was comparable to McConville's.
+42/ SEC v. McNulty, 137 F.3d 732, 740-41 (2d Cir. 1988).
+43/ McConville argues that Section 13(b)(5) is silent as to the quality or characteristics of the
+system of internal accounting controls required and that the standard required under
+Section 13(b)(2) is inapplicable.  McConville cites no authority, and we are aware of
+none, for the proposition that the term "internal accounting controls" means one thing in
+one subsection of the statute and something else in another subsection.  
+(continued...)
+through telephone lines or otherwise across state lines using interstate commerce.  Thus, the
+requirement of use of jurisdictional means was satisfied.  41/
+B. McConville violated Exchange Act Section 13(b)(5) and Rule 13b2-1.
+Exchange Act Section 13(b)(5) provides, in relevant part, that "[n]o person shall
+knowingly circumvent or knowingly fail to implement a system of internal accounting controls or
+knowingly falsify any book, record, or account" described in Section 13(b)(2).  Rule 13b2-1
+makes it unlawful for a person, directly or indirectly, to falsify or cause to be falsified any book,
+record, or account subject to Exchange Act Section 13(b)(2)(A).  Scienter is not required for a
+finding of violation of Rule 13b2-1.  42/
+As discussed above, Akorn's internal controls fell far short of what would have been
+necessary for the preparation of accurate financial statements.  McConville's tenure as CFO
+encompassed the period during which Akorn adopted first the Macola, then the J.D. Edwards
+software programs.  She was well aware of the shortcomings of these programs and of the
+complexity and difficulty of accurately aging the accounts receivable and reconciling Akorn's
+accounts receivables records with its customers' accounts payable records.  Thus, McConville
+knew that Akorn did not have a system of internal accounting controls for its accounts receivable
+necessary for the preparation of accurate financial statements and knowingly failed to implement
+such a system, in violation of Section 13(b)(5).  Moreover, by failing to correct those
+shortcomings, McConville caused the falsification of Akorn's records, in violation of Rule 
+13b2-1.  43/
+19
+43/ (...continued)
+McConville also argues she cannot be found to have falsified any book or record for
+purposes of Rule 13b2-1 because she made no entries in Akorn's ledgers and did not
+know how to make entries into Akorn's computerized accounting system.   Rule 13b2-1
+does not limit liability to those who directly falsify books and records; it allows persons
+to be held liable for having indirectly falsified, or caused to be falsified, books and
+records.  McConville's failure to implement a system of internal controls to ensure that
+transactions were properly recorded establishes her violation of the rule.  
+44/ See McNulty, 137 F.3d at 740-41 (citing authorities).
+45/ Exchange Act Section 21C; see Robert M. Fuller, Exchange Act Rel. No. 48406
+(continued...)
+C. McConville caused Akorn to violate Exchange Act Section 13(b)(2).
+Exchange Act Section 13(b)(2)(A) requires, among other things, that every issuer of
+securities registered with the Commission pursuant to Section 12 make and keep books, records,
+and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and
+dispositions of the assets of the issuer.  Exchange Act Section 13(b)(2)(B) requires, in relevant
+part, that every such issuer of securities devise and maintain a system of internal accounting
+controls sufficient to provide reasonable assurances that transactions are recorded as necessary to
+permit preparation of financial statements in accordance with GAAP and to maintain
+accountability for assets.  Scienter need not be shown to establish liability under Section
+13(b)(2).  44/ 
+As discussed above, Akorn's accounts receivable records did not accurately show what
+invoices had been paid or what amounts were still owing on particular invoices and therefore did
+not accurately and fairly reflect the transactions and disposition of Akorn's assets.  The financial
+statements filed with the 2000 Form 10-K materially overstated Akorn's assets because of the
+failure to include in the allowance for doubtful accounts anything for the five largest wholesale
+customer accounts.  Additionally, as we have already found, the financial statements in the 2000
+Form 10-K were not in accordance with GAAP because they failed to disclose the impairment of
+the accounts receivable.  The inaccuracies in the accounts receivable were due to Akorn's
+inadequate internal controls, as discussed above.  Akorn violated Section 13(b)(2) by failing to
+keep records that accurately and fairly reflected the transactions and dispositions of its assets, and
+by failing to devise and maintain a system of internal accounting controls sufficient to provide
+reasonable assurances that transactions were recorded as necessary to permit preparation of
+financial statements in accordance with GAAP and to maintain accountability for assets. 
+McConville can be found to have caused Akorn's violations of Section 13(b)(2) if she was
+responsible for an act or omission that she knew or should have known would contribute to the
+violation.  45/  As discussed above, McConville knew or was reckless in not knowing that her
+20
+45/ (...continued)
+(Aug. 25, 2003), 80 SEC Docket 3539, 3545, pet. for review denied, No. 03-1334 (D.C.
+Cir. Apr. 23, 2004); Erik W. Chan, Exchange Act Rel. No. 45693 (Apr. 4, 2002), 77 SEC
+Docket 851, 859-60.  Contrary to McConville's argument, the Division was not required
+to prove that her conduct was a proximate cause of the violations.
+46/  McConville argues that Costello, or persons who reported to Costello, were responsible
+for the making and keeping of Akorn's books and records and that McConville therefore
+cannot be held liable for the violations of Section 13(b)(2)(A) charged.  But Costello
+reported to McConville, and McConville testified that she "indirectly . . . was responsible
+for supervising the day-to-day financial operations of the company."  Having taken on
+these responsibilities, McConville cannot evade the consequences of her failure to fulfill
+them appropriately.
+failure to implement more adequate internal controls would result in inaccuracies in Akorn's
+books and records, and we thus find that McConville caused Akorn's violations of Section
+13(b)(2).  46/ 
+McConville contends that Akorn's books, records, and accounts satisfied Section
+13(b)(2)(A) because they did reflect the transactions and dispositions of Akorn's assets "in
+reasonable detail," as the statute requires.  She contends that the evidence does not show any
+deliberate falsification of accounting entries; she argues that at most, it shows that Akorn's
+bookkeepers did not fully process remittance advices on as timely a basis as was desirable and
+that the accounts receivable personnel were less diligent than was desirable in pursuing
+collections.
+We reject McConville's characterization of the evidence.  The magnitude of the problem
+went far beyond the description she offers.  As Maire noted, problems with Akorn's accounts
+receivable had been accumulating over a three- to four-year period, with "pages and pages of A/R
+reports" on each of the top five wholesaler accounts, consisting of a "maze of transactions" 
+going back as far as 1996.  This description is not one of books and records that accurately reflect
+transactions and disposition of assets "in reasonable detail."
+McConville argues that the GAAP violation charged was "wholly unrelated to Akorn's
+internal accounting controls" because "the propriety of disclosure [of the impairment of
+receivables] and creation of additional reserves would turn on a judgment call as to whether
+Akorn's customers would duly pay submitted invoices," a judgment as to which, she contends,
+internal controls are irrelevant.  We disagree.  Any "judgment call" that Akorn might make about
+whether its customers would pay must depend heavily on the quality of the information on which
+the judgment is based.  The quality of that information depended, in turn, on its internal controls.  
+If Akorn did not know how much of which invoices remained unpaid, it was in a poor position to
+judge how much it was likely to collect.  Moreover, the question whether customers could be
+expected to pay invoices depends in significant part on how well substantiated those invoices
+21
+47/ McConville argues that, if the financial statements in the 2000 Form 10-K did not
+conform to GAAP because of failure to disclose an impairment of Akorn's receivables,
+the GAAP violation was "not caused by deficiencies in Akorn's internal controls," but
+rather "caused by a failure of Akorn's accountants to assure that the potential impact of
+the shortcomings in Akorn's internal controls was properly disclosed."  McConville's
+argument would recast Section 13(b)(2)(B) as a statute about disclosure and shift the
+blame to Akorn's auditors.  Neither argument is persuasive.  Section 13(b)(2)(B) is about
+the adequacy of internal accounting controls.  The conduct of Akorn's auditors is not at
+issue in this proceeding. 
+McConville contends that Exchange Act Section 13(b)(2) is “unconstitutionally vague,”
+citing SEC v. World-Wide Coin Investments, Ltd., 567 F.Supp. 724, 751 (N.D. Ga.
+1983), a case that, in relevant part, concerns the applicability of the internal control
+provisions of Section 13(b)(2)(B).  World-Wide Coin does not address whether Section
+13(b)(2)(B) is unconstitutionally vague.  It simply states that "[a]ny ruling by a court with
+respect to the applicability of both the accounting provisions and the internal accounting
+control provisions should be strictly limited to the facts of each case."  We have engaged
+in precisely that type of fact-sensitive analysis here.
+48/ Exchange Act Rule 3b-2, 17 C.F.R. § 240.3b-2.
+were.  If Akorn could not match payments or credits to invoices in order to prove how much was
+due, and if it could not produce on demand proof of delivery, then it could not expect customers
+to pay.  Additionally, older invoices may be more difficult to collect.  The inadequacy of Akorn's
+internal controls made it impossible to track the aging of receivables in detail and therefore were
+not sufficient to provide reasonable assurances that transactions were recorded as necessary to
+permit preparation of financial statements in accordance with GAAP and to maintain
+accountability for assets, as required by Section 13(b)(2).  47/
+D. McConville violated Rule 13b2-2.
+Rule 13b2-2, in relevant part, makes it unlawful for an officer of an issuer to make or
+cause to be made a materially false or misleading statement to an accountant or omit or cause
+another person to omit any material information necessary to make the statements made not
+misleading in connection with an audit of financial statements or reports filed with the
+Commission.  The term "officer" includes a "comptroller or principal accounting officer, and any
+person routinely performing corresponding functions with respect to any organization whether
+incorporated or unincorporated."  48/  We have already found that the management
+representation letters signed by McConville and addressed to Deloitte contained false statements
+about the conformity of the financial statements with GAAP, the adequacy of the allowance for
+uncollectible accounts receivable, and the lack of need for further disclosures.  We also find that
+McConville falsely represented to Deloitte that indications were positive in terms of receivables
+and that there was little past due money owing from wholesalers because most of the old bills
+22
+49/  See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180 (1963).  
+50/ Disclosure Required By Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002,
+Securities Act Rel. No. 8138 (Oct. 22, 2002), 78 S.E.C. Docket 2270, 2273 n.46; see also 
+Albert Glenn Yesner, Initial Decision No. 184 (May 22, 2001), 75 S.E.C. Docket 220,
+265 ("[C]ontroller is synonymous with comptroller.").
+51/ Albert  Glenn Yesner, on which McConville relies, is distinguishable on the facts.  While
+a law judge found that Yesner was not an officer for purposes of Rule 3b-2, Yesner was
+not a primary contact for his employer's accountants and was not involved in the
+preparation of filings.  Yesner, 75 S.E.C. Docket at 265-66.  Moreover, Yesner did not
+sign any management representations letters, as did McConville.
+52/ SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978); SEC v. IMC Int'l, Inc.,
+384 F. Supp. 889, 893 (N.D. Tex.), aff'd mem., 505 F.2d 733 (5th Cir. 1974). 
+53/ 17 C.F.R. § 240.12b-20.  Violations of Section 13(a) or of the Commission's rules
+thereunder do not require scienter.  McNulty, 137 F.3d at 740-41. 
+were offset by more recent credits.  By making these false representations to Deloitte,
+McConville violated Rule 13b2-2. 
+McConville contends that she cannot be liable for the violation of Rule 13b2-2 because at
+the time of the alleged misstatements she was Akorn's "Corporate Controller," not its
+"comptroller."   The securities laws are to be construed broadly to effectuate their remedial 
+purpose.  49/  "Controller" and "comptroller" may be used interchangeably to describe the
+position in an agency or organization with oversight responsibilities for the agency's or
+organization's primary accounting functions.  50/  McConville's responsibilities, insofar as they
+related to the signing of the management representation letters, were commensurate with those of
+an officer.  51/
+E. McConville caused Akorn to violate Exchange Act Section 13(a) and Rules 13a-1 and
+12b-20.
+Section 13(a) and Rule 13a-1 require the filing of annual reports with the Commission. 
+The contents of those reports must be complete and accurate.  52/   Rule 12b-20 mandates that
+periodic reports contain such further material information as may be necessary to make the
+required statements not misleading.  53/  
+We have already found that Akorn's 2000 Form 10-K was inaccurate in that the current
+assets were materially overstated and that the impairment of the receivables should have been,
+but was not, disclosed.  For the reasons set forth in finding that McConville violated Section
+10(b), we find that she caused Akorn to violate Section 13(a) and Rules 13a-1 and 12b-20.
+23
+54/ Rule of Practice 200(b)(3), 17 C.F.R. § 201.200(b)(3).
+55/ J. Logan & Co., 38 S.E.C. 827 (1959); Charles M. Weber, 35 S.E.C. 79 (1953). 
+McConville does not dispute that she had access to the Division's investigatory record,
+which provided information about the evidence on which the Division intended to rely.
+56/ See supra note 33. 
+57/ See, e.g., Jaffee & Co. v. SEC, 446 F.2d 387, 394 (2d Cir. 1971).  McConville complains
+that the law judge denied her motion before considering her reply memorandum.  The law
+judge reconsidered her ruling after considering McConville's reply and the cases cited
+therein.  She then denied McConville's  motion.  McConville does not identify any
+prejudice that resulted from the law judge's ruling, and we see none.  
+F. McConville's procedural arguments are without merit.
+McConville makes two related arguments that her due process rights were violated
+because she did not have adequate notice of the charges against her.  First, she argues that the law
+judge erred in refusing to grant her motion for a more definite statement.  Second, she claims
+that, because the law judge denied her motion to strike evidence and proffered findings relating
+to Akorn's chargeback and rebate reserves, the Division was able to present evidence outside the
+scope of the OIP of which she did not have notice.  These arguments are without merit.
+Our rules require that the OIP set forth the factual and legal basis alleged for the order "in
+such detail as will permit a specific response thereto."  54/  The OIP must inform the respondent
+of the charges in enough detail to allow the respondent to prepare a defense, but it need not
+disclose to the respondent the evidence upon which the Division intends to rely.  55/  
+The OIP in this proceeding alleged facts regarding McConville's employment at Akorn,
+her knowledge regarding deficiencies and problems related to Akorn's accounts receivable
+records, her review of the 2000 Form 10-K, the failure to create a reserve for Akorn's largest
+customer accounts receivable, her false statements in the management representation letters, her
+failure to make certain disclosures regarding accounts receivable to Akorn's auditors, the increase
+in the reserve for doubtful accounts in the 10-Q for the first quarter of 2001, and the statutes and
+rules violated.   The OIP also put McConville on notice that Akorn's accounting for chargebacks
+and rebates would be an issue in the proceeding.  56/  The OIP thus satisfied the due process
+requirement that a respondent be given fair notice of the claims lodged and the grounds upon
+which those claims rest, and the law judge did not err in denying her motion.  57/
+McConville makes several additional unsubstantial procedural arguments.  For example,
+McConville argues that, because Commission sanctions are “quasi-criminal,” the Division was 
+24
+58/ Steadman v. SEC, 450 U.S. 91, 103 (1980). 
+59/ Thomas D. Costello, Exchange Act Rel. No. 48906 (Dec. 11, 2003), 81 SEC Docket
+3151. 
+60/ Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326-27 (1979).
+61/ McConville argues that the law judge "turned the principle of collateral estoppel on its
+head" and used the Costello order improperly against her.   The import of this argument is
+unclear, but in any event, our de novo review would cure any error of this nature.
+62/ In a further argument of this nature, McConville contends that the law judge relied on
+facts and arguments not explicitly identified in the Initial Decision.  McConville fails to
+identify any portions of the Initial Decision that the law judge failed to support with
+(continued...)
+required to prove its case by clear and convincing evidence.  Under Steadman v. SEC it is well
+settled that the applicable standard, which we applied here,  is preponderance of the 
+evidence.  58/ 
+McConville asserts that the Commission's settled administrative proceeding against
+Costello, who served as Akorn's controller during much of McConville's tenure as CFO,
+collaterally estops the Commission from finding that she committed the violations charged
+because the order in that proceeding found that Costello had significant responsibility for the
+preparation and contents of Akorn's 2000 Form 10-K.  59/   The doctrine of collateral estoppel
+protects litigants from relitigating an identical issue with the same party.  60/  The question
+whether McConville had significant responsibility for preparing the 2000 Form 10-K is not
+identical to the question whether Costello also had significant responsibility for that document,
+so it is not being relitigated here.  61/
+McConville argues that the amended financial statements for fiscal year 2000 contained
+in the Form 10-K/A filed by Akorn on October 7, 2002 "represent the only concrete evidence of a
+quantifiable deficiency in the reserve for doubtful accounts" in Akorn's 2000 Form 10-K, and that
+"to the extent the Initial Decision suggests that such a quantifiable deficiency existed on April 17,
+2001, that suggestion rests on the erroneous admission of prior sworn testimony -- the Form 10-
+K/A -- representing an official change in Akorn's position into which McConville had no input." 
+She goes on to argue that, insofar as the Form 10-K/A represented prior sworn testimony, its
+admission was governed by our Rule 235; that the requirements of Rule 235 were not satisfied;
+and that the admission of the Form 10-K/A therefore "violated McConville's Sixth Amendment
+rights."    
+McConville's argument is flawed in many respects.  To the extent the law judge made
+"suggestions," such "suggestions" are now irrelevant in light of our de novo review.  62/  We see
+25
+62/ (...continued)
+references to specified facts.  But again, any errors of this sort in the Initial Decision are
+of no consequence since our review is de novo.
+63/ McConville argues that the law judge improperly quashed her subpoena requiring the
+Commission to produce certain materials related to its dealings with Akorn leading to the
+filing of the Form 10-K/A.  As noted above, however, none of the numbers in the Form
+10-K/A are the basis for any finding against McConville.
+64/ 15 U.S.C. § 78u-3.  The law judge ordered McConville to pay disgorgement, based on the
+salary she received from Akorn in 2000 and 2001.  Although we believe that imposing
+disgorgement of salary is within our authority, as an exercise of discretion, we decline to
+do so here.  
+Our resolution of this matter makes it unnecessary to reach the question of McConville's
+alleged inability to pay disgorgement.  McConville submitted a Form D-A, containing
+personal financial information.  We grant her unopposed motion pursuant to Rule of
+Practice 322(b), 17 C.F.R. § 201.322(b), for a protective order for the financial
+information contained in this Form, based on our finding that the harm to McConville
+resulting from disclosure would outweigh the benefits of disclosure. 
+nothing in the Initial Decision that suggests that the law judge based any conclusions on a finding
+that there was a quantifiable deficiency in the reserve for doubtful accounts as of April 17, 2001. 
+We make no such finding, and we base no conclusion on any such finding.  None of the numbers
+contained in the Form 10-K/A are the basis for any finding against McConville.  We do not find
+that the amount of uncollectible receivables could be quantified by April 17; we find, however,
+that McConville knew or was reckless in not knowing that it was likely that Akorn would fail to
+collect a substantial amount of the receivables from the top five wholesale customers.  In any
+event, Rule 235 is irrelevant to the admission of the Form 10-K/A, a filing with the Commission,
+and compliance with the requirements of Rule 235 is consequently irrelevant.  The Sixth
+Amendment is irrelevant to non-criminal proceedings.  63/
+IV.
+Exchange Act Section 21C authorizes the Commission, where there is a finding that a
+person has violated or caused a violation of a provision of the Exchange Act or any rule
+thereunder, to order such person to cease and desist from committing or causing such violation
+and any future violation of the same provision or rule.  64/  In determining whether a cease-and-
+desist order is an appropriate sanction, we look to the risk of future violations and a variety of
+other factors, including the seriousness of the violation, the isolated or recurrent nature of the
+violation, whether the violation is recent, the degree of harm to investors or the marketplace
+resulting from the violation, the respondent's state of mind, the sincerity of assurances against
+future violations, recognition of the wrongful nature of the conduct, opportunity to commit future
+26
+65/ KPMG Peat Marwick, 54 S.E.C. 1134, 1192 (2001), reconsideration denied, 74 SEC
+Docket 1351 (Mar. 8, 2001), pet. for review denied, 289 F.3d 109 (D.C. Cir. 2002). 
+66/ KPMG Peat Marwick, 54 S.E.C. at 1185.  The risk of future violations required to
+support a cease-and-desist order is significantly less than that required for an injunction. 
+Id. at 1191.
+67/ See, e.g., SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1377 (D.C. Cir. 1980)
+(dissemination of false or misleading information by companies to members of investing
+public may distort efficient workings of securities markets and injure investors who rely
+on the accuracy and completeness of company’s public disclosures).
+violations, and remedial function to be served by the cease-and-desist order in the context of any
+other sanctions sought in the proceeding.  65/  We impose a cease-and-desist order only where
+we have determined that there is some risk of future violation.  66/
+The violations here were significant.  McConville was responsible for misrepresentations
+and omissions in Akorn's Form 10-K, which was filed with the Commission and thus made
+available to investors.  As a result of the deficiencies in Akorn's recordkeeping and internal
+controls, Akorn's receivables were overstated, no impairment of the receivables was disclosed,
+and no reserve was created for customer accounts that represented 60% of the receivables. 
+McConville made misrepresentations to Deloitte in the management representation letters to
+Deloitte, knowing that Deloitte would be basing assumptions on those letters in its work on the
+2000 audit.  She also made oral misrepresentations to Deloitte about the collectibility of the
+receivables from the top five wholesale customers.
+ 
+The deficiencies of Akorn's recordkeeping with regard to accounts receivable was an
+ongoing problem, not a one-time or limited occurrence.  The situation deteriorated for months, if
+not years, and McConville failed to take adequate action to improve matters.  The violations were
+relatively recent:  the deficiencies in internal controls became more pronounced over the years
+and came to a head in 2000 and early 2001, and McConville signed the management
+representation letters in 2001, and the 2000 Form 10-K was filed in 2001.  
+McConville's actions caused harm to investors and the marketplace.  Fraudulent
+misstatements and omissions in financial statements and periodic reports mislead investors who
+buy or sell stock based on the information contained therein.  Moreover, exposure of the fraud
+results in an erosion of confidence in the marketplace in general.  67/ 
+ 
+As we found above, McConville acted with scienter.  McConville continues to deny
+responsibility for the violations charged, and does not acknowledge any wrongdoing on her part. 
+Her primary assurance that she will not commit future violations is based on the fact that the
+bringing of this proceeding against her has damaged her reputation to such an extent that it is
+unlikely that she will be hired for a position where she could commit such violations.  However,
+27
+68/ See McCurdy v. SEC, 396 F.3d 1258, 1265 (D.C. Cir. 2005) (recognizing that order
+suspending auditor from practice before the Commission for one year had remedial
+purpose of encouraging more rigorous compliance with generally accepted auditing
+standards in future).
+69/ McConville suggests that under Section 21C of the Exchange Act, the Commission may
+not enter a cease-and-desist order against McConville because the OIP did not also charge
+Akorn, the primary violator.  McConville argues that Section 21C's use of the singular
+"an order" indicates that cease-and-desist orders are permitted only where such an order
+also is entered against the primary violator.
+The Commission has never construed Section 21C as having such a requirement.  See,
+e.g. Robert M. Fuller, 80 SEC Docket 3539 (entering cease-and-desist order for causing
+violations of primary violator, where no cease-and-desist order was imposed on primary
+violator).  To the contrary, the language in Section 21C providing that the Commission
+"may" enter a cease-and-desist order against a primary violator and against a person that
+is a cause of the violation supports our view that the Commission has the option of
+entering a cease-and-desist order against an individual who causes a violation without
+entering the same order against the primary violator.
+70/ 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.
+merely instituting a proceeding does not preclude future employment in the securities industry. 
+A cease-and-desist order will serve the remedial purpose of encouraging McConville to take her
+responsibilities more seriously in the future.  68/  We find that the record as a whole, especially
+the evidence with regard to the seriousness of McConville's violations and her lack of
+acknowledgement of wrongdoing, establishes a sufficient risk that McConville would commit
+future violations to warrant imposition of a cease-and-desist order.   Based on all of these factors,
+we find a cease-and-desist order to be in the public interest.  69/
+An appropriate order will issue.  70/
+By the Commission (Chairman DONALDSON and Commissioners GLASSMAN,
+GOLDSCHMID, CAMPOS, and ATKINS).
+Jonathan G. Katz
+   Secretary 
+UNITED STATES OF AMERICA
+before the
+SECURITIES AND EXCHANGE COMMISSION
+SECURITIES EXCHANGE ACT OF 1934
+Rel. No. 51950 / June 30, 2005
+ACCOUNTING AND AUDITING ENFORCEMENT
+Rel. No.  2271 / June 30, 2005
+Admin. Proc. File No. 3-11330
+In the Matter of 
+RITA J. MCCONVILLE
+ORDER IMPOSING REMEDIAL SANCTIONS
+On the basis of the Commission's opinion issued this day it is 
+ORDERED that Rita J. McConville cease and desist from committing or causing any
+violations or future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of
+1934 and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and from causing any violations or future
+violations of Sections 13(a) and 13(b)(2) of the Securities Exchange Act of 1934 and Rules 12b-
+20 and 13a-1 thereunder.
+By the Commission.
+Jonathan G. Katz
+   Secretary 
\ No newline at end of file
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19300 / July 11, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2276 / July 11, 2005 
+
+  Securities and Exchange Commission v. Mark Cocchiola, et al.,  Civil Action No. 05-3450 (D.N.J.)  
+
+ SEC FILES FRAUD ACTION AGAINST MARK COCCHIOLA AND STEVEN VENECHANOS, THE FORMER CEO AND CFO OF SUPREMA SPECIALTIES, INC.  
+
+ U.S. ATTORNEY'S OFFICE FOR THE DISTRICT OF NEW JERSEY INDICTS COCCHIOLA AND VENECHANOS  
+
+ On July 11, 2005, the Securities and Exchange Commission filed a civil complaint in the United States District Court for the District of New Jersey charging the former CEO, president and chairman of the board of directors, Mark Cocchiola, and the former CFO, secretary and director, Steven Venechanos, of Suprema Specialties, Inc. ("Suprema"), with violating the antifraud and other provisions of the federal securities laws in connection with their participation in a multi-year fraud orchestrated by Suprema's senior management.   Prior to its delisting in early 2002, Suprema -- a Paterson, New Jersey-based cheese manufacturer -- was a public company whose securities traded on the Nasdaq National Market System.    
+ In its complaint, the Commission alleges that Suprema engaged in fraudulent "round-tripping" transactions that resulted in total misstatements of Suprema's reported revenue of between approximately 35% and over 60% in each of the 1999, 2000 and 2001 fiscal years, and in the first quarter of fiscal year 2002.  The complaint further alleges that the scheme resulted in total misstatements of Suprema's reported accounts receivable of 60% or more in each of the 1999, 2000 and 2001 fiscal years.     
+ According to the complaint, the "round-tripping" transactions were effectuated through "circles" of entities, each of which included Suprema, a third-party "customer," and a related "vendor."   As the complaint alleges, the customer and vendor in each circle tended to have a common owner.  The complaint alleges that false paperwork was created documenting the fictitious transactions, and checks were circulated in purported payment for the transactions.  Participants allegedly received a kick-back or "commission" on each transaction, the funds for which were generally drawn from Suprema's line of credit, which increased as Suprema's accounts receivable grew.  With rare exceptions, the complaint alleges, no goods were actually sold, purchased, or exchanged in these transactions.   
+ The Commission alleges that Cocchiola and Venechanos were aware of, approved of, and participated in the fraud from at least in or around February 2000.  The complaint alleges that, among other things, Cocchiola and Venechanos signed and caused to be filed an annual report on Form 10-K for the 2000 and 2001 fiscal year, and a registration statement on Form S-2 for secondary public offerings of Suprema stock in August 2000 and November 2001, which included financial statements for the fiscal year 1999 and subsequent reporting periods, which Cocchiola and Venechanos knew, were reckless in not knowing, or should have known were materially false and misleading.  The complaint further alleges that Cocchiola and Venechanos signed and caused to be filed a Form 10-Q for the first quarter of the 2002 fiscal year, which included financial statements for the quarter ended on September 30, 2001, which Cocchiola and Venechanos knew, were reckless in not knowing, or should have known were materially false and misleading.  Furthermore, the complaint alleges that Cocchiola and Venechanos received illicit gains of over $4.8 million and $1.4 million, respectively, by selling Suprema stock during the commission of the fraud.      
+ Based on these allegations, the Commission charged Cocchiola and Venechanos with: (i) securities fraud in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5; (ii) knowingly circumventing internal accounting controls and knowingly falsifying corporate books and records in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1; (iii) lying to the company's independent auditors in violation of Exchange Act Rule 13b2-2; and (iv) aiding and abetting Suprema's violations of the periodic reporting, books and records, and internal accounting controls provisions of Exchange Act Sections 13(a) and 13(b)(2)(A) and (B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13.  The Commission is seeking permanent injunctions, officer and director bars, civil penalties, and disgorgement with prejudgment interest.  
+ Previously, in January 2004, the Commission filed securities fraud and related charges against the former controller, former operations manager, and several former customers and vendors of Suprema and their owners in federal district court for the District of New Jersey for their participation in the financial fraud at Suprema.  See SEC v. Robert Quattrone, et al., Civil Action No. 04-33(SRC) (D.N.J.) (Lit. Rel. No. 18534 (January 7, 2004)).  In March 2005, the Commission filed securities fraud and related charges in the same court against the part owner and operator of other participating customers and vendors, and certain of those entities.  See SEC v. Jack Gaglio, Civil Action No. 3:05-CV-01195-SRC-TJB (D.N.J.) (Lit. Rel. No. 19111 (March 2, 2005)).  All the defendants in those actions have settled the Commission's claims for injunctive relief and officer and director bars, and consented to the Court determining at a later date the Commission's claims against them for monetary relief.   
+ Also today, the United States Attorney for the District of New Jersey announced the indictment of Cocchiola and Venechanos on 38 felony counts of conspiracy, bank fraud, securities fraud, mail fraud and wire fraud.   
+ The Commission acknowledges the assistance of the United States Attorney's Office for the District of New Jersey, the Newark Office of the Federal Bureau of Investigation, and the Office of Criminal Investigations of the U.S. Food and Drug Administration in Jersey City, New Jersey in its investigation.  
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diff --git a/raw/aaer/2005/AAER-2277.txt b/raw/aaer/2005/AAER-2277.txt
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index 0000000000000000000000000000000000000000..c81dfd7d4936a8ade5d82c21d130ed7536abece5
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@@ -0,0 +1,1382 @@
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+              Bernard J. Ebbers
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+       
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19301 / July 13, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2277 / July 13, 2005 
+
+  U.S. Securities and Exchange Commission v. Bernard J. Ebbers,  Civil Action No. 05 Civ. 6378 (S.D.N.Y.) 
+
+ SEC FILES CIVIL FRAUD ACTION AGAINST BERNARD J. EBBERS, WORLDCOM'S FORMER CHIEF EXECUTIVE OFFICER; EBBERS CONSENTS TO FRAUD INJUNCTION, PERMANENT OFFICER AND DIRECTOR BAR 
+
+ Today the Securities and Exchange Commission filed a civil fraud action against Bernard J. Ebbers, the former Chief Executive Officer of WorldCom, Inc. (now known as MCI, Inc.), for his role in the WorldCom fraud.  Ebbers has agreed to settle the matter by consenting, without admitting or denying the allegations in the Commission's complaint, to the entry of a final judgment enjoining him from violating the anti-fraud and other provisions of the federal securities laws, and permanently barring him from serving as an officer or director of a public company.  The settlement is subject to the approval of the Court.    
+ The Commission's action against Ebbers is its sixth civil enforcement action related to the WorldCom fraud.  The complaint filed today alleges that Ebbers, along with other WorldCom senior officers, caused numerous fraudulent adjustments and entries in WorldCom's books and records, often in the hundreds of millions of dollars, in furtherance of a scheme to make the Company's publicly reported financial results appear to meet Wall Street's expectations.  The complaint further alleges that these market expectations were based, in some instances, on financial performance targets set by Ebbers that Ebbers knew could not be attained by legitimate means.  In addition, the Commission alleged that Ebbers made numerous false and misleading public statements about WorldCom's financial condition and performance, and signed multiple SEC filings that contained false and misleading material information.   
+ If the settlement is approved by the Court, Ebbers will be enjoined from future violations of the antifraud, reporting, books and records, internal controls, and lying-to-auditors 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-1, 13a-13, 13b2-1 and 13b2-2 thereunder.  
+ 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.   As announced on June 30 by the United States Attorney's Office, which obtained Ebbers' conviction on March 15 of this year, and as preliminarily approved on July 11 by U. S. District Judge Denise Cote, Ebbers will be required to transfer substantially all of his assets either directly to the class in the private WorldCom Securities Class Action Litigation or to a liquidation trust that will be established to sell off his assets for the benefit of that class and WorldCom.  Ebbers is scheduled to be sentenced today in Manhattan by U.S. District Judge Barbara Jones. 
+ The Commission's investigation into matters related to the WorldCom financial fraud is continuing. 
+
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+              Gregory Brady, William M. Beecher, and Reagan L. Lancaster
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+        Gregory Brady, William M. Beecher, and Reagan L. Lancaster
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19306 / July 18, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2279 / July 18, 2005 
+
+  Securities and Exchange Commission v. Gregory Brady, William M. Beecher, and Reagan L. Lancaster,  Civil Action No. 3:05CV1416-M, United States District Court for the Northern District of Texas, Dallas Division. 
+
+ On July 15, 2005, the Commission filed suit in Dallas federal court charging three former senior officers of Dallas-based technology company i2 Technologies, Inc., with securities fraud, insider trading and other federal securities law violations relating to alleged accounting improprieties involving materially misstated software license revenues.  According to the complaint, for the four years ended December 31, 2001 and the first three quarters of 2002 (the "restatement period"), the defendants intentionally or recklessly participated in a scheme to misstate approximately $1 billion of software license revenues, including over $125 million of revenues that should never have been recognized; to conceal from investors the true nature of certain reciprocal, or "barter," transactions i2 entered into; and to hide grave customer problems i2 was experiencing.  These matters were the subject of a settled enforcement action the Commission brought against i2 on June 9, 2004, in which i2 paid a $10 million civil penalty.   See In the Matter of i2 Technologies, Inc. , Lit. Rel. No. 18741 (June 9, 2004). 
+	 	
+	 The individuals named in the Commission's suit are: 
+	  Gregory Brady , i2's former president and chief executive officer during critical parts of the restatement period.   
+	  William M. Beecher , i2's former chief financial officer during the restatement period.     
+	  Reagan L. Lancaster , i2's former executive vice president of worldwide sales, and later president of field operations, during critical parts of the restatement period.   
+	 
+ In its complaint, the Commission alleges that each defendant knew or recklessly disregarded that certain i2 software products lacked functionality essential to the needs of i2's customers (which defendant Lancaster called "vaporware"), functionality that could only be provided through extensive customization and modification efforts by i2 consultants.  The Commission also alleges that the defendants knew these functionality problems were causing serious customer relations problems, in contrast to the rosy customer relations story they were giving the public at the time.   
+ According to the complaint, defendants also knew or recklessly disregarded that i2 was recording material software license revenues on transactions involving the non-functional software, in violation of generally accepted accounting principals ("GAAP"), notwithstanding i2's public representations (endorsed by defendants) that i2's accounting for software license revenues comported with GAAP.  The complaint also describes defendants' involvement in a transaction between i2 and Enron Corporation, in which i2 purported to sell Enron a $10 million software license during the first quarter of 2000 while simultaneously agreeing to buy an identical amount of broadband services from an Enron subsidiary.   As the complaint alleges, defendants knew or recklessly disregarded that i2 could not properly recognize this entire license revenue in the first quarter of 2000, but they nonetheless caused the company to do so, without any disclosure to the public about the true nature of the transaction.   
+ The Commission alleges that the defendants concealed these matters from the public, as well as from i2's external auditors and the audit committee of i2's board of directors, for fear that disclosing them would cause i2's stock price to decline, thereby damaging defendants' ability to exercise lucrative stock options.  As alleged in the complaint, the defendants, on the basis of the material non-public information described above, violated insider trading rules by reaping tens of millions of dollars profit exercising options on, and selling, i2's grossly inflated stock.   
+ The Commission alleges in its complaint that defendants 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 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder; that defendants aided and abetted i2'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, 13a-1 and 13a-13 thereunder; that Brady and Beecher violated Rule 13b2-2 under the Exchange Act; and that Beecher violated Rule 13a-14 under the Exchange Act.  In its action, the Commission is seeking against each defendant a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, an officer and director bar and a civil money penalty.   
+
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diff --git a/raw/aaer/2005/AAER-2284.txt b/raw/aaer/2005/AAER-2284.txt
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index 0000000000000000000000000000000000000000..be10d87d62bdfcfc03117eb2efe4c0203e90b375
--- /dev/null
+++ b/raw/aaer/2005/AAER-2284.txt
@@ -0,0 +1,1367 @@
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19316 / July 28, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2284  / July 28, 2005 
+
+  Securities and Exchange Commission v. Richard Rambahal, et al.,  Case Number 04-3086-cv-RED (U.S.D.C. W.D. MO., filed March 4, 2004) 
+
+ SEC OBTAINS FINAL JUDGMENT AGAINST MICHAEL LESNIEWSKI FOR FINANCIAL FRAUD AT DT INDUSTRIES, INC. 
+
+ The Securities and Exchange Commission announced that on July 26, 2005, the Honorable Richard E. Dorr, Judge in the United States District Court for the Western District of Missouri, entered a final judgment against Defendant Michael Lesniewski which (1) permanently enjoins Lesniewski from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder and for aiding and abetting DT Industries Inc.'s (DTI) 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; (2) orders Rambahal to pay disgorgement of $26,700 plus pre-judgment interest thereon in the amount of $5,678 and also pay a $25,000 civil penalty, for a total payment of $57,378.  Lesniewski consented to the entry of the final judgment without admitting or denying the allegations contained in the Commission's complaint.   
+ The Commission's Complaint alleged that Lesniewski, the controller and general manager at DTI subsidiary Assembly Machines, Inc. (AMI), manipulated AMI's books and records, enabling AMI to reach projected earnings targets based on guidelines established by DTI management.  Specifically, the Commission's Complaint alleged that Lesniewski understated AMI's costs of sales by failing to recognize all of AMI's actual costs for certain projects.  By not recognizing the actual costs for these projects, Lesniewski artificially increased AMI's profit margin.  The incorrect profit margins were then consolidated into DTI's financial statements.  According to the Commission's Complaint, as a result of AMI's misstatements, in August 2002 DTI restated its financial statements for fiscal years 1999 through the first three quarters of 2002.  The Commission's Complaint alleged that Lesniewski's fraud caused DTI to understate its net losses by 1% to 29% in its annual reports for fiscal years 1999, 2000 and 2001 and its first three quarterly reports for 2002.   
+ For additional information, see Litigation Release  No. 18608  (March 5, 2004). 
+
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diff --git a/raw/aaer/2005/AAER-2287.txt b/raw/aaer/2005/AAER-2287.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19319 / August 1, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2287 / August 1, 2005 
+
+  SEC v. Robert Korkuc,  03 CV 3017 (LDW)(EDNY) 
+
+ FORMER CHIEF ACCOUNTING OFFICER OF SYMBOL TECHNOLOGIES, INC. CONSENTS TO PERMANENT INJUNCTIVE RELIEF, OFFICER-AND-DIRECTOR BAR AND ADMINISTRATIVE ORDER UNDER RULE 102(e) 
+
+ On May 11, 2005, the Honorable Leonard D. Wexler, United States District Judge for the Eastern District of New York entered a partial final judgment against Robert Korkuc ("Korkuc"), the former Chief Accounting Officer of Symbol Technologies, Inc. ("Symbol").  Korkuc consented to entry of an order that prohibits him from acting as an officer or director of a public company and imposes permanent injunctive relief for violations of the relevant antifraud, corporate reporting, books and records and internal control provisions of the federal securities laws.  Specifically, Korkuc, without admitting or denying the allegations in the Commission's complaint, is permanently enjoined from violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2), 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2, 12b-20, 13a-1 and 13a-13.  The Commission's claims for disgorgement and civil penalties against Korkuc remain pending.  
+ The Commission today also instituted and simultaneously settled an administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice against Korkuc, a certified public accountant licensed to practice in the state of New York.  The administrative proceeding was based on the entry of the partial final judgment against Korkuc.  Korkuc consented, without admitting or denying the Commission's findings, to an order suspending him from appearing or practicing before the Commission as an accountant. 
+ The Commission's complaint against Korkuc filed on June 19, 2003 alleges that from 1998 until early 2003, Korkuc and others engaged in a fraudulent scheme to inflate revenue, earnings and other measures of financial performance in order to create the false appearance that Symbol had met or exceeded its financial projections.  The complaint further alleges that, with no regard for generally accepted accounting principles or his financial reporting obligations, Korkuc and others used the following schemes to align Symbol's reported financial results with market expectations: 
+	  a "Tango sheet" process through which baseless accounting entries were made to conform the raw quarterly results to management's projections;   
+	 the creation of  "cookie jar" reserves to further manage earnings; and   
+	 channel stuffing and other revenue recognition schemes.   
+	  On June 19, 2003, Korkuc pled guilty to criminal charges brought by the United States Attorney's Office for the Eastern District of New York ("USAO") based on the same conduct alleged in the Commission's complaint against Korkuc. 
+ A separate complaint filed by the Commission on June 3, 2004 named Symbol and eleven other former Symbol executives as defendants for their role in the fraudulent scheme.  Symbol consented to entry of a final judgment imposing, among other relief, a permanent injunction and a civil penalty in the amount of $37 million, and James Dean, one of the individual defendants, consented to a partial final judgment imposing permanent injunctive relief.  On February 17, 2005, Brian Burke, a former senior vice-president of Symbol consented to a partial final judgment imposing permanent injunctive relief and a bar prohibiting him from acting as an officer or director of a public company. 
+ The Commission acknowledges the assistance and cooperation of the USAO and the U.S. Postal Inspection Service in this matter. 
+ For additional information see: 
+	   Litigation Release No. 19086 (February 17, 2005)    
+	  Litigation Release No. 18734 (June 3, 2004)    
+	  Litigation Release No. 18194 (June 19, 2003)    
+	  Litigation Release No. 18050 (March 25, 2003)    
+	     
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diff --git a/raw/aaer/2005/AAER-2290.pdf b/raw/aaer/2005/AAER-2290.pdf
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diff --git a/raw/aaer/2005/AAER-2291.txt b/raw/aaer/2005/AAER-2291.txt
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+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52258 / August 15, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2291 / August 15, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12013 
+In the Matter of 
+JOHN V. BACK, Jr., 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 John V. 
+Back, Jr. (“Respondent” or “Back”) 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 
+Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or 
+improper professional conduct. 
+1
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+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, Respondent consents to the entry of this Order Instituting Public Administrative 
+Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and 
+Imposing Remedial Sanctions (“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds2 that: 
+1. John V. Back, Jr., 54, a certified public accountant formerly licensed in Arizona,3 
+was a KPMG LLP (“KPMG”) audit partner in charge of KPMG’s fiscal 1999 audit of First 
+American Health Concepts, Inc. (“FAHC”).  Back served as audit engagement partner for KPMG 
+audits of FAHC’s financial statements for fiscal years 1993 through 1999, as originally filed with 
+the Commission, and issued unqualified reports thereon.  Back retired from KPMG in June 2002. 
+2. FAHC was an Arizona corporation headquartered in Phoenix with common stock 
+registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 
+and listed on the American Stock Exchange.  As of January 31, 2001, FAHC had 2,635,691 shares 
+of common stock outstanding.  FAHC marketed and administered vision care programs including 
+programs underwritten by various insurance carriers.  In 2001, Luxottica Group S.p.A., an Italian 
+company, acquired FAHC.  FAHC is no longer a public company. 
+3. FAHC materially overstated its assets and net income in reports filed with the 
+Commission for its 1999 fiscal year by significantly overstating its accounts receivable.  In its 1999 
+10-K, filed October 29, 1999, FAHC reported accounts receivable of $2.4 million and pretax 
+income of $693,000.
+4  According to a restatement FAHC filed on December 20, 2000, the 
+receivables were overstated by approximately $892,000 and, but for the overstatement, FAHC’s 
+fiscal 1999 pre-tax income would have been a loss of $199,000. 
+4. Back was the KPMG audit engagement partner responsible for the July 31, 1999 
+audit of FAHC. He was also the audit engagement partner for the KPMG audit work for a June 6, 
+2000 restatement of FAHC’s 1999 financial statements.  That restatement failed to correct the 
+overstatement of accounts receivable; the correction was not made until after KPMG resigned on 
+July 24, 2000 and was replaced by Pannell Kerr Forster (“PKF”) who performed the fiscal 2000 
+audit. PKF’s discovery of the overstated accounts receivable resulted in the FAHC December 20, 
+2000 restatement. 
+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 On August 15, 2003, the Arizona State Board of Accountancy and Back entered into a 
+decision and order, by consent, by which Back relinquished his certificate to practice as a 
+certified public accountant. 
+4 FAHC operated with a July 31 fiscal year end. 
+2
+ 
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+5. In October 1998, KPMG issued a “management letter” to FAHC that described “the 
+lack of timely reconciliations between the accounts receivable subsidiary ledgers and the general 
+ledger” as the most significant problem noted during the fiscal 1998 audit.  When he supervised the 
+1999 audit, Back knew, or should have known, that the problem had not been corrected, that 
+reconciliations had not been performed and that the total of individual accounts did not agree with 
+the general ledger balance.  Neither Back nor anyone he supervised reconciled the receivables, 
+determined the amount of the unreconciled difference, or secured independent confirmation of 
+individual accounts receivable balances to determine the extent of errors, in accordance with 
+generally accepted auditing standards (“GAAS”). 
+6. Back knew, or should have known, that when KPMG issued its audit report on 
+FAHC’s 1999 fiscal year, FAHC’s accounts receivable balances should have been reconciled for 
+two years. Yet he falsely represented that KPMG’s audit had been performed in accordance with 
+GAAS and that FAHC’s financials complied with generally accepted accounting principles. 
+7. In the fall of 1999, Back was replaced as the FAHC audit engagement partner 
+pursuant to KPMG’s seven-year partner rotation policy.  The new audit engagement and 
+concurring review partners discovered several apparently unintentional accounting errors that 
+required a restatement of the 1999 financial statements.  Back was assigned audit engagement 
+partner responsibility for the restatement.  However, in auditing the restatement, Back again failed 
+to reconcile the accounts receivable balances in accordance with GAAS. 
+8. Based on the foregoing, the Commission finds that Back 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 sanction 
+agreed to in Respondent Back’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that John V. Back, Jr. is 
+denied the privilege of appearing or practicing before the Commission as an accountant.
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+3
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2293.txt b/raw/aaer/2005/AAER-2293.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4a548e41aa9a69c015a08fb592a9acb6378a6617
--- /dev/null
+++ b/raw/aaer/2005/AAER-2293.txt
@@ -0,0 +1,1368 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19341 / August 19, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2293  
+
+  Securities and Exchange Commission v. William M. Baker, et al.,  Civil Action No. 04-12444 DPW (D.Mass. November 18, 2004) 
+
+ COMMISSION OBTAINS PERMANENT INJUNCTION AND PENALTY AGAINST FORMER GENERAL MANAGER OF BUSINESS UNIT OF NEW HAMPSHIRE TECHNOLOGY COMPANY 
+
+ The Commission announced today that it had obtained an Order permanently enjoining William Baker, the former General Manager of the 2D Unit of the Acuity CiMatrix division of Robotic Vision Systems, Inc. ("Robotic"), from violating the antifraud and books and records provisions of the Securities Exchange Act of 1934.  Baker consented to the final judgement without admitting or denying the allegations in the Commission's Complaint.  The Commission had previously obtained judgments against four former employees of Robotic – former CFO, Frank D. Edwards, former Corporate Controller Laurence D. Cohen, former V.P. of Worldwide Sales Mark A. Tatkow, and Curtis W. Howes. 
+ In its Complaint, the Commission alleged that during its fiscal year 2000, Robotic's ACIM division improperly recorded revenue from approximately 36 purported sales to distributors totaling approximately $4.73 million in order to meet its revenue and sales goals.  According to the Complaint, between December 1999 and September 2000, ACIM negotiated numerous purported sales to its distributors and customers which contained non-standard terms that deferred, conditioned or even negated the distributors' obligations to pay for the ACIM products.  Recognizing revenue from these transactions was contrary to generally accepted accounting principles ("GAAP").  
+ According to the Complaint, Baker negotiated two of the improper transactions with ID Integration, Inc., one of Robotic's distributors.  The improper transactions Baker negotiated, coupled with the other consignment transactions, resulted in Robotic materially overstating its revenue by 13.5% and its net income by 2.1% for fiscal year 2000.  In his Consent to Final Judgement, Baker, without admitting or denying the allegations in the Complaint, agreed to pay a civil monetary penalty of $20,000, and be permanently enjoined from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.  
+ The Commission also previously instituted and settled cease-and-desist proceedings against Robotic, ID Integration, and the President of ID Integration, Gary Moe.  In the Orders, which were consented to by Robotic, ID Integration and Moe without admitting or denying the allegations in the Orders, the Commission found that Robotic committed violations of the antifraud and other provisions of the federal securities laws, while ID Integration and Moe caused violations of the antifraud and other provisions of the federal securities laws.  
+
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diff --git a/raw/aaer/2005/AAER-2295.txt b/raw/aaer/2005/AAER-2295.txt
new file mode 100644
index 0000000000000000000000000000000000000000..aa2b1f3ebb91c54e0520ce024a6c2fb3b36e027d
--- /dev/null
+++ b/raw/aaer/2005/AAER-2295.txt
@@ -0,0 +1,1382 @@
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+              Charles C. Conaway and John T. McDonald, Jr.
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+        Charles C. Conaway and John T. McDonald, Jr.
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19344 / August 23, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2295 / August 23, 2005 
+
+  Securities and Exchange Commission v. Charles C. Conaway and John T. McDonald, Jr.,  05 Civ. 40263 (P. Gadola, J.) (E.D. Michigan, filed August 23, 2005) 
+
+ SEC Charges Kmart's Former CEO and CFO with Financial Fraud 
+
+ The Securities and Exchange Commission today filed charges against two former top Kmart executives for misleading investors about Kmart's financial condition in the months preceding the company's bankruptcy. According to the Commission's complaint, former Chief Executive Officer Charles C. Conaway and former Chief Financial Officer John T. McDonald are responsible for material misrepresentations and omissions about the company's liquidity and related matters in the Management's Discussion and Analysis ("MD&A") section of Kmart's Form 10-Q for the third quarter and nine months ended October 31, 2001, and in an earnings conference call with analysts and investors.   
+ The Commission alleges that, in the MD&A section, Conaway and McDonald failed to disclose the reasons for a massive inventory overbuy in the summer of 2001 and the impact it had on the company's liquidity.  For example, the MD&A disclosure attributed increases in inventory to "seasonal inventory fluctuations and actions taken to improve our overall in-stock position."  The Commission alleges that this disclosure was materially misleading because, in reality, a significant portion of the inventory buildup was caused by a Kmart officer's reckless and unilateral purchase of $850 million of excess inventory.  According to the complaint, the defendants dealt with Kmart's liquidity problems by slowing down payments owed vendors, thereby effectively borrowing $570 million from them by the end of the third quarter.  According to the complaint, Conaway and McDonald lied about why vendors were not being paid on time and misrepresented the impact that Kmart's liquidity problems had on the company's relationship with its vendors, many of whom stopped shipping product to Kmart during the fall of 2001.  Kmart filed for bankruptcy on January 22, 2002.   
+ The Commission's complaint, which was filed in the United States District Court for the Eastern District of Michigan, charges Conaway and McDonald with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 13a-13, and 12b-20 thereunder by Kmart, and seeks as relief permanent injunctions, disgorgement with prejudgment interest, civil penalties and officer and director bars.   
+ The Commission acknowledges the assistance of the United States Attorney's Office for the Eastern District of Michigan and the Federal Bureau of Investigation.   
+ The SEC's Kmart investigation is continuing.    
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2296.pdf b/raw/aaer/2005/AAER-2296.pdf
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+ 
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 52321 / August 23, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2296 / August 23, 2005 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-10856 
+ 
+In the Matter of  
+David Friend, 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 August 1, 2002, David Friend ("Friend") was suspended from appearing or practicing 
+as an accountant before the Commission as a result of settled public administrative proceedings 
+and a cease-and-desist order instituted by the Commission pursuant to Rule 102(e) of the 
+Commission's Rules of Practice.
+1  This order is issued in response to Friend’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. 
+ From August 1, 1996 through March 27, 1998, Fr iend was employed as the controller 
+for Paragon Construction International, Inc. (“Paragon”), a wholly owned subsidiary of Golden 
+Bear Golf, Inc. (“Golden Bear”).  On October 19, 1998, Golden Bear restated its financial 
+statements for the year-ended December 31, 1997 and quarter-ended March 31, 1998.  From at 
+least the second quarter of 1997 through the first quarter of 1998, Paragon senior management, 
+aided by Friend, implemented a scheme to (1) inflate and accelerate revenue and gross margin 
+recognition, (2) understate estimated construction costs, (3) overstate estimated construction 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 1603 dated August 1, 2002.  Friend was permitted, 
+pursuant to the order, to apply for reinstatement after two 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). 
+ 
+revenues, and (4) record revenues and gross margin in connection with non-existent contracts.  
+As a result of these actions, the Commission found that Friend willfully violated Sections 10(b) 
+and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5 and 
+13b2-1 promulgated thereunder.  The Commission also found that Friend caused, and willfully 
+aided and abetted, Golden Bear’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange 
+Act and Rules 13a-1 and 13a-13 promulgated thereunder. 
+ 
+In his capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Friend 
+attests that he will undertake to have his work reviewed by the independent audit committee of 
+any company for which he works, or in some other manner acceptable to the Commission, while 
+practicing before the Commission in this capacity.  Friend 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, Friend’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 Friend, it appears that he has complied with the terms of the August 1, 2002 order suspending 
+him from practice before the Commission as an accountant, that no information has come to the 
+attention of the Commission relating to his character, integrity, professional conduct or 
+qualifications to practice before the Commission that would be a basis for adverse action against 
+him pursuant to Rule 102(e) of the Commission's Rules of Practice, and that Friend, 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 
+David Friend, 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  
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2301.txt b/raw/aaer/2005/AAER-2301.txt
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@@ -0,0 +1,200 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52358 / August 30, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2301 / August 30, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12022 
+In the Matter of 
+Barry S. Berlin, 
+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 Barry S. Berlin (“Berlin” or “Respondent”).  
+II. 
+In anticipation of the institution of these proceedings, Berlin 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, Berlin 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 Berlin’s Offer, the Commission finds1 that: 
+A. RELEVANT ENTITIES
+ 1. Kmart 
+Kmart Corporation (“Kmart” or the “company”) was a Michigan Corporation 
+headquartered in Troy, Michigan, during the relevant period.  On January 22, 2002, Kmart filed a 
+voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code.  The 
+company’s common stock was registered with the Commission pursuant to Section 12(b) of the 
+Exchange Act and traded on the New York Stock Exchange until December 19, 2002, when 
+trading was suspended. Kmart’s fiscal year ends the last Wednesday in January. 
+2. Newell Rubbermaid 
+Newell Rubbermaid Inc. is a Delaware corporation headquartered in Atlanta, Georgia. 
+Newell Rubbermaid Inc. is a Fortune 500 corporation and a major Kmart vendor.  Subdivisions 
+include Rubbermaid Home Products which manufactures and distributes plastic products for home 
+storage and organization.  Newell Rubbermaid’s common stock is registered with the Commission 
+pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock Exchange. 
+B. RESPONDENT 
+Barry S. Berlin (“Berlin”) was Director of Sales at Newell Rubbermaid Inc. for the Kmart 
+account during the relevant period.     
+C. FACTS 
+1. Kmart Improperly Recognized Vendor Allowances 
+Kmart improperly recognized millions of dollars worth of vendor “allowances” prior to 
+bankruptcy. Kmart obtained allowances from its  vendors for various promotional and marketing 
+activities. A significant number  of allowances were recognized prematurely – or “pulled 
+forward” – on the basis of false information provided to Kmart’s accounting department, while 
+the true terms of the payments were set forth in undisclosed agreements. As a result of these 
+accounting irregularities, Kmart’s cost of goods sold was understated, and earnings were 
+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
+ 
+ 
+ 
+  
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+   
+  
+ 
+  
+ 
+ 
+materially overstated, for the fourth quarter of fiscal year ended January 31, 2001 (“fiscal year 
+2000”). 
+2. Kmart’s Vendor Allowance Tracking System (“VATS”) Forms 
+The principal document involved in the pulling forward of vendor allowances was Kmart’s 
+Vendor Allowance Tracking System (“VATS”) form.  VATS forms summarized the basic terms of 
+vendor allowances for the company’s accounting department.  Bookkeepers inputted information 
+from the VATS form into the company’s computerized accounting system, where it was eventually 
+posted to the general ledger.  To ensure proper accounting for an allowance, the VATS form 
+should have reflected the true purpose of, and effective dates for, the payment.  To pull forward an 
+allowance, this information was misrepresented on the VATS form to make it look like the 
+payment was for past performance, when in truth it related to future obligations.  Kmart had a 
+number of safeguards designed to ensure the accuracy of the VATS forms and proper recognition 
+of vendor allowances.  These included the requirement that vendors co-sign VATS forms.   
+3. Berlin Helped Execute Three Misstated VATS Forms 
+Towards the end of Kmart’s fiscal year 2000, Berlin learned that Kmart needed Newell 
+Rubbermaid Inc.’s help in overcoming a shortfall in allowances in the home storage division.  With 
+Berlin’s knowledge and assistance, Newell Rubbermaid Inc. agreed to advance allowances against 
+future shipments of goods.  Berlin understood that some of the advances related to sales and 
+promotional activity that had not occurred during Kmart’s fiscal year 2000.  On or about January 
+25, 2001, one of Berlin’s subordinates executed VATS form Nos. 227901 and 227902 covering a 
+$2.2 million portion of the advance.  On or about January 31, 2001, Berlin executed VATS form 
+No. 227910 covering a $600 thousand portion of the advance.  Each of these three VATS forms 
+misrepresented the effective dates of the allowances as falling within Kmart’s fiscal year 2000.  On 
+or about February 20, 2001, Berlin received a letter drafted by a subordinate in which the 
+subordinate made clear that “we did not identify the correct reasons for the VATS.”  Kmart’s 
+accounting personnel entered the false or misleading VATS information into the company’s 
+computerized accounting system, where it was eventually posted to the general ledger.  As a result, 
+Kmart’s cost of goods sold was understated by $2.8 million in fiscal year 2000.     
+4. Kmart’s Earnings Were Overstated 
+On March 13, 2001 Kmart filed its Form 10-K for fiscal year 2000.  According to the 
+financial statements incorporated into the Form 10-K, Kmart reported net income for the fourth 
+quarter of $249 million or $0.48 per share, exceeding Wall Street analyst expectations of $0.47 by 
+a penny. Berlin’s accounting irregularities caused net income for the quarter to be overstated by 
+slightly more than 1 percent. 
+3
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+                                                
+ 
+D. CONCLUSION 
+As a result of the foregoing, Berlin committed violations of Rule 13b2-1 of the Exchange 
+Act and caused Kmart’s violations of Sections 13(a) of the Exchange Act and Rules 12b-20 and 
+13a-1 promulgated thereunder.   
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Berlin’s Offer.2 
+Accordingly, it is hereby ordered that Respondent Berlin cease and desist from committing 
+or causing any violations and any future violations Rule 13b2-1 of the Exchange Act and causing 
+any violations and any future violations of Sections 13(a) of the Exchange Act and Rules 12b-20 
+and 13a-1 promulgated thereunder.   
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+2  Berlin has agreed to pay a $30,000 civil penalty in connection with a parallel civil action. 
+4
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2302.txt b/raw/aaer/2005/AAER-2302.txt
new file mode 100644
index 0000000000000000000000000000000000000000..851763e4b4d3b9498dc52cac50054abdb2ddbb25
--- /dev/null
+++ b/raw/aaer/2005/AAER-2302.txt
@@ -0,0 +1,197 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52359 / August 30, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2302 / August 30, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12023 
+In the Matter of 
+Douglas J. Ely, 
+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 Douglas J. Ely (“Ely” or “Respondent”).  
+II. 
+In anticipation of the institution of these proceedings, Ely 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, Ely 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 Ely’s Offer, the Commission finds1 that: 
+A. RELEVANT ENTITIES
+ 1. Kmart 
+Kmart Corporation (“Kmart” or the “company”) was a Michigan Corporation 
+headquartered in Troy, Michigan, during the relevant period.  On January 22, 2002, Kmart filed a 
+voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code.  The 
+company’s common stock was registered with the Commission pursuant to Section 12(b) of the 
+Exchange Act and traded on the New York Stock Exchange until December 19, 2002, when 
+trading was suspended. Kmart’s fiscal year ends the last Wednesday in January. 
+2. Newell Rubbermaid 
+Newell Rubbermaid Inc. is a Delaware corporation headquartered in Atlanta, Georgia. 
+Newell Rubbermaid Inc. is a Fortune 500 corporation and a major Kmart vendor.  Subdivisions 
+include Rubbermaid Home Products which manufactures and distributes plastic products for home 
+storage and organization.  Newell Rubbermaid Inc.’s common stock is registered with the 
+Commission pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock 
+Exchange. 
+B. RESPONDENT 
+Douglas J. Ely (“Ely”) was National Account Manager at Newell Rubbermaid Inc. for the 
+Kmart account during the relevant period.     
+C. FACTS 
+1. Kmart Improperly Recognized Vendor Allowances 
+Kmart improperly recognized millions of dollars worth of vendor “allowances” prior to 
+bankruptcy. Kmart obtained allowances from its  vendors for various promotional and marketing 
+activities. A significant number  of allowances were recognized prematurely – or “pulled 
+forward” – on the basis of false information provided to Kmart’s accounting department, while 
+the true terms of the payments were set forth in undisclosed side agreements. As a result of these 
+accounting irregularities, Kmart’s cost of goods sold was understated, and earnings were 
+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
+ 
+ 
+ 
+  
+   
+ 
+ 
+ 
+ 
+ 
+ 
+  
+   
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+  
+materially overstated, for the fourth quarter of fiscal year ended January 31, 2001 (“fiscal year 
+2000”). 
+2. Kmart’s Vendor Allowance Tracking System (“VATS”) Forms 
+The principal document involved in the pulling forward of vendor allowances was Kmart’s 
+Vendor Allowance Tracking System (“VATS”) form.  VATS forms summarized the basic terms of 
+vendor allowances for the company’s accounting department.  Bookkeepers inputted information 
+from the VATS form into the company’s computerized accounting system, where it was eventually 
+posted to the general ledger.  To ensure proper accounting for an allowance, the VATS form 
+should have reflected the true purpose of, and effective dates for, the payment.  To pull forward an 
+allowance, this information was misrepresented on the VATS form to make it look like the 
+payment was for past performance, when in truth it related to future obligations.   
+3. Ely Executed Two Misstated VATS Forms 
+Towards the end of Kmart’s fiscal year 2000, Ely learned that Kmart needed Newell 
+Rubbermaid Inc.’s help in overcoming a shortfall in allowances in the home storage division.  With 
+Ely’s knowledge and assistance, Newell Rubbermaid Inc. agreed to advance allowances against 
+future shipments of goods.  Ely understood that some of the advances related to sales and 
+promotional activity that had not occurred during Kmart’s fiscal year 2000.  On or about January 
+25, 2001, Ely executed VATS form Nos. 227901 and 227902 covering a $2.2 million portion of 
+the advance. Each of these two VATS forms misrepresented the effective dates of the allowances 
+as falling within Kmart’s fiscal year 2000.  On or about February 20, 2001, Ely drafted a letter in 
+which he made clear that “we did not identify the correct reasons for the VATS.”  Kmart’s 
+accounting personnel entered the false or misleading VATS information into the company’s 
+computerized accounting system, where it was eventually posted to the general ledger.  As a result, 
+Kmart’s cost of goods sold was understated by $2.2 million in fiscal year 2000.     
+4. Kmart’s Earnings Were Overstated 
+On March 13, 2001 Kmart filed its Form 10-K for fiscal year 2000.  According to the 
+financial statements incorporated into the Form 10-K, Kmart reported net income for the fourth 
+quarter of $249 million or $0.48 per share, exceeding Wall Street analyst expectations of $0.47 by 
+a penny. Ely’s accounting irregularities caused net income for the quarter to be overstated by 
+slightly less than 1 percent. 
+D. CONCLUSION 
+As a result of the foregoing, Ely committed violations of Rule 13b2-1 of the Exchange Act 
+and caused Kmart’s violations of Sections 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 
+promulgated thereunder. 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+                                                
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Ely’s Offer.2 
+Accordingly, it is hereby ordered that Respondent Ely cease and desist from committing or 
+causing any violations and any future violations Rule 13b2-1 of the Exchange Act and causing any 
+violations and any future violations of Sections 13(a) of the Exchange Act and Rules 12b-20 and 
+13a-1 promulgated thereunder.   
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+2  Ely has agreed to pay a $25,000 civil penalty in connection with a parallel civil action. 
+4
+ 
\ No newline at end of file
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@@ -0,0 +1,143 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+      
+ 
+  
+ 
+ 
+      
+      
+     
+      
+   
+   
+ 
+ 
+ 
+ 
+   
+                                                 
+ 
+UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52365 / August 31, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2304 / August 31, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12024
+ :
+ : 
+In the Matter of : ORDER INSTITUTING PUBLIC 
+: ADMINISTRATIVE PROCEEDINGS 
+WILLIAM D. WISEMAN, CPA, : PURSUANT TO RULE 102(e) 
+: OF THE COMMISSION’S RULES OF 
+     Respondent. : PRACTICE, MAKING FINDINGS, AND 
+: IMPOSING REMEDIAL SANCTIONS 
+____________________________________: 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against William 
+D. Wiseman, CPA (“Wiseman”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice [17 C.F.R. 201.102(e)(3)(i)].
+1 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, may, by 
+order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by 
+name . . . (A) permanently enjoined by any court of competent jurisdiction, by reason of his or 
+her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder…. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+    
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+  
+ 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.1 and 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. Wiseman, age 49, was the chief financial officer of Chesapeake Display & 
+Packaging (“CD&P”), a subsidiary of Chesapeake Corporation (“Chesapeake”), from 1998 through 
+November 2000.  He is a certified public accountant in Georgia and Florida, but his license in each 
+State has been inactive since 1989 and 1990, respectively. 
+2. CD&P was at all relevant times a subsidiary of Chesapeake Corporation, a 
+corporation incorporated and headquartered in Virginia.  CD&P designed and manufactured 
+specialty-packaging products, including point-of-purchase displays.  At all relevant times, 
+Chesapeake’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 August 22, 2005, in an action brought by the Commission captioned 
+SEC v. Chesapeake Corporation, et al., Civ. Action No.  1:05CV00872 (D.D.C.), the United 
+States District Court for the  District of Columbia entered a final judgment permanently enjoining 
+Wiseman from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 
+10b-5 and 13b2-1 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+4. The Commission’s complaint alleged, among other things, that Wiseman 
+engaged in fraudulent acts which resulted in Chesapeake filing materially false and misleading 
+financial statements on its Form 10-Q for the first two quarters of 2000. The complaint alleged 
+that Wiseman engaged in a number of improper accounting practices that materially increased 
+Chesapeake’s quarterly earnings and net income in a departure from generally accepted 
+accounting principles, namely improperly recording credit memos and improperly recording 
+receivables. The complaint further alleged that Wiseman authorized false journal entries in 
+CD&P’s books and records for the third quarter of 2000, which were ultimately discovered and 
+corrected before Chesapeake issued its third quarter financial statements.   
+2
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Wiseman’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+Wiseman is suspended from appearing or practicing before the Commission as an 
+accountant. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+3
+ 
\ No newline at end of file
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+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+            
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52370 / August 31, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2306 / August 31, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12027 
+In the Matter of 
+PREMIER FINANCIAL BANCORP, 
+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 Premier Financial Bancorp, Inc. (“Premier” 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 finds1 that: 
+Respondent 
+1. Premier, headquartered in Huntington, West Virginia, is a multi-bank holding 
+company that operates community bank subsidiaries throughout West Virginia, Ohio and 
+Kentucky. For the fiscal year ended December 31, 2004, Premier reported $537 million in total 
+assets at year end, and $6.7 million in net income.  Premier files its financial statements on a 
+consolidated basis.  Premier’s common stock is registered pursuant to Section 12(g) of the 
+Exchange Act and trades on the NASDAQ National Market System. 
+Other Relevant Entity and Individual 
+2. Farmers Deposit Bank (“Farmers”), one of Premier’s subsidiary banks, is a 
+community bank located in Eminence, Kentucky.  Premier acquired Farmers in 1996.  As of 
+December 31, 2004, Farmers reported $91,605,000 in assets, and a net loss of $250,000 for the 
+year. 
+3. William J. Covington (“Covington”), age 54, is a resident of Eminence, Kentucky, 
+and served as President and CEO of Farmers from September 1986 until June 2003.  As President 
+and CEO, Covington was ultimately responsible for Farmers’ lending, financial, and accounting 
+functions.
+2 
+Improper Accounting for Loan Losses 
+4. On June 16, 2003, Premier filed a Form 8-K announcing its discovery of a 
+systematic disregard for its loan approval and credit administration policies at one of its subsidiary 
+banks. Premier also announced that it had accepted the resignation of the bank’s President and 
+CEO, and was conducting an ongoing investigation.  Premier did not identify the name of the bank 
+or the bank’s President and CEO.   
+5. On July 31, 2003, Premier filed a Form 8-K identifying Farmers as the relevant 
+subsidiary bank, and Covington as the bank’s President and CEO.  Premier also reported that as a 
+result of its ongoing internal investigation it was charging off as uncollectible approximately $6.2 
+million of loans and increasing its allowance for loan losses to over $8.7 million at Farmers. 
+6. Farmers’ records overstated the subsidiary’s net income during 2001, 2002, and 
+2003 by failing to accurately reflect loan losses and charge-offs.  As a result of these errors, 
+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 The Commission is filing a settled civil action against Covington in United States District Court. 
+2
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+   
+ 
+ 
+                                                 
+  
+ 
+ 
+Premier filed materially inaccurate financial information in its Quarterly Reports on Form 10-Q for 
+each of the quarters of 2001, 2002, and 2003, and Annual Reports on Form 10-K for the years 
+ended 2001 and 2002. Some or all of these false and misleading reports were incorporated by 
+reference into a registration statement on Form S-8 filed by Premier on July 30, 2002.  On April 
+14, 2004, Premier filed a Form 10-K restating its financial statements to accurately reflect loan 
+losses and charge-offs that should have been recorded in these earlier time periods.  
+7. Premier’s inaccurate filings resulted from Covington’s fraudulent conduct.  From at 
+least 2001 until 2003, Covington engaged in a variety of deceptive acts and practices designed to 
+conceal mounting loan losses from Premier and its officers, directors, auditors and banking 
+regulators, including the Federal Deposit Insurance Corporation and Kentucky Department of 
+Financial Institutions. 
+8. Among other things, Covington concealed problems with Farmers’ loan portfolio 
+by (1) recording loans under fictitious or misleading names and using the proceeds from these 
+loans to keep earlier loans current, and by failing to report, as required, that the loans were related; 
+(2) altering documents presented to Farmers’ board of directors; (3) bump-dating loans, which 
+means altering the records to assign a later due date, thus, making the loans appear current; (4) 
+structuring loans by dividing them into smaller amounts to avoid meeting the minimum loan 
+amount required for presentation to Farmers’ auditors and board of directors for review; (5) 
+initiating fictitious payments on loans; (6)  reassigning loan payments to unrelated accounts; and 
+(7) releasing collateral securing loans without requiring payment of the debt.   
+9. Covington’s concealment of loan losses caused Farmers’ financial and accounting 
+records to be inaccurate by reflecting inadequate reserves for loan losses and recording interest 
+income on delinquent and uncollectible loans.  On a monthly and quarterly basis, Covington 
+reported Farmer’s financial statements to Premier, which he knew prepared its financial statements 
+on a consolidated basis. Because Premier relied on these records to prepare its consolidated 
+financial reports, Premier’s quarterly and yearly Commission filings during 2001 through 2003 
+likewise contained materially inaccurate financial information.  As a result, Premier’s Forms 10-K 
+filed for the years 2001 and 2002, and Forms 10-Q filed for the first three quarters of 2001, 2002, 
+and 2003, contained financial statements that failed to comply with GAAP.
+3 
+10. Specifically, Premier’s net income for the fiscal year ended December 31, 2001, 
+was overstated by 94%, and its net loss for the fiscal year ended December 31, 2002 was 
+understated by 63%. Thus, in its restatement filed on April 14, 2004, Premier reported a combined 
+net loss of $2,143,000 for fiscal years 2001 and 2002, in contrast to the previously reported 
+combined net income of $1,099,000. 
+Under GAAP, the bank’s bad debt reserve should reflect the estimated probable loss inherent in 
+loans receivable based on information indicating that the asset was impaired at the date of the financial 
+statements.  Statement of Financial Accounting Standards No. 5, Accounting for Contingencies and 
+Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a 
+Loan. On the balance sheet the reserve is deducted from loans receivable resulting in a figure that 
+represents the net realizable value (i.e. the amount estimated to be collectible) and on the income 
+statement an increase in the reserve is reflected as a charge against earnings.   
+3
+ 
+3 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+11. Additionally, each of Premier’s quarterly filings filed throughout 2001, 2002, and 
+2003 were materially misstated.  For example, for the first quarter 2003, Premier initially reported 
+net income of $353,000.  In the restatement, Premier reported a loss for this quarter of $393,000.  
+Premier’s Inadequate Controls 
+12. Premier granted each of its subsidiaries, including Farmers, substantial autonomy in 
+their operations throughout the 1990’s.  Each bank’s President was responsible for the bank’s loan 
+accounting treatments, such as the establishment of loan loss allowances and treatment of impaired 
+loans, and served as the primary contact for the bank’s auditors and regulators.  Additionally, each 
+subsidiary bank had its own board of directors, and established and followed its own loan 
+origination and accounting policies and procedures.    
+13. In 2003, to better administer and supervise the loan origination process, Premier 
+instituted a company-wide standard loan policy that required each of the subsidiary banks to adhere 
+to uniform loan policies and procedures.     
+14. The combination of Premier’s hands-off approach to managing its subsidiary banks, 
+along with its delay in preparing standardized loan policies and procedures, contributed to the 
+record-keeping and reporting errors.  The fact that Covington’s conduct was permitted to occur and 
+went undetected for at least three years, evidences that certain of Premier’s internal accounting 
+controls were inadequate during the relevant time period.     
+Violations 
+15. Section 13(a) of the Exchange Act requires reporting companies to file periodic and 
+other reports with the Commission containing such information as the Commission’s rules 
+prescribe. Exchange Act Rule 13a-1 requires issuers to file annual reports with the Commission on 
+Form 10-K, and Exchange Act Rule 13a-13 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 
+inaccurate information regarding such items as the issuer’s income. 
+16. Section 13(b)(2)(A) of the Exchange Act requires reporting companies to make and 
+keep books, records, and accounts, which in reasonable detail, accurately and fairly reflect their 
+transactions and disposition of assets.  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 accordance with generally accepted accounting principles. 
+17. As a result of the conduct described above, Premier violated Section 13(a) of the 
+Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder by making filings that were 
+materially false and misleading.  In addition, Premier violated Section 13(b)(2)(A) of the Exchange 
+Act by failing to make and keep books and records which accurately reflected Farmers’ and, 
+ultimately, its own net earnings during 2001 through 2003.  Premier also violated Section 
+4
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+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 transactions were recorded as necessary to 
+permit preparation of financial statements in accordance with generally accepted accounting 
+principles. 
+Premier’s Remedial Efforts 
+18. Since June 2003, Premier has undertaken the following voluntary remedial actions: 
+A. Notified its banking regulators, including the Federal Deposit Insurance 
+Corp., Federal Reserve of Cleveland, Ohio, and the Kentucky Department of Financial Institutions, 
+to inform them of the irregularities; 
+B.  Retained auditors and outside counsel to conduct an investigation to 
+determine the full extent of the loss; 
+C. Made permanent staffing changes, with a focus on establishing more 
+experienced management at Farmers, and assistance in loan documentation, administration, and 
+compliance; 
+D. Enhanced its board of directors by adding new members and forming new 
+committees focused on oversight; 
+E. Expanded its internal audit program by hiring a full time internal auditor, 
+and established a new process for reviewing large credits at all affiliate banks; and 
+F. Filed a Form 10-K restating the financial statements for 2001 through 2003 
+to account for loan losses which should have been realized during these earlier time periods. 
+19. In determining to accept the Offer, the Commission considered the remedial acts 
+promptly undertaken by Premier, including those set forth in Paragraph 18, above, and cooperation 
+afforded the Commission staff by Respondent. 
+5
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+    
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Premier’s Offer. 
+Accordingly, it is hereby ORDERED that Respondent Premier 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. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+6
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2308.txt b/raw/aaer/2005/AAER-2308.txt
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@@ -0,0 +1,119 @@
+ 
+ 
+ 
+ 
+ 
+ 
+       
+  
+  
+      
+    
+       
+   
+  
+   
+ 
+   
+ 
+ 
+   
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+                                                
+ 
+  
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52395 / September 8, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2308 / September 8, 2005 
+ADMINISTRATIVE PROCEEDINGS 
+File No. 3-12033
+ : 
+In the Matter of : ORDER OF FORTHWITH SUSPENSION 
+: PURSUANT TO RULE 102(e) OF THE 
+STEVEN J. ALLAN, : COMMISSION’S RULES OF PRACTICE 
+: 
+ Respondent. : 
+____________________________________ : 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate to issue an 
+order of forthwith suspension of  Steven J. Allan (“Respondent” or “Allan”) 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: 
+A. Respondent 
+1. Steven J. Allan, approximately 54, of Los Altos, California, was a certified public 
+accountant (“CPA”) in California during 1993 and 1994.  Also during 1993 and through part of 
+1994, Allan was the chief financial officer for Media Vision Technology, Inc. (“Media Vision”), 
+then a public company located in Fremont, California. 
+Rule 102(e)(2) provides in pertinent part: “any person whose license to practice as an 
+accountant . . . has been revoked or suspended in any State; or any person who has been 
+convicted of a felony or a misdemeanor involving moral turpitude shall be forthwith suspended 
+from appearing or practicing before the Commission.” 
+1 
+ 
+ 
+ 
+     
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+      
+ 
+ 
+ 
+  
+  
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+B. Allan Was Convicted of Fraud and Securities Laws Violations  
+2. On April 4, 2003, a judgment of conviction was entered against Allan in United 
+States v. Steven Allan, No. CR-98-40167 DLJ, a criminal action filed in the United States District 
+Court for the Northern District of California.  After a trial, Allan was found guilty of three counts 
+of fraud by wire communication and aiding and abetting such fraud, under 18 U.S.C. §§ 1343 and 
+2, and two counts of falsifying books and records of a public company and lying to the company’s 
+auditors, under Sections 13(b)(2) and 32(a) of the Securities Exchange Act of 1934 (“Exchange 
+Act”) and Rule 13b2-2 thereunder, and 18 U.S.C. § 2.   
+3. As a result of the conviction, in April 2003, Allan was sentenced to 40 months 
+imprisonment in a federal penitentiary and was ordered to pay restitution.   
+C. Allan’s CPA Certificate Was Revoked  
+4. Effective August 29, 2003, by stipulated settlement, the California Board of 
+Accountancy revoked Allan’s CPA Certificate (CPA 21502), for violation of Business and 
+Professions Code, Division 3, Chapter 1, § 5100 (a), based on his conviction in the federal criminal 
+case for five felony counts, each substantially related to the practice of public accountancy. 
+III. 
+In view of the foregoing, the Commission finds that Allan has been convicted of a felony 
+within the meaning of Rule 102(e)(2) of the Commission’s Rules of Practice, and that Allan’s 
+license to practice as an accountant in California has been revoked. 
+Accordingly, IT IS ORDERED that Steven J. Allan 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. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+2 
diff --git a/raw/aaer/2005/AAER-2311.txt b/raw/aaer/2005/AAER-2311.txt
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+  
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+UNITED STATES OF AMERICA 
+ Before the
+ 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52411 / September 13, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2311 / September 13, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12037 
+In the Matter of 
+VINCENT STECKLER,  
+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 Vincent Steckler 
+(“Steckler” or “Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted 
+an Offer of Settlement (the “Offer”) which the Commission has determined to accept.  
+Solely for the purpose of these proceedings and any other proceedings brought by or on 
+behalf of the Commission, or to which the Commission is a party, and without admitting 
+or denying the findings herein, except as to the Commission’s jurisdiction over him and 
+the subject matter of these proceedings, which are admitted, Respondent consents to the 
+entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and 
+Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange 
+Act of 1934 (“Order”), as set forth below.
+1 
+As part of a final resolution of the Commission’s claims against him, Steckler has also offered to settle a 
+pending civil action by consenting to the entry of a district court judgment ordering Steckler to pay a civil 
+1 
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+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds2 that: 
+Summary 
+1. During 1999, Legato Systems, Inc. (“Legato” or the “Company”) 
+improperly recorded millions of dollars in revenue and income from contingent sales 
+transactions arranged by its senior sales executives.  Vincent Steckler, while a sales 
+executive for a different company that was acting as a reseller of Legato’s products, was 
+a cause of Legato’s and its executives’ fraudulent reporting of its financial results during 
+the third quarter ending September 30, 1999, based on a large transaction between Legato 
+and Logicon, Inc. (“Logicon”), then a subsidiary of a public company.   
+2. In particular, Steckler participated in his employer, Logicon, placing a $7 
+million order with Legato, which Logicon had the right to cancel pursuant to a separate, 
+“side” agreement.  Under Generally Accepted Accounting Principles (“GAAP”), the 
+cancellation provision in the side agreement prevented Legato from counting any part of 
+the order as a current sale, although Steckler knew or was reckless in not knowing that 
+Legato’s sales executives would submit the order to Legato without revealing the side 
+agreement.  Steckler and the sales executives thereby caused Legato to include revenue 
+from the order in Legato’s third-quarter 1999 financials announced publicly and filed 
+with the Commission, which materially overstated Legato’s financial results for the 
+quarter. 
+Respondent 
+3. Vincent Steckler , age 45, was from July 1998 through August 2000 a vice 
+president in charge of sales to government purchasers for Logicon.  
+Other Relevant Entity 
+4. Legato Systems, Inc. (“Legato”) was, during the relevant period, a 
+Mountain View, California corporation that developed and marketed software for 
+managing the data-storage functions of computer networks.  Legato issued common stock 
+that was registered with the Commission pursuant to Section 12(g) of the Exchange Act 
+and quoted on the NASDAQ National Market System.  In 2003, Legato was acquired by 
+another company. 
+monetary penalty of $35,000. SEC v. Steckler, Civil Action No. 03-04067 JW (Northern District of 
+California). 
+2 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding 
+on any other person or entity in this or any other proceeding.  
+2
+ 
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+ 
+ 
+Legato’s Third-Quarter 1999 Financials Were Materially Overstated by Revenue 
+from the Large, Contingent Transaction Negotiated with Logicon  
+5. On November 10, 1999, Legato filed with the Commission a quarterly 
+report (on Form 10-Q), for its third quarter ended September 30, 1999, setting forth its 
+financial statements.  Legato later filed an amended quarterly report (on Form 10-Q/A), 
+restating its financials for that period and reporting that revenue had been originally 
+overstated by more than $3.7 million or approximately 6 percent, and that its net income 
+had been overstated by more than $2 million, or approximately 146 percent. 
+6. In September 1999, Legato’s then-Vice President of North American Sales 
+(Legato’s “lead sales executive”) sent a proposal to Steckler, asking Logicon to buy $7 
+million worth of Legato’s software and services, for resale by Logicon to the U.S. Air 
+Force. Because Logicon had a pre-existing relationship with the Air Force but Legato 
+did not, Legato needed Logicon in order to complete a sale by the end of its third quarter.  
+However, Logicon did not yet have an existing “reseller agreement” with Legato, which 
+under Legato’s practices would have permitted the proposed transaction to be completed 
+through a purchase order. Consequentl y, the persons negotiating the arrangement 
+determined to document the order in an “order letter” that was to be followed by a 
+reseller agreement consistent with the terms of the order letter.  
+7. The deal hit a stumbling block when Steckler informed Legato’s lead sales 
+executive that Logicon would not approve the order letter unless Legato granted Logicon 
+the right to cancel its obligation to pay Legato the $7 million if Legato and Logicon did 
+not negotiate a mutually acceptable reseller agreement within 30 days.  Logicon’s 
+requested right to cancel the order, however, would prevent Legato from recognizing 
+revenue from the transaction. GAAP does not permit companies to recognize revenue for 
+a contingent sale, including a sale to a reseller who does not in fact have a binding 
+obligation to pay for the software purchased because the reseller has the right to cancel 
+the purchase before any payment is made.  Under GAAP, contingent sales may not be 
+recognized as revenue by the seller because collectibility of the sales price is not 
+probable. 
+8. Legato’s sales executives knew that the Logicon transaction would be 
+jeopardized if the order letter contained any contingencies.  Steckler and the Legato 
+executive agreed that Logicon’s cancellation right be reflected in a letter separate from 
+the order letter. Steck ler knew or was reckless in not knowing that by placing the right to 
+cancel in a separate “side letter,” Legato’s finance department would not learn of 
+Logicon’s right to cancel the order when determining whether to recognize revenue for 
+the transaction. 
+9. Through a series of phone calls and e-mails, Legato’s lead sales executive 
+drafted the proposed side letter containing terms that were agreeable to Steckler and to 
+the Legato sales executives. On Septembe r 29, 1999, the lead sales executive sent the 
+3
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+side letter by e-mail to Steckler and others.  The e-mailed side letter stated, in relevant 
+part: 
+“Per our discussion the following is a clarification of the intent of the 
+order letter dated 9-30-99 between Legato and Logicon: The order letter 
+meets the GAP [sic] requirement 97-4 [sic] for revenue recognition. The 
+order letter allows Legato to recognize revenue for our third quarter 
+ending 9-30-99 . . . . The order letter gives us 30 days to reach mutually 
+agreeable terms and conditions.  In the unlikely event that we do not reach 
+“mutually agreeable terms and conditions”, Logicon will have the right to 
+terminate the order letter and all obligations.  This contingency may not be 
+expressly stated in the order letter, because of the impact on revenue 
+recognition.  However, you have my assurance that in the event that we 
+can not reach terms we will not hold you to the commitment to pay 
+referenced in the order letter.” (Emphasis added.) 
+On September 29, 1999, Steckler forwarded the e-mail containing the side letter to the 
+person at Logicon who had authority to sign contracts with the comment, “Let’s go with 
+this.” 
+10. Legato’s lead sales executive then placed the side letter he had e-mailed to 
+Steckler on Legato letterhead, signed it, and sent it by facsimile to Logicon.  On 
+September 30, 1999, the person at Logicon who had authority to sign contracts signed 
+and transmitted an order letter from Logicon to Legato to purchase $7 million worth of 
+software and support services. The side letter containing the ri ght to cancel was not, 
+however, attached to, referenced in, or included with Logicon’s order letter. The Legato 
+sales executives did not forward the side letter to Legato’s legal or finance departments.   
+11. Upon receipt of Logicon’s $7 million order letter, Legato recognized $5.8 
+million as current revenue in the third quarter of 1999.  The order letter stated that the 
+$5.8 million was for product that Legato had shipped.  (The remaining $1.2 million was 
+to be separately recognized as revenue in later periods by Legato.)  However, because the 
+Logicon order was subject to the 30-day cancellation clause contained in the side letter, it 
+was improper for Legato to recognize revenue on the Logicon order during the third 
+quarter of 1999. 
+12. In January 2000, the $5.8 million in revenue Legato had recorded for the 
+Logicon transaction in September 1999 was reversed when Legato’s outside auditors 
+determined, based on events subsequent to the order letter but unrelated to the side letter, 
+that Legato should not have recognized revenue on the Logicon transaction.  Legato 
+publicly announced that it would be restating the results of the quarter ended September 
+30, 1999 due to “an adjustment concerning one contract,” referring to the reversal of 
+revenue from the Logicon transaction.  However, with its finance department still 
+unaware of the side letter, Legato also stated that it believed “the revenue [from the 
+Logicon transaction] will be recorded in the first and second quarters of 2000.”  The price 
+4
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+ 
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+ 
+ 
+ 
+ 
+ 
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+ 
+ 
+ 
+ 
+    
+of Legato’s stock declined materially following the announcement of the planned 
+restatement.  In 2000, the Logicon transaction was cancelled by mutual agreement of the 
+parties.
+ Violations 
+13. Material misrepresentations or omissions of fact made knowingly or 
+recklessly and disseminated publicly by a company about its financials in a press release, or 
+in a Form 10-Q filed with the Commission, constitute securities fraud in violation of 
+Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  E.g. SEC v. Rana Research, 
+Inc., 8 F.3d 1358, 1362 (9th Cir. 1993). 
+14. Legato’s third-quarter 1999 financial results, disseminated to the public in 
+press releases and in its Form 10-Q filed with the Commission, were materially misstated 
+by the inclusion of $5.8 million in revenue from the Logicon order.  Logicon’s order was 
+subject to a cancellation clause, which Steckler working with others caused to be 
+concealed in a separate side letter that made revenue recognition in the third quarter 
+improper, and which caused Legato’s books and records and Form 10-Q to be materially 
+misleading.  Accordingly, Steckler was a cause of Legato’s violations of Section 10(b) of 
+the Exchange Act and Rule 10b-5 thereunder. 
+15.  Also as a result of the conduct described above, Steckler was a cause of 
+Legato’s violations of Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 
+thereunder, which require issuers with securities registered under Section 12 of the 
+Exchange Act to file quarterly reports with the Commission that are true and correct and 
+contain information necessary to ensure that the statements made in them are not 
+misleading.   
+16. Finally, by the above conduct Steckler also was a cause of others’ 
+violations of Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, which 
+prohibit any person from knowingly circumventing internal accounting controls and from 
+falsifying any required book, record or account.  Steckler also thereby was a cause of 
+Legato’s violations of Section 13(b)(2)(A) of the Exchange Act, which requires 
+companies whose securities are registered pursuant to Section 12 of the Exchange Act to 
+make and keep accurate books, records and accounts.   
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent Steckler’s Offer. 
+Accordingly, it is hereby ORDERED that Respondent Steckler 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 thereunder, and from causing 
+5
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+   
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+any violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 12b-20 and 
+13a-13 thereunder.  
+By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+6
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2312.txt b/raw/aaer/2005/AAER-2312.txt
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+              Marcy Wilson Roke
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19375 / September 14, 2005 
+
+ Accounting and Auditing Enforcement Release No. 2312 / September 14, 2005 
+
+  Securities and Exchange Commission v. Marcy Wilson Roke,  Case No. 04 CV 1966 H (POR) (S.D. Cal.) 
+
+ FORMER DIRECTOR OF ADVERTISING AT ADVANCED MARKETING SERVICES, INC. SETTLES SEC'S CHARGES OF SCHEMES TO INFLATE ADVERTISING EARNINGS  
+
+ The Securities and Exchange Commission announced today that, on September 8, 2005, the United States District Court for the Southern District of California entered final judgment as to defendant Marcy Wilson Roke in a civil enforcement action previously filed by the Commission.  Roke was the former director of advertising at Advanced Marketing Services (AMS), a San Diego-based wholesaler of general interest books that provides a variety of other services, including promotional and advertising services.  The final judgment (1) permanently enjoins Roke from violating and/or aiding and abetting violations of the antifraud, record keeping and falsifying books and records provisions of the federal securities laws, specifically, Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(b)(2)(A),  and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder; and (2) requires Roke to pay a $25,000 civil penalty and $56,458.20 in disgorgement of ill-gotten gains and prejudgment interest.  Roke consented to the entry of the final judgment without admitting or denying the allegations in the Commission's complaint. 
+ On September 29, 2004, the Commission filed a complaint against Roke alleging that she was involved in two schemes at AMS which caused AMS to fraudulently overstate its earnings.  First, through Roke's involvement, AMS improperly recognized revenue on a greater number of print and mail advertising vehicles than AMS had in fact produced and distributed for its publisher clients.  Second, Roke participated in a scheme to increase AMS's income by directing AMS personnel to not inform retailers of credits due to them for certain advertising and promotional services that the retailers provided.  Instead of contacting the retailers and reconciling amounts, AMS improperly reversed the liability and thereby decreased expenses and increased its income.  Roke profited from her participation in the fraudulent schemes from her receipt of annual bonuses and sales of AMS stock.  The complaint alleges that the fraudulent schemes caused AMS to overstate its pre-tax earnings by about 9% in fiscal year 2001, 10% in fiscal year 2002, and 19% in fiscal year 2003.   
+ In September 2004, the United States Attorney's Office for the Southern District of California announced that Roke had pled guilty to a two-count Information charging her with conspiracy and wire fraud in connection with her participation in a scheme to defraud AMS's customers.  Roke entered her guilty plea in San Diego before the Honorable Nita L. Stormes, United States Magistrate Judge. 
+ The Commission's investigation is continuing. 
+
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+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2314.txt b/raw/aaer/2005/AAER-2314.txt
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index 0000000000000000000000000000000000000000..6b189c2de84dc20f6523bdb5972c3897f9564d62
--- /dev/null
+++ b/raw/aaer/2005/AAER-2314.txt
@@ -0,0 +1,1373 @@
+
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+ 
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+     SEC.gov | Mark David Shapiro, Philip D. Murphy, Thomas Gerald Dahlen, Jr., Albert M. Abbood, and James H. Thatcher 
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+        Mark David Shapiro, Philip D. Murphy, Thomas Gerald Dahlen, Jr., Albert M. Abbood, and James H. Thatcher
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+       Litigation Release No. 19380 / September 15, 2005 
+	   Accounting and Auditing Enforcement Release No. 2314 / September 15, 2005
+         Securities and Exchange Commission v. Mark David Shapiro, Philip D. Murphy, Thomas Gerald Dahlen, Jr., Albert M. Abbood, and James H. Thatcher , Civil Action No. 4:05-CV-0364/Eastern District of Texas (Sherman Division)
+        ************************************************************************  
+       On September 15, 2005, the Commission charged five former officers of now-bankrupt grocery wholesaler Fleming Companies, Inc. of Lewsville, Texas, with securities fraud and other violations arising from material earnings overstatements during late 2001 and the first half of 2002.  According to the complaint, the defendants, among other things, obtained false and misleading side letters from certain Fleming vendors to support improper accounting entries that inflated Fleming's earnings.  These transactions were the subject of settled enforcement actions the Commission brought against Fleming and several of its vendors and vendor employees on September 14, 2004.  See In the Matter of Fleming Companies, Inc., Lit. Rel. No. 18884 (September 14, 2004).   
+  The individuals named in the Commission's suit are: 
+	
+  Mark David Shapiro , Fleming's former chief accounting officer and senior vice president of finance and operations during the critical periods.     
+
+  Phil Murphy , Fleming's former vice president in charge of Fleming's wholesale procurement department, which was responsible for approximately 80% of Fleming's revenues.   
+
+  Thomas Gerald Dahlen, Jr. , the former president of Fleming Retail Group, which comprised about 20% of Fleming's revenues.   
+
+  Albert M. Abbood , a former vice president in Fleming's wholesale procurement group who reported to Murphy.   
+
+  James H. Thatcher , a vice president of the Fleming Retail Group who reported to Dahlen.     
+  The Commission alleges that defendants obtained misleading letters from Fleming vendors that were used to improperly accelerate recognition of the vendors' up-front payments, in violation of generally accepted accounting principles.  The complaint also alleges that Shapiro and Murphy inflated earnings by executing large quarter-end inventory purchases solely to generate discounts that Fleming could immediately recognize as earnings, to help meet Wall Street analysts' earnings expectations.  Fleming failed to disclose that these purchases were part of an intentional scheme to inflate earnings.  In addition, Shapiro improperly inflated Fleming's 2001 earnings by directing the release of extensive accounting reserves, without proper justification or disclosure. Finally, Dahlen helped Fleming report misleading same store sales numbers by repeatedly changing the methodology behind the calculation, without disclosure to the public, and approving financing transactions that were disguised as sales. 
+
+			 *			*			* 		
+
+The Commission alleges in its complaint that defendants Shapiro, Murphy, Abbood, and Thatcher violated Section 17(a) of the Securities Act of 1933 and violated and aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(B), 13(b)(2)(A) and 13(b)(5) of the  Securities Exchange Act of 1934 and Rules 10b-5, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder.  Against these defendants, the Commission is seeking a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, an officer and director bar and a civil money penalty.  Dahlen has agreed to settle the Commission's charges that he aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder.  Dahlen also has agreed to pay a civil penalty of $100,000.  
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diff --git a/raw/aaer/2005/AAER-2315.txt b/raw/aaer/2005/AAER-2315.txt
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--- /dev/null
+++ b/raw/aaer/2005/AAER-2315.txt
@@ -0,0 +1,1368 @@
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+                   U.S. Securities and Exchange Commission 
+
+ Litigation Release No.  19385 / September 21, 2005 
+
+ Accounting and Auditing Enforcement Release No.  2315 / September 21, 2005 
+
+  Securities and Exchange Commission v. Vincent Steckler,  Civil Action No. C-03-0467-JW (N.D. Cal.) 
+
+ Court Enters Final Judgment Against Former Sales Executive of Customer of Legato Systems, Inc. 
+
+ On September 16, 2005, the Honorable James Ware, United States District Judge for the Northern District of California, entered the Final Judgment Imposing Civil Penalty against Vincent Steckler ("Final Judgment"), based upon his consent entered in the action.   
+
+ The Final Judgment, to which Steckler consented without admitting or denying the allegations in the Commission's complaint, imposes a $35,000 civil monetary penalty.  The Commission's complaint alleged that Steckler participated in placing a $7 million order with Legato on behalf of Steckler's employer, which was subject to a separate, undisclosed "side" agreement that gave his employer the right to cancel the order.  As a result, Legato materially overstated its financial results for its third quarter ending September 30, 1999. 
+
+ Simultaneous with the filing of Steckler's consent to the Final Judgment, the Commission instituted a cease-and-desist order against Steckler committing or causing future violations of 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 future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  The Commission's order, to which Steckler consented without admitting or denying the findings, finds that Steckler caused Legato's and other persons' violations of the antifraud and related provisions.   
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diff --git a/raw/aaer/2005/AAER-2316.txt b/raw/aaer/2005/AAER-2316.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ad19e7aef2b2f224b78a93c4e13041966ee249e8
--- /dev/null
+++ b/raw/aaer/2005/AAER-2316.txt
@@ -0,0 +1,113 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52481 / September 21, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2316 / September 21, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12049  
+ 
+ 
+ 
+In the Matter of 
+DAVID J. CAMMARATA, CPA 
+Respondent. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS PURSUANT TO 
+RULE 102(e) OF THE COMMISSION’S 
+RULES OF PRACTICE 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against David J. 
+Cammarata (“Cammarata” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.1
+II. 
+ 
+                                                 
+1 Rule 102(e)(3)(i) provides in pertinent part as follows: 
+ 
+ The Commission, with due regard to the public interest and without  preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III. paragraph 3 below, which are admitted, 
+Respondent consents to the entry of this Order Instituting Public Administrative Proceedings, 
+Making Findings, and Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission’s 
+Rules of Practice (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Co mmission finds that:  
+ 
+ 1. Cammarata, age 40, is a certified public accountant.  He was Chief Financial 
+Officer (“CFO”) at IMPATH Inc. (“Impath”) from November 1999 until his termination in May 
+2002, and worked as Impath’s Controller and Vice President-Finance from 1992-1999. 
+ 
+             2. Impath, a Delaware corporation that ha d its headquarters in New York City, 
+provided diagnostic and prognostic services to health care providers engaged in the treatment of 
+cancer and sold human tissue specimens to biopharmaceutical companies engaged in the 
+development of gene-based cancer treatments.  Its common stock was registered with the 
+Commission pursuant to Section 12(g) of the Exchange Act and was traded on the Nasdaq 
+National Market.   Impath filed for bankruptcy protection in September 2003.   Its common stock 
+has been deregistered and it is being liquidated under Chapter 11 of the Bankruptcy Code.     
+ 
+  3. On March 29, 2005 , the Commission filed a complaint against Cammarata 
+in SEC v. Saad, et al., 05 Civ. 3308 (JSR) (S.D.N.Y.).  On July 26, 2005, the court entered an 
+amended partial final judgment enjoining Cammarata, by consent, from violating Section 17(a) of 
+the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 13(b)(5) of the Exchange Act and 
+Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from controlling any person who violates Section 
+13(a), 13(b)(2) and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, 14a-3 and 14a-9 
+thereunder.  The court also barred Cammarata from acting as an officer or director of a public 
+company. 
+ 
+  4. The Commission’s complaint alle ges, among other things, that during 
+Cammarata’s tenure as CFO of Impath, he engaged in a fraudulent scheme to inflate Impath’s 
+reported financial results.  As part of the fraudulent scheme, Cammarata and others employed 
+improper accounting practices that violated generally accepted accounting principles and resulted in 
+material overstatements of the revenue, net income and assets that Impath reported for annual and 
+quarterly periods.  As a result of this scheme, Impath filed materially false and misleading periodic 
+reports.  Cammarata signed periodic reports even though he knew that they were false and 
+misleading. 
+ 
+ 3
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent Cammarata’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that Cammarata is suspended 
+from appearing or practicing before the Commission as an accountant.   
+   
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       J o n a t h a n  G .  K a t z  
+       S e c r e t a r y  
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2319.txt b/raw/aaer/2005/AAER-2319.txt
new file mode 100644
index 0000000000000000000000000000000000000000..60d36cf3ced53acde6a1c8511dc830b1c7dbdcab
--- /dev/null
+++ b/raw/aaer/2005/AAER-2319.txt
@@ -0,0 +1,1368 @@
+
+
+ 
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+              Keith G. Baxter, Ronald J. Goedde, Richard D. Nye, Robert E. Ellington and Anthony W. O'Dell
+           
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+        Keith G. Baxter, Ronald J. Goedde, Richard D. Nye, Robert E. Ellington and Anthony W. O'Dell
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19391 / September 23, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2319 / September 23, 2005 
+
+  SEC V. KEITH G. BAXTER, RONALD J. GOEDDE, RICHARD D. NYE, ROBERT E. ELLINGTON AND ANTHONY W. O'DELL,  (United States District Court for the Northern District of California, Civil Action No. C05-3843 (PVT)) 
+
+ SEC CHARGES FIVE FORMER EXECUTIVES OF CORNERSTONE PROPANE PARTNERS, L.P. WITH FALSE FINANCIAL REPORTING  
+
+ The Securities and Exchange Commission today filed civil charges against five individuals formerly associated with Cornerstone Propane Partners, L.P.  ("Cornerstone"):  former chief executive officer, Keith G. Baxter; former chief financial officer, Ronald J. Goedde; former vice president of finance and acting chief financial officer, Richard D. Nye; former controller, Robert E. Ellington; and former divisional chief financial officer, Anthony W. O'Dell.  During the time period referenced in the Commission's complaint, Cornerstone was headquartered in Watsonville, California and sold retail propane and traded other wholesale energy commodities.  The Commission's complaint, filed in the United States District Court for the Northern District of California, alleges that these five individuals were responsible for Cornerstone's reporting of materially false financial results in Commission filings and press releases for the period June 2000 through September 2001. 
+ The Commission's complaint alleges that, during Cornerstone's 2000 and 2001 fiscal years, the defendants caused Cornerstone to file financial statements that were materially inaccurate and unreliable in light of Cornerstone's failure to properly track its assets and liabilities.  The complaint further alleges that the defendants failed to make other required disclosures in Cornerstone's filings, and that they concealed Cornerstone's fundamental accounting errors from the company's outside auditors.  According to the complaint, Cornerstone eventually wrote off $9.8 million of unsubstantiated balances at fiscal    year-end 2001 as a result of its accounting errors, but Baxter and Nye mischaracterized the nature of this adjustment in order to hide the company's past accounting failures from investors.   
+ The Commission's complaint charges Baxter, Goedde and Nye with violations of Section 10(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.  The complaint further charges all defendants with violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1, and 13b2-2 thereunder, and with aiding and abetting Cornerstone'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.  The Commission's complaint seeks permanent injunctions, disgorgement with prejudgment interest, civil penalties, and officer and director bars. 
+ Ellington and O'Dell, without admitting or denying the allegations in the Commission's complaint, each consented to an entry of a final judgment permanently enjoining them from violating or aiding and abetting violations of the provisions they allegedly violated, imposing a $25,000 civil penalty against Ellington and waiving the imposition of a civil penalty against O'Dell based upon his sworn financial statements and other documents submitted to the Commission.    
+
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+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2320.txt b/raw/aaer/2005/AAER-2320.txt
new file mode 100644
index 0000000000000000000000000000000000000000..244dfb809d419626dc6d64fbd3083808d22b451d
--- /dev/null
+++ b/raw/aaer/2005/AAER-2320.txt
@@ -0,0 +1,1385 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19394 / September 26, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2320 / September 26, 2005 
+
+  Securities and Exchange Commission v. C. Paul Sandifur, Jr., et al.,  United States District Court for the Western District of Washington, Civil Action No. CV 5 1631 C 
+
+ SEC BRINGS FRAUD CHARGES AGAINST FORMER EXECUTIVES AND BUSINESS ASSOCIATES OF WASHINGTON'S METROPOLITAN MORTGAGE  
+
+ The Securities and Exchange Commission announced today the filing of civil fraud charges against former executives and third party business associates of Metropolitan Mortgage and Securities Co., Inc., a long-standing Spokane, Washington finance and real estate company that collapsed in 2004.  Metropolitan filed for bankruptcy in February 2004, devastating nearly 10,000 investors throughout the Pacific Northwest who had invested approximately $450 million in the once high-flying real estate company.   
+ The SEC's civil complaint, filed in the Western District of Washington (Seattle), alleges that Metropolitan's management falsified the company's 2002 financial results by reporting profits from circular real estate sales where Metropolitan purported to sell property to buyers who, in fact, received all of the money to pay for the purchase from Metropolitan or its affiliates.  The fraud made Metropolitan appear profitable - facilitating further sales of its bonds and preferred stock to investors - when in reality the company was encountering its third straight year of mounting losses and verging on financial collapse.  Named in the complaint are former Chief Executive Officer C. Paul Sandifur, Jr., 63, of El Centro, California; former executive Thomas G. Turner, 54, of Sparks, Nevada; and former Controller Robert Ness, 41, of Bellevue, Washington; as well as former Vice President Thomas R. Masters, 54, of Spokane, Washington, who is alleged to have participated in one of the fraudulent transactions. 
+ According to the Commission's complaint, the bogus deals - known internally as "rabbits" (as in, pulling a rabbit out of a hat) - all materialized in the final days of Metropolitan's fiscal year 2002, allowing the company to report a profit rather than the loss it had anticipated.  In the largest of these deals, Metropolitan reported a $10 million gain by completely financing the purchase of property by customer Trillium Corporation, a private company based in Bellingham, Washington.  In order to evade accounting principles prohibiting companies from reporting profits from such sales, Metropolitan and Trillium agreed to make it appear that the property was being purchased by an unrelated third party, Jeff Properties - in reality a shell company set up by an eighteen year old high school student, the son of a Trillium creditor, in exchange for a motorcycle.  In addition to charges against Metropolitan's officers, the Commission's complaint levels fraud charges against Trillium, its President and CEO David Syre, 64, of Bellingham, Washington, and Trillium creditor Dan Sandy, 50, of Rochester, Washington.   
+ Among other claims, the Commission's complaint alleges that by engaging in the conduct described above, each of the defendants committed or aided and abetted violations of the antifraud provisions of the federal securities laws and aided and abetted Metropolitan's violations of reporting requirements.  Specifically, the complaint alleges that Sandifur, Turner, Ness and Masters directly violated Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.  The complaint also alleges that Sandy, Syre, Trillium, Turner, Ness and Masters aided and abetted Metropolitan's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  All of the defendants are alleged to have aided and abetted Metropolitan's violations of the reporting requirements of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, and Sandifur, Turner and Ness are also alleged to have aided and abetted Metropolitan's violations of Rule 13a-13 under the Exchange Act.  Further, Sandifur, Turner, Masters and Ness are alleged to have violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, and aided and abetted Metropolitan's violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  The complaint alleges that Sandifur, Turner and Ness violated Exchange Act Rule 13b2-2, and that through their certifications of Metropolitan's 2002 year-end false financial statements, Sandifur and Ness violated Exchange Act Rule 13a-14.  Finally, the complaint charges Sandifur as a control person for Metropolitan'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 action seeks civil monetary penalties and injunctive relief from all defendants, as well as disgorgement from Sandifur, Turner, Ness and Masters, and orders barring Sandifur, Turner and Ness from serving as officers or directors of public companies. 
+ In a separate action, the Criminal Division of the United States Department of Justice and the Spokane Office of the Federal Bureau of Investigation announced the filing of criminal charges against Thomas Turner.    
+ The Commission acknowledges the assistance of the Securities Division of the Washington Department of Financial Institutions and the Washington State Attorney General's Division of Consumer Protection in this matter. 
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diff --git a/raw/aaer/2005/AAER-2322.txt b/raw/aaer/2005/AAER-2322.txt
new file mode 100644
index 0000000000000000000000000000000000000000..231a7a6f32231cc6368f75de9974991774e32459
--- /dev/null
+++ b/raw/aaer/2005/AAER-2322.txt
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+ 
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+     SEC.gov | Saad, et al. 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19402 / September 29, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2322 / September 29, 2005 
+
+  SEC v. Saad, et al.,  05 CV 3308 (JSR)(SDNY) 
+
+ FOUR FORMER EXECUTIVES OF IMPATH INC., INCLUDING ITS FORMER CHIEF FINANCIAL OFFICER, CONSENT TO PERMANENT INJUNCTIVE RELIEF  
+
+ The Commission announced today that four former executives of IMPATH Inc. ("Impath") have now consented to permanent injunctive and other relief sought by the Commission in its pending federal court action against those and other defendants and in a related administrative proceeding.  Impath was a public company that provided laboratory services used in the treatment of cancer.  Impath filed for bankruptcy protection in September 2003 and is currently in liquidation.  The SEC's complaint alleges that from 1999 until 2003, the defendants engaged in fraudulent accounting practices and committed other violations of the federal securities laws.  As a result of the accounting fraud, Impath falsely reported multimillion dollar profits when it had actually suffered huge losses.  To meet financial projections and boost Impath's stock price, the defendants made, or directed others to make, phony accounting entries that artificially increased revenue and improperly reduced operating expenses. 
+ Since the Commission filed its complaint in March 2005, the Honorable Jed S. Rakoff, United States District Judge for the Southern District of New York, has entered partial final consent judgments imposing a range of injunctive relief against the following defendants: 
+	  David J. Cammarata, Impath's former chief financial officer, was permanently enjoined on July 25, 2005 from acting as an officer or director of a public company and from violations of the relevant antifraud, corporate reporting, books and records, internal control and proxy solicitation provisions of the federal securities laws.  Specifically, Cammarata is enjoined from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(a), 13(b)(2), 13(b)(5) and 14(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13b2-1, 13b2-2, 12b-20, 13a-1, 13a-13, 14a-3 and 14a-9.  In addition, on September 21, 2005, the Commission also instituted and simultaneously settled an administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice against Cammarata, a certified public accountant licensed to practice in the state of New Jersey.  The administrative proceeding was based on the entry of the partial final consent judgment against Cammarata.  In the administrative proceeding, Cammarata consented, without admitting or denying the Commission's findings, to an order suspending him from appearing or practicing before the Commission as an accountant.   
+	 Peter Torres, Impath's former vice president for corporate finance, was permanently enjoined on May 18, 2005 from acting as an officer or director of a public company and from violating Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, 13b2-2, 12b-20, 13a-1 and 13a-13.   
+	 Karin Gardner, Impath's former controller, and Kenneth Jugan, its former national billing director, were permanently enjoined on May 18, 2005 from violating Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, 12b-20, 13a-1 and 13a-13.   
+	  Each of these defendants consented to the foregoing relief without admitting or denying the allegations of the Commission's complaint.  The Commission's claims for disgorgement and civil penalties against them remain pending.  In March 2005, all four of these defendants pled guilty to criminal charges brought by the United States Attorney's Office for the Southern District of New York ("USAO") based on the same conduct alleged in the Commission's complaint. 
+ The Commission's claims against the other two defendants remaining in the case -- Anuradha D. Saad, Impath's former chief executive office, and Richard P. Adelson, Impath's former president and chief operating officer -- are also pending.  In March 2005, another defendant, Robert McKie, settled the Commission's claims through the entry of a final consent judgment in which, without admitting or denying the allegations in the Complaint, McKie agreed to be permanently enjoined against future violations of the relevant antifraud, reporting, books and records and internal controls provisions of the federal securities laws; disgorge $100,000 in performance bonuses he received as result of the conduct alleged in the Complaint, plus prejudgment interest; and pay a civil penalty in the amount of $150,000. 
+ The Commission acknowledges the assistance and cooperation of the USAO and the Federal Bureau of Investigation in this matter. 
+ For additional information see:	AAER Rel. No. 2316 (September 21, 2005), Litigation Release No. 19159 (March 29, 2005) 
+
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+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2324.txt b/raw/aaer/2005/AAER-2324.txt
new file mode 100644
index 0000000000000000000000000000000000000000..30861581698af41df2e5e9b3fe078ae2965f3fbb
--- /dev/null
+++ b/raw/aaer/2005/AAER-2324.txt
@@ -0,0 +1,1394 @@
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+           
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+       
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+  U.S. SECURITIES AND EXCHANGE COMMISSION  
+
+  Litigation Release No. 19405 / September 29, 2005  
+
+  Accounting and Auditing Enforcement 
+Release No. 2324 / September 29, 2005  
+
+   Securities and Exchange Commission v. LeeRoy Allen, Jr.,  Civil Action No. 1:05CV01919 (D.D.C.) (September 29, 2005)   
+
+  SEC CHARGES LEEROY ALLEN, JR., FORMER CEO OF INTERNATIONAL BIOFUEL AND BIOCHEMICAL CORPORATION, WITH SECURITIES FRAUD  
+
+  On September 29, 2005, the Securities and Exchange Commission ("Commission") filed a civil injunctive action in the United States District Court for the District of Columbia against LeeRoy Allen, Jr. ("Allen"), the former chairman, chief executive officer and president of International Biofuel and Biochemical Corporation ("IBBC").  
+
+  The Complaint alleges that from December 2002, through August 30, 2004, Allen made numerous materially false and misleading statements in filings IBBC made with the Commission which created the illusion that IBBC was a viable business that would use cutting edge technology to produce, distribute and market biodiesel fuel (also known as biofuel). In reality, IBBC never produced, distributed or marketed any biofuel. As Allen knew, IBBC was nothing more than a startup company with no assets, funding or viable product.  
+
+  In its Complaint, the Commission seeks a final judgment permanently enjoining Allen from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5 and 13a-14. The Commission also seeks an order: that Allen disgorge all ill-gotten gains he received by virtue of his misconduct, with prejudgment interest; that Allen pay civil penalties; barring Allen from acting as an officer or director of a public company; and barring Allen from any future participation in the offering of any penny stock.  
+
+  In a related matter, the Commission issued an administrative order against IBBC finding that it failed to comply with, and committed violations of, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 13a-1 and 13a-13, by failing to file required periodic reports with the Commission, making materially false and misleading statements in Commission filings, failing to file audited financial statements in its 2002 annual report, and failing to make and keep books and records and maintain internal controls in 2002. The order revokes the registration of IBBC's common stock and orders that IBBC cease and desist from committing or causing any violation, and any future violations, of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 10b-5, 13a-1 and 13a-13. IBBC consented to entry of the order without admitting or denying any of the findings in the order. In the Matter of International Biofuel and Biochemical Corporation, Admin. Proc. File No. 34-52525 (September 29, 2005).  
+
+    SEC Complaint in this matter   
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diff --git a/raw/aaer/2005/AAER-2325.txt b/raw/aaer/2005/AAER-2325.txt
new file mode 100644
index 0000000000000000000000000000000000000000..be8f637f9b87431b244b1e5aed6790ceab754a1d
--- /dev/null
+++ b/raw/aaer/2005/AAER-2325.txt
@@ -0,0 +1,50 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+UNITED STATES SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52537 / September 30, 2005 
+ACCOUNTING and AUDITING ENFORCEMENT 
+Release No. 2325 / September 30, 2005 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-12064 
+In the Matter of Gregory M. Dearlove, CPA 
+On September 30, 2005, the Securities and Exchange Commission instituted 
+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 against 
+Gregory M. Dearlove, CPA, alleging that Dearlove engaged in improper professional 
+conduct and caused Adelphia Communications Corporation to violate Section 13(a), 
+13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 12b-20 
+thereunder. 
+In the Order Instituting Proceedings, the Division of Enforcement and the Office of the 
+Chief Accountant allege that Dearlove engaged in improper professional conduct and 
+caused Adelphia’s violations of the securities laws in connection with audit of the 
+financial statements of Adelphia for the year-ended December 31, 2000.  Dearlove served 
+as the engagement partner on Deloitte & Touche LLP’s audit of the financial statements 
+contained in Adelphia’s 2000 Form 10-K.  The Division of Enforcement and the Office 
+of the Chief Accountant allege that Dearlove engaged in improper professional conduct 
+and caused Adelphia’s violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and 
+Rules 13a-1 and 12b-20 of the Exchange Act because Dearlove knew or should have 
+known that his failure to plan, conduct and supervise an audit that conformed to 
+Generally Accepted Auditing Standards, and his approval of and signature on an 
+unqualified audit report which Adelphia filed with its 2000 Form 10-K, would contribute 
+to Adelphia’s violations, including its filing of a misleading 2000 Form 10-K, its 
+maintenance of an inadequate system of internal accounting controls, and its failure to 
+keep its books and records in conformity with Generally Accepted Accounting Principles.    
+A hearing will be scheduled to determine whether such allegations are true, to afford the 
+respondent an opportunity to establish defenses to the allegations, to determine whether 
+remedial action is necessary and appropriate, to determine whether respondent should be 
+ordered to cease and desist from causing violations of and any future violations of the 
+securities laws, and to determine whether respondent should be ordered to pay 
+disgorgement. 
+  
+ 
+The Administrative Law Judge will issue an initial decision no later than 300 days from the 
+date of service of the Order Instituting Proceedings, pursuant to Rule 360(a)(2) of the 
+Commission’s Rules of Practice. 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2327.txt b/raw/aaer/2005/AAER-2327.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fccf3cecf6b8cbd1a2051d1aee1db193677cc82b
--- /dev/null
+++ b/raw/aaer/2005/AAER-2327.txt
@@ -0,0 +1,476 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+                                                 
+ 
+  
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52539 / September 30, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2327 / September 30, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12066 
+In the Matter of 
+Ronald Lee Hoyt, 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 pursuant to Rule 
+102(e)(1) of the Commission’s Rules of Practice
+1 and Section 21C of the Securities Exchange Act 
+of 1934 (“Exchange Act”) against Ronald Lee Hoyt, CPA (“Hoyt”). 
+II. 
+In anticipation of the institution of these proceedings, Hoyt has submitted an Offer of 
+Settlement (“Offer”) which the Commission has determined to accept. Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
+1 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may…deny, temporaril y or permanently, the privilege of 
+appearing or practicing before it…to any pe rson who is found…to have engaged in…improper 
+professional conduct. 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+  
+ 
+ 
+   
+                                                
+ 
+ 
+admitted, 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 (“Order”), as set forth below.   
+III. 
+On the basis of this Order and the Respondent’s Offer, the Commission finds that:2
+ A. RESPONDENT 
+Ronald Lee Hoyt, age 46, began his employment at Lattice Semiconductor Corp.  
+(“Lattice”) in 1990.  He became Lattice’s Controller on April 5, 1999, and assumed the additional 
+title of Director of Finance on July 30, 2000.  Although Hoyt continued to hold the title of 
+Controller and Director of Finance until March 19, 2004, Lattice suspended his responsibility for 
+the general ledger on January 20, 2004.  During his tenure as Controller and Director of Finance, 
+he also held officer positions for two of Lattice’s wholly-owned foreign subsidiaries:  statutory 
+auditor for Lattice KK (Japan) and secretary for Lattice Semiconductor UK Ltd. (United 
+Kingdom). Hoyt supervised approximately 16 people in Lattice’s accounting department.  He 
+worked as a consultant for Lattice from March 22, 2004 to July 14, 2004. Hoyt is, and at all 
+relevant times was, licensed in Oregon as a Certified Public Accountant.  Before joining Lattice, 
+Hoyt worked for six years as a senior auditor at a large public accounting firm.   
+B. RELATED ENTITY 
+Lattice Semiconductor Corp., a Delaware corporation headquartered in Hillsboro, 
+Oregon, designs, manufactures, and sells semiconductor products.  Lattice’s stock is registered 
+under Section 12(g) of the Exchange Act and trades on the Nasdaq National Market. 
+C. SUMMARY 
+1. Hoyt was primarily responsible for Lattice’s material overstatement of 
+revenue and understatement of deferred income and net loss in its Forms 10-Q for the second and 
+third quarters of 2003. Hoyt contributed to La ttice’s inaccurate reporting for the second and 
+third quarters of 2003 by making unsupported journal entries totaling $5.5 million to offset 
+apparent understated balances in Lattice’s deferred revenue account.  Hoyt failed to tell anyone 
+at Lattice about the material discrepancies in the deferred revenue account or his unsupported 
+journal entries. He also misrepresented to Lattice’s auditor that there were no unusual or non-
+recurring journal entries. 
+2. In mid-January 2004, Hoyt reported his actions to Lattice’s Vice President 
+of Finance. Lattice began an internal inve stigation.  Upon completion of its internal 
+2 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding 
+on any other person or entity in this or any other proceeding. 
+2
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+                                                 
+investigation in April 2004, Lattice acknowledged that it had internal controls weaknesses, 
+including a failure to have a sufficient check on Hoyt’s ability to make entries to the general 
+ledger, had prematurely recognized revenue, and had restated its financial statements for the first 
+three quarters of 2003.3  As a result of the restatements, Lattice’s previously reported revenue for 
+the first nine months of 2003 decreased by $10.6 million (an approximate 6% decrease) and its 
+previously reported loss for the period increased by $8.9 million (an approximate 15% increase). 
+D. 	 FACTS 
+1. Lattice’s Business and Deferred Revenue Accounting 
+Lattice manufactures semiconductor products and sells them to end users directly and 
+through distributors.  Sales to distributors account for nearly half of Lattice’s revenue.  Lattice 
+delays revenue recognition on sales to distributors until the distributors report product resale to 
+Lattice. Lattice uses deferred income accounting to reflect the anticipated revenue and 
+corresponding costs for its products shipped to distributors but not yet sold to end users.  For 
+example, when Lattice ships a product to a distributor, it records in its general ledger the product’s 
+list price as deferred revenue and the cost as deferred cost.  Deferred income is the balance sheet 
+account that reflects deferred revenue less deferred cost. 
+2. 	 Hoyt’s Cross-Check of the Deferred Revenue Account in the General 
+Ledger
+ At the close of each quarter, Hoyt performed an account reconciliation to cross-check the 
+accuracy of Lattice’s estimate of deferred revenue as reflected in the general ledger.  This test was 
+based on the carrying value of the Lattice inventory sitting on distributors’ shelves and provided an 
+estimate of the minimum deferred revenue balance required to reflect sales of this inventory. 
+Lattice’s accounting polices provided that if there was no material discrepancy between the 
+estimate of deferred revenue and the amount of deferred revenue reflected in Lattice’s general 
+ledger, Hoyt could conclude that the general ledger was accurate and close the books for the 
+quarter. 
+3. The Discrepancies and Unsupported Journal Entries 
+(a)	 The Second Quarter Discrepancy of $1.3 Million and Hoyt’s 
+Unsupported Journal Entries to Reconcile the Discrepancy 
+In July 2003, while preparing Lattice’s financial statements for the second quarter, Hoyt 
+performed his usual reconciliation of the deferred revenue account.  The reconciliation showed that 
+the estimate of deferred revenue was $1.3 million higher than the deferred revenue balance on the 
+general ledger, indicating an understatement of Lattice’s deferred revenue account.  He 
+recalculated the reconciliation but found no mechanical error.  He then considered possible reasons 
+3 Although Lattice restated its financial statements for the first quarter of 2003, that first quarter 
+restatement is not a part of this Order. 
+3
+ 
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+for the discrepancy and theorized, incorrectly, that there were two sources of future (deferred) 
+revenue that should have been accounted for in the general ledger.  To account for these 
+“previously unidentified” sources of deferred revenue, Hoyt wrote and caused the entry of two 
+unsupported journal entries totaling $1.3 million to offset the imbalance between the general ledger 
+and the deferred revenue estimate.  Hoyt made these journal entries without telling anyone at 
+Lattice, and without investigating further to determine whether these suspected sources of deferred 
+revenue actually caused the discrepancy, and if so, in what amounts.  After making the 
+unsupported journal entries, Hoyt closed the books for the second quarter.   
+Hoyt failed to realize that the company’s method of calculating revenue from sales to 
+distributors had become inaccurate.  This in turn caused Lattice to recognize revenue prematurely 
+and overstate its reported revenue and understate its reported deferred revenue.  Instead of creating 
+journal entries that decreased revenue and increased deferred revenue, Hoyt created the 
+unsupported journal entries that inappropriately allowed Lattice to recognize revenue prematurely. 
+(b) 	 The Third Quarter Discrepancy of $5.5 Million and Hoyt’s 
+Unsupported Journal Entries to Reconcile the Discrepancy 
+At the end of the third quarter, Hoyt again performed his customary reconciliation to cross-
+check the amount of deferred revenue recorded in the general ledger.  This time, the discrepancy 
+was $5.5 million. Hoyt theorized that the reasons for the imbalance were the same as in the 
+previous quarter.  Based on his erroneous theory, Hoyt wrote and caused the entry of several 
+unsupported journal entries, totaling $5.5 million (inclusive of the $1.3 million of unsupported 
+journal entries from the second quarter), to offset the imbalance and close the books for the quarter.  
+These journal entries increased deferred revenue and decreased unrelated accounts including 
+accrued engineering cost and subsidiary accrued payroll.  Hoyt spread out the journal entries in this 
+manner to avoid taking the accrued liabilities accounts below zero.  Had any of the liability 
+accounts fallen below zero, the negative balance may have signaled a problem to the auditor. 
+Hoyt’s use of unsupported journal entries in the second and third quarters of 2003 
+contributed to recognition of revenue contrary to Generally Accepted Accounting Principles 
+(GAAP). Statement of Financial Accounting Concepts No. 5, “Recognition and Measurement in 
+Financial Statements of Business Enterprises” (CON 5), provides that “revenues are considered to 
+be earned when the entity has substantially accomplished what it must do to be entitled to the 
+benefits represented by the revenue.”  CON 5 Para. 83.  Hoyt knew there was a shortfall in 
+deferred revenue that he could not explain.  Rather than bringing the issue to his superiors or the 
+auditor (which was on-site at Lattice to review quarterly financial records), Hoyt told no one, 
+concealed the imbalance, and prepared unsupported journal entries that contributed to Lattice’s 
+overstatement of revenue and understatement of net loss. 
+4
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+   
+  
+ 
+ 
+4. 	 Hoyt’s Representations to Lattice’s Auditor That There Had Been No 
+Unusual or Nonrecurring Journal Entries 
+Hoyt had significant responsibility for the preparation of quarterly reports, including 
+meeting with its outside auditor, completing disclosure checklists and management representation 
+letters, and supplying some of the content for the quarterly reports.  At the end of the second and 
+third quarters, in connection with the auditor’s quarterly review of Lattice’s financial statements, 
+Hoyt and Lattice’s Vice President of Finance met with the auditor and discussed whether there had 
+been any unusual transactions.  Hoyt represented that there had been no unusual transactions.  
+Separately the auditor asked Hoyt whether there had been any unusual or non-recurring journal 
+entries and Hoyt falsely represented that there had not. 
+Each quarter, Hoyt completed a detailed checklist provided to the auditor to ensure that 
+Lattice’s finance department considered all required disclosures.  Hoyt falsely represented in these 
+checklists for the second and third quarters of 2003, which he submitted to the auditor, that there 
+were no unusual or nonrecurring journal entries.   
+For the second and third quarters of 2003, Hoyt signed management representation letters 
+that falsely represented to the auditor that Lattice’s financial statements contained no unusual or 
+nonrecurring journal entries.  Hoyt understood that Lattice’s auditor would rely on these 
+representations in its review of Lattice’s financial statements for the Forms 10-Q.   
+Finally, Hoyt drafted the first footnote to the financial statements in Lattice’s Forms 10-Q 
+for the second and third quarters of 2003, which falsely stated that the financial statements  
+“. . . include all adjustments, consisting only of normal recurring adjustments,” (emphasis added) 
+necessary for the fair statement of results for the interim period.   
+5. Hoyt’s Disclosure of the Unsupported Journal Entries 
+On January 12, 2004, Hoyt disclosed to the Vice President of Finance the second and third 
+quarter general ledger imbalances of $1.3 million and $5.5 million, respectively.  He also explained 
+his theories for the causes of the imbalances and provided the unsupported journal entries used to 
+“correct” the imbalances. 
+When Lattice learned of Hoyt’s incorrect actions, it relieved Hoyt of responsibility for 
+journal entries and the general ledger and began an internal investigation.   As a result of the 
+investigation, Lattice changed the method of estimating deferred revenue and restated all three 
+2003 Forms 10-Q on April 19, 2004, reducing previously reported revenue by $10.6 million (an 
+approximate 6% decrease) and increasing previously reported net loss by $8.9 million (an 
+approximate 15% increase).  
+5
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ E.	 VIOLATIONS 
+1. 	 Reporting Violations:  Section 13(a) of the Exchange Act and Rule 
+13a-13 Thereunder 
+Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers with 
+securities registered under Section 12 of the Exchange Act to file quarterly reports with the 
+Commission 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). 
+For the second and third quarters of 2003, Hoyt caused Lattice to file false and 
+misleading quarterly reports with the Commission that misrepresented Lattice’s financial 
+condition by overstating revenue and understating net loss.  Hoyt caused Lattice’s violations of 
+Section 13(a) and Rule 13a-13 thereunder for the second and third quarters when he wrote 
+unsupported journal entries, caused them to be entered in the general ledger, and helped prepare 
+quarterly reports using the inaccurate general ledger balances. 
+2. 	 Record-Keeping Provisions:  Section 13(b)(2)(A) of the Exchange Act 
+and Rule 13b2-1 Thereunder 
+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. Rule 13b2-1 prohi bits the falsification of any book, record, or 
+account subject to Section 13(b)(2)(A). 
+As a result of Hoyt’s incorrect and unsupported accounting entries, Lattice’s books and 
+records inaccurately reflected transactions and dispositions of assets for the second and third 
+quarters of 2003. Hoyt therefore cau sed Lattice to violate Section 13(b)(2)(A) and he violated  
+Rule 13b2-1. 
+3. 	 Internal Controls Provision: Sections 13(b)(2)(B) and 13(b)(5) of the 
+Exchange Act 
+Section 13(b)(2)(B) of the Exchange Act requires issuers with securities registered 
+pursuant to Section 12 of the Exchange Act to devise and maintain a system of internal 
+accounting controls sufficient to reasonably assure, among other things, that transactions are 
+recorded as necessary to permit preparation of financial statements in conformity with GAAP. 
+Section 13(b)(5) prohibits any person from knowingly circumventing a system of internal 
+accounting controls or knowingly failing to implement a system of internal accounting controls.      
+Hoyt caused Lattice’s violation of Section 13(b)(2)(B).  As Director of Finance and 
+Controller, Hoyt was responsible for ensuring that all journal entries were accurate and complete, 
+and that he followed and properly used Lattice’s system of internal controls.  By causing 
+unsupported journal entries to be recorded in Lattice’s general ledger, Hoyt failed to assure that 
+Lattice maintained adequate internal controls in violation of Section 13(b)(2)(B).  Hoyt violated 
+6
+
+ 
+   
+   
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+Section 13(b)(5) by knowingly creating unsupported journal entries and causing their entry in 
+Lattice’s general ledger. 
+4. False Statements to the Accountants:  Exchange Act Rule 13b2-2 
+Exchange Act Rule 13b2-2 prohibits an officer or director of an issuer from, among other 
+things, misstating or omitting any material fact to an accountant in connection with the preparation 
+of a report to be filed with the Commission.  Exchange Act Rule 3b-2 defines the term “officer” to 
+include “… comptroller or principal accounting officer, and any person routinely performing 
+corresponding functions with respect to any organization whether incorporated or unincorporated.”   
+Hoyt, as Lattice’s Director of Finance and Controller, is deemed an “officer” for purposes of 
+Rule 3b-2, and violated Rule 13b2-2 by providing the auditor with oral representations, checklists, 
+and management representation letters that incorrectly stated there were no unusual or nonrecurring 
+journal entries.  He also violated Rule 13b2-2 by providing the auditor with financial statements that 
+contained the unsupported journal entries.  As a result, Hoyt misled the auditor regarding material 
+components of the second and third quarter 2003 financial statements. 
+5. Improper Professional Conduct 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in part, that the 
+Commission may censure or deny, temporarily or permanently, the privilege of appearing or 
+practicing before the Commission to any person who is found by the Commission to have 
+engaged in improper professional conduct.  Rule 102(e)(1)(iv)(B)(2) defines improper 
+professional conduct by licensed accountants as, among other things, “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.” 
+As Lattice’s Director of Finance, Controller, and as a CPA, Hoyt failed in his 
+responsibilities for Lattice’s proper financial reporting.  Hoyt engaged in improper professional 
+conduct under Rule 102(e)(1)(iv)(B)(2) when he made unsupported journal entries and caused 
+their entry in the general ledger, repeatedly misstated and omitted material facts to Lattice’s 
+auditor, and then concealed his misconduct.  Hoyt’s actions also violated the Code of 
+Professional Conduct of the American Institute of Certified Public Accountants.  
+F. FINDINGS 
+Based on the foregoing, the Commission finds that Hoyt caused Lattice’s violations of 
+Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rule 13a-13 thereunder and 
+violated Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2, and that Hoyt 
+engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) and (iv). 
+7
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+ 
+ 
+        
+ 
+ 
+      
+ 
+                 
+ 
+    
+    
+ 
+    
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the cease-and-
+desist order and sanctions agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Hoyt 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 Rule 13a-13 thereunder, and 
+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. 
+B. Hoyt is denied the privilege of appearing or practicing before the Commission as an 
+accountant. 
+C. After three years from the date of this Order, Hoyt 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 Hoyt’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) Hoyt, 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) Hoyt, 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 Hoyt’s or the firm’s quality control system that would indicate that Hoyt 
+will not receive appropriate supervision;  
+(c) Hoyt 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) Hoyt 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.   
+8
+ 
+ 
+      
+ 
+ 
+ 
+ 
+   
+ 
+D. The Commission will consider an application by Hoyt 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 Hoyt’s character, 
+integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+9
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2328.txt b/raw/aaer/2005/AAER-2328.txt
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+              Ehrenkrantz King Nussbaum, Inc., Anthony Ottimo, and Brendan E. Murray
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+        Ehrenkrantz King Nussbaum, Inc., Anthony Ottimo, and Brendan E. Murray
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+       LITIGATION RELEASE NO. 19410 / September 30, 2005 
+         SECURITIES AND EXCHANGE COMMISSION v. EHRENKRANTZ KING NUSSBAUM, INC., ANTHONY OTTIMO and BRENDAN E. MURRAY, DEFENDANTS , Civil Action File No. 05-CV-4643 (E.D.N.Y.).
+        SEC CHARGES EHRENKRANTZ KING NUSSBAUM, INC. AND TWO ASSOCIATED PERSONS WITH FRAUD IN CONNECTION WITH ILLEGAL MARKET TIMING ACTIVITIES 
+	   
+       The Securities and Exchange Commission today announced the filing of a civil injunctive action against a Garden City, New York, registered broker-dealer, its Chief Executive Officer, and an unregistered former associate of the broker-dealer for engaging in a scheme to defraud multiple mutual fund companies in connection with market timing activities undertaken by certain of the broker-dealer's customers.  The fraudulent scheme involved the use of multiple, "cloned" brokerage accounts to market time mutual funds that limited or otherwise restricted market timing.  Specifically, throughout at least 2003, the defendants masked the volume and frequency of their customers' trading activity in mutual funds by placing their customers' trades through multiple, cloned accounts.  These accounts, which in many instances bore branch office identifiers and registered representative codes that had nothing to do with any of the broker-dealer's market timing customers, allowed the broker-dealer's market timing customers to disguise their identities, elude the attention of the mutual funds' so-called "market timing police," and avoid having their further trading in those mutual funds halted or otherwise restricted.  
+  Named in the Commission's complaint are: 
+
+  Ehrenkrantz King Nussbaum, Inc.  (EKN), a registered broker-dealer and member firm of the NASD, which is located in Garden City, New York; 
+  Anthony Ottimo  (Ottimo), age 66, a resident of Plainview, New York, and EKN's Chief Executive Officer; and 
+  Brendan E. Murray  (Murray), age 43, a resident of Patchogue, New York, and, at all relevant times, an unregistered associate of EKN. 
+
+ The complaint alleges that the defendants' scheme allowed EKN's market timing customers to place hundreds of market timing trades in at least nine mutual fund companies.  By use of the multiple accounts, with multiple branch office identifiers and multiple registered representative codes, defendants made it appear as if all the mutual fund orders being submitted by EKN's four market timing customers were coming from many different customers, trading through different EKN branch offices, and being assisted by numerous EKN registered representatives.  In fact, all four of these customers did business only through EKN's Garden City, New York office, and were assisted by only one EKN registered representative, Ottimo. 
+ By their conduct, the defendants allowed their market timing customers to extract millions of dollars from the mutual funds the customers market timed, and the defendants reaped at least $230,000 in commissions and fees as a result of the scheme. 
+ The complaint charges EKN, Ottimo, and Murray with violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder.  The complaint further charges EKN with violations of Section 15(b)(7) of the Exchange Act, and Section 15(c)(1) of the Exchange Act and Rule 15b7-1 thereunder, and Ottimo and Murray with aiding and abetting these violations.  The Commission seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties. 
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diff --git a/raw/aaer/2005/AAER-2329.txt b/raw/aaer/2005/AAER-2329.txt
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index 0000000000000000000000000000000000000000..481f97b627560ddc356544b231a834e05620a327
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@@ -0,0 +1,515 @@
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+                                                
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52554 / October 3, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2329 / October 3, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12069 
+In the Matter of 
+Duane Kimble, CPA and 
+Carene Kunkler,  
+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 
+cease-and-desist proceedings be, and hereby are, instituted against Carene Kunkler (“Kunkler”), 
+pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against Duane 
+Kimble, CPA (“Kimble”), 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, Kimble and Kunkler (collectively 
+“Respondents”) have submitted an Offer of Settlem ent (the “Offer”) which the Commission has 
+determined to accept.  Solely for the purpose of these proceedings an d any other proceedings 
+   Rule 102(e)(1)(iii) provides, in pertinent part: “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.”  
+1
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+brought by or on behalf of the Commission, or to which the Co mmission 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 ar e admitted, Respondents consent to the entry of 
+this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 
+21C of the Securities Exchange Act of 1934 and Rule  102(e) of the Commission’s Rules of 
+Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order 
+(“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondents’ Offer, the Commission finds that: 
+RESPONDENTS 
+1. Kimble, age 44, is a United States citizen an d resident of Ham ilton, Ohio.  Kimble 
+served as CFO of Sight Resource Corporation (“ SRC” or the “company”) from August 30, 2001 
+until he resigned on December 12, 2003.  In 1987, Kimble became a licensed CPA in the State of 
+Ohio. Kimble’s license is currently inactive du e to non-payment of fees, and was inactive at all 
+times relevant to this Order.  
+2. Kunkler, age 49, is a United States citizen and a resident of Cincinnati, Ohio.  Kunkler 
+was the President, CEO and a director of SRC from May 23, 2001 until she resigned on June 29, 
+2004. Prior to joining SRC, Kunkler was a marketing executive.    
+RELATED ENTITY 
+3. SRC, a Delaware corporation based in Cincinnati, Ohio, is in the business of 
+manufacturing and selling eyewear.  During the relevant period, SRC operated eye care centers and 
+an optical laboratory and distribution center in  the United States.  SRC’s common stock is 
+registered under Section 12(g) of the Exchange Act, and is quoted on the Pink Sheets.  During the 
+relevant period, SRC’s common stock traded on the OTCBB, under the ticker symbol VISN.  SRC 
+is delinquent in filing its Comm ission filings.  On June 24, 2004, SRC f iled for Chapter 11 
+bankruptcy. 
+IMPROPER JOURNAL ENTRIES AND INACCURATE BOOKS AND RECORDS 
+4. In July 2001, SRC, which was based in Bo ston, merged with Eyeshop.com, Inc., an 
+early-stage optical development company based in Cincinnati.  Following the SRC-Eyeshop.com 
+merger, SRC attempted to implem ent a new accounting software system.  During the transition 
+between accounting software systems and the move from Boston to Cincinnati, SRC experienced 
+significant bookkeeping problems an d was unable to perform basic accounting functions.  For 
+example, SRC was unable to reconcile its accounts due to the fa ct that historical financial data 
+maintained on SRC’s previous accounting system was, at times, inaccessible.  Additionally, entries 
+were not made to SRC’s ledger until months after the accounting period closed.     
+2
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+5. During the fiscal year that ended on December 28, 2002, in a misguided attempt to 
+correct SRC’s books and records, Kimble made j ournal entries, and directed two successive 
+controllers to make journal entries, at each quarter end, with inadequate or incomplete supporting 
+documentation.  Those entries were to balance sheet and profit and loss accounts.  For instance, 
+during the quarter that ended on June 29, 2002, without adequate supporting documentation, and 
+inconsistent with SRC’s physical inventory results, Kimble increased an SRC inventory account by 
+$130,000 and decreased an  SRC manufacturing costs account by that amount, which improved 
+SRC’s earnings by $130,000 for the quarter. 
+6. SRC’s accounting errors, combined with unsubstantiated journal entries, caused SRC to 
+overstate net income/understate net loss by appr oximately $703,000 for its quarter ended March 
+2002, $638,000 for its quarter ende d June 2002, and $47 8,000 for its quarter ended September 
+2002.2  As a result, SRC reported net income of $299,000 for its quarter ended March 2002, when 
+it should have reported a net loss of approximately $404,000; reported a net loss of $706,000 for its 
+quarter ended June 2002, when it should have reported a net loss of approximately $1,344,000; and 
+reported a net loss of $284,000, when it should have reported a net loss of $762,000, for its quarter 
+ended September 2002.    
+7. As a result of SRC’s improper accounting, SRC purportedly remained in compliance 
+with its bank loan debt covenants for the quarters ended June and September 2002.  The covenants 
+prescribed, on a quarterly basis, a maximum allowable net loss for SRC.  If SRC violated its bank 
+loan covenants, SRC could have  been charged penaltie s and a higher interest rate, and possibly 
+forced into bankruptcy. 
+8. Kimble and Kunkler were aware of the accounting system problems that were impairing 
+SRC’s ability to maintain accurate books and records and, from time to time, took steps to improve 
+those systems.  Nevertheless, both Kimble and Kunkler failed to take adequate corrective action to 
+ensure that SRC’s books and records were acc urate and properly maintained.  Additionally, 
+Kimble’s misguided attempts to correct the books only corrupted them further.    
+INADEQUATE INTERNAL CONTROLS 
+9. During SRC’s 2002 fiscal year, SRC did not have accounting policy manuals or 
+accounting internal controls training manuals.  SRC, Kimble and Kunkler also failed to implement 
+and maintain written policies and pr ocedures in regard to recordi ng deliveries of merchandise or 
+recognition of revenue. 
+10. Kimble and Kunkler were aware that SRC la cked adequate internal controls.  In 
+particular, Kimble and Kunkler knew: (a) SRC’s controls governing receivables, inventory, and 
+customer refunds were weak; (b) account reconciliations were not consistently being performed on 
+a timely basis; and (c) store managers were not promptly depositing cash from sales into SRC bank 
+accounts. 
+2   An accounting firm SRC hired to help recons truct its books determined these amounts.  SRC 
+has not restated its financial statements, however.  
+3
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+11. On November 12, 2002, Kunkler asked Kimble and SRC’s controller, among others, 
+to sign off on SRC’s internal c ontrols.  However, because SRC di d not have adequate internal 
+controls in place, the controller refused to sign off on the company’s controls.   
+FALSE DISCLOSURE CONTROLS CERTIFICATIONS 
+12. On November 18, 2002, in SRC’s Sept ember 30, 2002 Form 10-Q, Kimble and 
+Kunkler falsely certified that they had designed and evaluated SRC’s disclosure controls to ensure 
+the accuracy of SRC’s financial statements. 
+TWO CONTROLLERS RESIGN AND A THIRD BLOWS THE WHISTLE 
+13. During SRC’s 2002 fiscal year, two SRC cont rollers resigned.  The controllers were 
+uncomfortable making journal entries without adequate documentation at Kimble’s direction and 
+frustrated by lax internal controls. 
+14. In January 2003, SRC hired another new co ntroller.  SRC’s new controller quickly 
+discovered that: (a) accounts had not been reconciled for at least the fourth quarter of 2002, and 
+possibly earlier periods; (b) SRC’s accounts payable was out of balance by approximately 
+$250,000; and (c) SRC needed to record additional journal entries in order to close its books for 
+2002. The controller discussed the need for the a dditional entries with Kimble, but was instructed 
+by Kimble not to book the entries for improper reasons.  Similarly, when Kunkler pressed Kimble 
+for information on certain journal entries affec ting SRC’s financial stat ements, Kimble gave 
+Kunkler misleading responses.    
+15. In February 2003, SRC’s auditor began its audit of SRC’s 2002 financial statements. 
+During the course of its audit, the auditor asked SRC’s controller to assi st in reconciling SRC’s 
+payroll expense.  While attempting to reconcile SRC’s payroll expense, the controller discovered 
+that there was a discrepancy ($200,000 to $25 0,000) between SRC’s De cember 2001 payroll 
+expense accrual and the first payroll paid in January 2002, causing the controller to conclude that 
+SRC’s net loss for fiscal 2001 may have been understated.  The controller prepared a worksheet for 
+SRC’s auditors that highlighted the issue.  However, when the controller presented the worksheet 
+to Kimble, Kimble informed the co ntroller that he “didn’t want to take any chance of reopening 
+any 2001 issues” and instructed the controller to revise the worksheet.  Reluctantly, the controller 
+changed the worksheet in accordance with Kimble’s instruction.  Kimble presented the misleading 
+worksheet to SRC’s auditor.     
+16. On March 23, 2003, the controller approached the audit partner and informed her that: 
+(a) major accounts were not being reconciled; (b) Kimble had made, or directed others to make, 
+numerous manual journal entries to adjust account balances without supporting documentation; (c) 
+Kimble did not properly record certain transactions; and (d) Kimble was withholding information 
+from and providing misleading information to Kunkler and SRC’s auditor. 
+4
+ 
+          
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+COMPANY FILES FALSE AND MISLEADING FORMS 12b-25 AND 8-K 
+17. Between March 24 and 25, 2003, the audit pa rtner notified Kunkler and SRC of the 
+controller’s allegations. On March 26, 2003, the audit partner notified Kimble and Kunkler that a 
+material weakness letter would be issued to SRC.  On March 27, 2003, during an audit committee 
+meeting, which Kimble and Kunkler attended, the audit partner stated that: (a) SRC may need to 
+restate past financial statements; (b) a material weakness letter would be issued to SRC; (c) she 
+was not certain when the audit would be completed, and significant areas pending audit completion 
+included reconciliation of cash, accounts receivable, and allowance for bad debts; and (d) manual 
+journal entries, inventories, income taxes, fourth quarter review, subsequent events, and the Form 
+10-K were still being reviewed by the audit firm. 
+18. On March 28, 2003, SRC filed a Form 12b-25 with the Commission, stating that SRC 
+was unable to file its Form 10 -K on time for the year ended Dece mber 28, 2002, because:  “[t]he 
+Company and its auditors are in the final stages  of completing the information required in the 
+Company’s Form 10-K.  The accounting for the refinancing transactions completed on December 
+31, 2002 (refer to the Company’s Form 8-K filed January 9, 2003) has taken longer than 
+anticipated due to its complexity.  Since the refinancing transactions had a material impact on the 
+Company’s capital structure and liquidity, the Company anticipates showing pro forma financial 
+statements and financial footnotes thereto to pr ovide additional meaning to the reader of such 
+financial statements.  Further, the Company’s testing of potential asset impairment under SFAS 
+No. 142 and 144 has taken longer than anticipat ed and requires additional information from 
+valuation experts.”
+3  According to the filing, no significant change in results of operations from the 
+corresponding period for the last fiscal year will be reflected by the earnings statements to be 
+included in the subject report or portion thereof.   
+19. The March 28, 2003 Form 12b-25 failed to disclose accurately the information that the 
+audit partner had shared with SRC, Kimble, and Kunkler the day before (see paragraph 17 above). 
+As a result, the Form 12b-25 was false and mi sleading.  Kimble prepared the Form 12b-25, 
+Kunkler reviewed it prior to its filing, and Kimble signed it. 
+20. Additionally, SRC failed to attach to th e March 28, 2003 Form 12b-25 a statement 
+from its outside auditors as to the reason for th eir inability to supply an unqualified report by the 
+company’s filing deadline (which Rule 12b-25(c) requires).    
+21. On April 7, 2003, during an  audit committee meeting, SRC’s auditor informed 
+Kunkler, among others, that SRC’s books were in  disarray and the company needed to bring in 
+another firm to help restore its books.  During an April 10, 2003 audit committee meeting, Kunkler 
+and others discussed hiring an outside accounting firm to help reconstruct the company’s books.  
+22. On April 14, 2003, SRC filed Forms 12b-25/A and 8-K with the Commission, stating 
+that SRC was still unable to file its Form 10-K “due to the fact that its financial statements for the 
+year ended December 28, 2002 have not been finalized.  While the accounting for the refinancing 
+   The instructions in Form 12b-25 required SRC to state “in reasonable detail the reasons why” 
+the company could not file its Form 10-K “within the prescribed time period.”  
+5
+ 
+3
+          
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+  
+ 
+    
+   
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+transaction consummated on December 31, 2002…has largely been completed, other steps in the 
+preparation of the year-end statem ents have not been finalized.  There will be charges for asset 
+impairment under SFAS Nos. 142 and 144, but the amount of those charges (presently estimated to 
+be between $2,700,000 and $3,300,000) has not yet been determined.  In addition, the Company is 
+still in the process of finalizing various accounting entries and completing other steps required for 
+the year-end closing.” SRC also noted in the filings that it antic ipated completing its Form 10-K 
+during the week of April 28. 
+23. SRC’s April 14, 2003 Forms 12b-25/A and 8-K failed to disclose, as noted above, that 
+SRC’s controller had alleged serious accounting im proprieties and SRC’s auditor had identified 
+serious problems with SRC’s books, records, and internal cont rols.  Therefore, SRC’s April 14, 
+2003 Forms 12b-25/A and 8-K were false and misleading.  The Forms were reviewed by Kunkler 
+and Kimble prior to their filing, and they were signed by Kimble.      
+24. Eventually, on May 12, 2003, S RC filed a Form 12b-25/A that stated, among other 
+things, that “[t]he Company’s internal controls over financial reporting appear to be inadequate and 
+should be strengthened.”  The May 12, 2003 Form 12b-25/A also di sclosed that SRC’s financial 
+statements could not be completed until certain entries and accounts were substantiated, reconciled 
+or corrected, and that SRC was retaining an accounting firm to assist the company in determining 
+whether the entries were accurate or inaccurate and, if inaccurate, whether “the inaccuracy was 
+caused by system error or deficiency, error in j udgment, negligence, intentional action, or other 
+cause.” 
+FEDERAL SECURITIES LAWS VIOLATIONS AND FINDINGS 
+25. As a result of the conduct described above, Kimble willfully violated Section 10(b) of 
+the Exchange Act and Rule 10b-5 thereunder by, in  connection with the purchase or sale of SRC 
+securities: employing a device, sc heme or artifice to defraud; making an untrue statement of a 
+material fact or omitting to state a material fact ; and engaging in an act, practice or course of 
+business that operates as a fraud or deceit upon any person.     
+26. As a result of the conduct described above, SRC violated, Kunkler and Kimble caused 
+the company to violate, and Kimble willfully aided and abetted SRC’s violations of, Section 13(a) 
+of the Exchange Act and Rules 12b-20, 12b-25, 13a-11, and 13a-13 thereunder, which required 
+SRC to file current and quarterly reports, as prescribed by the Commission, and to include in those 
+reports any further 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. 
+27. As a result of the conduct described above, SRC violated, Kunkler and Kimble caused 
+the company to violate, and Ki mble willfully aided and abetted SRC’s violation of, Section 
+13(b)(2)(A) of the Exchange Act, which require s 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.  
+28. As a result of the conduct described above, SRC violated, Kunkler and Kimble caused 
+the company to violate, and Ki mble willfully aided and abetted SRC’s violation of, Section 
+6
+ 
+          
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+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. 
+29. As a result of the conduct described above, Kimble willfully violated Section 13(b)(5) 
+of the Exchange Act by knowingly failing to implement a system of  internal accounting controls 
+and knowingly falsifying SRC books, records and accounts.  Kunkler violated Section 13(b)(5) of 
+the Exchange Act by knowingly failing to implement a system of internal accounting controls.   
+30. As a result of the conduct described above,  Kimble willfully violated Exchange Act 
+Rule 13b2-1 by directly or indirectly falsifying and causing to be falsified SRC books, records, and 
+accounts. 
+31. As a result of the conduct described above,  Kimble willfully violated Exchange Act 
+Rule 13b2-2 by making or  causing to be made a materially false or misleading statement and 
+omitting to state, or causing another person to omit to  state, a material fact to an accountant in 
+connection with an audit of SRC’s financial statements. 
+32. As a result of the conduct described above,  Kunkler violated and Kimble willfully 
+violated Exchange Act Rule 13a-14 by filing a false and misleading Sarbanes-Oxley Act of 2002 
+certification in connection with SRC’s Form 10-Q for the quarter ended September 28, 2002.    
+33. In light of Kimble’s  willful violations of the fe deral securities laws and rules 
+thereunder, Kimble is s ubject to sanctions pursuant to Rule 102(e)(1)(iii) of the Commission’s 
+Rules of Practice. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Kunkler shall cease and desist from committing or caus ing any violations and any 
+future violations of Section 13(b)(5) of the Exchange Act and Rule 13a-14 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, 12b-25, 13a-11 and 13a-13 thereunder. 
+B. Kimble shall cease and desi st from committing or causin g any violations and any 
+future violations of Sections 10(b) and 13(b)( 5) of the Exchange Act and Rules 10b-5, 13a-14, 
+13b2-1 and 13b2-2 thereunder, and from causing an y 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, 12b-25, 13a-11 
+and 13a-13 thereunder. 
+7
+ 
+          
+ 
+ 
+ 
+ 
+ 
+ 
+      
+      
+ 
+ 
+ 
+ 
+ 
+C. Kimble is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+D. After 3 years from the date of this Order, Kimble may request that the Commission 
+consider his reinstatement as an accountant 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 statemen ts that are filed with the Commission.  Such 
+an application must satisfy the Commission that Kimble’s work in his practice before the 
+Commission will be reviewed either by the inde pendent audit committee of the public company 
+for which he works or in some other acceptabl e 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. Kimble, or the public accounting fi rm 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. Kimble, or the registered public accounting firm with which he is 
+associated, has been inspected by the Board and th at inspection did not identify any criticisms of 
+or potential defects in Kimble’s or the firm’s quality cont rol system that would indicate that 
+Kimble will not receive appropriate supervision; 
+c. Kimble has resolved any disciplinary issues with the Board, and 
+has complied with all terms and conditions of a ny sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+d. Kimble acknowledges his responsibili ty, as long as he appears or 
+practices before the Commission as an independen t 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.   
+8
+ 
+          
+  
+ 
+ 
+ 
+   
+ 
+E. The Commission will consider an applica tion by Kimble to resume appearing or 
+practicing before the Commission as an accountant pr ovided that his state CPA license is current 
+and he has resolved any 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 me rits.  The Commission’s review may include 
+consideration of, in addition to  the matters referenced above, any other matters relating to 
+Kimble’s character, integrity, professional conduct, or qualifications to appear or practice before 
+the Commission. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+9
+ 
\ No newline at end of file
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+ 
+ 
+ 
+      
+ 
+ 
+   
+    
+ 
+  
+ 
+ 
+                                                               
+ 
+ 
+ 
+ 
+ 
+ 
+                                                
+ 
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52582 / October 11, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2334 / October 11, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12073 
+:
+ : 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+ John Houldsworth, CA, : 102(e) OF THE COMMISSION’S RULES OF
+ : PRACTICE, MAKING FINDINGS, AND 
+Respondent. : IMPOSING REMEDIAL SANCTIONS 
+:
+ : 
+: 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against John 
+Houldsworth, CA (“Houldsworth”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1 
+II. 
+In anticipation of the institution of these proceedings, Houldsworth has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.B below, which are admitted, Houldsworth 
+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 Houldsworth’s Offer, the Commission finds that: 
+A. From approximately May 1990 until approximately June 2001, Houldsworth 
+was the Chief Executive Officer of Cologne Re Dublin (“CRD”), a subsidiary, located in Dublin, 
+Ireland, of Cologne Re Germany, which is a subsidiary of General Re Corporation (“Gen Re”).  In 
+1998, he additionally became the Chief Underwriter for a Gen Re business unit called Alternative 
+Solutions and was located part of the time in Gen Re’s Stamford, Connecticut headquarters.  
+Houldsworth is licensed as a Chartered Accountant in England.  On May 13, 2005, Gen Re placed 
+Houldsworth on administrative leave with pay and terminated him on June 6, 2005.  Houldsworth 
+resides in Ireland. 
+B. On June 6, 2005, the Commission filed a complaint against Houldsworth in 
+SEC v. John Houldsworth (Civil Action No. 05 Civ. 5325 (S.D.N.Y.)).  On August 12, 2005, the 
+court entered an order permanently enjoining Houldsworth, by consent, from future violations of 
+Sections 10(b), 13(a), 13(b)(2) 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 thereunder.  In addition, Houldsworth 
+was barred pursuant to Section 21(d)(2) of the Exchange Act from serving as an officer or director 
+of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or 
+that is required to file reports pursuant to Section 15(d) of the Exchange Act.  Furthermore, the 
+court ordered that, upon motion of the Commission, the Court shall determine whether it is 
+appropriate to order disgorgement of ill-gotten gains and/or a civil penalty pursuant to Section 
+21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] and, if so, the amount(s) of the disgorgement 
+and/or civil penalty. 
+C. The Commission’s complaint alleged, among other things, that 
+Houldsworth aided and abetted a securities fraud committed by American International Group, Inc. 
+(“AIG”) by helping AIG structure two sham reinsurance transactions.  These fraudulent 
+transactions allowed AIG to add a total of $500 million in phony loss reserves to its balance sheet 
+in the fourth quarter of 2000 and the first quarter of 2001.  The complaint further alleged that the 
+two transactions had no economic substance (Gen Re was paying $500 million in premiums in 
+return for AIG reinsuring a $500 million risk) and that the only economic benefit to either party to 
+the transactions at issue was a $5.2 million fee – agreed to in an undisclosed side agreement – to be 
+paid by AIG to Gen Re for putting the deal together.  In addition, the complaint alleged that 
+without the phony loss reserves that AIG added to its balance sheet, AIG’s financial statements in 
+both quarters would have shown further declines in AIG’s loss reserves, but as a result of the 
+transactions, AIG’s financial statements showed a false increase in reserves that AIG’s then 
+Chairman touted in AIG’s quarterly earnings releases.   
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Houldsworth’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+Houldsworth is suspended from appearing or practicing before the Commission as an 
+accountant. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+3
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2335.txt b/raw/aaer/2005/AAER-2335.txt
new file mode 100644
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+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+       
+      
+ 
+  
+ 
+      
+  
+      
+    
+       
+       
+  
+   
+ 
+ 
+ 
+ 
+ 
+   
+ 
+                                                
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52597 / October 13, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2335 / October 13, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12085 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+THOMAS HAUKE, CPA : 102(e) OF THE COMMISSION’S RULES OF 
+: PRACTICE, MAKING FINDINGS, AND 
+Respondent. : IMPOSING REMEDIAL SANCTIONS 
+: 
+: 
+____________________________________ : 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Thomas 
+Hauke (“Respondent” or “Hauke”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.
+1 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+   
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“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. Hauke, age 57, has been a certified public accountant licensed to practice in 
+the States of New York and New Jersey.  In 1998 and 1999 he was an accountant and partner in 
+Van Buren & Hauke LLC, an accounting firm in New York.  During that time, he provided 
+accounting and auditing services for Ramoil Management Ltd. (“RAMO”), a publicly-traded 
+company. 
+2. RAMO was a reporting company headquartered in Boca Raton, Florida 
+during the time period relevant to this matter. RAMO’s stock was registered with the Commission 
+pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) and traded on 
+the over-the-counter bulletin board.  On March 28, 2001, RAMO was delisted by the NASD for 
+failing to file current financial statements with the Commission in accordance with Regulation S-
+X. 
+3. On October 11, 2001, the Commission filed a complaint against Hauke and 
+others, including RAMO, SEC v. Ramoil Management Ltd., et al., (Civil Action No. 
+1:01CV09057). On September 20, 2005, the court entered an order permanently enjoining Hauke, 
+by consent, from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) 
+of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting future violations of 
+Section 15(d) of the Exchange Act and Rule 15d-1 thereunder pursuant to Section 20(e) of the 
+Exchange Act.  Hauke also was ordered to pay $50,000 in disgorgement of ill-gotten gains from 
+his accounting fees, and $16,448.22 in prejudgment interest; and an $85,000 civil money penalty. 
+4. The Commission’s complaint alleged, among other things, that Hauke 
+prepared a fraudulent audit report for inclusion in RAMO’s 1999 Form 10-K.  Neither Hauke nor 
+anyone else had audited RAMO’s financial statements.  The fraudulent audit report Hauke 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+prepared purportedly was authored by another accountant who had not reviewed or audited 
+RAMO’s financial statements and who was not a certified public accountant.  Hauke attached the 
+other accountant’s name to the audit report he prepared to mislead RAMO, its investors and the 
+Commission into believing that the financial statements had been audited.  Hauke submitted the 
+fraudulent audit report to RAMO’s general counsel for incorporation in the company’s 1999 Form 
+10-K that was filed with the Commission. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to      
+impose the sanction agreed to in Respondent Hauke’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that Hauke is suspended from 
+appearing or practicing before the Commission as an accountant. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+3
+ 
\ No newline at end of file
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+
+
+ 
+ 
+   
+     
+ 
+ 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19437 / October 20, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2337 / October 20, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. LUCENT TECHNOLOGIES INC., et al.,  Civil Action No. 04-2315 (WFW) (MF) (filed May 17, 2004) 
+
+ COURT ENTERS FINAL JUDGMENT AGAINST DAVID ACKERMAN 
+
+ On October 18, 2005, the U.S. District Court for the District of New Jersey entered final judgment against David Ackerman ("Ackerman"), an officer of Winstar Communications Inc. ("Winstar"), based upon charges of aiding and abetting fraud committed by Lucent Technologies, Inc. ("Lucent").  In its Complaint filed on May 17, 2004, the Commission alleged that Ackerman aided and abetted fraudulent conduct by Lucent's own employees and engaged in a scheme with co-defendant William Plunkett, a former sales Vice President at Lucent, that resulted in Lucent misrecording $125 million of revenue in connection with a software purchase by Winstar at the end of Lucent's fourth quarter of its fiscal year 2000.  Lucent, Plunkett, and two other individuals have previously settled the Commission's action against them.   
+ Without admitting or denying the allegations in the Commission's Complaint, Ackerman consented to the entry of the final judgment, which permanently enjoins him from violating an antifraud provision of the federal securities laws, specifically, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.  The Court also enjoined Ackerman from aiding and abetting violations of the periodic reporting and books and records provisions of the Exchange Act, specifically, Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder, and ordered Ackerman to pay a $50,000 civil penalty.  The Commission's action continues against former Lucent employees Nina Aversano, Jay Carter, A. Leslie Dorn, John Bratten, Charles Elliott, and Michelle Hayes-Bullock.   
+ For more information, see Litigation Release No. 18715 (May 17, 2004).  
+
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diff --git a/raw/aaer/2005/AAER-2339.txt b/raw/aaer/2005/AAER-2339.txt
new file mode 100644
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@@ -0,0 +1,1390 @@
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+              Scott Gershon, Paul Cifaldi, Neil Silver and Robert Davis
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+        Scott Gershon, Paul Cifaldi, Neil Silver and Robert Davis
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19439 / October 20, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2339 / October 20, 2005 
+
+  Securities and Exchange Commission v. Scott Gershon, Paul Cifaldi, Neil Silver and Robert Davis,  Civil Action No. 1:05 CV 02051 (D.D.C.) (RWR) (filed October 19, 2005).  
+
+  In the Matter of Intercallnet, Inc.,  Securities Exchange Act of 1934 Release No. 52641/October 19, 2005. 
+
+ SEC SUES FORMER OFFICERS AND PROMOTERS OF INTERCALLNET, INC. FOR FRAUD 
+
+ The Securities and Exchange Commission today announced that on October 19, 2005 it filed a settled civil action in federal district court against Scott Gershon, the founder and former Chief Executive Officer of Intercallnet, Inc.; Paul Cifaldi, the company's former Chief Operating Officer; and stock promoters Neil Silver and Robert Davis, for engaging in a fraudulent scheme to sell unregistered Intercallnet securities. 
+ SEC COMPLAINT 
+ The Commission's complaint alleges that from March through December 2000, Gershon, Cifaldi, Silver and Davis participated in the fraudulent in the following manner:  Silver and Davis falsely represented themselves as licensed brokers and sold the stock in exchange for undisclosed commissions from Gershon, disguised on the company's books as payments for the acquisition of assets.  Invoices from fictitious companies Silver and Davis controlled were then created and back-dated to reflect the purported purchases.  Cifaldi marked the fraudulent invoices "approved" for payment.  Intercallnet's periodic reports filed with the Commission from April 2001 through November 2002 included financial statements which falsely characterized the stock promotion commissions as payments for assets. 
+ SEC SETTLEMENT 
+	  Gershon, without admitting or denying the allegations in the complaint, consented to the entry of a final judgment: (1) permanently enjoining him from violating Sections 5 and 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 15(a) of the Exchange Act and Rules 12b 20, 13a-1, and 13a-13 thereunder; (2) permanently barring him from serving as an officer or director of any public company; and (3) ordering him to pay disgorgement of $66,000 plus pre-judgment interest of $11,819.95 and a civil money penalty of $100,000.    
+  	 Cifaldi, without admitting or denying the allegations in the complaint, consented to the entry of a final judgment: (1) permanently enjoining him from violating Sections 5 and 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 15(a) of the Exchange Act and Rules 12b 20, 13a-1, and 13a-13 thereunder; (2) permanently barring him from serving as an officer or director of any public company; and (3) ordering him to pay disgorgement of $45,736 plus pre-judgment interest of $8,190.86.  Based on Cifaldi's Sworn Statement of Financial Condition and other documentation, the Commission waived the payment of disgorgement and prejudgment interest and did not seek a penalty.   
+	 Silver, without admitting or denying the allegations in the complaint, consented to the entry of a final judgment: (1) permanently enjoining him from violating Sections 5 and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Exchange Act Rule 10b-5; and (2) ordering him to pay disgorgement of $831,971, plus pre-judgment interest of $153,051.28 and a civil money penalty of $50,000.     
+	 Davis, without admitting or denying the allegations in the complaint, consented to the entry of a final judgment: (1) permanently enjoining him from violating Sections 5 and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Exchange Act Rule 10b-5; and (2) ordering him to pay disgorgement of $183,367, plus pre-judgment interest of $32,839.19 and a civil money penalty of $50,000.     
+	  In a related settled administrative proceeding, Silver and Davis, consented, without admitting or denying the Commission's findings, to entry of a Commission order pursuant to Exchange Act Section 15(b)(6) permanently barring each from associating with a broker or dealer.  The Commission's Order, to be issued upon entry of the permanent injunction by the federal district court, finds that Silver and Davis were not licensed to sell securities and acted as unregistered broker-dealers in promoting the sale of unregistered Intercallnet securities. 
+ In a related matter, on October 19, 2005, the Commission issued an administrative order pursuant to Exchange Act Section 12(j) instituting an administrative proceeding to determine whether or not the registration of Intercallnet's securities should be revoked or suspended for failure to file required periodic reports with the Commission.   
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diff --git a/raw/aaer/2005/AAER-2341.txt b/raw/aaer/2005/AAER-2341.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19454 / November 2, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2341 / November 2, 2005  
+
+  Securities and Exchange Commission v. Brian Crowley,  Civil Action No. 05-2133 (Kollar-Kotelly) (D.D.C.) (November 2, 2005)  
+  Securities and Exchange Commission v. Robert Henuset,  Civil Action No. 05-2135 (Kollar-Kotelly) (D.D.C.) (November 2, 2005)  
+  Securities and Exchange Commission v. Ritchie Langfield,  Civil Action No. 05-2136 (Kollar-Kotelly) (D.D.C.) (November 2, 2005)  
+  Securities and Exchange Commission v. Frank Lysiak,  Civil Action No. 05-2137 (Kollar-Kotelly) (D.D.C.) (November 2, 2005)  
+  Securities and Exchange Commission v. Ernie Rosenberg,  Civil Action No. 05-2139 (Kollar-Kotelly) (D.D.C.) (November 2, 2005)  
+  Securities and Exchange Commission v. Dale Schulz,  Civil Action No. 05-2140 (Kollar-Kotelly) (D.D.C.) (November 2, 2005 
+  Securities and Exchange Commission v. Larry Stone,  Civil Action No. 05-2141 (Kollar-Kotelly) (D.D.C.) (November 2, 2005)  
+
+ SEC CHARGES SEVEN INDIVIDUALS WITH AIDING AND ABETTING FINANCIAL FRAUD AT ROYAL AHOLD'S U.S. FOODSERVICE SUBSIDIARY FOR SIGNING AND RETURNING FALSE AUDIT CONFIRMATIONS  
+
+ The Securities and Exchange Commission today filed enforcement actions against seven individuals alleging they aided and abetted a massive financial fraud by signing and returning materially false audit confirmations sent to them by the auditors of the U.S. Foodservice, Inc. subsidiary of Royal Ahold (Koninklijke Ahold N.V.).   All of the individuals charged, Brian Crowley, Robert Henuset, Ritchie Langfield, Frank Lysiak, Ernie Rosenberg, Dale Schulz, and Larry Stone, were employees of or agents for vendors that supplied U.S. Foodservice. 
+ The Commission's complaints allege that U.S. Foodservice personnel contacted vendors and urged them to sign and return the false confirmation letters.  In some cases U.S. Foodservice pressured the vendors; in other cases they provided side letters to the vendors assuring the vendors that they did not owe U.S. Foodservice the amounts reflected as outstanding in the confirmation letters.  The letters clearly stated that the confirmations were being used in connection with the annual audit and the letters directed the defendants to return the confirmations directly to the company's auditors.   
+ Each of the individuals aided and abetted the fraud by signing and sending to the company's independent auditors confirmation letters that they knew materially overstated the amounts of promotional allowance income paid or owed to U.S. Foodservice.  The amounts overstated in the confirmations were often inflated by millions of dollars and by more than 100%. 
+ All seven have each agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to permanent injunctions and payment of a $25,000 penalty.  Also today, the U.S. Attorney's Office for the Southern District of New York announced criminal charges in this matter against all seven individuals for conspiracy to falsify books and records.   
+ The complaints allege that U.S. Foodservice engaged in a scheme to report earnings equal to or greater than its targets, regardless of the company's true performance.  U.S. Foodservice inflated its promotional allowance income by at least $700 million for fiscal years 2001 and 2002 and thereby caused Ahold to report materially false operating and net income for these periods.  The annual audit confirmation process at U.S. Foodservice was systematically corrupted to help keep the fraud from being discovered. 
+ Related Actions 
+ On January 13, 2005, the SEC filed enforcement actions against nine other individuals alleging they aided and abetted the same financial fraud by signing and returning materially false audit confirmations.   (Litigation Release No. 19034). 
+ On July 27, 2004 the SEC filed a complaint in the United States District Court for the Southern District of New York alleging that Michael Resnick, Mark P. Kaiser, Timothy Lee and William Carter engaged in or substantially participated in a scheme to overstate Ahold's income in SEC filings and other public announcements for at least fiscal years 2001 and 2002.  Complaint alleges Resnick, Kaiser, Lee, and Carter were top executives at Columbia, Maryland based wholesale food distributor U.S. Foodservice, a major subsidiary of Ahold (Litigation Release No. 18797).  On October 13, 2004, the Commission filed actions against Royal Ahold and others.  (Litigation Release No. 18929). 
+ The Commission's investigation is continuing.  The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York, and the New York Office of the Federal Bureau of Investigation. 
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diff --git a/raw/aaer/2005/AAER-2343.txt b/raw/aaer/2005/AAER-2343.txt
new file mode 100644
index 0000000000000000000000000000000000000000..833ae7dfd4bcd874a46de06858afdd30a976c3ee
--- /dev/null
+++ b/raw/aaer/2005/AAER-2343.txt
@@ -0,0 +1,204 @@
+ 
+ 
+ 
+ 
+ 
+ 
+       
+      
+ 
+  
+ 
+      
+    
+      
+    
+       
+       
+  
+   
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+                                                 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52726 / November 3, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2343 / November 3, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12095 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+ERIC TYRA, CPA : 102(e) OF THE COMMISSION’S RULES OF 
+: PRACTICE, MAKING FINDINGS, AND 
+Respondent. : IMPOSING REMEDIAL SANCTIONS 
+: 
+: 
+____________________________________ : 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Eric 
+Tyra (“Respondent” or “Tyra”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.
+1 
+II. 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+  
+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. Tyra, age 55, has been a certified public accountant licensed to practice in the States 
+of Georgia and New York.  He served as chief financial officer of Just for Feet, Inc. (Just for Feet) 
+from May 1997 until June 1999. 
+2. Just for Feet was, at all relevant times, a Delaware corporation with its principal 
+place of business in Birmingham, Alabama.  Just for Feet was a major national retailer of shoes and 
+other apparel.  At all relevant times, Just for Feet’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 May 21, 2004, the Commission filed a complaint against Tyra in SEC v. Eric 
+Tyra et al., (Civil Action No. CV-04-P-1052-S).  On January 31, 2005, the Commission filed an 
+amended complaint.  On October 14, 2005, the court entered a final judgment permanently 
+enjoining Tyra, by consent, from future violations of Section 17(a) of the Securities Act of 1933 
+(“Securities Act”) and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 
+and 13b2-2 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+4. The Commission’s complaint alleged, among other things, that Tyra directed others 
+to record, without sufficient supporting documentation,  “co-op” receivables and advertising rebate 
+receivables on the company’s books, which resulted in the fraudulent overstatement of income on 
+Just for Feet’s financial statements filed with the company’s periodic reports on Forms 10-K and 
+10-Q from 1997 through 1999. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Tyra’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+2
+ 
+ 
+ 
+ 
+ 
+   
+ 
+      
+            
+ 
+ 
+ 
+      
+  
+      
+            
+ 
+ 
+ 
+ 
+ 
+      
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+A. Tyra is suspended from appearing or practicing before the Commission as an 
+accountant.  
+B. After ten years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+1. a preparer or reviewer, or a person responsible for the preparation or review, 
+of any public company’s financial statements that are filed with the Commission.  Such an 
+application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company for 
+which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+2. an independent accountant.  Such an application must satisfy the 
+Commission that: 
+(a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+(b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms of 
+or potential defects in the Respondent’s or  the firm’s quality control system that would indicate 
+that the Respondent will not receive appropriate supervision; 
+(c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+(d) Respondent acknowledges his responsibility, as long as Respondent 
+appears or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards.   
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his state CPA license is current 
+and he has resolved all other disciplinary issues with the applicable state boards of 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+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. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+4
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2344.txt b/raw/aaer/2005/AAER-2344.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d8862e5f5dccb70ebadc044cddd5dc2df0c374e4
--- /dev/null
+++ b/raw/aaer/2005/AAER-2344.txt
@@ -0,0 +1,154 @@
+ 
+ 
+ 
+ 
+       
+      
+ 
+  
+ 
+      
+      
+  
+       
+       
+  
+   
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+                                                
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52763 / November 10, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2344 / November 10, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12102 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+SALVATORE CENSOPRANO, CPA, : 102(e) OF THE COMMISSION’S RULES OF 
+: PRACTICE, MAKING FINDINGS, AND 
+Respondent. : IMPOSING REMEDIAL SANCTIONS 
+: 
+: 
+____________________________________ : 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against 
+Salvatore Censoprano (“Respondent” or “Censoprano”) pursuant to Rule 102(e)(3)(i) of the 
+Commission’s Rules of Practice.
+1 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.3, below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+1. Censoprano, age 49, is and has been a certified public accountant licensed to practice 
+in the State of California.  He served as Chief Financial Officer of M&A West, Inc. during 1999 and 
+2000. 
+2. M&A West, Inc. (“M&A West”) was, at all relevant times, a Colorado corporation 
+with its principal place of business in San Bruno, California.  M&A West was engaged in the 
+business of developing start-up internet-related businesses.  M&A West issued common stock that 
+was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 
+1934 (“Exchange Act”) and quoted on the Over-the-Counter Bulletin Board. 
+3. On September 6, 2001, the Commission filed a complaint against Censoprano and 
+others, captioned SEC v. M&A West, et al., Civil Action No. C-01-3376 VRW (Northern District 
+of California).  On October 28, 2005, the court entered an order permanently enjoining 
+Censoprano, 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 from aiding and abetting future 
+violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 
+13a-1, 13a-11, and 13a-13 thereunder.  Censoprano was also ordered to pay a $250,000 civil 
+money penalty and was prohibited from acting as an officer or director of an issuer that has 
+securities registered pursuant to Section 12(g) of the Exchange Act. 
+4. The Commission’s complaint alleged, among other things, that Censoprano 
+participated with other persons associated with M&A West in a fraudulent scheme which 
+resulted in M&A West filing materially false and misleading financial statements in the 
+company’s annual reports on Form 10-KSB for the fiscal years ended May 31, 1999 and May 
+31, 2000, and in the company’s quarterly reports on Form 10-QSB for the quarters ended August 
+31, 1999 and November 30, 1999, and a materially false and misleading Form 8-K/A dated 
+August 18, 1999. The complaint alleged that Censoprano participated in several instances 
+involving the preparation of documents and accounting entries that were used to improperly 
+account for cash received by M&A West and to materially increase M&A West’s annual and 
+quarterly revenue and net income, and which represented a departure from generally accepted 
+accounting principles (“GAAP”).  Among other things, Censoprano is alleged to have 
+participated in the creation of agreements that did not exist, and in improperly accounting for 
+securities held by M&A West.  In addition, the complaint alleged that Censoprano provided 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+misleading information, and failed to disclose information, to M&A West’s independent auditors 
+about certain of the Company’s fraudulent practices. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Censoprano’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Censoprano is suspended from appearing or practicing before the Commission as 
+an accountant. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+3
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2346.txt b/raw/aaer/2005/AAER-2346.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ff05b9a50988cfc0633ad9c03373d16a4a2b552f
--- /dev/null
+++ b/raw/aaer/2005/AAER-2346.txt
@@ -0,0 +1,236 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+       
+      
+ 
+ 
+ 
+     
+  
+  
+       
+    
+       
+ 
+   
+ 
+ 
+ 
+ 
+   
+ 
+ 
+                                                
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52792 / November 18, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2346 / November 18, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12105 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+JOHN D. PARSON, CPA and : 102(e) OF THE COMMISSION’S RULES OF 
+BRENDON P. MCDONALD, CPA, : PRACTICE, MAKING FINDINGS, AND 
+: IMPOSING REMEDIAL SANCTIONS 
+Respondents.  : 
+: 
+____________________________________ : 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against John D. 
+Parson, CPA (“Parson”) and Brendon P. McDonald, CPA (“McDonald”) (collectively 
+“Respondents”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of Practice.
+1 
+1  Rule 102(e)(3)(i) provides, in relevant part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+  
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+II. 
+In anticipation of the institution of these proceedings, 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:  
+1. Parson, age 35, is and has been a certified public accountant licensed to 
+practice in the State of New York.  He was an audit manager at Arthur Andersen LLP (“Andersen”) 
+until his resignation in 2002, and worked on the fiscal 2000 audit of American Tissue, Inc. (“ATI”). 
+2. McDonald, age 29, is and has been a certified public accountant licensed to 
+practice in the State of New York.  He was an experienced senior employed by Andersen from 1997 
+until his resignation in 2002, and worked on the fiscal 2000 audit of ATI. 
+3. ATI was a manufacturer of tissue and paper products with paper mills and 
+converting facilities located throughout the United States and Mexico.  It became a reporting 
+Company in February 2000, after conducting an offering of secured notes to institutional investors.  
+ATI never sold equity securities to the public, but a limited secondary market for its secured notes 
+developed. 
+4. On November 1, 2005, final judgments were entered against Parson and 
+McDonald, permanently enjoining them, by consent, from future violations of Section 10(b) of the 
+Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and from aiding 
+and abetting violations of Section 15(d) of the Exchange Act and Exchange Act Rules 12b-20 and 
+15d-1, in the civil action entitled Securities and Exchange Commission v. Fred Gold, et al., Civil 
+Action Number 05-CV-4713 (JS), in the United States District Court for the Eastern District of 
+New York.  Parson and McDonald were also ordered to pay civil money penalties of $50,000 and 
+$30,000 respectively. 
+5. The Commission’s complaint alleged, among other things, that American 
+Tissue materially overstated its assets, shareholders’ equity, revenue, and net income in periodic 
+reports filed with the Commission during 2000 and 2001 by capitalizing previously recorded 
+expenses as inventory and overvaluing finished goods inventory in amounts well in excess of the 
+selling price. As a result, American Tissue’s $24.5 million reported net income for its fiscal year 
+ended September 30, 2000 was overstated by at least $28.1 million and its $15.5 million reported 
+2
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+net income for the nine months ended June 30, 2001 was overstated by at least $21.8 million.  
+Andersen was American Tissue’s auditor during the relevant period.  Andersen issued an 
+unqualified audit report on American Tissue’s financial statements for its fiscal year ended 
+September 30, 2000 though its audit was not conducted in accordance with generally accepted 
+auditing standards and American Tissue’s financial statements were not fairly presented in 
+conformity with generally accepted accounting principles.  Parson, the audit manager on ATI’s 
+2000 audit, and McDonald, the experienced senior on ATI’s 2000 audit, were responsible for the 
+audit failure. 
+6. The Commission’s complaint alleged further that subsequent to the 
+completion of the audit, Parson and McDonald, at the direction of the engagement partner, altered 
+audit workpapers in preparation for a peer review conducted by Deloitte & Touche.  On 
+September 3, 2001, Parson and McDonald were instructed to arrange for the immediate, 
+unscheduled destruction and shredding of all Andersen documents and emails that were not part 
+of the “official” American Tissue work paper files.  In response, McDonald gave two instructions 
+to members of Andersen’s American Tissue audit staff on September 3, 2001.  Initially, the audit 
+staff was instructed to save everything from the hard drives on their laptop computers to a disk 
+and send the disk to McDonald’s house.  Shortly thereafter, the staff was instructed to delete 
+everything related to American Tissue from the hard drives on their laptop computers.  On or 
+about September 4, 2001, McDonald instructed Andersen’s American Tissue audit staff to gather 
+all American Tissue related documents for shredding, other than the “official” work paper file.  
+Thereafter, at the request of Andersen, an outside shredding company made an unscheduled visit 
+to pick up and shred American Tissue audit documents and emails that were not part of the 
+“official” American Tissue work paper files. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondents Parson’s and McDonald’s Offers. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Parson and McDonald are suspended from appearing or practicing before the 
+Commission as accountants. 
+B. After five years from the date of this order, Respondent McDonald may 
+request that the Commission consider his reinstatement by submitting an application 
+(attention: Office of the Chief Accountant) to resume appearing or practicing before the 
+Commission as: 
+1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  
+Such an application must satisfy the Commission that Respondent’s work in his practice 
+before the Commission will be reviewed either by the independent audit committee of the 
+3
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+    
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+   
+ 
+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 McDonald, or the public accounting firm with 
+which he is associated, is registered with the Public Company Accounting Oversight Board 
+(“Board”) in accordance with the Sarbanes-Oxley Act of 2002, and such registration 
+continues to be effective;
+ (b) Respondent McDonald, or the registered public accounting 
+firm with which he is associated, has been inspected by the Board and that inspection did not 
+identify any criticisms of or potential defects in the respondent’s or the firm’s quality control 
+system that would indicate that the respondent will not receive appropriate supervision; 
+(c) Respondent McDonald has resolved all disciplinary issues 
+with the Board, and has complied with all terms and conditions of any sanctions imposed by 
+the Board (other than reinstatement by the Commission); and 
+(d) Respondent McDonald acknowledges his responsibility, as 
+long as Respondent McDonald appears or practices before the Commission as an 
+independent accountant, to comply with all requirements of the Commission and the Board, 
+including, but not limited to, all requirements relating to registration, inspections, concurring 
+partner reviews and quality control standards. 
+C. The Commission will consider an application by Respondent McDonald 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 McDonald’s character, integrity, professional conduct, or 
+qualifications to appear or practice before the Commission. 
+ By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+4 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2349.txt b/raw/aaer/2005/AAER-2349.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f57f9d04758cdf8a1ce3fe367171f2d5880ad352
--- /dev/null
+++ b/raw/aaer/2005/AAER-2349.txt
@@ -0,0 +1,1372 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | David T. Thomson, CPA, and David T. Thomson PC 
+     
+     
+     
+     
+     
+     
+     
+         !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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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 19479 / December 1, 2005 
+
+ Accounting and Auditing Enforcement Release No.  2349 / December 1, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. WILLIAM W. FREISE , 1:04CV00531 (D.D.C. November 23, 2005) 
+
+ SEC OBTAINS FINAL JUDGMENT FOR FRAUD AGAINST FORMER POWERBALL INTERNATIONAL, INC. PRESIDENT WILLIAM W. FREISE 
+
+ On November 23, 2005, the United States District Court for the District of Columbia entered a final judgment against William W. Freise, the former president and director of Powerball, for falsifying company records to hide his theft of $7,200 and his failure to pay for stock that he received from the exercise of warrants.  Freise consented to the entry of the final judgment, including a permanent injunction enjoining him from violating the antifraud provisions of the federal securities laws and a permanent officer and director bar. 
+
+ On March 31, 2004, the Commission filed a complaint alleging that during the period June 2002 through April 2003, Freise falsified company records to hide his theft of $7,200 and to hide his failure to pay $40,000 for stock he had received through the exercise of warrants.  The Complaint alleges that in order to conceal his fraud, Freise altered monthly bank statements for Powerball's bank account, which made that account appear that it contained a substantially higher cash balance than it actually contained.  The Complaint alleges that Freise knew that Powerball's financial statements and its reports to the Commission would reflect such false cash balances.  As a result of such conduct, Powerball materially misstated its financial statements for the quarters ended June 30, 2002, and September 30, 2002, and for the year ended December 31, 2002.  
+
+ Without admitting or denying the allegations in the complaint, William Freise consented to the entry of a final judgment permanently enjoining him from 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 (the "Exchange Act"), and Rules 10b-5, 13b2-1, and 13b2-2 promulgated thereunder, as well as, 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.  William Freise also consented to an order barring him from serving as an officer or director of a public company.  The final judgment does not impose civil penalties based on William Freise's representations in a sworn Statement of Financial Condition and other supporting documents. 
+
+ The Commission previously instituted settled administrative proceedings against Powerball's former auditors, David T. Thomson, CPA, and David T. Thomson PC.  [In the Matter David T. Thomson, CPA and David T. Thomson PC ( Rel. 34-49516 ; File No. 3-11453)] 
+
+ For additional information, see  Litigation Release No. 18654  (April 1, 2004). 
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diff --git a/raw/aaer/2005/AAER-2351.txt b/raw/aaer/2005/AAER-2351.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ba2a1cf8f2a9381e5f5ac62ff4444ec22650747d
--- /dev/null
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@@ -0,0 +1,1391 @@
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No.  19477 / November 30, 2005  
+Accounting and Auditing Enforcement  Release No. 2351 / November 30, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. FRIEDMAN'S INC.,  
+
+ Civil Action No. CV 05-5516 (J. W.) (E.D.N.Y.) 
+
+ SEC BRINGS SETTLED ACTION AGAINST FRIEDMAN'S INC. 
+
+ The Securities and Exchange Commission announced today that on Monday, it filed a settled enforcement action in the United States District Court for the Eastern District of New York charging Friedman's Inc. ("Friedman's") with securities fraud and violating related books and records provisions of the securities laws.   
+
+ The Complaint alleges that from at least fiscal year-ended 2001 through September 2003, at the direction of Friedman's' former senior management, Friedman's systematically inflated earnings to meet Wall Street's expectations, while concealing the fact that a growing percentage of its credit accounts receivable were likely not collectible.  The Commission alleges that Friedman's made material misrepresentations concerning its credit program and its write-off policy, and systematically under-reserved for bad debts using various non-GAAP accounting practices.  The Complaint further alleges that from at least fiscal year-ended 2001 through September 2003, Friedman's used certain "one-off" actions to manipulate its earnings and improve the appearance of its balance sheet, including, among others: (i) prematurely recognizing as a reduction in its cost of sales merchandise discounts that Friedman's received from its suppliers; (ii) failing to account properly for the sale of receivables that Friedman's had written off; and (iii) using certain related party transactions to capitalize expenses that Friedman's should have recognized immediately.         
+
+ The complaint charges Friedman's with violating Section 17 (a) of the Securities Act of 1933, and Sections 10(b), 13(a) and 13(b)(2) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.   
+
+ Friedman's, which filed for bankruptcy on January 14, 2005, has agreed to settle the Commission's charges by consenting to a permanent injunction against future violations of the antifraud, reporting, books and records and internal control provisions of the federal securities laws.  In its settlement of the Justice Department's parallel investigation, Friedman's has agreed to pay $2 million to the United States Postal Inspection Service's Consumer Fraud Fund and will make certain reforms to its corporate governance and financial accounting controls. 
+
+ The Commission expresses its appreciation to the United States Attorney's Office for the Eastern District of New York and the United States Postal Inspection Service for their assistance in the investigation of this matter. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2352.txt b/raw/aaer/2005/AAER-2352.txt
new file mode 100644
index 0000000000000000000000000000000000000000..15c0269566eb5ede2e87a5c941d4dd5e083f2181
--- /dev/null
+++ b/raw/aaer/2005/AAER-2352.txt
@@ -0,0 +1,1376 @@
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+              Cedric Kushner Promotions, Inc., et al.
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+        Cedric Kushner Promotions, Inc., et al.
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+                  U.S. SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 
+       Litigation Release No. 19485 / December 5, 2005 
+	   Accounting and Auditing Enforcement Release No. 2352 / December 5, 2005 
+	   
+        Securities And Exchange Commission v. Cedric Kushner Promotions, Inc., et al.  Civil Action No. 04 CV 2324 (S.D.N.Y.) (TPG) (AJP) 
+       Boxing Promoter Cedric Kushner Promotions, Inc. and its Founder and Namesake, Cedric Kushner, Settle SEC Litigation Relating to False and Misleading Financial Statements Filed Prior to Auditors' Completion of 2002 Audit 
+	  
+ On November 30, 2005, the U.S. District Court for the Southern District of New York entered a final judgment by consent against Cedric Kushner ("Kushner"), the Chairman of the Board, President, and Chief Executive Officer of New York-based boxing promoter Cedric Kushner Promotions, Inc. ("CKP").  On December 2, 2005, the Court entered a final judgment by consent against CKP.  Without admitting or denying the allegations of the Commission's March 24, 2004 Complaint charging CKP with filing an annual report and an amended annual report containing materially false and misleading financial statements in May 2003, CKP and Kushner have agreed to settle all charges asserted by the Commission.  See Litigation Release No. 18638 (March 25, 2004).  CKP consented to issuance of an order imposing a fraud injunction and requiring certain remedial undertakings, and Kushner consented to issuance of an order imposing a fraud injunction and a $60,000 civil penalty, and permanently barring him from serving as an officer or director of a public company. 
+ 
+ SEC COMPLAINT 
+ 
+ As alleged in the SEC's Complaint, on May 20, 2003, CKP filed a Form 10-KSB for the year ended December 31, 2002, which falsely represented that two separate audit firms had issued unqualified reports approving the firm's financial statements.  In fact, the audit was not yet complete, and neither auditor had yet issued a report or consented to the filing of the Form 10-KSB.  The Complaint alleges further that the financial statements misstated, among other things, the company's total assets by over 100%, but that Kushner executed the certification required by the Sarbanes-Oxley Act that they fairly presented the company's financial condition.  On May 23, 2003, the company filed an amended Form 10-KSB which disclosed that the auditors had not consented to the May 20 filing, but, the Complaint alleges, the audit was still not complete as of May 23 and the financial statements which accompanied that filing were also materially false and misleading.  Further, according to the Complaint, the company failed to devise and maintain internal controls sufficient to ensure that transactions were recorded accurately.   
+
+ 
+ SEC SETTLEMENT 
+ 
+
+ CKP, without admitting or denying the allegations in the Commission's Complaint, consented to entry of a final judgment permanently enjoining it from violating Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20 and 13a-1 thereunder; and ordering it to implement certain remedial undertakings.  The remedial undertakings include appointment of new Chief Executive and Financial Officers, creation of an independent audit committee and majority independent board of directors, and retention of an independent consultant to analyze the company's internal accounting controls, recommend improvements and oversee implementation of those improvements.  These undertakings represent an unusual departure from the Commission's policy of limited intrusion into corporate governance, but were required by the unique facts of this case:  the company's current two person board of directors consists of its Chairman, President and CEO Kushner who will now be barred from serving as an officer or director of any public company, and its Principal Financial and Accounting Officer James DiLorenzo who is a defendant litigating similar charges of fraud brought by the Commission.  Further, Kushner and DiLorenzo collectively are beneficial owners of 45% of the company's outstanding voting shares.  
+
+ Kushner, without admitting or denying the allegations in the Commission's Complaint, consented to entry of a final judgment:  (1) permanently enjoining him from violating Exchange Act Section 10(b) and Exchange Act Rules 10b-5 and 13a-14 (the Sarbanes-Oxley certification provision), 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, and controlling others in the commission of the aforementioned violations; (2) ordering him to pay a civil penalty of $60,000; and (3) permanently barring him from serving as an officer or director of a public company. 
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diff --git a/raw/aaer/2005/AAER-2353.txt b/raw/aaer/2005/AAER-2353.txt
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+                  U.S. SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 
+
+ Litigation Release No. 19487 / December 7, 2005 
+
+ Accounting and Auditing Enforcement Release No. 2353 / December 7, 2005 
+
+  SEC v. Corder, et al., Civil Action No. 1:03-CV-1436, JDT-TAB (S.D. Ind.)  
+
+ SEC Settles with Officers in Financial Fraud Case 
+	  
+ The Securities and Exchange Commission ("Commission") announced that  an order of Final Judgment was entered against Defendant Randal J. Sage ("Sage"), the former Chief Operations Officer of Analytical Surveys, Inc. ("ASI"), in SEC v. Corder, et al., Civil Action No. 1:03-CV-1436 (S.D. Ind.).  Sage, a resident of Carmel, Indiana, consented to the entry of the Final Judgment without admitting or denying the allegations made against him in the complaint filed by the Commission.  The complaint, filed in October 2003, alleged that from at least October 1998 through at least December 1999, Defendants Sage, Sidney V. Corder ("Corder"), the former Chairman, President and Chief Executive Officer of ASI, and Brian J. Yates ("Yates"), the former Controller of ASI, engaged in a scheme to defraud investors by fraudulently inflating ASI's revenue and earnings in press releases and periodic reports filed with the Commission.  The complaint alleges that Defendants caused ASI to recognize excessive revenue on long-term contracts through the use of several improper accounting methods that did not comply with Generally Accepted Accounting Principles ("GAAP").     
+
+ On December 2, 2005, the Honorable John D. Tinder entered a final judgment: (1) permanently enjoining Sage 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 from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; (2) prohibiting him from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act; and (3) ordering disgorgement of $376,277 plus prejudgment interest of $135,495, for a total of $511,772, but waiving payment of all but $185,000 of the disgorgement and prejudgment interest, which will be paid pursuant to a three-year payment plan, and not imposing a civil monetary penalty, based on Sage's sworn representations in his statement of financial condition.     
+
+ Previously, on August 9, 2005 and January 3, 2005, Judge Tinder entered final judgments against Corder, a resident of Zionsville, Indiana, and Yates, a resident of Colorado Springs, Colorado, to which they consented without admitting or denying the allegations in the Commission's complaint.  These final judgments permanently enjoin Corder and Yates from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder and, as control persons, Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  The judgment against Corder also prohibits him from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act and orders disgorgement of $554,108, plus prejudgment interest of $206,352, for a total of $760,460, but waives payment of all but $260,000 of the disgorgement and prejudgment interest, which will be paid pursuant to a two-year payment plan, and does not impose a civil monetary penalty, based on Corder's sworn representations in his statement of financial condition.  The final judgment entered against Yates also prohibits him from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act for a period of five years and orders disgorgement of $202,704 plus prejudgment interest of $69,871, for a total of $272,575, but waives payment of all but $40,000 of the disgorgement and prejudgment interest, which will be paid pursuant to a three-year payment plan, and does not impose a civil monetary penalty, based on Yates' sworn representations in his statement of financial condition. 
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diff --git a/raw/aaer/2005/AAER-2355.txt b/raw/aaer/2005/AAER-2355.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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+              Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson
+           
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+        Church Extension of the Church of God, Inc., United Management Services, Inc., James Perry Grubbs and Shearon Louis Jackson
+       
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+                  U.S. SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 
+       Litigation Release No. 19500 / December 19, 2005 
+	   Accounting and Auditing Enforcement Release No. 2355 / December 19, 2005  
+        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). 
+      
+	   District Court Affirms Jury Verdict, Enters Disgorgement, Civil Penalty and Injunction Orders Against Former Presidents of Church Extension of the Church of God, Inc. and United Management Services, Inc. 
+	  
+ The U.S. Securities and Exchange Commission (Commission) today announced that in two separate rulings entered on December 14 and 15, U.S. District Court Judge David F. Hamilton, in the Southern District of Indiana, affirmed a jury verdict reached in July 2004 finding James Perry Grubbs (Grubbs) and Shearon Louis Jackson (Jackson) liable for violating the antifraud provisions of the federal securities laws, and imposed monetary and injunctive remedies against each of them.  The Court also entered separate final judgments against Mr. Grubbs and Mr. Jackson, permanently enjoining both from future securities law violations and from future violations of federal securities laws and from service as officers or directors of issuers of federally registered securities and federally regulated broker-dealers, ordering disgorgement of $44,500 plus interest by Mr. Grubbs and $37,000 plus interest by Mr. Jackson, and imposing third tier civil penalties of $120,000 on Mr. Grubbs and $90,000 on Mr. Jackson.   
+
+ The Commission commenced this action on July 22, 2002, charging Church Extension of the Church Of God, Inc. (Church Extension) and United Management Services, Inc. (UMS) and the former presidents of those entities, Grubbs and Jackson, with engaging in a fraudulent scheme from approximately 1996 to the time of the lawsuit, through which Church Extension raised $85 million from the sale of investment notes to thousands of individuals throughout the country, most of whom were members of the Church of God, a Christian denomination headquartered in Anderson, Indiana.   Church Extension was a not-for-profit corporation set up by the Church of God to help finance the construction and expansion of local churches.  The Commission alleged that in connection with the offer and sale of investment notes, defendants repeatedly made material misrepresentations and omitted to state material facts in Church Extension's solicitation and offering circulars, concerning, among other things, the primary use of investment note proceeds and the financial conditions of Church Extension and UMS. The complaint alleged that during the period from 1996 to 2002, instead of using investment note proceeds primarily to fund church loans as stated in the offering circulars, Church Extension departed from its original focus and instead used the note proceeds to fund speculative non-church real estate transactions and to make interest and principal payments to prior noteholders.  The SEC also alleged that Grubbs and Jackson caused Church Extension and UMS to overstate dramatically the company's financial condition in its offering circulars through the overvaluation of properties it received in connection with these real estate transactions that were used to give Church Extension a misleading appearance of solvency.  By the spring of 2001, Church Extension owed noteholders more than $80 million, but was actually insolvent. 
+
+ After an eight-day trial in 2004, the jury found in favor of the Commission on all of its claims, and determined that Grubbs and Jackson each violated the antifraud provisions of the federal securities laws, codified at Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. 
+
+ The disgorgement amounts ordered by the Court represent one-half of each defendants' base salaries for 2001, based on the Court's reasoning that, but for the securities violations, Church Extension would have collapsed earlier, so the violations enabled defendants Grubbs and Jackson to continue their employment.  
+
+ Church Extension and UMS previously settled the Commission's charges against them on July 31, 2002, consenting to the entry of permanent injunctions prohibiting future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  Church Extension and UMS also agreed to pay disgorgement of approximately $81 million.  In consenting to the entry of the civil injunctions and disgorgement, Church Extension and UMS neither admitted nor denied the allegations of the Commission's Complaint.  In connection with this settlement, on July 31, 2002, the Court appointed Jeff J. Marwil, a partner at the law firm of Jenner & Block in Chicago, Illinois, as an independent Conservator in this case.  The Conservator's mandate is to protect the interest of investors who invested or reinvested in the note program.  Since his appointment, Mr. Marwil has liquidated and distributed to investors assets totaling in excess of $25 million, and has also commenced independent lawsuits against various officers, directors and third parties who were involved in the transactions giving rise to the SEC's lawsuit. At the trial, the Conservator estimated that investor losses will exceed between $20 million and $40 million. 
+
+ For further information, please see Litigation Release Numbers  18790  (July 23, 2004) [jury verdict against Grubbs and Jackson],  17966  (February 4, 2003) [order approving plan for note-holder repayment and related relief],  17656  (August 5, 2002) [final judgment entered against Church Extension and UMS] and  17623  (July 22, 2002) [complaint filed]. 
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diff --git a/raw/aaer/2005/AAER-2357.txt b/raw/aaer/2005/AAER-2357.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b21ee3dbbdcb21c49541432fe34b2ffc8a566887
--- /dev/null
+++ b/raw/aaer/2005/AAER-2357.txt
@@ -0,0 +1,1395 @@
+
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+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
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+     
+     
+     SEC.gov | Edward A. Heil and R. Bret Jenkins; eSafetyWorld, Inc. (now known as EZ Auctions and Shipping Inc.) and Raymond Burghard 
+     
+     
+     
+     
+     
+     
+     
+         !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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+              Edward A. Heil and R. Bret Jenkins; eSafetyWorld, Inc. (now known as EZ Auctions and Shipping Inc.) and Raymond Burghard
+           
+     
+ 
+
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+
+     
+
+      
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+             
+        Edward A. Heil and R. Bret Jenkins; eSafetyWorld, Inc. (now known as EZ Auctions and Shipping Inc.) and Raymond Burghard
+       
+
+             
+   
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+                        
+                  U.S. SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 
+       Litigation Release No. 19494 / December 15, 2005 
+	   Accounting and Auditing Enforcement Release No. 2357 / December, 15, 2005  
+          Securities And Exchange Commission v. Edward A. Heil and R. Bret Jenkins  Civil Action No. CV 05 5852 (United States District Court for the Eastern District of New York) (Judge Hurley) 
+	    Securities And Exchange Commission v. eSafetyWorld, Inc. (now known as EZ Auctions and Shipping Inc.) and Raymond Burghard , Civil Action No. CV 05 5851 (United States District Court for the Eastern District of New York) (Judge Hurley)
+        Securities And Exchange Commission Files Charges in Fraud Involving eSafetyWorld, Inc. 
+	   Former CEO and CFO Consent to Injunctions, Officer and Director Bars, and Penalties 
+	  
+ On December 15, 2005, the SEC filed two civil injunctive actions in federal district court for the Eastern District of New York related to fraudulent schemes perpetrated at eSafetyWorld, Inc. (now known as EZ Auctions and Shipping Inc.) ("eSafety"). 
+
+ The first complaint alleges that Edward A. Heil and R. Bret Jenkins, respectively eSafety's CEO and CFO at the relevant time, engaged in fraudulent schemes in 2001 involving a false press release, financial fraud, and/or a market manipulation.  The complaint alleges that: 
+  During the mailed-anthrax scare, Heil drafted and issued eSafety's October 19, 2001 false press release about a supposed revolutionary anthrax-containment device.  The press release caused a one-day price increase of 413% and a volume increase of 57,085%. 
+ Heil devised, and Heil and Jenkins implemented, eSafety's revenue recognition policy for consulting services which was contrary to GAAP.  They also failed to restate eSafety's first through third quarter 2001 reports, improperly deferred costs in eSafety's 2001 Form 10-KSB thereby understating net loss, and aided and abetted eSafety's electronic filing violations.   
+ In 2001, in order to manipulate the stock of eSafety, Heil directed the purchase and sale of eSafety stock and transferred $473,288 in eSafety funds to an entity that he controlled and another entity.  
+ Heil executed a false loan agreement and provided eSafety's auditors with a false loan confirmation to conceal the use of monies in the manipulation. 
+  Heil and Jenkins each have agreed to settle the complaint by consenting, on a neither admit nor deny basis, to the entry of an injunction based on the anti-fraud, books and records, internal controls and electronic signature provisions of the federal securities laws.  Heil's injunction is based on violations of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder; and his 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, 13a-13, 12b-20, and 12b-25 thereunder, and Section 232.302 of Regulation S-T.  Jenkins' injunction is based on violations of Section 13(b)(5) of the Exchange Act; and his 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, 13a-1, 13a-13, 12b-20, 12b-25, 13b2-1 and 13b2-2 thereunder, and Section 232.302 of Regulation S-T.  They each also agreed to a 10-year officer and director bar.  Heil will pay a penalty of $60,000 and Jenkins will pay a penalty of $50,000.   
+
+ In a separate but related action, Heil has offered to settle an administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice by accepting a bar from practicing before the Commission as an accountant with a right to request reinstatement in five years. 
+
+ In the second federal court action, the Commission alleges that eSafety engaged in each of the fraudulent schemes described above, and that Raymond Burghard aided and abetted eSafety's financial fraud by signing a false loan agreement and a false loan confirmation that he knew would be provided to eSafety's auditors.  In so doing, the Commission alleges that Burghard aided and abetted violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13a-1, 13b2-1, and 13b2-2 thereunder.
+
+  The Commission seeks injunctive relief and penalties from eSafety and Burghard. 
+
+  SEC Complaints in this matter :   
+ Heil & Jenkins     
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diff --git a/raw/aaer/2005/AAER-2358.pdf b/raw/aaer/2005/AAER-2358.pdf
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+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 8647 / December 22, 2005 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 53012 / December 22, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2358 / December 22, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-12134 
+  
+ 
+ 
+ 
+In the Matter of 
+ 
+KENNETH R. LECRONE, CPA, 
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROC EEDINGS PURSUANT 
+TO SECTION 8A OF THE SECURITIES 
+ACT OF 1933, SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+    
+I. 
+ 
+ The Securities and Exchange Commission (“Co mmission”) deems it appropriate that public 
+administrative proceedings and cease-and-desist proceedings be, and hereby are, instituted against 
+Kenneth R. LeCrone (“LeCrone” or “Respondent”), pursuant to Section 8A of the Securities Act of 
+1933 (“Securities Act”), Section 21C of the Secu rities Exchange Act of 1934 (“Exchange Act”), 
+and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.1   
+ 
+                                                 
+1 Rule 102(e)(1)(iii) provides, in relevant part, that: 
+ 
+ The Commission may. . .deny, temp orarily or permanently, the privilege of appearing or 
+practicing before it in any way 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 and the 
+rules or regulations thereunder. 
+ 
+ 2
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of  the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Public Administrative and 
+Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933, Section 21C 
+of the Securities Exchange Act of 1934, and Rule 102(e) of the Commission’s Rules of Practice, 
+Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 
+set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Co mmission finds that: 
+ 
+A. Respondent  
+ 
+ LeCrone, age 41, a resident of Centennial, Co lorado, was an auditor at Levine, Hughes, and 
+Mithuen, Inc. (“LHM”), a Denver, Colorado accounting firm, where he was employed from 1997 
+through 1999.  LeCrone has been a licensed certifi ed public accountant in Colorado since 1993.   
+LeCrone was responsible for the performance of  portions of LHM’s 1998 and 1999 audits of 
+Sport-Haley, Inc. (“Sport-Haley”), serving as the “in-charge” staff accountant in 1998 and a 
+manager in 1999.   
+ 
+B. Facts    
+ 
+1. Sport-Haley is a Denver, Colorado compa ny that designs, markets, and contracts 
+for the manufacture of golf apparel and outerwear.  Sport-Haley’s stock is registered with the 
+Commission pursuant to Section 15(d) of the Exchange Act and is quoted on the NASDAQ 
+National Market System.  
+ 
+Improper Accounting for Work-In-Process (“WIP”) Inventory 
+ 
+2. Beginning no later than early 1998, Sport-Haley’s computerized inventory system 
+began improperly accumulating WIP inventory.  As a result of the improper accrual, Sport-
+Haley’s WIP inventory balance ballooned to $1.7 million during its 1998 fiscal year.  The 1998 
+WIP inventory accounted for 9.5 percent of Spor t-Haley’s total inventory and had increased by 
+more than 900 percent from the prior year.  Desp ite the fact that the 1998 WIP inventory balance 
+was substantially higher than the expected $200,000 to $500,000 balance, Sport-Haley never 
+physically counted the company’s WIP inventory in fiscal 1998 and failed to take any reasonable 
+steps to verify the amount of WIP inventory during the company’s 1998 fiscal year.  LeCrone did 
+not perform, or direct others to perform, sufficient audit procedur es on Sport-Haley’s WIP 
+ 3
+                                                
+inventory.  As a result, LeCrone allowed Spor t-Haley to include materially overstated WIP 
+inventory in its 1998 financial statements.   
+ 
+3. During the audit of Sport-Haley’s financia l statements for the fiscal year ended 
+June 30, 1999, Sport-Haley informed personnel at LH&M that WIP inventory had reached 
+approximately $2.1 million.  LeCrone participated  in instituting measures that improperly 
+minimized the impact on the company’s gross ma rgin, kept the 1998 financial statements intact, 
+and ratably eliminated the overstatement during the course of the 2000 fiscal year.   
+ 
+4. With LeCrone’s participation, Sport-Haley estimated the proper amount of WIP 
+inventory as of June 30, 1999 to  be approximately $370,000, purp ortedly leaving an overstated 
+balance of approximately $1.7 million.  The company then wrote off approximately $560,000 of the 
+$1.7 million to cost of goods sold.  Sport-Haley moved the remaining $1.2 million of the overstated 
+inventory balances to a new inventory account that was to be amortized over the course of the 2000 
+fiscal year, at approximately $100,000 monthly.  These entries lacked sufficient accounting basis.  
+LeCrone, as an audit manager responsible for th e performance of parts of LHM’s audit of Sport-
+Haley’s 1999 financial statements, failed to perform sufficient audit procedures to verify how much 
+WIP inventory should be properly recorded in the company’s 1999 year-end financial statements.  
+Moreover, LeCrone was reckless in not knowing that the WIP inventory adjustments made by 
+Sport-Haley were not in accordance with gene rally accepted accounting principles and were 
+misleading. 
+ 
+5. Sport-Haley did not disclose the WIP i nventory error or explain the company’s 
+measures to adjust the financial statements for the WIP inventory error in its 1999 Form 10-K or 
+Forms 10-Q for the company’s first three quarters of its 2000 fiscal year.2  Even though LeCrone 
+should have known of the overstated WIP inventor y account balance at the end of fiscal 1999, 
+LHM issued an audit report containing an unqua lified opinion on Sport- Haley’s fiscal 1999 
+financial statements.  LeCrone also failed to notify Sport-Haley’s aud it committee that Sport-
+Haley’s 1999 financial statements and quarterly report for the first quarter of its 2000 fiscal year 
+were materially misstated.  As a result of the company’s improper accounting for the WIP 
+inventory error, Sport-Haley filed its Form 10-K for the fiscal year ended June 30, 1999, including 
+financial statements that, as a result of the accounting involving the WIP inventory, materially 
+overstated finished goods inventory by over $1.2 million or 10 percent of total inventory. 
+ 
+ Improper Accounting for Period Costs 
+ 
+6. Prior to July 1, 1997, Sport-Haley began materially understating expenses related to 
+product design, tradeshows, logo disks, property taxes and advertising by improperly deferring 
+these costs as prepaid and fixed assets.  Howeve r, Sport-Haley’s capitalization of several prepaid 
+and fixed assets was not in accordance with generally accepted accounting principles.  As an in-
+charge staff accountant for the fiscal 1998 audit a nd an audit manager for the fiscal 1999 audit, 
+LeCrone was responsible for the audit procedures and reviewing workpapers relating to Sport-
+ 
+2   LeCrone resigned from LHM in November 1999 and had no involvement with Sport-Haley’s 
+second or third fiscal quarter Forms 10-Q.  
+ 4
+Haley’s period costs.  However, LHM’s audit workpapers contained insufficient accounting basis 
+for Sport-Haley’s treatment of period costs, and LeCrone failed adequately to review the fiscal 
+1999 audit workpapers relating to period costs.  Moreover, during the 1999 audit, LeCrone failed 
+to ensure that all work performed by junior personnel regarding many of the period costs was 
+reviewed adequately and complied with generally accepted auditing standards.  LeCrone allowed 
+Sport-Haley to improperly capitalize period costs and caused Sport-Haley materially to overstate 
+its income by $164,000 or four percent of pretax income in its 1998 Form 10-K for the fiscal year 
+ended June 30, 1998, and $159,000 or 11.5 percent in its 1999 Form 10-K for the fiscal year ended 
+June 30, 1999. 
+ 
+ Improper Accounting for Discontinued Headwear Operations 
+ 
+7. In a May 28, 1999 press release, Sport-Haley announced it was discontinuing its 
+headwear product line at the end of its 1999 fiscal year and that the sale of headwear equipment 
+from the discontinued operations would result in an estimated $160,000 loss.  After issuing the 
+May 1999 press release, Sport-Haley revised the estimated loss on disposal of headwear equipment 
+to $298,000 and recorded the loss in its books.   Before the audit fieldwork was completed, the 
+company reversed $206,000 of the loss without sufficient accounting support.   
+ 
+8. LeCrone, who reviewed audit procedures on Sport-Haley’s discontinued headwear 
+operations, failed to perform or direct others to perform sufficient procedures to substantiate the 
+estimated loss on disposal of headwear equipment.  Although LeCrone had sufficient information 
+to know Sport-Haley anticipated significantly larger losses, he allowed Sport-Haley to record only 
+$92,000 loss related to the headwear equipment in its 1999 Form 10-K filed with the Commission.  
+By failing to recognize the estimated loss on disposal  of headwear equipment in conformity with 
+generally accepted accounting principles, Sport-Haley understated its 1999 pretax loss on disposal 
+of assets by $206,000 or 69.1 percent of pretax loss. 
+ 
+ Post-Audit Supplementation of Work Papers  
+ 
+9. On November 13, 200 0, the Commission staff sent a letter to LHM requesting that 
+it produce documents related to LHM’s audits of  Sport-Haley.  At the time, LHM was in the 
+process of conducting an intern al review of the fiscal 1999 Sport-Haley audit workpapers 
+(“November 2000 review”).  Although LeCrone had resigned from LHM twelve months 
+previously, he agreed to assist LHM in re sponding to review comments developed by LHM 
+personnel in connection with the November 2000 review.  LeCrone participated in adding 
+explanatory language and analytical information to LHM’s workpapers, most of which were dated 
+as of the dates LeCrone made the addition in  November 2000, concerni ng the accounting areas 
+Sport-Haley restated including WIP inventory, discontinued operations, and prepaid expenses.   
+ 5
+ 
+C. Violations  
+ 
+10. Section 17(a) of the Securities Act makes it unlawful to employ any device, 
+scheme, or artifice to defraud in the offer or sale of any securities.  Section 10(b) of the Exchange 
+Act and Rule 10b-5 thereunder prohibit a person, in  connection with the pur chase 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 lig ht of the circumstances under which they were 
+made, not misleading.  To establish violations of Section 17(a)(1) of the Securities Act and 
+Section 10(b) of the Exchange Act and Rule 1 0b-5 thereunder (“the antifraud provisions”), 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).  Scienter  may be established by 
+reckless conduct.  Hackbart v. Holmes, 675 F.2d 1114, 1117 (10th Cir. 1982); Anixter v. Home-
+Stake Production, 77 F.3d 1215, 1225-1227 (10 th Cir. 1996) (violation of antifraud provisions to 
+prepare and certify financial statements auditor knows or is reckless in not knowing, are false).   
+ 
+11. As a result of actions taken by LeCrone, as described above, in connection with the 
+audits of Sport-Haley’s financial statements for the 1998 and 1999 fi scal years, LeCrone 
+participated in causing Sport-Haley to file quarterly and annual reports with the Commission that 
+materially misstated and misrepresented Spor t-Haley’s financial condition and results of 
+operations.  By his conduct described above, LeCrone committed and caused violations of Section 
+17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  
+ 
+12. Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 thereunder require 
+issuers with securities registered under the Securities 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).  In add ition, Rule 12b-20 requires that 
+reports contain such further material informat ion as may be necessary to make the required 
+statements, in light of the circumstances unde r which they were made , not misleading.  No 
+showing of scienter is required to establish a violation of these provisions.  Savoy Indus., 587 F.2d 
+at 1167.   
+ 
+13. As discussed above, in connection with LHM’s audits of Sport-Haley’s financial 
+statements for the 1998 and 1999 fiscal years, Sport-Haley filed, and LeCrone caused Sport-Haley 
+to file, annual and quarterly reports with the Commission that misrepresented the financial results of 
+Sport-Haley, materially misstating income, WIP inventory, period costs, and discontinued headwear 
+operations.  By his conduct described above, LeCrone caused Sport-Haley’s violations of Section 
+15(d) of the Exchange Act and Rules 12b-20, 15d-1 and 15d-13 thereunder. 
+ 
+ 6
+D. Findings 
+ 
+Based on the foregoing, the Commission finds that LeCrone willfully violated and caused 
+violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 
+10b-5 thereunder and that he willfully aided and abetted and caused violations of Section 15(d) of 
+the Exchange Act and Rules 12b-20, 15d-1 and 15d-13 promulgated thereunder.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in LeCrone’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. LeCrone shall cease and desist from committing or causing any violations and any 
+future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 
+10b-5 promulgated thereunder; and from causing an y violations and any future violations of 
+Section 15(d) of the Exchange Act, and Rules 12b-20, 15d-1 and 15d-13 promulgated thereunder. 
+ 
+B. LeCrone is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+ 
+C. After two years from the date of this order, LeCrone 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 stat ements that are filed with the Commission. 
+Such an application must satisfy the Commission that LeCrone’s work in his practice before 
+the Commission will be reviewed either by th e 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)   LeCrone, 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)   LeCrone, or the registered public accounting firm with 
+which he is associated, has been insp ected by the Board and that inspection 
+did not identify any criticisms of or potential defects in the Respondent’s or 
+ 7
+the firm’s quality control system that would indicate that the respondent will 
+not receive appropriate supervision;  
+(c) LeCrone has resolved all disciplinary issues with the Board, 
+and has complied with all terms and c onditions of any sanctions imposed by 
+the Board (other than reinstatement by the Commission); and 
+ 
+  (d) LeCrone acknowledges his re sponsibility, as long as he 
+appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of th e Commission and the Board, including, 
+but not limited to, all requirements re lating to registration, inspections, 
+concurring partner reviews and quality control standards.   
+    
+ D. The Commission will cons ider an application by LeCrone 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 th e applicable state boar ds of accountancy.  
+However, if state licensure is dependan t 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 th e 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. 
+ 
+ 
+ 
+       J o n a t h a n  G .  K a t z  
+       S e c r e t a r y  
\ No newline at end of file