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+              Richard M. Wooten, CPA
+           
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+        Richard M. Wooten, CPA
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+ Securities Exchange Act of 1934 
+Release No. 50966 / January 5, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2158 / January 5, 2005 
+
+ Admin. Proc. File No.  3-11788 
+
+     In the Matter of 
+ RICHARD M. WOOTEN, CPA, 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS  
+   I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that proceedings be, and hereby are, instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(3)(i) of the Commission's Rules of Practice against Richard M. Wooten ("Wooten" or "Respondent").  1   
+
+ II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings  herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III. B. below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Section 15(b) 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 Respondent's Offer, the Commission finds that:  
+ A.	 Richard M. Wooten , 45 years of age, resides in South Carolina and has been a licensed certified public accountant in South Carolina.  Wooten served as the president, chief financial officer, a director, general securities principal and FINOP for the Southern Financial Group, Inc. ("Southern"), a registered broker-dealer from March 1986 until May 2002. 
+ B.	On November 29, 2004, a final judgment was entered by consent against Wooten, permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and from aiding and abetting violations of Sections 15(c)(3) and 17(a)  of the Exchange Act and Rules 15c3-1, 17a-3, 17a-4, 17a-5 and 17a-11 thereunder , in the civil action entitled  Securities and Exchange Commission v. Southern Financial Group, Inc., Richard M. Wooten, Charles Dennis McKittrick and Gerald F.  Hunter, Jr.d , Civil Action Number 2:02-1806-18, in the United States District Court for District of South Carolina, Charleston Division. The final judgment against Wooten set disgorgement at $418,900, with prejudgment interest in the amount of $80,171, for a total of $499,071, provided that payment of disgorgement and prejudgment interest shall be waived and no civil penalties be imposed, based on the representations in his sworn financial statements 
+ C.	The Commission's complaint alleged that Southern Financial Group, Inc. ("Southern"), a broker-dealer registered with the Commission, Wooten and others, in connection with the sale of nineteen series of one-month and three-month promissory notes bearing interest at the rate of ten-percent (10%) per month, operated a Ponzi scheme, and falsely stated to investors that the notes were secured by sufficient capital to pay off the notes in the event of default, failed to disclose to investors that some of the notes were in default, omitted to disclose that the issuer of the notes was unable to make timely payments on the notes to some investors and otherwise engaged in a variety of conduct which operated as a fraud and deceit on investors in violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.   
+ D.	The Commission's complaint also alleged that Southern was required to maintain $100,000 of net capital and that from at least October 30, 2001 through May, 2002, Southern's books and financial records inaccurately reflected a cash balance in an account ranging from $226,931.80 to $240,906.80. When that amount was corrected, Southern's net capital deficiency at the ends of the months of October 2001, November 2001, January 2002, February 2002, and March 2002 ranged from ($156,815) to ($198,568).  The complaint alleged that Southern failed to promptly give notice to the Commission and others of the net capital deficiencies as required by law.  Wooten, as chief financial officer and financial principal at Southern, was responsible for Southern's books and records and signed its reports pursuant to Section 17(a) of the Exchange Act and Rule 17a-5 thereunder.  The complaint also alleged that the reports filed by Southern were inaccurate in that they misrepresented Southern's cash position and failed to include certain liabilities. The complaint also alleged that Wooten directed the firm to continue to transact business while he knew it was below the required net capital. As a result of this conduct, the complaint alleged that Wooten had aided and abetted violations of Sections 15(c)(3) and 17(a) of the Exchange Act and Rules 15c3-1, 17a-3, 17a-4, 17a-5 and 17a-11 thereunder. 
+
+
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Wooten's Offer. 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ A.	Pursuant to Section 15(b)(6) of the Exchange Act, Respondent Wooten be, and hereby is, barred from association with any broker or dealer; 
+ B.	Wooten is suspended from appearing or practicing before the Commission as an accountant.   
+ C.	Any reapplication for association by the Respondent will be subject to the applicable laws and regulations governing the reentry process, and reentry may be conditioned upon a number of factors, including, but not limited to, the satisfaction of any or all of the following:  (a) any disgorgement ordered against the Respondent, whether or not the Commission has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the conduct that served as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a customer, whether or not related to the conduct that served as the basis for the Commission order; and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct that served as the basis for the Commission order. 
+
+
+
+ By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+  Endnotes   
+   1   Rule 102(e)(3)(i)(A) 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. 
+
+   
+See also the  Order in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2159.txt b/raw/aaer/2005/AAER-2159.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ca4ae7ccc9100c953a4a26399c27403d190c47fc
--- /dev/null
+++ b/raw/aaer/2005/AAER-2159.txt
@@ -0,0 +1,1374 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
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+     SEC.gov | Monsanto Company 
+     
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+              Monsanto Company
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19023 / January 6, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2159 / January 6, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. MONSANTO COMPANY,  Case No. 1:05CV00014 (U.S.D.C., D.D.C) (filed January 6, 2005) 
+
+ SEC SUES MONSANTO COMPANY FOR PAYING A BRIBE 
+
+ MONSANTO SETTLES ACTION AND AGREES TO PAY A $500,000 PENALTY 
+
+ MONSANTO ALSO ENTERS INTO DEFERRED PROSECUTION AGREEMENT WITH DEPARTMENT OF JUSTICE 
+
+ On January 6, 2005, the Commission filed two settled enforcement proceedings charging Monsanto Company, a global producer of technology-based solutions and agricultural products headquartered in St. Louis, Missouri, with making illicit payments in violation of the Foreign Corrupt Practices Act ("FCPA").  First, the Commission filed a lawsuit in the United States District Court for the District of Columbia charging Monsanto with violating the FCPA and seeking a civil penalty.  Second, the Commission issued an administrative order finding that Monsanto violated the anti-bribery, books-and-records, and internal-controls provisions of the FCPA, ordering Monsanto to cease and desist from such violations, and requiring Monsanto to retain an independent consultant to review and make recommendations concerning the company's FCPA compliance policies and procedures.  Without admitting or denying the Commission's charges, Monsanto consented to the entry of a final judgment in the federal lawsuit requiring it to pay a $500,000 civil penalty and consented to the Commission's issuance of its administrative order. 
+ In both its federal court complaint and its administrative order, the Commission charged that, in 2002, a senior Monsanto manager, based in the United States, 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.  The Commission further charged that the senior Monsanto manager devised a scheme whereby false invoices were submitted to Monsanto and the senior Monsanto manager approved the invoices for payment.  
+ In addition, the Commission charged that, 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 at least 140 current and former Indonesian government officials and their family members.  The approximate $700,000 was derived from a bogus product registration scheme undertaken by two Indonesian entities owned or controlled by Monsanto.  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 Commission further charged that, in certain instances, entries were made in the books and records of the two Indonesian entities that concealed the source, use and true nature of these payments.   
+ As a result of the conduct described above, the Commission charged that Monsanto violated the anti-bribery provisions of the FCPA (Section 30A of the Securities Exchange Act of 1934).  The Commission further charged that Monsanto violated Section 13(b)(2)(A) of the Exchange Act, which requires reporting companies to make and keep books, records, and accounts, which accurately and fairly reflect their transactions and disposition of their assets.  The Commission further charged that 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 properly recorded.  The Commission further charged that 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).  Finally, the Commission charged that 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). 
+ In determining to accept Monsanto's settlement offer, the Commission considered the cooperation that Monsanto provided the Commission staff during its investigation. 
+ In a related proceeding, the United States Department of Justice has entered into an agreement with Monsanto Company to defer prosecution on charges of violating the anti-bribery and books and records provisions of the FCPA. Under the Agreement, the Justice Department has filed a criminal information charging the company; Monsanto will pay a $1 million monetary penalty; and Monsanto will retain for a period of three years an independent compliance expert to audit the company's compliance program and monitor its implementation of and compliance with new internal policies and procedures. 
+ The Commission acknowledges the assistance of the Department of Justice in its investigation, which is continuing. 
+
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diff --git a/raw/aaer/2005/AAER-2161.txt b/raw/aaer/2005/AAER-2161.txt
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index 0000000000000000000000000000000000000000..dcb126b3a4052fb335f53f8af7617fd166823972
--- /dev/null
+++ b/raw/aaer/2005/AAER-2161.txt
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+ Securities Exchange Act of 1934 
+Release No. 50987 / January 6, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2161 / January 6, 2005 
+
+ Admin. Proc. File No.  3-11791 
+
+     In the Matter of 
+ BroadVision, Inc., 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER  
+   I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against BroadVision, Inc. ("Respondent" or "BroadVision"). 
+ 
+ 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 Respondent admits, Respondent consents to the issuance of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order ("Order"). 
+
+ III. 
+ On the basis of this Order and Respondent's Offer, the Commission finds that:  1    
+
+ A.	Respondent  
+ BroadVision, Inc. is a Delaware corporation with its headquarters in Redwood City, California.  Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and is traded on the NASDAQ National Market under the symbol BVSN.  BroadVision develops and sells business software applications. 
+
+ B.	Other Relevant Party  
+  Nancy Gazzigli , age 52, is a resident of Redding, California and was Executive Vice-president and General Manager of Worldwide Products and Services at BroadVision from September 1999 to January 2002.   
+ 
+ C.	Facts  
+
+	 1.	Summary 
+ This matter involves improper revenue recognition by BroadVision during the third quarter of 2001, arising out of a sale of bundled software and engineering services to a large national retail chain store (the "Customer").  Nancy Gazzigli, a former Executive Vice-president and General Manager of Worldwide Products and Services at BroadVision, was responsible for the improper accounting.  She provided the company's accountants with false information about the transaction and later submitted altered or forged documents to the company's auditors to cover up the misrepresentations that she had made.  As a result, BroadVision improperly recognized $3.75 million of revenue from the transaction, overstating its quarterly software license revenue by 23.5% and its total revenue by 7.9%.  In April 2002, BroadVision discovered Gazzigli's misconduct and issued a press release announcing that the company was restating its third quarter 2001 financial results.  The following day, BroadVision's share price declined nearly 15%. 
+	 2.	BroadVision Sells Bundled Software and Services 
+ In 2000, BroadVision began efforts to sell its application software to its Customer.  As part of the negotiations, the Customer requested that BroadVision provide on-site engineering support, and BroadVision agreed to do so.  At BroadVision's request, the parties split the transaction into two contracts and assigned the majority of the purchase price to the licenses.  On December 29, 2000, BroadVision and the Customer signed the first agreement, called the Software License and Services Agreement ("SLSA"), pursuant to which the Customer agreed to pay $4 million for two four-year software licenses and an annual maintenance fee of $720,000 per year for four years.  The SLSA also included an option for the Customer to acquire additional software from BroadVision.  Subsequently, on March 29, 2001, BroadVision and the Customer signed the second agreement, called the Statement of Work ("SOW"), which required BroadVision to have two of its engineers work on-site at its Customer's headquarters for four years, at a total price of $420,000 ($280,000 for the first year, $140,000 for the second year and nothing thereafter). 
+ On April 3, 2001, BroadVision was paid $5.33 million pursuant to the SLSA and the SOW.  The payment consisted of $4 million for the licenses, $720,000 for the first year's maintenance fee, $280,000 for the first payment under the SOW, and $330,000 in taxes.  Nancy Gazzigli was the senior BroadVision officer responsible for managing the business relationship with this Customer, and she led the negotiations on behalf of the company. 
+
+	 3. 	Accounting Rules for Bundled Software and Services 
+ Revenue recognition for software and related services is governed by Statement of Position ("SOP") 97-2,  Software Revenue Recognition  (October 1997).  Generally, license revenue is recognized on delivery, while customer support and consulting revenue is recognized as the services are performed.  When a single transaction involves both licensing and services, the two elements must be examined separately to determine the amount of revenue allocable to each, based on vendor-specific objective evidence of fair value ("VSOE").  VSOE is determined by the amount that a company typically charges for a license or service, rather than the price stated in any particular contract. 
+ In addition, in a transaction that includes both licenses and services, license revenue may be recognized on delivery only if the sale of the license is separable from the sale of services, and the price of the services is deducted from the amount of the contract.  If the sale of the software license and services are inseparable, license revenue cannot be recognized upon delivery.  Instead, contract accounting applies, which typically requires the recognition of revenue ratably over the term of the contract.  See SOP 97-2, ¶¶ 7, 13, 31 and 65. 
+
+	 4. 	To Address Concerns Raised by the Auditors, Gazzigli Provides BroadVision's Finance Department with Phony Change Orders 
+ After the agreements with the Customer were signed, BroadVision's external auditors, Arthur Andersen, questioned the company's ability to recognize any of the revenue from the transaction.  The auditors had indications that the SLSA and the SOW were not separable and, because the on-site support was a new service, evidence of its value was lacking.  In addition, the auditors did not believe they had sufficient information concerning the pricing of the option for future software that was included in the SLSA.  These issues prevented BroadVision from recognizing any of the revenue from the transaction in the first quarter of 2001. 
+ During April 2001, Gazzigli concocted a scheme to have the license revenue from this transaction booked improperly.  She sent three phony change orders relating to the SOW to the company's finance department, pursuant to which the Customer purportedly agreed to pay an extra $3.55 million for the two BroadVision engineers and certain additional consulting services. 
+ However, Gazzigli's scheme did not work as planned because the revenue from the transaction could not be recognized until BroadVision received purchase orders from its Customer.  When the purchase orders did not arrive in the normal course of business, the finance department contacted several lower level employees who were working on this transaction with the Customer to request their help in obtaining the necessary documentation.  After that proved to be unsuccessful, the finance department asked Gazzigli to get the purchase orders from the Customer.  Apparently realizing that her scheme had failed, and that it would be exposed if she had to contact the Customer to request purchase orders for the fabricated change orders, Gazzigli told other BroadVision employees that the Customer had cancelled the SOW and the change orders because it had lost funding for them. 
+
+	 5. 	Gazzigli Provides Forged Documentation to Arthur Andersen to Support Revenue Recognition 
+ By the end of September 2001, BroadVision had established a price list for the licenses optioned to the Customer in the SLSA.  This was sufficient to satisfy Arthur Andersen as to this aspect of the revenue recognition issue, leaving the cancellation of the SOW as the only issue to be resolved. 
+ On September 21, Gazzigli was asked to provide written proof that the Customer had cancelled the SOW.  She responded by forwarding an internal e-mail that she had purportedly written on March 21, 2001, which indicated that the agreement was being canceled by the Customer due to budget issues.  When this was rejected by the auditors (because it did not come from the Customer), Gazzigli submitted a copy of an e-mail that she claimed she received from an employee of the Customer, which stated: 
+	 My best recollection is that effective March 21, 2001 [the SOW and the three change orders] were canceled and no work has been expected to be performed by BroadVision with respect to these documents after that date.   
+ Arthur Andersen rejected this, too, because it was too indefinite.  Thereafter, on September 28, Gazzigli obtained a blank fax coversheet on the Customer's letterhead from one of the BroadVision employees who was working on-site at the Customer's headquarters.  Several hours later, the BroadVision's finance department received a fax purportedly signed by an employee of the Customer, which contained cancellation language that had been approved by the auditors.  2     After the document was forwarded to Arthur Andersen, the firm withdrew its objection and BroadVision recognized $4 million of license revenue for the September 2001 quarter. 
+
+	 6. 	BroadVision Discovers Gazzigli's Misconduct and Restates its Third Quarter 2001 Financial Results 
+ Shortly after Gazzigli left BroadVision in January 2002, the Customer requested that the company issue an invoice for the 2002 maintenance fee of $720,000 under the SLSA and the remaining payment of $140,000 for the two engineers under the SOW.  On February 20, a BroadVision finance department employee told the on-site BroadVision personnel that she understood that the Customer had canceled the SOW and the change orders in September 2001.  On February 21, one of the on-site employees responded that neither he nor the service manager and account team assigned to the Customer "were notified by [the Customer] that the SOW had been cancelled.  So this comes somewhat as a surprise to me.  In fact, [the Customer] is the one asking to be invoiced for the services that we are continuing to provide under the SOW." 
+ This exchange led to an internal investigation by BroadVision's outside counsel and Arthur Andersen.  After completing the investigation, Arthur Andersen determined that BroadVision should not have recognized all of the software license revenue from this transaction in the third quarter of 2001.  Accordingly, on April 1, 2002, BroadVision restated its financial results for the third quarter and filed an amended Form 10-Q with the Commission.  The restatement reduced BroadVision's revenue for the third quarter of 2001 by approximately $3.5 million.  3     When the restatement was publicly announced, BroadVision's share price declined nearly 15%. 
+
+ IV. 
+
+ LEGAL DISCUSSION 
+ A.	Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder 
+ Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraudulent conduct in connection with the purchase or sale of securities.  Violations of Section 10(b) and Rule 10b-5 occur when an issuer makes material misstatements or omits material information in periodic reports filed with the Commission, including financial statements, and trading thereafter occurs in the issuer's securities.   SEC v. Texas Gulf Sulphur , 401 F.2d 833, 860-862 (2d Cir. 1968),  cert. denied , 394 U.S. 976 (1969);  SEC v. Great American Indus. , 407 F.2d 453 (2d Cir.),  cert. denied , 395 U.S. 920 (1968).  A fact is material if there is a "substantial likelihood that the . . . fact would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available."   TSC Indus. v. Northway, Inc. , 426 U.S. 438, 449 (1976).  Information regarding the financial condition of a company is presumptively material.   SEC v. Blavin , 760 F.2d 706, 711 (6th Cir. 1985).  Evidence of scienter - an intent to deceive or defraud - is required to establish a violation of Section 10(b) and Rule 10b-5.   Aaron v. SEC , 446 U.S. 680, 691 (1980).  That showing can be satisfied by evidence of reckless behavior by the person charged.  Rolf v. Blyth Eastman Dillon & Co., 570 F.2d 38, 44 (2d Cir. 1978),  cert. denied , 439 U.S. 1039 (1978). 
+ BroadVision violated these antifraud provisions because Gazzigli knowingly engaged in misconduct that resulted in the company improperly recording revenue from the sale to the Customer in the third quarter of 2001.  As a result, the company issued a materially false and misleading quarterly earnings press release and filed a materially false and misleading Form 10-Q with the Commission. 
+ B.	Violations of the Reporting, Books and Records, and Internal Controls Provisions of the Exchange Act 
+ 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 the obligation to file such reports includes the requirement that they be true and correct.  Rule 12b 20 further requires that such reports contain any additional information necessary to ensure that the required statements in the reports are not, under the circumstances, materially misleading.  Financial statements in Commission filings that do not comply with GAAP are presumed to be misleading.  Regulation S-X, 17 C.F.R. § 210.4 01(a)(1). 
+ Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and keep books, records, and accounts that accurately and fairly reflect their transactions and the dispositions of their assets.  Section 13(b)(2)(B) of the Exchange Act requires such registrants to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain the accountability of assets.  No showing of scienter is required to violate Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.   See, e.g., SEC v. Savoy Indus., Inc. , 587 F.2d 1149, 1165 (D.C. Cir. 1978),  cert. denied , 440 U.S. 913 (1979);  SEC v. World-Wide Coin Invs., Ltd. , 567 F. Supp. 747, 749-50 (N.D. Ga. 1983). 
+ As described above, BroadVision filed a quarterly report with the Commission that materially overstated its revenue.  The company improperly recorded approximately $3.75 million of revenue on its books in the third quarter of 2001, and thus failed to keep accurate books and records as required.  In addition, BroadVision lacked sufficient internal accounting controls with respect to the processing of change orders and cancellation of statements of work.  In each instance, BroadVision did not require original documentation and therefore Gazzigli succeeded in submitting fraudulent documents to BroadVision's finance department.  As a result, BroadVision violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. 
+
+ V. 
+ As a result of the conduct described above, the Commission finds that BroadVision violated Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-13 thereunder. 
+
+ VI. 
+ Accordingly, it is hereby ORDERED, pursuant to Section 21C of the Exchange Act, that BroadVision cease and desist from committing or causing any violations and any future violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-13 thereunder. 
+
+
+
+
+ By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+  Endnotes   
+   1   The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.    
+   2   The signature on the document was forged by Gazzigli.  The Customer was not aware of her scheme, and none of its employees was involved in the misconduct. 
+   3   In the restatement, BroadVision determined to recognize the license revenue ratably, over the sixteen quarters of the agreement, at a rate of $250,000 per quarter.  In restating revenue for the third quarter of 2001, BroadVision recognized $750,000 of license revenue from the transaction.  Of this amount, $500,000 was attributable to the first and second quarters of 2001. 
+
+   
+See also the  Order in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2162.txt b/raw/aaer/2005/AAER-2162.txt
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+              BroadVision, Inc.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19025 / January 6, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2162 / January 6, 2005 
+
+  Securities and Exchange Commission v. Nancy R. Gazzigli,  United States District Court for the District of Columbia, Civil Action No. 1:05CV00013 
+
+ SEC CHARGES FORMER EXECUTIVE VICE PRESIDENT OF BROADVISION, INC. WITH ACCOUNTING FRAUD  
+
+ The Securities and Exchange Commission today announced the filing of a complaint in the United States District Court for the District of Columbia alleging that Nancy R. Gazzigli, age 52, of Redding, California, committed accounting fraud by engaging in misconduct that led BroadVision, Inc. to improperly recognize $3.75 million of software license revenue during September 2001.  At the time, Gazzigli was the company's Executive Vice President and General Manager of Worldwide Products and Services. 
+ The complaint alleges that BroadVision entered into a contract to sell software licenses and related engineering and consulting services to a large retail chain.  According to the complaint, in order to circumvent accounting rules that prohibited immediate recognition of the full contract amount, Gazzigli falsely informed BroadVision's accountants that part of the agreement had been cancelled; she subsequently provided forged documents to the company's auditors to cover up the misrepresentations that she had made.  As a result of Gazzigli's misconduct, BroadVision improperly recognized $3.75 million of revenue from the transaction, overstating its third quarter 2001 software license revenue by 23.5% and its total revenue by 7.9%.  Thereafter, BroadVision issued an earnings press release and filed a quarterly report with the Commission, both of which were materially false and misleading. 
+ Without admitting or denying the allegations in the complaint, Gazzigli consented to the entry of a final judgment that permanently enjoins her from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting 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.  She also agreed to be permanently barred from serving as an officer or director of a public company and to pay a $40,000 civil penalty. 
+ In a related enforcement action announced today, the Commission instituted a settled cease-and-desist proceeding against BroadVision.  The company consented to the entry of the order instituting proceedings without admitting or denying the findings therein, including findings that BroadVision issued a false and misleading earnings press release and filed a false and misleading quarterly report with the Commission, as a result of the conduct described above.  The Order requires BroadVision to cease and desist from committing or causing violations of the antifraud provisions of the federal securities laws, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well as the reporting, books and records, and internal controls provisions, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.  (Rel. No. 34-50987; File No. 3-11791). 
+
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diff --git a/raw/aaer/2005/AAER-2165.txt b/raw/aaer/2005/AAER-2165.txt
new file mode 100644
index 0000000000000000000000000000000000000000..bd0992bcb6b7424135d6c1ee71789db130d76949
--- /dev/null
+++ b/raw/aaer/2005/AAER-2165.txt
@@ -0,0 +1,1377 @@
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+        Charles Johnson, Jr., Chris Benyo, Michael Kennedy, John Tuli, and Kent Wakeford
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19029 / January 10, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2165 /  January 10, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. CHARLES JOHNSON, JR., CHRIS BENYO, MICHAEL KENNEDY, JOHN TULI, AND KENT WAKEFORD,  Civil Action No. 1:05 CV-0036-GK (D.D.C.)  
+
+ COMMISSION CHARGES THREE FORMER PURCHASEPRO EXECUTIVES, INCLUDING FORMER CEO CHARLES JOHNSON, JR., AND TWO FORMER AOL EXECUTIVES IN A FRAUDULENT SCHEME TO INFLATE PURCHASEPRO'S REVENUES 
+
+ ALL FIVE EXECUTIVES CRIMINALLY CHARGED WITH SECURITIES FRAUD BY UNITED STATES ATTORNEY'S OFFICE FOR THE EASTERN DISTRICT OF VIRGINIA 
+
+ The Securities and Exchange Commission today submitted a civil complaint for filing in the United States District Court for the District of Columbia against PurchasePro's founder and former Chief Executive Officer, Charles Johnson, Jr., two other former executives of PurchasePro.com Inc. ("PurchasePro") - Chris Benyo and Michael Kennedy - and two former executive-level employees of America Online, Inc. ("AOL") - John Tuli and Kent Wakeford - for violations of the antifraud, books-and-records, internal accounting controls, periodic reporting and lying-to-auditors provisions of the federal securities laws.   According to the complaint, the defendants participated in a fraudulent scheme to artificially inflate the reported and announced revenues of PurchasePro for the fourth quarter of 2000 ("Q4 2000") and first quarter of 2001 ("Q1 2001").  PurchasePro, a Las Vegas-based Internet company, is now known as Pro-After, Inc.   
+ The Commission's complaint alleges that, beginning in Q4 2000 and continuing through April 2001, each defendant took knowing and deliberate steps designed to inflate PurchasePro's revenues in contravention of generally accepted accounting principles ("GAAP").  In particular, the complaint alleges that, Johnson: (i) fraudulently directed PurchasePro to issue $30 million in unearned performance warrants to AOL at the close of Q4 2000 in exchange for AOL's undisclosed promise to deliver revenue to PurchasePro in future quarters; (ii) entered into, and concealed the existence of, reciprocal contingent agreements that rendered it improper to recognize $3.92 million in revenue from three marketplace license sales to PurchasePro customers in Q4 2000; (iii) backdated or otherwise concealed the execution time of three contracts signed in Q2 2000 in order to improperly recognize $14.7 million in revenue from those agreements in Q1 2001; (iv) entered into, and concealed the existence of, reciprocal contingent agreements that rendered it improper to recognize $4.4 million in revenue from three marketplace license sales to PurchasePro customers in Q1 2001; and (v) created or caused the creation of an entirely fraudulent contract purportedly entered into with AOL (called a "Statement of Work"), thereby causing PurchasePro to improperly recognize an additional $3.65 million in Q1 2001 revenue.   
+ The complaint further alleges that Benyo, PurchasePro's Senior Vice President for Marketing and Network Development, along with Kennedy, PurchasePro's Chief Technology Officer, also took steps to make it falsely appear that the Statement of Work agreement was executed during Q1 2001 when they knew, or were reckless in not knowing, that (i) revenue from the Statement of Work could not be properly recognized in Q1 2001 unless the contract had been signed and performance completed before the end of that quarter; (ii) that the Statement of Work had, in fact, been neither signed nor completed by the end of Q1 2001; and (iii) that PurchasePro nonetheless was going to include revenues from that contract in its Q1 2001 results. 
+ Additionally, according to the complaint, Wakeford: (i) fabricated documents to create the false impression that PurchasePro received far more in referred third party business from AOL than it actually had, thereby causing PurchasePro to improperly issue $30 million in PurchasePro warrants to AOL that AOL had not actually earned; (ii) proposed the false Statement of Work contract to help inflate PurchasePro's Q1 2001 revenues; and (iii) took steps to backdate or otherwise make it falsely appear that a $3.7 million marketplace license sale agreement was executed within Q1 2001, when in fact the contract was not executed during that quarter.  The complaint further alleges that Tuli, AOL's Vice-President of Business Development for NetScape, repeatedly confirmed (or caused others to confirm) to PurchasePro's auditors that the services described in the Statement of Work had been completed and accepted by AOL by the close of Q1 2001 - even though Tuli knew, or was reckless in not knowing, that those confirmations were false.   
+ The complaint alleges that as a result of the foregoing conduct, PurchasePro's annual report on Form 10-K for fiscal year 2000 and quarterly report for Q1 2001 on Form 10-Q - as well as the company's public earnings announcements - contained material misstatements and omissions.  As alleged in the complaint, PurchasePro's announced and reported revenues for Q4 2000 were artificially and materially overstated by over 11% .  The complaint also alleges that the company issued a public earnings announcement for Q1 2001 that overstated revenues by 65% and subsequently filed a Form 10-Q for that quarter with the Commission that reported revenues that were artificially and materially inflated by 37%.   
+
+ In addition, the complaint alleges that Johnson attempted to conceal his fraudulent conduct by destroying, or directing others to destroy, all documents pertaining to PurchasePro's dealings with AOL.    
+ Based on these allegations, the Commission charged: (i) Johnson with violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (the "Exchange Act") and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2, and with aiding and abetting PurchasePro's violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 12b-20, 13a-1 and 13a-13 thereunder; (ii) Benyo with violating Exchange Act Section 13(b)(5) and Exchange Act Rules 13b2-1 and 13b2-2, and with aiding and abetting PurchasePro's violations of Exchange Act Sections 10(b), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rule 10b-5; (iii) Kennedy with aiding and abetting PurchasePro's violations of Exchange Act Sections 10(b), 13(b)(5), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2; (iv) Tuli with aiding and abetting of PurchasePro's violations of Exchange Act Sections 10(b), 13(b)(5), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2; and (v) Wakeford with aiding and abetting of PurchasePro's violations of Exchange Act Sections 10(b), 13(a), 13(b)(5), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2.   
+ The Commission seeks: (i) an injunction and civil penalty as to each defendant; (ii) disgorgement of all ill-gotten gains, with prejudgment interest thereon, as to Johnson, Benyo and Kennedy; and (iii) an order barring Johnson, Benyo, Kennedy, and Wakeford from acting as officers or directors of any public company.  
+ Also today, in a related criminal proceeding, the United States Attorneys' office for the Eastern District of Virginia announced that each of these defendants has been indicted on criminal charges, including securities fraud and conspiracy to commit securities fraud, arising from the same facts and circumstances as those alleged in the Commission's complaint.   
+ The Commission acknowledges the assistance of the United States Department of Justice, the United States Attorney's Office for the Eastern District of Virginia, and the Federal Bureau of Investigation in the investigation of this matter.  
+
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2170.txt b/raw/aaer/2005/AAER-2170.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f2a767f697225fd2549aef47b3f2b5f45d146015
--- /dev/null
+++ b/raw/aaer/2005/AAER-2170.txt
@@ -0,0 +1,1472 @@
+
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+              Martin Julien Marks, CPA
+           
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+        Martin Julien Marks, CPA
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+ Securities Exchange Act of 1934 
+Release No. 51057 / January 19, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2170 / January 19, 2005 
+
+ Admin. Proc. File No.  3-11797 
+
+     In the Matter of 
+ Martin Julien Marks, CPA, 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS  
+   I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Martin Julien Marks ("Marks" or "Respondent") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.  1   
+	
+ II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below. 
+
+ III. 
+ On the basis of this Order and Respondent's Offer, the Commission finds that: 
+ 1.	Marks, age 55, was a certified public accountant licensed to practice in the State of Oregon before his license lapsed in 1985.  He served as Chief Financial Officer of Cutter & Buck Inc. ("Cutter" or the "Company") from 1991 until approximately 1997.  From 1997 through April 2002, Marks served as President and Chief Operating Officer of Cutter. 
+ 2.	Cutter is a Washington corporation headquartered in Seattle, Washington.  The Company designs and distributes upscale sportswear.  The Company's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and has been quoted on the Nasdaq Stock Market since the Company's 1995 initial public offering. 
+ 3.	On December 16, 2004, the Commission filed a complaint against Marks in  SEC v. Martin Julien Marks  (Civil Action No. 04-CV-2481 Z).  On January 10, 2005, the court entered an order permanently enjoining Marks, 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 against 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.  Marks was also ordered to pay $45,777 in disgorgement and prejudgment interest, and prohibited from serving as an officer or director of a public company.  
+ 4.	The Commission's complaint alleged, among other things, that Marks engaged in actions that resulted in Cutter filing materially false financial statements for the fiscal years ended April 30, 2000, and April 30, 2001.  The Complaint alleged that, at the end of the 2000 fiscal year, Cutter shipped $5.7 million in products to three distributors who had no obligation to pay for the goods unless Cutter found customers for the goods, improperly recognizing revenue in violation of Generally Accepted Accounting Principles.   According to the Complaint, Marks knew or was reckless in not knowing that the distributors did not have the financial ability to pay for the products.  The Complaint further alleged that, when the distributors subsequently returned the products to Cutter, Marks asked the Company's Chief Financial Officer to record the returns in a manner that would conceal them from the Company's independent auditors.  The Complaint also alleged that Marks signed management representation letters to Cutter's independent auditors in calendar years 2000 and 2001.  According to the Complaint, these letters falsely stated, among other things, that all material transactions in fiscal years 2000 and 2001 were properly recorded in Cutter's accounting records, and that no goods had been shipped on consignment.   
+ 5.	In a parallel proceeding brought by the United States Attorney's Office for the Western District of Washington, Marks agreed to pay a $65,000 penalty in order to settle criminal charges against him.  Under the plea agreement, Marks would not be subject to further criminal sanctions. 
+
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Respondent Marks's Offer. 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ Marks is suspended from appearing or practicing before the Commission as an accountant. 
+
+
+
+ By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+  Endnotes   
+   1   Rule 102(e)(3)(i) provides, in relevant part, that: 
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder. 
+
+   
+See also the  Order in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2171.txt b/raw/aaer/2005/AAER-2171.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8ef8452c2be49627f687fd7e1685bdc031619afc
--- /dev/null
+++ b/raw/aaer/2005/AAER-2171.txt
@@ -0,0 +1,1462 @@
+
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+              Monte S. Colbert
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+        Monte S. Colbert
+       
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+
+ Securities Exchange Act of 1934 
+Release No. 51065 / January 21, 2005 
+
+ Accounting and Auditing Enforcement  
+Release No. 2171 / January 21, 2005 
+
+ Admin. Proc. File No.  3-9131 
+
+     In the Matter of 
+ Monte S. Colbert, CPA, 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER GRANTING APPLICATION FOR REINSTATEMENT TO APPEAR AND PRACTICE BEFORE THE COMMISSION AS AN ACCOUNTANT   
+   On September 30, 1996, Monte S. Colbert ("Colbert") 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 Colbert pursuant to Rule 102(e) of the Commission's Rules of Practice.  1     Colbert consented to the entry of the findings, and imposition of the remedial sanctions set forth in the September 30, 1996, order, without admitting or denying the facts, findings or conclusions. 
+ Among other employment, from 1989 until 1994, Colbert audited the financial statements of a registered broker-dealer as a sole practitioner.  Colbert's suspension relates to his improper professional conduct in auditing the 1991 through 1993 financial statements of that broker-dealer.  During the 1991 through 1993 audits Colbert was also employed by the broker-dealer as a salesperson, and thus lacked the independence required of an auditor.  Colbert did not comply with the SEC's and the AICPA's independence requirements in auditing the broker-dealer's 1991, 1992, and 1993 financial statements 
+ This order is issued in response to Colbert'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 and as an independent accountant. 
+ 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, Colbert 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.   
+ In his capacity as an independent accountant Colbert attests 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 Colbert, it appears that he has complied with the terms of the September 30, 1996 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 Colbert, by undertaking to have his work reviewed by the independent audit committee of any company for which he works, or in some other manner acceptable to the Commission, in his practice before the Commission as a preparer or reviewer of financial statements required to be filed with the Commission, and that Colbert, by undertaking to comply with all requirements of the Commission and the Public Company Accounting Oversight Board, including, but not limited to, all requirements relating to registration, inspections, concurring partner reviews and quality control standards, in his practice before the Commission as an independent accountant has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that Monte S. Colbert, CPA is hereby reinstated to appear and practice before the Commission as an accountant. 
+
+ By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+  Endnotes   
+   1    See  Accounting and Auditing Enforcement Release No. 835, dated September 30, 1996. 
+ Rule 102(e)(5)(i) provides: 
+ "An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) of this section may be made at any time, and the applicant may, in the Commission's discretion, be afforded a hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated by the Commission for good cause shown."  17 C.F.R. § 201.102(e)(5)(i). 
+
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diff --git a/raw/aaer/2005/AAER-2174.txt b/raw/aaer/2005/AAER-2174.txt
new file mode 100644
index 0000000000000000000000000000000000000000..eae4f5f51239c52134a55ec8f0880e4db1743274
--- /dev/null
+++ b/raw/aaer/2005/AAER-2174.txt
@@ -0,0 +1,1491 @@
+
+
+ 
+ 
+   
+     
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+     SEC.gov | Robert C. Guccione 
+     
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+     
+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+
+ Securities Exchange Act of 1934 
+Release No. 51073 / January 24, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2174 / January 24, 2005 
+
+ Admin. Proc. File No.  3-11800 
+
+     In the Matter of 
+ Robert C. Guccione, 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER INSTITUTING CEASE-AND-DESIST PROCEEDING, 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 a cease-and-desist proceeding be, and hereby is, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Robert C. Guccione ("Respondent" or "Guccione"). 
+ II. 
+ In anticipation of the institution of this proceeding, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of this proceeding, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceeding, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.   
+
+ III. 
+ On the basis of this Order and Respondent's Offer, the Commission finds that:  1   
+
+ Summary 
+ 1.	This proceeding arises out of Guccione's failure to establish and maintain adequate disclosure controls and procedures at Penthouse International, Inc. ("Penthouse" or the "Company") required by the certification rule adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  It also arises out of his review and approval of public filings that nonetheless falsely represented that Penthouse had adequate disclosure controls and procedures.  On May 23, 2003, Penthouse filed a quarterly report on Form 10-Q that Guccione had not seen or approved, but which nonetheless purported to bear his signature.  That quarterly report also attached a Sarbanes-Oxley certification that also, falsely, purported to bear Guccione's signature.  The quarterly report had also not been reviewed by Penthouse's auditor or counsel, and it materially overstated Penthouse's financial results for the quarter, by improperly recognizing $1 million in revenue, and thereby creating the false appearance of a profitable quarter.  Thereafter, although he was aware of the circumstances surrounding the filing of the quarterly report, Guccione approved the filing of Forms 8-K that omitted to disclose that the quarterly report had been filed without his review or approval, while, in one case, falsely assuring investors that Penthouse's disclosure controls and procedures were adequate.   
+
+ Respondent 					
+ 2. 	Robert C. Guccione, age 73, resides in New York, N.Y., and during the relevant period served as Penthouse's "principal executive officer" and "principal financial officer" within the meaning of the Sarbanes-Oxley certification rule, Exchange Act Rule 15d-14.  During the relevant period Guccione, directly and indirectly, owned and controlled approximately 85% of Penthouse's common stock, but currently owns and controls none.  Guccione resigned from his positions at Penthouse in November 2003.  
+
+ Related Entities 
+ 3. 	Penthouse International, Inc. was, at all relevant times, a public company organized under the laws of Florida, headquartered in New York, New York.  Penthouse never registered any class of securities under Section 12 of the Exchange Act and had been reporting pursuant to Section 15(d).  Its primary business was the publication of Penthouse, a men's entertainment magazine with adult content owned by a Penthouse subsidiary, General Media, Inc.   As of December 31, 2002, Penthouse had fewer than 300 record shareholders of its common stock, but continued to be quoted on the Over-the-Counter Bulletin Board under the symbol PHSL.   Its trading symbol has since changed to PHSL.PK. 
+
+ Background – Penthouse's Filing of The False Form 10-Q 
+ 4.	On April 30, 2003, Penthouse filed its first annual report on Form 10-K.  Guccione reviewed the Form 10-K and signed it before it was filed.  Attached to the Form 10-K was a Sarbanes-Oxley certification, which Guccione also signed.  In the Sarbanes-Oxley certification Guccione certified, among other things, that he was responsible for establishing and maintaining disclosure controls and procedures as defined in Exchange Act Rule 15d-14, and that he had designed such disclosure controls and procedures to ensure that material information relating to Penthouse, including its consolidated subsidiaries, was made known to Penthouse's management.  
+ 5.	On May 16, 2003, Penthouse filed a Form 12b-25, which indicated that the Company would be filing late its Form 10-Q for the quarter ended March 31, 2003.  According to that filing, the Form 10-Q was to be filed on Wednesday May 21, 2003.  Guccione signed the Form 12B-25.  
+ 6.	On May 23, 2003, Penthouse filed its Form 10-Q for the period ended March 31, 2003.   In the financial statements contained in the Form 10-Q, Penthouse improperly included as revenue $1 million received as an up-front payment in connection with a five-year website management agreement.  The $1 million revenue should not have been recognized in the quarter ended March 31, 2003 for two reasons.  First, the agreement was not actually signed until the following quarter.  Second, 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.  
+ 7.	Attached to the Form 10-Q was a Sarbanes-Oxley certification bearing the electronic signature of Guccione, as Penthouse's Principal Executive Officer and Principal Financial Officer.  The inclusion of Guccione's electronic signature created the impression that he had reviewed and approved the filing of the Form 10-Q (which also bore his electronic signature) and had signed the Sarbanes-Oxley certification.  In fact, Guccione had not reviewed or approved the filing of the Form 10-Q and had not authorized the use of his electronic signature on the Sarbanes-Oxley certification (or the Form 10-Q).  The Form 10-Q had been filed at the direction of another officer and director of Penthouse.  The Form 10-Q had also not been reviewed by Penthouse's counsel or its independent auditor prior to its filing, a fact that was not disclosed in the filing.   
+
+ Penthouse's Subsequent Filings and Guccione's Violative Conduct 
+ 8.	On May 29, 2003 Penthouse filed a current report on Form 8-K disclosing that Eisner LLP had resigned as Penthouse's auditor in a dispute over Penthouse's Form 10-Q for the quarter ended March 31, 2003.  The Form 8-K reported that Penthouse had received a letter from Eisner on May 29, 2003, in which Eisner stated that Penthouse's Form 10-Q failed to state that the financial statements contained therein were not reviewed by Eisner or by other independent certified public accountants.  In the letter, Eisner also stated that Penthouse had requested Eisner to consider the accounting treatment regarding the website management agreement, for which Eisner presented a preliminary view.  According to the letter, Penthouse accounted for this transaction in the Form 10-Q in a manner contrary to the preliminary view Eisner had expressed to Penthouse. 
+ 9.	The May 29 Form 8-K did not disclose that, contrary to the representations in the Form 10-Q, Guccione had not reviewed or signed the Form 10-Q or the attached Sarbanes-Oxley certification.  Guccione reviewed and signed the May 29 Form 8-K.  
+ 10.	After the close of business on June 13, Penthouse filed another current report on Form 8-K disclosing that certain statements in the Form 10-Q were inaccurate.  First, Penthouse noted that the Form 10-Q had stated that the website management agreement was entered into as of January 13, 2003, although the agreement in fact was not entered into until May 21, 2003, and the the website management agreement recited that it was effective as of March 31, 2003.  Second, Penthouse corrected the description of the parties to the website management agreement, and the timing and method of the $1 million payment.  Lastly, Penthouse announced its intention to file an amended Form 10-Q, and urged investors not to rely on the Form 10-Q that was already filed.   
+ 11.	The June 13 Form 8-K did not disclose that Guccione had not reviewed or signed the Form 10-Q or the Sarbanes-Oxley certification, or authorized the filing of the Form 10-Q.  This Form 8-K also affirmatively represented that Penthouse's existing disclosure controls and procedures were adequate and that the filing of the inaccurate Form 10-Q was caused by a failure to follow those procedures.  Guccione reviewed and signed this Form 8-K,  even though he knew that the Company's disclosure controls and procedures were not adequate and had permitted the filing of the Form 10-Q and accompanying Sarbanes-Oxley certification without his review or approval. 
+ 12.	On September 25, 2003, Penthouse filed an amended Form 10-Q for the quarter ended March 31, 2003.  The amended Form 10-Q disclosed that the original May 23, 2003 Form 10-Q was not reviewed, signed or approved by Guccione; that the original Form 10-Q had failed to disclose that the Company's independent auditors had not reviewed it before it was filed; and that the financial statements contained therein were inaccurate.  The amended Form 10-Q, and the Form 10-Q filed for the subsequent quarter, also stated that the Company had determined that there were significant weaknesses in its disclosure controls – a statement that contradicted the earlier assurances provided in the Company's June 13 Form 8-K. 
+
+ Violations 
+ 13.	Exchange Act Rule 15d-14 requires, among other things, that all reports of a company filed on Form 10-Q include a certification signed by that company's principal executive officer and principal financial officer stating that he or she has reviewed the report being filed, that based on his or her knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report, and that based on his or her knowledge, the financial statements and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in the report.   Rule 15d-14 also requires that a company's principal executive officer and principal financial officer certify that they are responsible for establishing and maintaining disclosure controls and procedures, have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which the periodic report is being prepared; have evaluated the effectiveness of the issuer's disclosure controls and procedures as of a date within 90 days prior to the filing date of the report; and have presented in the report their conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of that date.  As a result of the conduct described above, Guccione violated Exchange Act Rule 15d-14.  
+ 14.	Exchange Act Rule 15d-11 requires that companies file accurate current reports on Form 8-K.  Exchange Act Rule 12b-20 requires that in addition to the information expressly required to be included in a public company's statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made, not misleading.  As a result of the conduct described above, Guccione caused Penthouse to violate Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-11 thereunder.  Guccione inaccurately represented that Penthouse had adequate disclosure controls and procedures to ensure that material information was made known to him.  Guccione made this representation in the June 13 Form 8-K.  This representation was inaccurate.  The June 13 8-K, and a Form 8-K filed on May 29, 2003, also omitted to disclose that the Form 10-Q had been filed without review by Guccione, or Penthouse's outside auditor or counsel.  	 
+
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Guccione's Offer. 
+ Accordingly, it is hereby ORDERED that Respondent Guccione cease and desist from causing any violations and future violations of Section 15(d) of the Exchange Act and Rules 12b-20 and 15d-11 thereunder and committing or causing any violations and any future violations of Rule 15d-14 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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diff --git a/raw/aaer/2005/AAER-2176.txt b/raw/aaer/2005/AAER-2176.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19047 / January 21, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2176 / January 21, 2005 
+
+  SEC v. Henry C. Yuen, et al.,  Civil Action No. CV 03-4376 MRP (PLAx) (C.D. Cal.) 
+
+ FORMER GENERAL COUNSEL OF GEMSTAR-TV GUIDE INTERNATIONAL, INC. SETTLES SEC ACTION 
+
+ The Securities and Exchange Commission today announced that on January 20, 2005, Jonathan B. Orlick, the former general counsel, executive vice president, and a member of the board of directors of Gemstar-TV Guide International, Inc. was permanently enjoined by consent from violating the antifraud and other provisions of the federal securities laws and ordered to pay a total of $305,510.62 in disgorgement, interest, and penalties.  Additionally, Orlick was prohibited from serving as an officer or director of a public company for ten years.  Orlick has also agreed, in a related administrative action, to be suspended from appearing or practicing before the SEC as an attorney.  Orlick consented to the relief without admitting or denying the SEC's allegations.   
+ Gemstar is a Los Angeles-based media and technology company that, among other things, publishes TV Guide magazine and develops, licenses, and markets an interactive program guide (IPG) for televisions that enables consumers to navigate through and select television programs.  During the relevant period, Gemstar generated revenues from the IPG by licensing the technology to third parties and selling advertising on the IPG.  In statements to securities analysts and the investing public, Gemstar repeatedly touted the IPG technology and IPG advertising revenues as the company's future and as the "value driver" of the company's stock, and downplayed expected declines in revenue from TV Guide magazine. 
+ Orlick, of Chatsworth, California, served in several senior positions at Gemstar, including as general counsel.  The SEC's complaint, filed in federal court in Los Angeles, alleges that from June 1999 through September 2002, Gemstar overstated its total revenues by at least $248 million to meet its ambitious projections for revenue growth from IPG licensing and advertising.  The complaint further alleges that Orlick participated in Gemstar's fraudulent recording and disclosure of certain IPG licensing and advertising revenue.  The complaint alleges that Orlick knew, but omitted to disclose, that Gemstar was improperly recognizing and reporting material amounts of licensing revenue from two companies.  Additionally, the complaint alleges that Orlick participated in Gemstar's fraudulent recognition of this licensing revenue by repeatedly signing false management representation letters to Gemstar's auditors regarding the status of negotiations with one of the companies.  Orlick failed to disclose material information regarding certain of Gemstar's IPG revenue.  The complaint charges Orlick with securities fraud, falsifying Gemstar's books and records, aiding and abetting Gemstar's reporting and record-keeping violations, and lying to auditors in violation of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder. 
+ In addition to being enjoined from violating, or aiding and abetting violations, of the above provisions of the federal securities laws, Orlick was also ordered to pay disgorgement of $150,000, representing a portion of his bonus during the relevant period, interest of $5,510.62, and a civil penalty of $150,000.  The SEC will seek to have this money included in a fund established for harmed shareholders of Gemstar pursuant to Section 308 of the Sarbanes-Oxley Act of 2002.  Orlick was also prohibited from serving as an officer or director of a public company for ten years.  Additionally, in a related Rule 102(e) administrative proceeding, Orlick has agreed to be suspended from appearing or practicing before the SEC as an attorney. 
+
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+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2177.txt b/raw/aaer/2005/AAER-2177.txt
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@@ -0,0 +1,1468 @@
+
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+     SEC.gov | Jonathan B. Orlick, Esq. 
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+              Jonathan B. Orlick, Esq.
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+        Jonathan B. Orlick, Esq.
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+ Securities Exchange Act of 1934 
+Release No. 51081 / January 26, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2177 / January 26, 2005 
+
+ Admin. Proc. File No.  3-11801 
+
+     In the Matter of 
+ JONATHAN B. ORLICK, ESQ., 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS  
+   I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Jonathan B. Orlick ("Orlick") pursuant to Rule 102(e)(3)(i) of the Commission's Rules of Practice.    
+
+ II. 
+ In anticipation of the institution of these proceedings, Orlick has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, and the findings contained in Section III.2 below, which are admitted, Orlick 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 Orlick's Offer, the Commission finds that:  
+ 1.	Orlick is a resident of Chatsworth, California.  Orlick was employed at Gemstar-TV Guide International, Inc. and its predecessors ("Gemstar") from 1997 through 2003.  From 1997 to March 2002, Orlick served as Gemstar's Deputy General Counsel and Senior Vice President, Intellectual Property and Licensing.  Beginning in March 2001, Orlick served as a Director of Gemstar.  In March 2002, Orlick was appointed Executive Vice President, General Counsel, and Secretary of Gemstar.  From November 2002 to June 2003, Orlick served as Gemstar's President of Intellectual Property.  In June 2003, Gemstar terminated Orlick.   
+ 2.	On July 13, 2004, the Commission filed a third amended complaint ("complaint") against Orlick in  SEC v. Henry C. Yuen, et al.  (Case No. CV 03-4376 MRP (PLAx)).  On January 20, 2005, the court entered a judgment permanently enjoining Orlick, by consent, from future violations or aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder.  Orlick was also ordered to pay $150,000 in disgorgement, $5,510.62 in prejudgment interest, and a $150,000 penalty. 
+ 3.	The Commission's complaint alleged, among other things, that from March 2000 through March 2002, Orlick was involved in the recording and reporting of fraudulent revenue and made misrepresentations to Gemstar's auditors for the sole purpose of providing a basis for recording the revenue.  The complaint alleged that, based on his direct participation, Orlick knew at the time that Gemstar was improperly recording and reporting material amounts of revenue in the face of undisclosed, non-existent contracts and based on an undisclosed advertising transaction derived from a settlement agreement, all of which violated Generally Accepted Accounting Principles ("GAAP").  The complaint further alleged that Orlick's conduct resulted in Gemstar's filing materially false and misleading financial statements in its Forms 10-K for the fiscal years ended 2000 and 2001 as well as in its Forms 10-Q for the quarters ended June 30, 2001 and September 30, 2001.   
+
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction agreed to in Orlick's Offer. 
+ Accordingly, it is hereby ORDERED, effective immediately, that Orlick is suspended from appearing or practicing before the Commission as an attorney.   
+
+
+ By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+  Endnotes   
+   1   Rule 102(e)(3)(i) provides, in relevant part, that: 
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any attorney . . . 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. 
+
+   
+See also the  Order in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2184.txt b/raw/aaer/2005/AAER-2184.txt
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index 0000000000000000000000000000000000000000..2c83b4be2477b426b8cc12c0fed04476645b01ba
--- /dev/null
+++ b/raw/aaer/2005/AAER-2184.txt
@@ -0,0 +1,1463 @@
+
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+              Gary F. Pado, CPA
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+ Securities Exchange Act of 1934 
+Release No. 51191 / February 11, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2184 / February 11, 2005 
+
+ Admin. Proc. File No.  3-11820 
+
+     In the Matter of 
+ GARY F. PADO, CPA, 
+ Respondent. 
+   
+ : : : : : : :  
+  ORDER OF FORTHWITH SUSPENSION PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE  
+   I. 
+ The Securities and Exchange Commission ("Commission") deems it appropriate to issue an order of forthwith suspension against Gary F. Pado ("Respondent" or "Pado") 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.	Pado, age 41, is a resident of Sacramento, California, and acted as Chief Financial Officer of Unify Corporation ("Unify") during the relevant period.  Pado was a certified public accountant licensed by the California Board of Accountancy. 
+ 2.	Unify was, at all relevant times, a Delaware Corporation, with its principal place of business in Sacramento, California.  Unify was, and is, engaged in the business of developing, marketing, and distributing computer software.  At all relevant times, Unify's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and traded on the NASDAQ National Market. 
+ 3.	On October 27, 2004, a criminal judgment was entered against Pado for conspiracy to commit securities fraud in violation of Title 18 United States Code, Section 371 before the United States District Court for the Northern District of California, in United States v. Pado, Case No. CR-02-0135-SI.   
+ 4.	The criminal judgment was based on Pado's guilty plea to a criminal information which alleged, inter alia, that Pado defrauded investors, made false entries in Unify's books and records, made false statements to Unify's auditors, filed false statements with the Commission, and falsely inflated Unify's reported revenues in violation of Generally Accepted Accounting Principles. 
+ III. 
+ In view of the foregoing, the Commission finds that Pado has been convicted of a felony within the meaning of Rule 102(e)(2) of the Commission's Rules of Practice. 
+ Accordingly, IT IS HEREBY ORDERED, that Gary F. Pado 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:  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." 
+
+   
+See also the  Order in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2185.txt b/raw/aaer/2005/AAER-2185.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fb438ba92d3f73ea6eca077805b8fb808310db0e
--- /dev/null
+++ b/raw/aaer/2005/AAER-2185.txt
@@ -0,0 +1,1518 @@
+
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+              FFP Marketing Company, Inc., Warner Williams, and Craig Scott, CPA
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+        FFP Marketing Company, Inc., Warner Williams, and Craig Scott, CPA
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+ Securities Exchange Act of 1934 
+Release No. 51198  /  February 14, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2185  /  February 14, 2005 
+
+ Admin. Proc. File No.  3-11826 
+
+     In the Matter of 
+ FFP MARKETING COMPANY, INC., WARNER WILLIAMS, AND CRAIG SCOTT, 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 cease-and-desist proceedings be, and hereby are, instituted against FFP Marketing Company, Inc. ("FFP") and Warner Williams ("Williams"), 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 Craig Scott, CPA ("Scott"), 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, FFP, Williams and Scott (collectively "Respondents") have submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, 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:  
+
+ A.	RESPONDENTS 
+ 1.	FFP Marketing Company, Inc., a Texas corporation headquartered in Fort Worth, Texas, owns a subsidiary (FFP Operating Partners, L.P.) that operates convenience stores with gas stations in eleven states throughout the south, central and southwestern United States.  (The subsidiary operated the convenience stores from 1987 to 1998, while it was owned by FFP's predecessor.)  FFP's common stock was registered with the Commission under Section 12(b) of the Exchange Act and traded on the American Stock Exchange ("AMEX") beginning in January of 1998. On November 11, 2002, the Commission issued an order granting FFP's application, pursuant to Section 12(d) of the Exchange Act and Rule 12d2-2(d) thereunder, to withdraw from listing on the AMEX and from registration under Section 12(b) of the Exchange Act.  On November 13, 2002, FFP filed a Form 15 with the Commission to terminate its registration under Section 12(g) of the Exchange Act and to suspend its duty to file reports under Section 15(d) of the Exchange Act on the basis that it had fewer than 300 record holders of its common shares.  FFP Operating Partners, L.P. filed for bankruptcy protection on October 23, 2003. 
+ 2.	Craig Scott, age 57, is a resident of McKinney, Texas and was, until October 2003, the chief financial officer and general counsel of FFP.  In this capacity, Scott's responsibilities included the preparation of all Commission filings.  Scott is licensed to practice law in Texas.  He is also licensed as a CPA in Texas. 
+ 3.	Warner Williams, age 48, is a resident of North Richland Hills, Texas and was employed as the controller of FFP and its predecessors.  As controller, Williams supervised the entire accounting department and reported directly to Scott.  In 2002, FFP reassigned Williams to the position of President of a different wholly owned FFP subsidiary (Direct Fuels, L.P.), which was sold in 2003.  Williams is not a CPA. 
+
+ B.	FACTS
+
+	 1.	Errors in the Accounts Payable Department 
+	  In June 2002, FFP announced that it would restate its financial results for 1999, 2000 and the first three quarters of 2001.  The overstatement of net income that led to the restatement resulted from serious and persistent bookkeeping errors, and a lack of adequate supervision or written policies and procedures in FFP's accounting department.  Williams, as controller, was responsible for supervising the accounting department.     
+	 The bookkeeping errors occurred in the accounts payable section of FFP's accounting department.  When processing FFP's fuel purchases, FFP's accounts payable clerks often needed to "suspense" a transaction while researching information that was necessary for correct recording of the transaction.  For the transactions at issue in this matter, the proper suspense procedure included debiting a suspense account and crediting FFP's fuel payable account.  After researching the necessary information, the accounts payable clerks would cancel the entries to the suspense account and fuel payable account, and record the final entries for the transaction.   
+	 In mid-1999, however, the company's accounts payable clerks began deviating from the proper suspense procedure on a regular basis, by recording the debit side of the suspense entry to the company's credit card receivables account, rather than recording it to the suspense account.  The purpose of the credit card receivables account was unrelated to suspensed transactions:  it was a clearing account, for offsetting amounts that fuel vendors owed to FFP against amounts FFP owed to those fuel vendors.  (FFP purchased fuel from the vendors for resale at its gas stations, and vendors that issued credit cards, such as Texaco or Citgo, for example, owed money to FFP for purchases that customers at FFP gas stations made with the vendors' credit cards.)  Neither Scott, nor Williams, nor the accounts payable supervisor approved debiting the credit card receivables account in lieu of a suspense account, and they were not aware that the accounts payable clerks were doing it.  FFP did not have written policies or procedures for its accounting department.   
+	 When FFP's accounts payable clerks debited credit card receivables in lieu of the suspense account, they often failed to research and correctly record the transactions; and the debits to the credit card receivables account gradually accumulated from mid-1999 until late 2001, at which point the credit card receivables balance was overstated by more than $4 million.   
+	 Initially, each of the improper debits to the credit card receivables account was offset by a corresponding credit to fuel payable, so that the balances of the two accounts increased simultaneously, inflating both assets and liabilities, and not affecting the company's net assets.  Each quarter, however, the accounts payable supervisor debited fuel payable to write off aged amounts in that account.  Because the accounts payable supervisor was unaware of the clerks' aberrant suspense practices, she did not realize that some of the aged payable amounts corresponded to amounts in credit card receivables.  Consequently, when the accounts payable supervisor debited fuel payable to write off the aged amounts that resulted from the improper suspense procedure, she made an equal credit to cost of fuel sold, reducing the balance of that account.  Those entries resulted in an understatement of cost of fuel sold and a resulting overstatement of net income for 1999, 2000 and the first three quarters of 2001.   
+	  2.	Discovery and Investigation of Overstated Accounts Receivable 
+	  In December 2001, FFP's outside auditors began interim fieldwork for their audit of FFP's December 31, 2001 financial statements and noticed that credit card receivables had increased in November, even though sales and total receivables had declined.  The auditors tested the reasonableness of FFP's credit card receivables balance, concluded that it was potentially overstated, and recommended that the company perform a detailed analysis of the account prior to February 2002, when the outside auditors would return to commence audit fieldwork.   
+	 From mid-January 2002 until the end of February 2002, accounting department personnel, under Williams' direction, reviewed the credit card receivables account to determine whether the credit card receivables balance was overstated because FFP had not received proper offsets from wholesale fuel vendors.  At the conclusion of this analysis, in late February 2002, Williams determined that FFP had received the proper offsets, and therefore the problem lay elsewhere.     
+	 Williams also concluded, at the end of February 2002, that the credit card receivables account appeared to be overstated by nearly $2 million.  In order to be able to close FFP's 2001 books, Williams provisionally wrote down the balance of credit card receivables by $1.964 million at the end of February, by crediting credit card receivables and debiting motor fuel sales.  Williams notified Scott about the entry, and told Scott that he would continue his review.  At that time, Williams did not know what caused the overstatement, and did not know whether any adjustments to correct the overstatement would affect periods earlier than the fourth quarter of 2001.   
+	 At the beginning of March 2002, Williams initiated a review of the accounts payable department's entries in the credit card receivables account.  That review lasted from early March until mid-April, and led to the realization, in mid-April, that improper use of the credit card receivables account as a suspense account, coupled with quarterly write-offs of cost of fuel sold, had resulted not only in an overstatement of the credit card receivables balance, but also in an overstatement of net income that affected 1999, 2000, and the first three quarters of 2001.     
+ 	  3.	False and Misleading Forms 12b-25 
+	  As Chief Financial Officer, Scott was ultimately responsible for all of FFP's filings with the Commission.  In late March 2002, Scott realized that, because the ongoing study of the credit card receivables balance had not been completed, the company would not have audited financial statements in time to meet its Form 10-K filing deadline of April 1, 2002.  Therefore, Scott prepared, signed and filed with the Commission a Form 12b-25 on April 1, 2002 ("the April Form 12b-25").     
+	 The instructions in Form 12b-25 required Scott to state "in reasonable detail the reasons why" the company could not file its Form 10-K "within the prescribed time period."  In response, Scott stated in the April Form 12b-25:  "Certain financial and other data required to be disclosed in the Registrant's Form 10-K could not be obtained by Registrant prior to the required filing date for the report."     
+	 In the April Form 12b-25, Scott did not mention the ongoing accounting study, or the fact that the outside auditors were unable to supply an unqualified audit report because the company's credit card receivables balance appeared to be overstated by over $1.9 million.   Additionally, Scott did not attach to the April Form 12b-25 a statement from the outside auditors as to the reason for their inability to supply an unqualified audit report by the company's filing deadline (which Rule 12b-25(c) requires).   
+	 The instructions in Form 12b-25 also asked whether the company "anticipated that any 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," and Scott responded by marking the space for "yes."  The form further requested "an explanation of the anticipated change, both narratively and quantitatively."  In response, Scott stated:    
+	 The audit of the Company's book[s] and records for 2001 has not yet been completed at this date.  At the present time, the company estimates that it incurred a net loss of approximately $4,000,000 in 2001, compared to net income of $723,000 in 2000.  Principal reasons for the anticipated change in 2001, compared to 2000, include but are not limited to the following:  a decrease in gross margin on retail sales of motor fuels (primarily from increased competition and an inability of the Company to pass on increased fuel costs at its retail locations), a decrease in gross margin on sales of merchandise and a decrease in direct store expense at Company-operated stores (primarily resulting from the sale/conversion of Company-operated convenience stores to gas-only stores), an increase in general and administrative costs (primarily from additional payroll costs and legal expenses), and an increase in depreciation and amortization expense (primarily from additional amortization of loan costs).  The foregoing estimates are subject to audit adjustment. 
+	 Although the Company has recently executed two management contracts to manage approximately 120 convenience stores for third parties, the benefits of such management contracts will not begin to be realized in the financial results of the Company until 2002. 
+	 The April Form 12b-25 did not mention that approximately $1.9 million of the expected $4 million loss was due to the writedown of credit card receivables that Williams recorded at the end of February 2002.  Scott was aware of the $1.9 million writedown when he filed the April Form 12b-25, and he knew that FFP's writedown of credit card receivables accounted for $1.9 million of the anticipated $4 million loss.    
+	 AMEX suspended trading in FFP's stock on April 18, 2002, after FFP failed to file its 2001 Form 10-K by the extended deadline of April 15, 2002.  (Trading in FFP's stock did not resume on AMEX until after FFP filed its 2001 Form 10-K in June 2002.)     
+	 Scott filed another Form 12b-25 on May 15, 2002 ("the May Form 12b-25"), when the company missed the filing deadline for its Form 10-Q for the quarter ended March 31, 2002.  At that time, Scott was aware that the company would restate its financial statements for the first three quarters of 2001 and for the two prior years (although he did not know the amount of the restatement).  Scott failed, however, to disclose those facts in the May Form 12b-25.    
+	  4.	Restatement of FFP's Financial Statements 
+	  The outside auditors did not complete their audit of FFP's financial statements and agree with the final amount of the restatement until June 2002.  FFP filed its Form 10-K for 2001 and its Form 10-Q for the first quarter of 2002 on June 24, 2002, announcing a restatement of net income for 1999, 2000, and the first three quarters of 2001.  FFP shares began trading on the AMEX again after those filings.     
+	 In the restatement, the company increased its reported net loss for 1999 from approximately $800,000 to over $1.25 million; for 2000, the company had reported net income of over $700,000, but restated to show a net loss of nearly $400,000; and for the first, second and third quarters of 2001, the company's total reported net income was $760,000, but the company restated to show a net loss of approximately $150,000.  The outside auditors audited    and concurred with these figures.   
+	  5.	Violations  
+	  Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit any person, in connection with the purchase or sale of a security, from making an untrue statement of a material fact or omitting to state a material fact that is necessary to make statements, in light of the circumstances under which they were made, not misleading.  On April 1, 2002, Scott violated Section 10(b) and Rule 10b-5, by filing with the Commission the April Form 12b-25, which omitted to state material facts that were necessary to make statements in the April Form 12b-25 not misleading.  Specifically, statements in the April Form 12b-25 concerning the reason for the company's delayed filing were misleading:  although Scott disclosed that the audit of the company's 2001 financial statements was not complete, he failed to disclose the ongoing inquiry into the company's overstated credit card receivables balance.  Statements in the April Form 12b-25 about the reasons for the company's anticipated change in operating results were misleading as well, because Scott failed to disclose that $1.9 million of the anticipated $4 million net loss was attributable to a provisional writedown of credit card receivables that Williams recorded because the company's accounts receivable balance appeared to be overstated.    
+	 Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file annual and quarterly reports with the Commission. The obligation to file such reports embodies the requirement that they be true and correct.  See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978).  From 1999 through the third quarter of 2001, FFP filed, and Williams was a cause of FFP's filing, quarterly and annual reports with the Commission that overstated FFP's operating income and earnings.  Therefore, FFP violated, and Williams was a cause of FFP's violations of, Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.     
+	 Rule 12b-25 under the Exchange Act requires issuers who cannot timely file required periodic reports to file a Form 12b-25, notifying the Commission of their inability to file on time and stating "in reasonable detail" their reason for being unable to file on time.  If the reason "relates to the inability of any person, other than the registrant, to furnish any required opinion, report or certification," Rule 12b-25(c) requires the registrant to attach to the Form 12b-25 a statement by the third person, "stating the specific reasons why such person is unable to furnish the required opinion, report or certification."  If the registrant anticipates a significant change in operating results from the previous period, it must provide "an explanation of the anticipated change, both narratively and quantitatively."  In addition to information required to be included in a statement or report to the Commission, Rule 12b-20 under the Exchange Act requires the inclusion of such further material information as may be necessary to make the required statements not misleading.  FFP violated Rules 12b-20 and 12b-25 under the Exchange Act, by omitting to disclose, in its April and May Forms 12b-25, the ongoing internal accounting investigation, and the fact that approximately half of its anticipated $4 million loss for 2001 was due to a writedown of accounts receivable.  Scott was a cause of, and aided and abetted, FFP's violations by preparing, signing and filing with the Commission the April and May Forms 12b-25.     
+	 Section 13(b)(2)(A) of the Exchange Act requires issuers with securities registered under Section 12 of the Exchange Act to make and keep books, records, and accounts that accurately and fairly reflect their transactions and dispositions of their assets.  From 1999 through the third quarter of 2001, FFP's books and records were inaccurate.  FFP therefore violated Section 13(b)(2)(A) of the Exchange Act, and Williams, who was responsible for oversight of the FFP's accounting department, was a cause of FFP's violations of Section 13(b)(2)(A) of the Exchange Act.    
+	 e.	Section 13(b)(2)(B) of the Exchange Act requires public companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that the company's transactions are recorded as necessary to permit preparation of financial statements conforming with GAAP, and to maintain accountability for assets.  FFP failed to devise and maintain sufficient controls to prevent or detect the accounting irregularities that led to FFP's financial restatements.  FFP therefore violated Section 13(b)(2)(B) of the Exchange Act, and Williams, who was responsible for implementing internal controls over FFP's accounting department, was a cause of the company's violations of Section 13(b)(2)(B).   
+	  6.	Findings 
+  Based on the foregoing, the Commission finds that:  
+	   FFP violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 12b-25, 13a-1 and 13a-13 promulgated thereunder.    
+	 Williams was a cause of FFP's 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 promulgated thereunder.   
+	 Scott willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and he willfully aided and abetted and was a cause of FFP's violations of Rules 12b-20 and 12b-25 under the Exchange Act.    
+	  IV. 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondents' Offer.
+  Accordingly, IT IS HEREBY ORDERED, that:
+  A.	FFP 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, 12b-25, 13a-1 and 13a-13 thereunder. 
+ B.	Williams 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 13a-1 and 13a-13 thereunder. 
+ C.	Scott shall cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and shall cease and desist from causing any violations and any future violations of Rules 12b-20 and 12b-25 under the Exchange Act. 
+ D.	Scott is denied the privilege of appearing or practicing before the Commission as an attorney or as an accountant.  
+ E.	After 3 years from the date of this order, Scott 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 statements that are filed with the Commission.  Such an application must satisfy the Commission that Scott'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: 
+	  Scott, 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;   
+	 Scott, 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 Scott's or the firm's quality control system that would indicate that Scott 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;   
+	 Scott has resolved any 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   
+	 Scott acknowledges his responsibility, as long as he appears or practices before the Commission as an independent accountant, to comply with all requirements of the Commission and the Board, including, but not limited to, all requirements relating to registration, inspections, concurring partner reviews and quality control standards.     
+      F.     The Commission will consider an application by Scott to resume appearing or practicing before the Commission as an accountant provided 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 merits.  The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Scott's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+ G.	After 3 years, before appearing and resuming practice before the Commission as an attorney, Scott will submit an affidavit to the Commission's Office of the General Counsel truthfully stating, under penalty of perjury, that he has complied with the Commission's Order, that he is not subject to any suspension or disbarment as an attorney by a court of the United States or of any state, territory, district, commonwealth, or possession, and that he has not been convicted of a felony or misdemeanor involving moral turpitude as set forth in Rule 102(e)(2) of the Commission's Rules of Practice. 
+	
+ By the Commission. 
+
+
+
+	 
+	 Jonathan G. Katz 
+	Secretary 
+	 
+
+  Endnotes   
+   1   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." 
+
+   
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diff --git a/raw/aaer/2005/AAER-2186.txt b/raw/aaer/2005/AAER-2186.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e13e9632353faf89c083df28939d2cef7bb31260
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+++ b/raw/aaer/2005/AAER-2186.txt
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+              GE InVision, Inc. (formerly known as InVision Technologies, Inc.)
+           
+     
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+        GE InVision, Inc. (formerly known as InVision Technologies, Inc.)
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+ Securities Exchange Act of 1934 
+Release No. 51199  /  February 14 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2186  /  February 14, 2005 
+
+ Admin. Proc. File No.  3-11827 
+
+     In the Matter of 
+ GE InVision, Inc. (formerly known as InVision Technologies, 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 GE InVision, Inc., formerly known as InVision Technologies, Inc. ("InVision" or "Respondent"). 
+ II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below. 
+ III. 
+ On the basis of this Order and Respondent's Offer, the Commission finds  1   that:  
+ Summary 
+ 1.	This proceeding involves violations of the Foreign Corrupt Practices Act ("FCPA") by InVision, a California-based manufacturer of explosives detection systems used by airports.  From at least June 2002 through June 2004, InVision, through its employees, sales agents and distributors, engaged in transactions in violation of the FCPA in three countries:  the People's Republic of China, the Republic of the Philippines and the Kingdom of Thailand.  In each of the transactions, InVision was aware of a high probability that its foreign sales agents or distributors paid or offered to pay something of value to government officials in order to obtain or retain business for InVision.  Despite this, InVision authorized improper payments to the agents or distributors, or allowed them to proceed with transactions on InVision's behalf, in violation of the FCPA.  During this period, InVision improperly accounted for certain payments to its agents and distributors in its books and records in violation of the FCPA, and failed to devise and maintain a system of internal controls with respect to foreign sales sufficient to assure compliance with the FCPA.   
+ Respondent 
+ 2.	InVision, incorporated in Delaware and headquartered in Newark, California, designs and manufactures advanced explosives detection systems to scan checked baggage by airport security personnel in the United States and other countries.  At the time of the conduct described below, InVision's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was listed on the NASDAQ National Market.  InVision filed reports with the Commission pursuant to Section 13 of the Exchange Act.  2      
+ Facts 
+ 3.	To facilitate its sales abroad, InVision retained local sales agents and distributors who were familiar with the business practices and customs of their respective countries.  The sales agents and distributors negotiated with InVision's customers, including governmental aviation authorities, and typically reported to InVision through an InVision Regional Sales Manager.  The Regional Sales Managers reported directly to an InVision senior sales executive (the "Senior Executive"). 
+ A.	China 
+ 4.	In November 2002, InVision agreed to sell two explosives detection machines for use at an airport under construction in Guangzhou, China.  The airport is owned and controlled by the government of China.  The sale to the airport was conducted through InVision's local distributor in China, which purchased the two machines from InVision for approximately $2.8 million.  The distributor, in turn, negotiated the re-sale of the machines and was InVision's primary representative to the airport and associated governmental agencies. 
+ 5.	Under the terms of the transaction, InVision was obligated to deliver the two machines by mid-2003.  Due to problems in obtaining an export license from the United States government, however, InVision did not deliver the machines until October 2003.  During the delay, the distributor in China informed the responsible Regional Sales Manager and the Senior Executive that the airport intended to impose a financial penalty on InVision.  The distributor advised the Regional Sales Manager that, in order to avoid this penalty, it intended to offer foreign travel and other benefits to airport officials.  The Regional Sales Manager notified the Senior Executive of the distributor's intention. 
+ 6.	The distributor requested financial compensation from InVision to pay for penalties and costs that, it claimed, would be incurred as a result of the delay in shipment.  The distributor's request included compensation for benefits that the distributor intended to offer to airport officials.  In October 2003, the Senior Executive agreed to pay the distributor $95,000.  Based on information provided by the Senior Executive and the Regional Sales Manager, InVision's finance department subsequently authorized the payment, which was completed in April 2004.  At the time of the payment, based on the information provided to the Regional Sales Manager and the Senior Executive, InVision was aware of a high probability that the distributor intended to use part of the funds it received from InVision to pay for foreign travel and other benefits for airport officials.   
+ 7.	InVision improperly recorded the payment in its books as a cost of goods sold.  InVision realized profits of approximately $589,000 from the sale of the two machines in China. 
+ B.	Philippines 
+ 8.	InVision sold two explosives detection machines for use in an airport in the Philippines in November 2001.  Although InVision had retained a sales agent in the Philippines since at least 1996, the sale was made directly by InVision to the subcontractor responsible for building the airport terminal baggage handling system. 
+ 9.	Beginning at about the time of the November 2001 sale, InVision received repeated requests for a commission on the sale from its sales agent in the Philippines.  At the same time, in communications with both the responsible Regional Sales Manager and the Senior Executive, the agent indicated that it was negotiating for additional sales of InVision products to other airports owned and controlled by the government of the Philippines.  The agent indicated that it intended to use part of any commission it obtained in connection with the November 2001 sale to make gifts or pay cash to government officials in order to influence their decision to purchase additional InVision products. 
+ 10.	In December 2001, the Senior Executive agreed to pay the Filipino sales agent a commission in the amount of approximately $108,000 in connection with the November 2001 sale.  Based on information provided by the Regional Sales Manager and Senior Executive, InVision's finance department subsequently authorized the payment, which was completed in July 2002.  At the time of the payment, based on the information provided to the Regional Sales Manager and the Senior Executive, InVision was aware of a high probability that the sales agent intended to use part of the commission to make gifts or pay cash to influence Filipino government officials to purchase InVision products.  InVision improperly recorded the payment in its books as a sales commission.  The Filipino agent did not complete any additional sales on behalf of InVision. 
+ C.	Thailand 
+ 11.	Beginning no later than 2002, InVision competed for the right to supply explosives detection machines to an airport under construction in Bangkok, Thailand.  Construction of the airport is overseen by a corporation controlled by the government of Thailand.  InVision retained a distributor in Thailand to lobby the airport corporation and the Thai government on InVision's behalf.  Under the terms of the transaction, the distributor would purchase the explosives detection machines from InVision and then make its profit by reselling them at a higher price for use by the airport.  The distributor was InVision's primary representative to the airport and associated governmental agencies. 
+ 12.	From at least January 2003 through April 2004, in communications with the responsible Regional Sales Manager and the Senior Executive, the distributor indicated that it had offered to make gifts or payments to officials with influence over the airport corporation.  Based on the information provided to the Regional Sales Manager and the Senior Executive, InVision was aware of a high probability that the distributor intended to fund any such gifts or offers out of the difference between the price the distributor paid InVision to acquire the machines and the price for which the distributor was able to resell them.  Despite this awareness, InVision authorized the distributor to continue to pursue the transaction. 
+ 13.	In or about April 2004, the airport corporation, through its general contractor, agreed to purchase 26 of InVision's explosive detection machines from the InVision distributor in a sale InVision valued at approximately $35.8 million.  Consummation of the transaction was deferred after InVision received notification of possible FCPA violations.  InVision has not recognized any revenue from the transaction and has agreed that the transaction will proceed, if at all, only as a sale directly to the airport corporation or another Thai governmental entity.  
+ D.	InVision's Lack of Internal Controls 
+ 14.	During the period of the foreign transactions described above, InVision failed to develop an adequate process to select and train its sales agents and distributors employed outside the United States.  In choosing foreign sales agents and distributors, InVision primarily relied on introductions by other American companies.  InVision conducted little, if any, investigation into the backgrounds of its foreign sales agents and distributors. 
+ 15.	InVision's standard agreement with its foreign agents and distributors contained a clause prohibiting violations of the FCPA.  Beyond the contractual provision, however, InVision provided no formal training or education to its employees (including its Regional Sales Managers) or its sales agents and distributors regarding the requirements of the FCPA.   
+ 16.	InVision also failed to establish a program to monitor its foreign agents and distributors for compliance with the FCPA.  For example, InVision did not have a regular practice of periodically updating background checks or other information regarding foreign agents and distributors.  With respect to the transactions described above, InVision failed to establish an internal system sufficient to prevent and detect violations of the FCPA. 
+ Legal Analysis 
+ 17.	The FCPA, enacted in 1977, added Section 30A to the Exchange Act in order to prohibit public companies from, among other things, making or authorizing payments to any person while knowing that all or a portion of such payments will be offered or given to any foreign official for the purpose of influencing the official's decision in order to obtain or retain business.  See 15 U.S.C. § 78dd-1(a).   
+ 18.	The FCPA also added Exchange Act Section 13(b)(2)(A) to require public companies to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer, and Exchange Act Section 13(b)(2)(B) to require such companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that:  (i) transactions are executed in accordance with management's general or specific authorization; and (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets.  See 15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B). 
+ 19.	In each of the transactions described above, based on the information provided to the responsible Regional Sales Manager and the Senior Executive, InVision was aware of the high probability that its foreign sales agents and distributors intended to make gifts or payments in order to obtain or retain business for InVision.  In each instance, by proceeding with the transactions, InVision made or authorized the making of illegal payments to foreign officials, in violation of Section 30A.  InVision violated Section 13(b)(2)(A) by improperly recording in its books and records payments it made in the transactions involving its distributor in China and its sales agent in the Philippines.  Finally, InVision violated Section 13(b)(2)(B) by failing to devise and maintain an effective system of internal controls to prevent and detect violations of the FCPA. 
+ Cooperation 
+ 20.	In determining to accept the Offer, the Commission took into account InVision's cooperation afforded the Commission, including the fact that InVision brought this matter to the attention of the Commission's staff and the Department of Justice. 
+ Undertakings 
+ InVision and its corporate parent General Electric undertake to: 
+ 21.	Incorporate InVision into General Electric's corporate compliance program, including its program designed to detect and prevent violations of the FCPA. 
+ 22.	Retain and pay for an Independent Consultant not unacceptable to the staff of the Commission and the Department of Justice within 60 calendar days of the issuance of this Order.  
+ 23.	Require the Independent Consultant to: 
+	  Evaluate the efficacy of the integration by General Electric of InVision into General Electric's existing FCPA compliance program, including but not limited to the implementation of FCPA training for appropriate InVision employees; and   
+	 Within 180 days of the issuance of this Order, report to the staff of the Commission (with a copy of any such written report being provided to General Electric) regarding General Electric's efforts to comply with Paragraph 23(a), above.   
+	  24.	Cooperate fully with the Independent Consultant and provide the Independent Consultant with access to its files, books, records and personnel as reasonably requested for the Independent Consultant's evaluation. 
+ 25.	Require the Independent Consultant to enter into an agreement that provides that for the period of engagement, and for a period of two years from completion of the engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with InVision, its successor-in-interest GE InVision, Inc., GE Security, Inc., General Electric, or any of these entities' present or former affiliates, directors, officers, employees, or agents acting in their capacity.  The agreement will also provide that the Independent Consultant shall require that any firm with which the Independent Consultant is affiliated or of which Independent Consultant is a member, and any person engaged to assist the Independent Consultant in performance of Independent Consultant's duties under the Order memorializing the terms of this Offer, shall not, without prior written consent of the staff of the Commission's San Francisco District Office, enter into any employment, consultant, attorney-client, auditing or other professional relationship with InVision, its successor-in-interest GE InVision, Inc., GE Security, Inc., or any of these entities' present or former subsidiaries, 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. 
+ IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent's Offer. 
+ Accordingly, it is hereby ORDERED that: 
+ A.	Respondent 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 shall comply with the undertakings enumerated in Section III, above. 
+ C.	IT IS FURTHER ORDERED that Respondent shall, within ten days of the entry of this Order, pay disgorgement of $589,000 plus prejudgment interest of $28,703.57, for a total amount of $617,703.57 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 InVision 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 Helane L. Morrison, District Administrator, San Francisco District Office, Securities and Exchange Commission, 44 Montgomery Street, Suite 2600, San Francisco, California  94104.  
+
+
+
+ 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   On December 6, 2004, InVision was acquired by an affiliate of General Electric Company ("General Electric").  General Electric'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.  Following the acquisition, InVision filed a Form 15 Notice of Termination of Registration of its common stock under Exchange Act Section 12(g).  The successor company, known as GE InVision, Inc., is a wholly-owned subsidiary of GE Security, Inc. and an indirect wholly-owned subsidiary of General Electric.  All of the conduct described in Section III of this Order occurred prior to the acquisition of InVision by General Electric. 
+
+   
+See also the  Order in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2187.txt b/raw/aaer/2005/AAER-2187.txt
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+     SEC.gov | GE InVision, Inc. (formerly known as InVision Technologies, Inc.) 
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+              GE InVision, Inc. (formerly known as InVision Technologies, Inc.)
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+        GE InVision, Inc. (formerly known as InVision Technologies, Inc.)
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19078 / February 14, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2187 / February 14, 2005 
+
+  Securities and Exchange Commission v. GE InVision, Inc. (formerly known as InVision Technologies, Inc.),  United States District Court for the Northern District of California, Civil Action No. C-05-0660 MEJ 
+
+ SEC SETTLES CHARGES AGAINST INVISION TECHNOLOGIES FOR $1.1 MILLION FOR VIOLATIONS OF THE FOREIGN CORRUPT PRACTICES ACT 
+
+ The Securities and Exchange Commission (Commission) charged InVision Technologies, Inc. (InVision), a Newark, California-based manufacturer of explosive detection machines used in airports, with authorizing improper payments to foreign government officials in violation of the Foreign Corrupt Practices Act (FCPA).  Simultaneous with the filing of the Commission's charges InVision agreed, without admitting or denying the charges, to disgorge $589,000 in profits from its FCPA violations plus prejudgment interest of approximately $28,700, and pay a $500,000 civil penalty.  InVision was acquired in December 2004 by the General Electric Company, and now operates under the name GE InVision, Inc.; the conduct charged by the Commission occurred prior to the acquisition. 
+ In both a federal court complaint and an administrative order, the Commission charged that from at least June 2002 through June 2004, InVision employees, sales agents and distributors pursued transactions to sell explosive detection machines to airports in China, the Philippines and Thailand.  According to the Commission, in each of these transactions, InVision was aware of a high probability that its foreign sales agents or distributors made or offered to make improper payments to foreign government officials in order to obtain or retain business for InVision.  Despite this, InVision allowed the agents or distributors to proceed on its behalf, in violation of the FCPA.  The Commission also charged that InVision improperly accounted for certain payments to agents or distributors and failed to have an adequate system of internal controls to detect and prevent violations of the FCPA. 
+ The Commission's administrative order finds that InVision violated the anti-bribery, books and records and internal controls provisions of the FCPA (respectively, Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934).  Without admitting or denying liability or the Commission's findings, InVision agreed to pay disgorgement and prejudgment interest, cease and desist from violations of the FCPA, and comply with its undertakings to retain an independent consultant to ensure that InVision adheres to a corporate compliance program designed to detect and prevent violations of the FCPA.  In the district court action, which alleges the same violations, InVision agreed to settle the charges, without admitting or denying liability, and pay a civil penalty. 
+ The Commission acknowledges the assistance of the Department of Justice in the Commission's investigation.  The Commission's investigation is continuing. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2188.txt b/raw/aaer/2005/AAER-2188.txt
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--- /dev/null
+++ b/raw/aaer/2005/AAER-2188.txt
@@ -0,0 +1,1368 @@
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+              Reza Mikailli, et al.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19074 / February 10, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2188 
+
+  SEC v. Reza Mikailli, et al.,  Case No. 02-2426 SI (N.D. Cal.) 
+
+ JUDGMENT ENTERED AGAINST FORMER UNIFY CORPORATION CEO IN FINANCIAL FRAUD CASE 
+
+ District Judge Susan Illston in San Francisco entered judgment on February 9 against former Unify Corporation chief executive Gholamreza Mikailli.   The judgment includes an injunction against future violations of the securities laws and a bar against serving as a director or officer of any public company.   
+ In 2003, a federal jury convicted Mikailli of criminal violations of Section 10(b), Rule 10b-5 and conspiracy.  On September 24, 2004, Mikailli was sentenced to serve 51 months in prison and pay restitution and penalties totaling $1,001,000.    
+ The Commission's complaint, filed in May 2002, alleged that Mikailli caused Unify to fraudulently overstate revenue on software sales transactions that they were subject to contingencies or involved barter transactions.  The Commission alleged that Unify overstated its revenue over four fiscal quarters in amounts ranging from 61% to 150% per quarter.  The Commission also alleged that Mikailli sold shares of Unify stock at inflated prices during the fraud.  Mikailli consented to entry of judgment in the Commission's case without admitting or denying those allegations. 
+ The Commission's action against Mikailli alleged violations of Sections 10(b), 13(b)(5) and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2 and 16a-3 and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13. 
+
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+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2190.txt b/raw/aaer/2005/AAER-2190.txt
new file mode 100644
index 0000000000000000000000000000000000000000..b90b33fe9422c9b7c718e5383bbfc824d3cf3aab
--- /dev/null
+++ b/raw/aaer/2005/AAER-2190.txt
@@ -0,0 +1,1371 @@
+
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+     SEC.gov | Symbol Technologies, Inc., et al. 
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+              Symbol Technologies, Inc., et al.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19086 / February 17, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2190 / February 17, 2005 
+
+  SEC v. Symbol Technologies, Inc., et al.,  04 CV 2276 (LDW)(EDNY) 
+
+ FORMER CHIEF ACCOUNTING OFFICER AND SENIOR VICE PRESIDENT OF WORLDWIDE OPERATIONS OF SYMBOL TECHNOLOGIES, INC. CONSENTS TO PERMANENT INJUNCTIVE RELIEF AND OFFICER-AND-DIRECTOR BAR 
+
+ On February 17, 2005, Brian Burke ("Burke"), a former Chief Accounting Officer and Senior Vice President of Worldwide Operations at Symbol Technologies, Inc. ("Symbol"), consented to entry of an order that, if approved by the Court, will prohibit him from acting as an officer or director of a public company and impose permanent injunctive relief for violations of the relevant antifraud, corporate reporting, books and records and internal control provisions of the federal securities laws.  Specifically, Burke has agreed, without admitting or denying the allegations in the Commission's complaint, to a permanent injunction against violations, or conduct giving rise to 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 Burke remain pending. 
+ The Commission's complaint was filed on June 3, 2004, and named Symbol, Burke and ten other former Symbol executives as defendants.  The complaint alleges that from 1998 until early 2003, Burke and the other defendants engaged in a fraudulent scheme to inflate revenue, earnings and other measures of financial performance in order to create the false appearance that Symbol had met or exceeded its financial projections.  The complaint further alleges that, with no regard for generally accepted accounting principles or their financial reporting obligations, Burke and the other defendants 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 fabrication and misuse of restructuring and other non-recurring charges to artificially reduce operating expenses, create "cookie jar" reserves and further manage earnings;   
+	 channel stuffing and other revenue recognition schemes; and   
+	 the manipulation of inventory levels and accounts receivable data to conceal the adverse side effects of the revenue recognition schemes.   
+	  On June 3, 2004, Symbol consented to entry of a final judgment imposing, among other relief, a permanent injunction and a civil penalty in the amount of $37 million, and James Dean, one of the individual defendants, consented to a partial final judgment imposing permanent injunctive relief. 
+ The United States Attorney's Office for the Eastern District of New York ("USAO") announced today that Burke has pled guilty to criminal charges based on the same conduct alleged in the Commission's complaint.  In conjunction with his guilty plea, Burke also agreed to pay $1,907,156 to resolve a related civil forfeiture proceeding.  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. 18734 (June 3, 2004)   Litigation Release No. 18194 (June 19, 2003)   Litigation Release No. 18050 (Mar. 25, 2003)  
+ 
+       SEC Complaint in this matter  -->       
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diff --git a/raw/aaer/2005/AAER-2191.txt b/raw/aaer/2005/AAER-2191.txt
new file mode 100644
index 0000000000000000000000000000000000000000..9cc31270ebaf476d4b605248c33e706c5d7ca6ea
--- /dev/null
+++ b/raw/aaer/2005/AAER-2191.txt
@@ -0,0 +1,1467 @@
+
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+              Thomas C. Trauger and Michael Mullen
+           
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+       
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+                        
+                   SECURITIES AND EXCHANGE COMMISSION
+ Washington, D.C. 
+
+ SECURITIES EXCHANGE ACT OF 1934
+ Rel. No. 51259 / February 25, 2005 
+
+ ACCOUNTING AND AUDITING ENFORCEMENT
+ Rel. No. 2191 / February 25, 2005 
+
+ Admin. Proc. File No. 3-11270 
+
+     In the Matter of 
+
+ THOMAS C. TRAUGER, CPA
+ MICHAEL MULLEN, CPA, 
+
+ Respondents. 
+  
+ : : : : : : : : : : 
+ 
+ ORDER DISMISSING ADMINISTRATIVE PROCEEDING AS TO MICHAEL MULLEN, CPA    On February 2, 2005, the Division of Enforcement moved to dismiss administrative proceedings as to respondent Michael Mullen, CPA, formerly an audit manager with Ernst & Young, LLC ("E&Y"), "on the ground that the relief sought against Mullen has already been ordered in a separate proceeding."  As described below, Mullen was involved in two separate proceedings before the Commission. 
+
+ On September 25, 2003, the Commission issued an Order Instituting Public Administrative Proceedings ("OIP")  1   against Mullen and Thomas C. Trauger, formerly an E&Y audit partner, pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.  2    The OIP alleged that Mullen, among other things, engaged in unethical and improper professional conduct in connection with a 2000 E&Y audit of NextCard, Inc. 
+
+ On January 27, 2005, the Commission issued an "Order of Forthwith Suspension Pursuant to Rule 102(e)" against Mullen in a separate proceeding.  3    In that proceeding, Mullen was suspended from appearing or practicing before the Commission pursuant to Rule of Practice 102(e) because of his felony conviction.  4   
+
+ The Division argues that, because the January 27, 2005 order "provided the maximum relief sought against Mullen in the instant proceeding," this proceeding is now unnecessary.  The Division requests that the Commission dismiss this proceeding against Mullen "[i]n the interest of justice, and to preserve the Commission's resources."  We conclude that, under the circumstances, it is appropriate to grant the Division's request.  5    Accordingly, 
+
+ IT IS ORDERED that the motion of the Division of Enforcement to dismiss administrative proceedings as to respondent Michael Mullen, CPA, be, and it hereby is, granted. 
+
+ By the Commission. 
+
+  Jonathan G. Katz
+ Secretary  
+
+   1   Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Securities Exchange Act Rel. No. 48543 (Sept. 25, 2003), 81 SEC Docket 439. 
+
+   2   17 C.F.R. § 201.102(e)(1)(ii).  Rule of Practice 102(e) authorizes the Commission to censure or suspend (temporarily or permanently) a person who has engaged in unethical or improper professional conduct.   Id . 
+
+   3    In the Matter of Michael C. Mullen, CPA , Exchange Act Rel. No. 51084 (Jan. 27, 2005), __ SEC Docket ___. 
+
+   4    See   United States v. Michael C. Mullen, et al. , No. CR 04-152 JSW (N.D. Cal. Oct. 20, 2004). 
+
+   5   Although we have determined to dismiss this proceeding based on the information contained in the Division's motion, we nonetheless note that generally, in such cases, the Division should endeavor to present a "discuss[ion of] whether obtaining a judgment in the ongoing proceeding would be important in establishing a respondent's disciplinary history, in the event additional disciplinary actions are taken in future."   In the Matter of Hunter Adams, James L. Bila, Christian Blake, and Joseph Manning , Exchange Act Rel. No. 51117 (Feb. 1, 2005), __ SEC Docket ____ (Order remanding proceedings). 
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diff --git a/raw/aaer/2005/AAER-2197.txt b/raw/aaer/2005/AAER-2197.txt
new file mode 100644
index 0000000000000000000000000000000000000000..98ff9de94e18d384bf77e89724a47e9143940285
--- /dev/null
+++ b/raw/aaer/2005/AAER-2197.txt
@@ -0,0 +1,1372 @@
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+              Reliant Resources, Inc. and Reliant Energy, Inc.
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+        Reliant Resources, Inc. and Reliant Energy, Inc.
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19119 / March 3, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2197 / March 3, 2005 
+
+  Securities and Exchange Commission v. Hopper, et al.,  U.S. District Court for the Southern District of Texas (Civil Action No. 4:04-CV-1054) (2004) 
+
+  Securities and Exchange Commission v. Eddie Richard Meche,  U.S. District Court for the Southern District of Texas (Civil Action No. 4:05-CV-694) (2005)   
+
+ SEC NAMES TAMELA PALLAS, FORMER OFFICER OF RELIANT RESOURCES, IN ACCOUNTING FRAUD CASE INVOLVING OVER ONE BILLION DOLLARS IN ROUND TRIP ENERGY TRADES  
+
+ The U.S. Securities and Exchange Commission today amended its complaint in federal district court in Houston to add new claims against Tamela Charisse Whitlow Pallas.  The SEC's amended complaint alleges that in 1999 Houston-based Reliant Resources, Inc. overstated its revenues by over $1.4 billion by engaging in a series of fictitious round-trip power and natural gas trades.  The complaint alleges that Pallas, Reliant's former head of energy trading, was instrumental in orchestrating the round-trip trades and was the most senior Reliant officer to approve them.   
+ According to the complaint, Reliant in 1999 entered into five round-trip power trades totaling 29.75 million megawatt hours with three counterparties:  PanCanadian Energy Services, Inc., Merchant Energy Group of the Americas, Inc., and Public Service Company of Colorado.  Reliant also entered into a round-trip gas trade for 182 billion cubic feet with Cokinos Energy.  In total, the 1999 round-trip trades added over $1.4 billion in gross revenue and expenses to Reliant's books.   
+ The complaint alleges that, because Reliant reported its trades on a gross basis, the round-trip trades inflated Reliant's revenues by 17.7% in 1999.   In addition to recording inaccurate revenues, Reliant allegedly published inflated trading volumes in its annual and quarterly reports and included the overstated volumes and revenues in prospectuses and registration statements filed in anticipation of securities offerings.   
+ The complaint alleges that Pallas led the effort to devise Reliant's round-trip trading program, and that she explicitly approved the trades.  According to the complaint, Pallas understood that the round-trip trades would create a misleading impression of Reliant's energy trading operations and intended the trades to have that effect. 
+ The complaint charges Pallas with violating 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 and for aiding and abetting Reliant Resources, Inc.'s and Reliant Energy, Inc.'s violations of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  The complaint seeks civil penalties, a permanent injunction against future violations, disgorgement, and an officer and director bar. 
+ In a separate administrative proceeding, the SEC issued a settled cease-and-desist order against former Reliant Chief Risk Control Officer Eddie Richard Meche.  In a companion civil action, Meche consented to pay a civil penalty of $25,000.  Meche neither admitted nor denied the findings in the SEC's order and the allegations in its complaint.  For further information, see Administrative Release No. 3-11844. 
+ The SEC previously entered into a settled cease-and-desist order against Reliant Resources, Inc. and Reliant Energy, Inc. in connection with the companies' 1999-2001 round-trip trades.  See   In the Matter of Reliant Resources, Inc. and Reliant Energy, Inc. , Administrative Proceeding File No. 3-11110 (May 12, 2003). 
+
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diff --git a/raw/aaer/2005/AAER-2199.txt b/raw/aaer/2005/AAER-2199.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7eafa0cdcd355961d78d02583fcbcab4e052ba26
--- /dev/null
+++ b/raw/aaer/2005/AAER-2199.txt
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+              TALX Corporation
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19120 / March 4, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2199 / March 4, 2005 
+
+  Securities and Exchange Commission v. TALX Corporation,  Civil Action No. 4:05-CV-368 (HEA), U.S. District Court for the Eastern District of Missouri  
+
+ TALX Corporation Settles Accounting Fraud Charges and Consents to $2.5 Million Penalty 
+
+ The U.S. Securities and Exchange Commission (the "Commission") today announced settlement of an enforcement action against TALX Corporation in connection with financial misrepresentations made in TALX's Forms 8-K, 10-K and 10-Q for its fiscal years 2001 through the second quarter of 2004, and in its fiscal 2002 registration statement.  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, during fiscal 2001, and through a secondary offering of common stock completed on August 3, 2001, in which TALX raised approximately $82 million, TALX placed emphasis on meeting financial projections and highlighted its earnings growth to the market.  TALX met its 2001 financial targets and increased its stock price, however, through intentional and unintentional accounting misstatements.   
+ TALX's intentional 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 executive bonuses in the wrong period.  As a result of these intentional misstatements, TALX overstated its fiscal 2001 pre-tax income by approximately $2.1 million.  In addition, TALX used the wrong method of accounting for certain service transactions prior to and in its 2001 fiscal year, and as a result overstated its 2001 pre-tax income by approximately $2 million.  The combined misstatements resulted in TALX overstating its 2001 pre-tax income by approximately 122%, and inflated artificially TALX's 2001 stock price leading up to its August 3, 2001 secondary offering.  Without the combined misstatements, TALX would have received less than the $82 million realized in the secondary offering.   
+ TALX agreed to settle the Commission's charges by consenting to a cease-and-desist order finding violations of 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, 13a-11, and 13a-13 thereunder, and by paying disgorgement of $1.  In the related U.S. District Court action, TALX consented to pay a $2.5 million penalty.  TALX settled without admitting or denying the Commission's substantive findings.  The Commission's staff intends to distribute the penalty to injured investors pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of 2002.        
+
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diff --git a/raw/aaer/2005/AAER-2200.txt b/raw/aaer/2005/AAER-2200.txt
new file mode 100644
index 0000000000000000000000000000000000000000..06ad887cd36ca42c46005603794509f8118e1f90
--- /dev/null
+++ b/raw/aaer/2005/AAER-2200.txt
@@ -0,0 +1,1380 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19121 / March 4, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2200 / March 4, 2005 
+
+  Securities and Exchange Commission v. Craig N. Cohen,  Civil Action No. 4:05-CV- 371(AGF), U.S. District Court for the Eastern District of Missouri 
+
+ SEC Files Fraud Charges Against Former TALX Corporation Executive Craig N. Cohen 
+
+ Today, the Securities and Exchange Commission filed a complaint in the U.S. District Court for the Eastern District of Missouri against Craig N. Cohen, the former chief financial officer of TALX Corporation, a St. Louis-based provider of employment and income verification and other human resources services.  In its complaint, the Commission alleges that Cohen violated the antifraud and other provisions of the federal securities laws.   
+ According to the complaint, 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.  Cohen caused TALX, however, to meet its 2001 financial targets through fraudulent accounting maneuvers.  The misstatements included an improper bill and hold transaction; recognizing revenue prematurely; capitalizing costs relating to a license agreement that should have been expensed; and expensing executive bonuses in the wrong period.  As a result, TALX overstated its 2001 pre-tax income by approximately $2.1 million, or 65%, and inflated TALX's 2001 stock price leading up to the secondary stock offering on August 3, 2001.  Cohen sold TALX shares shortly after TALX announced its false fiscal 2001 results.  The Commission further alleges that Cohen made misleading statements to TALX's auditors.      
+ The Commission charged Cohen, who is a licensed CPA, with causing TALX to make 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, and with  violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting TALX's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder.  The Commission is seeking against Cohen a permanent injunction, an officer and director bar, disgorgement (with prejudgment interest), and civil penalties.   
+
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diff --git a/raw/aaer/2005/AAER-2205.txt b/raw/aaer/2005/AAER-2205.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ee12de39e25a2a3a014c85ec8564a673927f9996
--- /dev/null
+++ b/raw/aaer/2005/AAER-2205.txt
@@ -0,0 +1,1367 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19116 / March 3, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2205 / March 3, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION V. ISSAC A. SUTTON,  United States District Court for the Southern District of New York, Case No. 99 Civ. 3889 
+
+ The Securities and Exchange Commission ("Commission") today announced that on, September 29, 2004, following an eight-day trial in New York, New York, a jury returned a verdict in favor of the defendant, Isaac A. Sutton.  The Commission charged Isaac Sutton, 55, with violating the federal securities laws by making false public statements regarding the financial condition of Happiness Express Incorporated ("Happiness Express"), a designer, developer, and manufacturer of toys and children's room decorations located in New York, New York.   
+ The Commission alleged at trial that, while Happiness Express' Chief Operating Officer and its Head of Sales, Isaac Sutton falsely overstated Happiness Express' sales results in the company's fiscal year 1995 Form 10-K filed with the Commission.  Specifically, the Commission alleged that Isaac Sutton falsely stated in the Form 10-K that Happiness Express' total sales for its 1995 fiscal year were over $60 million, when, in reality, the company's total fiscal year 1995 sales were $52 million.  Isaac Sutton admitted at trial that he signed the Form 10-K, and that the Form 10-K falsely overstated Happiness Express' sales by $8 million.  Isaac Sutton, however, denied having had any knowledge of the falsity of the sales figures at the time that he signed the Form 10-K.   
+ The Commission charged Isaac Sutton with violations of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act ("Exchange Act"), and Rule 10b-5 promulgated thereunder.  In addition, under Section 20(a) of the Exchange Act, the Commission charged that, as a control person of Happiness Express, Isaac Sutton was liable for Happiness Express' false statements.     
+ The Commission originally brought its case in May 1999 against Isaac Sutton and four other individuals, including former Happiness Express CEO (and Isaac Sutton's brother) Joseph Sutton, and former Happiness Express CFO Michael Goldberg.  The Commission previously settled its claims against Michael Goldberg, and obtained a default judgment against Joseph Sutton (and also has resolved its claims against the other two defendants).   
+ On the same day that the Commission filed its civil action, the United States Attorney for the Southern District of New York filed criminal charges against Isaac Sutton and Joseph Sutton arising out of the same alleged fraudulent activities at Happiness Express.  Joseph Sutton pleaded guilty to conspiracy to commit bank fraud and securities fraud and received a 30 month prison sentence.  Michael Goldberg pleaded guilty to an information alleging conspiracy to commit bank fraud and securities fraud, and was sentenced to six months house arrest and three years probation.  In June 2001, a jury acquitted Isaac Sutton of all criminal charges.   
+ SEC v. Sutton, et al., 99 Civ. 3889 (S.D.N.Y.).  Regarding defendants Joseph A. Sutton, Isaac A. Sutton, Michael Goldberg, Stephen Weissman, and Mitchell Goldberg, see also   L.R. No. 16164 (May 27, 1999) and  L.R. 18008  (February 28, 2003). 
+
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diff --git a/raw/aaer/2005/AAER-2206.txt b/raw/aaer/2005/AAER-2206.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fe59521927e0cd4e9663712ad01dde1d20f8f12d
--- /dev/null
+++ b/raw/aaer/2005/AAER-2206.txt
@@ -0,0 +1,1364 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19123  / March 7, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.   2206 / March 7, 2005 
+
+  Securities and Exchange Commission v. Kenneth K. Livesay, et al.,  United States District Court for the Northern District of Alabama, Civil Action No. CV-03-HS-0758-S 
+
+ On March 4, 2005, the Honorable Virginia Emerson Hopkins, U. S. District Judge for the Northern District of Alabama, entered Final Judgments as to defendants Angela C. Ayers (Ayers)  and Virginia B. Valentine (Valentine).  Ayers was a vice president and Valentine was an assistant vice president of HealthSouth Corporation.  The Final Judgments enjoined them from further violations of Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.  Ayers and Valentine were not ordered to pay civil penalties based on their sworn representations in their Statements of Financial Condition.  Ayers was also permanently barred from serving as an officer or director of a public company.  Ayers and Valentine consented to the entries of the judgments without admitting or denying any of the allegations of the Commission's Complaint. 
+ The Commission's Complaint alleged that Ayers and Valentine made false accounting entries to inflate reported operating results to enable HealthSouth to meet or exceed Wall Street earnings expectations.    
+
+
+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2209.txt b/raw/aaer/2005/AAER-2209.txt
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index 0000000000000000000000000000000000000000..eadcdbb0325af53c09b7810572860bda36a68822
--- /dev/null
+++ b/raw/aaer/2005/AAER-2209.txt
@@ -0,0 +1,1420 @@
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+              Joseph P. Nacchio, Robert S. Woodruff, Robin R. Szeliga, Afshin Mohebbi, Gregory M. Casey, James J. Koslowski & Frank T. Noyes; Roger B. Hoaglund; William L. Eveleth
+           
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+        Joseph P. Nacchio, Robert S. Woodruff, Robin R. Szeliga, Afshin Mohebbi, Gregory M. Casey, James J. Koslowski & Frank T. Noyes; Roger B. Hoaglund; William L. Eveleth
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19136 / March 15, 2005 
+
+ Accounting and Auditing  Enforcement 
+Release No.  2209 / March 15, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. JOSEPH P. NACCHIO, ROBERT S. WOODRUFF, ROBIN R. SZELIGA, AFSHIN MOHEBBI, GREGORY M. CASEY, JAMES J. KOSLOWSKI AND FRANK T. NOYES,  Civ. No. 05-MK-480 (OES) (USDC D. Colorado). 
+  SECURITIES AND EXCHANGE COMMISSION v. ROGER B. HOAGLUND,  Civ. No. 05-N-482 (OES) (USDC D. Colorado). 
+  SECURITIES AND EXCHANGE COMMISSION v. WILLIAM L. EVELETH,  Civ. No. 05-M-481 (BNB) (USDC D. Colorado). 
+
+ The Securities and Exchange Commission today charged Joseph P. Nacchio, former co-chairman and chief executive officer of Qwest Communications International Inc., and eight other former Qwest officers and employees with fraud and other violations of the federal securities laws.  In three separate but related civil actions, the Commission alleges that, between 1999 and 2002, the Qwest defendants engaged in a multi-faceted fraudulent scheme designed to mislead the investing public about the company's revenue and growth.  In addition to Nacchio, the Commission's complaints name former chief financial officers Robert S. Woodruff and Robin R. Szeliga, former chief operating officer Afshin Mohebbi, former executive vice president of wholesale markets Gregory M. Casey, former senior vice president of pricing and offer management Roger B. Hoaglund, former senior vice president of finance William L. Eveleth, former director of financial reporting James J. Kozlowski, and former senior manager of financial reporting Frank T. Noyes.  The complaints seek injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against all of the defendants, and officer/director bars against Nacchio, Woodruff, Szeliga, Mohebbi, Casey, and Eveleth.  Hoaglund and Eveleth both consented to the entry of judgments against them without admitting or denying the allegations against them in the complaints. 
+ Hoaglund consented to the entry of a judgment enjoining him from violating Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5 and 13b2-1; enjoining him from aiding and abetting any violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13; and directing him to pay a civil penalty of $100,000 and disgorgement of $200,000 plus prejudgment interest.  Eveleth consented to the entry of a judgment enjoining him from violating Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5 and 13b2-1; enjoining him from aiding and abetting any violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13; directing him to pay a civil penalty of $75,000 and disgorgement of $35,575 plus prejudgment interest; and prohibiting him from acting as an officer or director of any public company for five years.  The judgment also resolves the Commission's allegations against Eveleth in a previously filed civil action, SEC v. Arnold, et al., CV-03-Z-0328 (OES) (D. Colo.). 
+ According to the SEC's complaint, filed in the United States District Court for the District of Colorado, Nacchio and others made numerous false and misleading statements about Qwest's financial condition in annual, quarterly, and current reports, in registration statements that incorporated Qwest's financial statements, and in other public statements, including earnings releases and investor calls.  As a result of that scheme, Qwest fraudulently recognized over $3 billion of revenue and excluded $71.3 million in expenses.  The Commission, in October 2004, sued Qwest in a settled injunctive action in which the company agreed to pay a $250 million penalty for its misconduct. 
+ The Commission's complaints, which were filed in the United States District Court for the District of Colorado, allege as follows: 
+ Nacchio and Others Fraudulently Misrepresented Qwest's Revenue Sources 
+ In Commission filings and other public statements, Nacchio, Woodruff, and Szeliga fraudulently characterized nonrecurring revenue from indefeasible rights of use ("IRUs") and equipment transactions as recurring "data and Internet service revenues," thereby masking Qwest's declining financial condition and artificially inflating its stock price.  Qwest used such nonrecurring revenue to fill the gap between actual and projected revenue.  Over time, in fact, Qwest's dependence on such one-time transactions grew to the point that it was likened internally to an "addiction" and the nonrecurring IRU and equipment sale transactions were likened to "heroin."  Among other things, the Qwest executives' misrepresentations about Qwest's revenue sources allowed Qwest to maintain a stock price sufficiently high to complete its pending merger with US West, Inc. 
+ Fraudulent IRU Revenue Recognition and Other Fraudulent Conduct 
+	  Nacchio, Woodruff, and Szeliga traded in Qwest stock on the basis of non-public material information.  Specifically, they knew the extent to which Qwest relied on nonrecurring revenue sources to meet the unrealistic revenue and earnings projections and the true financial health of Qwest.     
+	 Woodruff, Szeliga, Kozlowski, and Noyes ignored generally accepted accounting principles ("GAAP") by recognizing revenue upfront on IRU transactions.  Under GAAP, Qwest should not have recognized any revenue on those transactions.   
+	 Kozlowski and Noyes participated in the top executives' scheme to mislead the public about Qwest's revenue sources.   
+	 Mohebbi, Casey, and Hoaglund provided, or knew others provided, secret side agreements to IRU customers allowing those customers to exchange, or "port," the capacity purchased for different capacity.  The purpose of the secret side agreements was to conceal from Qwest's accountants and auditors the purchasers' ability to port, as such exchange rights would have defeated, under GAAP, the immediate recognition of revenue.   
+	 Mohebbi, Casey, Hoaglund, Eveleth, and Noyes participated in backdating IRU agreements to demonstrate falsely that the agreements were completed by the end of the quarter as required by GAAP to recognize revenue in that quarter.   
+	 To close IRU sales, Mohebbi, Casey, Eveleth, and Noyes caused Qwest to purchase capacity Qwest did not need.  Under GAAP, Qwest should not have recognized revenue where there was no legitimate business need for the IRU assets received.   
+	 Nacchio, Woodruff, and Szeliga made misleading statements in Commission filings concerning revenue from its directory services unit, Qwest Dex, Inc.  In particular, they stated that changes in period-over-period revenue were attributable to changes in the "number," "mix," or "length" of directories published.  In fact, Qwest had advanced the publication dates of certain directories and extended the lives of others for the sole purpose of meeting revenue or earnings targets.   
+	 Szeliga reduced expenses relating to compensated absences by $71.3 million to help Qwest meet earnings targets and fraudulently failed to disclose in Commission filings Qwest's change in accounting for compensated absences.   
+	  The complaints allege that, as a result of the above conduct, the defendants violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5 and 13b2-1; and aided and abetted Qwest's violations of Sections13(a) and 13(b)(2) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, 13a-13; Nacchio, Woodruff, Szeliga, Mohebbi and Casey violated Exchange Act Rule 13b2-2; and Mohebbi and Casey aided and abetted Qwest's violations of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.   
+ Related Actions 
+ On March 15, 2005, the Commission instituted settled cease-and-desist proceedings and filed related civil actions for penalties against Mark A. Schumacher and Brian K. Treadway, former controllers at Qwest (Litigation Release Nos. 19134 and 19135; Sec. Exch. Act. Rel. Nos. 34-51373 and 34-51375). 
+ On March 15, 2005, the Commission instituted settled cease-and-desist proceedings against Jennifer J. Black, a former director of finance at Qwest (Sec. Exch. Act. Rel. No. 34-51374). 
+ In October 2004, the Commission filed a settled civil action against Qwest Communications International Inc. (Litigation Release No. 18936). 
+ In July 2004, the Commission filed a civil injunctive action against Michael Felicissimo, the former CFO of Qwest's wireless division (Litigation Release No. 18800). 
+ In June 2004, the Commission instituted settled cease-and-desist proceedings and filed related civil actions for penalties against Augustine M. Cruciotti, a former Qwest executive vice president, and Steven L. Haggerty, a former Qwest senior vice president (Litigation Release Nos. 18754 and 18755). 
+ In September 2003, the Commission instituted a settled cease-and-desist proceeding and filed a related civil action for penalties against Loren D. Pfau, a former Qwest sales manager (Litigation Release No. 18374). 
+ In February 2003, the Commission filed a civil injunctive action against former Qwest officers Joel M. Arnold, William L. Eveleth, Grant Graham, Thomas W. Hall, Douglas K. Hutchins, Bryan K. Treadway, John M. Walker, and Richard L. Weston (Litigation Release No. 17996). 
+
+ Additional Materials: 
+   Complaint (SEC v. Nacchio, et al.)  
+
+   Complaint (SEC v. Eveleth)  
+
+   Complaint (SEC v. Hoaglund)  
+
+
+
+     SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2210.txt b/raw/aaer/2005/AAER-2210.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8dd9ac8b4490f1620d6bef8cfff0c50444637c52
--- /dev/null
+++ b/raw/aaer/2005/AAER-2210.txt
@@ -0,0 +1,204 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51373 / March 15, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2210 / March 15, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11853 
+ 
+ 
+In the Matter of 
+ 
+Mark A. Schumacher,  
+ 
+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 Mark A. Schumacher ("Schumacher" or 
+"Respondent").1   
+II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings  
+herein, except as to the Commission's jurisdiction over him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, 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 This matter is related to a civil action, Securities and Exchange Commission v. Mark A. 
+Schumacher, Civ. Action No. 05-N-483 (OES)(USDC D. Colorado), filed on March 15, 2005, in 
+which Schumacher has consented to pay a $40,000 civil penalty. 
+ 2
+III. 
+ On the basis of this Order and Res pondent's Offer, the Commission finds2 that:  
+A. Respondent 
+Schumacher, age 46, of Littleton, Colorado, was controller of Qwest Communications 
+International Inc. ("Qwest") from January 2001 through December 2001.  Prior to working for 
+Qwest, Schumacher worked for 17 years in various positions at US West, Inc., which was acquired 
+by Qwest in 2000.  Schumacher is licensed as a certified public accountant in Colorado. 
+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 (“IRUs”) 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’s most senior executives, including 
+Schumacher’s superiors, 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.3  
+Qwest accounted for IRUs as sales-type leases, and recognized revenue immediately upon 
+purported delivery and acceptance of the capacity. 
+3. Dating back to at least 1999, Qwest’ s accounting department did not maintain 
+proper accounting policies, procedures, and practices relating to IRU revenue recognition generally 
+and immediate revenue recognition on IRUs in particular.  In fact, Qwest’s IRU revenue 
+recognition policy failed to meet several GAAP criteria and Qwest improperly recognized 
+approximately $1 billion in IRU revenue during fiscal year 2001.  Upon assuming the position of 
+                                                 
+2  The findings herein are made pursuant to Respondent's Offer of Settlement and are not 
+binding on any other person or entity in this or any other proceeding. 
+ 
+3  An IRU is an irrevocable right to use specific fiber optic cable or fiber capacity for a specified 
+time period.  
+ 3
+controller in January 2001, Schumacher inherited the flawed system of accounting procedures and 
+controls relating to IRUs.  After becoming aware of errors and inconsistencies in Qwest’s IRU 
+revenue recognition policies and procedures, Schumacher took several significant steps to correct 
+Qwest’s IRU accounting practices and policies.  Despite these steps, Schumacher was unsuccessful 
+in ensuring 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.    
+ 4.  In 2001, Schumacher learned informati on that suggested Qwest’s upfront revenue 
+recognition on IRUs was not in compliance with GAAP.  He learned that Qwest allowed customers 
+to return the assets purchased in exchange for different assets, and he became concerned with 
+Qwest’s ability to pass title, the fair market value of IRUs, the failure to identify IRU inventory, 
+and the business purpose of IRU sales.  Had Schumacher independently examined Qwest’s 
+established accounting policies and practices for IRUs after learning of these red flags, he would 
+have determined that Qwest’s revenue recognition on IRU sales was not in accordance with 
+GAAP.   
+5. 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 quarterly reports 
+filed with the Commission on Form 10-Q for the quarters ended March 31, June 30 and September 
+30, 2001 and earnings releases attached to Qwest's current reports on Form 8-K filed with the 
+Commission for the same quarters in 2001.  Schumacher, along with others, was responsible for 
+the content of the quarterly reports and he reviewed them prior to their filing with the Commission.  
+He also reviewed the earnings releases filed with the Commission in Qwest's Forms 8-K for the 
+same periods and reviewed the Forms 8-K before they were filed with the Commission.   
+D. Qwest’s Improper Disclosures Relating to Dex 
+ 1. In an attempt to show revenue and earni ngs growth every quarter sufficient to meet 
+publicly announced revenue projections, Qwest accelerated the recognition of revenue from Dex 
+for 2000 by publishing one directory in December 2000 rather than in January 2001, as originally 
+scheduled.  This allowed Qwest to recognize an additional $28 million of Dex revenue in 2000.  
+Qwest's Form 10-K for the year ended December 31, 2000 stated that Dex's revenue in 2000 
+increased by nearly $100 million over the previous year due to "an increase in the number of 
+directories published."  This statement was misleading because it failed to inform investors that 
+more than one-quarter of the revenue increase was due to the fact that one directory had been 
+published twice in 2000, and that the schedule change would produce a commensurate decline in 
+Dex revenue for the first quarter of 2001. 
+ 2. Schumacher should have known that  Qwest's disclosures concerning its Dex 
+revenues were misleading.  He reviewed Qwest’s 2000 Form 10-K before it was filed with the 
+Commission.  At the same time, he should have known that the directory schedule change 
+accounted for more than one-quarter of the $100 million revenue increase mentioned in that report. 
+ 3. Additionally, in the first three quarters of 2001, Qwest shortened the lives of some 
+directories, thereby allowing it to recognize revenue in earlier quarters, and lengthened the lives of 
+ 4
+other directories from twelve months to thirteen months, thereby allowing the company to bill each 
+advertiser for one additional month of advertising fees.  This allowed Qwest to recognize an 
+additional $42 million in revenue in 2001.  Qwest's Forms 10-Q for the quarters ended March 31, 
+June 30 and September 30, 2001 stated that period-over-period changes in Dex's revenue were 
+attributable to changes in the "mix" and/or "lengths" of directories published.  These statements 
+were misleading, because they failed to inform investors that Qwest had manipulated its directory 
+publishing schedule to meet financial targets. 
+4. Schumacher reviewed Qwest's Form 10-K for the fiscal year ended December 31, 
+2000 and Forms 10-Q for the quarters ended March 31, June 30 and September 30, 2001, and 
+should have known that the disclosures concerning the Dex revenue were misleading.  
+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, Qwest violated, and Schumacher 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, 2000; Forms 10-Q for the quarters ended March 31, 
+June 30 and September 30, 2001; and Forms 8-K to which Qwest's earnings releases for the first 
+three quarters of 2001 were attached. 
+ 2. As a result of the conduct described a bove, Qwest violated, and Schumacher caused 
+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 GAAP.   
+3. Also as a result of the conduct descri bed above, Schumacher violated Section 
+13(b)(5) of the Exchange Act, which prohibits persons from knowingly circumventing or 
+knowingly failing to implement a system of internal accounting controls, or knowingly falsifying 
+any book, record or account; and Exchange Act Rule 13b2-1, which prohibits persons from 
+directly or indirectly falsifying or causing to be falsified any book, record, or account subject to 
+Section 13(b)(2)(A) of the Exchange Act.  
+Respondent’s Cooperation 
+ 
+ In determining to accept his Offer, the Co mmission considered Respondent's cooperation 
+afforded the Commission staff. 
+ 5
+ 
+ 
+Undertakings 
+ 
+ In connection with this action and any rela ted judicial or administrative proceeding or 
+investigation commenced by the Commission or to which the Commission is a party, Respondent 
+undertakes to cooperate with the Commission staff and:  (i) agrees to appear and be interviewed 
+by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) will 
+accept service by mail or facsimile transmission of notices or subpoenas issued by the Commission 
+for documents or testimony at depositions, hearings, or trials, or in connection with any related 
+investigation by Commission staff; (iii) appoints Respondent’s attorney as agent to receive service 
+of such notices and subpoenas; (iv) with respect to such notices and subpoenas, waives the 
+territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any 
+applicable local rules, provided that the party requesting the testimony reimburses Respondent’s 
+travel, lodging, and subsistence expenses at the then-prevailing U.S. Government per diem rates; 
+and (v) consents to personal jurisdiction over Respondent in any United States District Court for 
+purposes of enforcing any such subpoena. 
+ 
+ In determining whether to accept the Offe r, the Commission has considered these 
+undertakings.   
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Schumacher's Offer. 
+ Accordingly, it is hereby ORDERED that Respondent Schumacher 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
diff --git a/raw/aaer/2005/AAER-2212.txt b/raw/aaer/2005/AAER-2212.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d3c91652921508ed0169e069470035eaf9440e3b
--- /dev/null
+++ b/raw/aaer/2005/AAER-2212.txt
@@ -0,0 +1,235 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51375 / March 15, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2212 / March 15, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11855 
+ 
+ 
+In the Matter of 
+ 
+Bryan K. Treadway, CPA 
+ 
+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 Bryan K. Treadway ("Treadway" or 
+"Respondent").1   
+II. 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the "Offer") which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings  
+herein, except as to the Commission's jurisdiction over him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, 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 This matter is related to a civil action, Securities and Exchange Commission v. Bryan K. Treadway, Civ. 
+Action No. 05-N-484 (PAC), filed on March 15, 2005, in which Treadway has consented to pay a 
+$40,000 civil penalty. 
+ 2
+III. 
+ On the basis of this Order and Res pondent's Offer, the Commission finds2 that:  
+A. Respondent 
+Bryan K. Treadway, 39, of Atlanta, Georgia, was hired by Qwest Communications 
+International Inc. ("Qwest") in April 2001 as assistant controller and was promoted to controller in 
+January 2002.  Treadway resigned from Qwest in May 2002.  Treadway is licensed as a certified 
+public accountant in Georgia and is currently employed by a publicly owned company based in 
+Atlanta, Georgia. 
+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 (“IRUs”) 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’s most senior executives, including 
+Treadway’s superiors, placed extraordinary pressure throughout the company to meet or exceed the 
+publicly announced revenue targets.  Qwest could not, however, meet its targets through 
+transactions generating recurring revenue.  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.3  
+Qwest accounted for IRUs as sales-type leases, and recognized that revenue immediately.  
+3. Prior to Treadway's arrival at Qwest and as far back as 1999, Qwest’s accounting 
+department failed to maintain proper accounting policies, procedures, and practices relating to IRU 
+revenue recognition generally and immediate revenue recognition on IRUs in particular.  
+Furthermore, Qwest’s IRU revenue recognition policy, which was put into place two years prior to 
+Treadway's arrival at the company, failed to meet several generally accepted accounting principles 
+(“GAAP”) criteria and Qwest improperly recognized approximately $1 billion in IRU revenue 
+during fiscal year 2001.  While Treadway did not independently examine Qwest's IRU policy that 
+                                                 
+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  An IRU is an irrevocable right to use specific fiber optic cable or fiber capacity for a specified time 
+period.  
+ 3
+had been implemented in 1999, he was aware of certain red flags suggesting Qwest's IRU 
+accounting was not in conformity with GAAP.  As a result, Treadway failed to 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.  
+4. Starting in the summer of  2001 through early 2002, Treadway learned information 
+that suggested Qwest’s upfront revenue recognition on IRUs was not in compliance with GAAP.  
+Treadway learned that Qwest sometimes allowed customers to return or “port” the assets 
+purchased in exchange for different assets.  On two occasions, Treadway did not inform Qwest's 
+auditors of accounting issues raised by legal opinions concerning promises by Qwest to port.  
+Moreover, Treadway became concerned with Qwest’s ability to pass title, the fair market value of 
+IRUs, the failure to identify IRU inventory, and the business purpose of IRU sales.  Had Treadway 
+independently examined Qwest’s established accounting policies and practices for IRUs after 
+learning of these red flags, he would have determined that Qwest’s revenue recognition on IRU 
+sales was not in accordance with GAAP.   
+5. Qwest's improper accounting for IRUs resu lted in material misstatements of the 
+company's revenues, income and earnings per share in, among others, Qwest's periodic reports 
+filed with the Commission on Form 10-K for the year ended December 31, 2001, on Form 10-Q 
+for the quarters ended June 30 and September 30, 2001, and earnings releases attached to Qwest's 
+current reports on Form 8-K filed with the Commission for the same periods.  Treadway, along 
+with others, was responsible for the content of the quarterly reports and annual report and he 
+reviewed them prior to their filing with the Commission.  He also reviewed the earnings releases 
+filed with the Commission in Qwest's Forms 8-K for the same periods and reviewed the Forms 8-K 
+before they were filed with the Commission.   
+D. Arizona School Facilities Board 
+6. In January 2001, the Arizona School Facilities Board ("ASFB") and Qwest 
+entered into an agreement providing that Qwest would design and implement a statewide 
+network and provide internet and local area network connections for Arizona schools within a 
+two-year period using equipment provided by Qwest.  In an effort to meet aggressive revenue 
+targets, Qwest separated the equipment sale from the installation services of the ASFB contract, 
+wrongfully characterizing the sale as a bill and hold transaction under GAAP.   
+ 
+7. Treadway was involved in the decision to characterize inappropriately the sale as 
+a bill and hold transaction.  Treadway knew, and informed others, that a bill and hold sale would 
+be closely scrutinized by the auditors.  Treadway knew that failure to meet any of the GAAP 
+requirements for a bill and hold sale would make recognition of the revenue indefensible.  
+Treadway requested that other Qwest personnel provide him with documentation of facts 
+sufficient to satisfy the GAAP requirements for a bill and hold sale.  In fact, Treadway authored 
+an e-mail message on June 23, 2001, saying that he was "very supportive" in making the bill and 
+hold deal work but was concerned about "ensuring the facts hang together" if questioned.   
+ 
+ 4
+8. In June 2001, Treadway reviewed and edited a memorandum, which contained 
+false information, analyzing the transaction with ASFB as a bill and hold transaction.  Had 
+Treadway independently examined the facts stated in the memorandum, he would have learned 
+that the memorandum contained false information regarding the bill and hold nature of the 
+transaction and the delivery schedule for the equipment. 
+ 
+9. As a result of the characterization of the transaction with the ASFB as a bill and 
+hold transaction, Qwest improperly recognized approximately $34 million in revenue on the sale 
+of the equipment in its second quarter ended June 30, 2001.  As a result, Qwest's June 30, 2001 
+and September 30, 2001 quarterly reports were materially false and misleading. 
+ 
+E. Understatements of Compensated Absences Expense and Failure to Disclose Changes 
+in Accounting Methodology 
+10. Prior to June 30, 2001, Qwest establishe d and consistently maintained a standing 
+liability for compensated absences (paid time off) of its occupational employees equal to 100 
+percent of the compensated absences owed to these employees for the entire year.  Qwest’s 
+occupational employees were credited with all of their compensated absences for the year on 
+January 1.  The employees’ rights to receive payment for each year’s vacation were fully vested 
+and not contingent upon performing future services. 
+11. To help meet its 2001 financial target s, Qwest, on three occasions, improperly 
+reduced its compensated absences liability resulting in the understatement of 2001 pre-tax loss by 
+$71.3 million, thereby increasing EBITDA by $71.3 million.  The first improper adjustment 
+reduced the June 30, 2001 compensated absences liability by 50 percent resulting in a $44.5 
+million decrease to Qwest’s second quarter selling, general and administrative (“SG&A”) 
+expenses.  The second adjustment made to Qwest’s year-end December 31, 2001 financial 
+statements improperly reduced the then-current liability by an additional 50 percent resulting in 
+Qwest’s fourth quarter and full year SG&A expenses being reduced by an additional $23.5 million.  
+Finally, in early 2002, Qwest improperly reduced its December 31, 2001 compensated absences 
+liability and SG&A expenses by another $5 million.  Treadway, pursuant to the instructions of 
+others, carried out these reductions.  Treadway did not adequately evaluate the rationale for these 
+reductions.  Had Treadway fully evaluated the rationale for these reductions, he would have 
+learned that these reductions were improper. 
+12. Contrary to GAAP, Qwest failed to disclose its change in accounting for 
+compensated absences and the resulting 2001 financial impact of this change in its filings with the 
+Commission, including its Forms 10-Q for the quarters ended June 30, 2001 and September 30, 
+2001, and its Form 10-K for the year ended December 31, 2001.  Treadway, along with others, 
+reviewed Qwest’s Forms 10-Q for the quarters ended June 30, 2001 and September 30, 2001, and 
+its Form 10-K for the year ended December 31, 2001 before they were filed, but failed to add 
+disclosures of these changes. 
+ 5
+F. 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, Qwest 
+violated, and Treadway 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 June 30 and September 30, 
+2001; and Forms 8-K to which Qwest's earnings releases for the same periods were attached. 
+ 2. As a result of the conduct described above, Qwest violated, and Treadway 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 GAAP. 
+3. Also as a result of the conduct describe d above, Treadway 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; Exchange Act Rule 13b2-1, which prohibits persons from directly or indirectly falsifying 
+or causing to be falsified any book, record, or account subject to Section 13(b)(2)(A) of the 
+Exchange Act; and Exchange Act Rule 13b2-2, which prohibits persons from directly or indirectly, 
+making materially false or misleading statements, or omitting to state material facts necessary in 
+order to make the statements made, in light of the circumstances under which they were made, not 
+misleading, to an accountant and/or independent auditor in connection with an audit or 
+examination of  financial statements or in the preparation or filing of any documents or reports 
+filed with the Commission. 
+Undertakings 
+ 
+ In connection with this action and any rela ted judicial or administrative proceeding or 
+investigation commenced by the Commission or to which the Commission is a party, Respondent 
+undertakes to cooperate with the Commission staff and:  (i) agrees to appear and be interviewed 
+by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) will 
+accept service by mail or facsimile transmission of notices or subpoenas issued by the Commission 
+for documents or testimony at depositions, hearings, or trials, or in connection with any related 
+investigation by Commission staff; (iii) appoints Respondent’s attorney as agent to receive service 
+of such notices and subpoenas; (iv) with respect to such notices and subpoenas, waives the 
+territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any 
+applicable local rules, provided that the party requesting the testimony reimburses Respondent’s 
+ 6
+travel, lodging, and subsistence expenses at the then-prevailing U.S. Government per diem rates; 
+and (v) consents to personal jurisdiction over Respondent in any United States District Court for 
+purposes of enforcing any such subpoena. 
+ 
+ In determining whether to accept the Offe r, the Commission has considered these 
+undertakings. 
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Treadway's Offer. 
+ Accordingly, it is hereby ORDERED that Respondent Treadway cease and desist from 
+committing or causing any violations and any future violations of Section 13(b)(5) of the Exchange 
+Act and Rules 13b2-1 and 13b2-2 thereunder, and from causing any violations and any future 
+violations of Sections 13(a), 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
diff --git a/raw/aaer/2005/AAER-2214.txt b/raw/aaer/2005/AAER-2214.txt
new file mode 100644
index 0000000000000000000000000000000000000000..70f0d234092b572b2f86ae71d00b5e9d8f594500
--- /dev/null
+++ b/raw/aaer/2005/AAER-2214.txt
@@ -0,0 +1,773 @@
+SECURITIES AND EXCHANGE COMMISSION
+Washington, D.C.
+SECURITIES ACT OF 1933
+Rel. No. 8555 / March 18, 2005
+SECURITIES EXCHANGE ACT OF 1934
+Rel. No. 51393 / March 18, 2005
+ACCOUNTING AND AUDITING ENFORCEMENT
+Rel. No. 2214 / March 18, 2005
+Admin. Proc. File No. 3-11194
+In the Matter of 
+PHILIP L. PASCALE, CPA
+OPINION OF THE COMMISSION
+CEASE-AND-DESIST PROCEEDING
+Grounds for Remedial Action
+Causing Violations of Reporting and Recordkeeping Provisions
+RULE 102(e) PROCEEDING
+Grounds for Remedial Action
+Improper Professional Conduct
+Auditor caused company's violations of Section 15(d) of the Securities Exchange Act of
+1934 and Exchange Act Rules 15d-1 and 15d-13 by auditing or reviewing financial
+statements included in company's annual reports, several quarterly reports, and
+registration statements filed with the Commission, which financial statements
+misrepresented the financial condition and results of operations of company by materially
+overstating assets and equity and understating losses.  Auditor also failed to maintain an
+attitude of professional skepticism; obtain sufficient competent evidential matter; render
+an accurate audit report; and exercise due professional care.  Held, it is in the public
+interest to order that auditor cease and desist from causing any violations or future
+2
+1/ 15 U.S.C. § 77q(a).
+2/ 15 U.S.C. § 78j(b).
+3/ 17 C.F.R. § 240.10b-5.
+4/ 15 U.S.C. § 78o(d).
+5/ 17 C.F.R. §§ 240.15d-1 and 15d-13, respectively.
+6/ 17 C.F.R. § 201.102(e)(1)(iii).  Rule 102(e)(iii) permits the Commission to censure or
+deny, permanently or temporarily, the privilege of appearing or practicing before it to
+persons 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. 
+violations of Section 15(d) of the Exchange Act and Exchange Act Rules 15d-1 and  
+15d-13.  
+APPEARANCES:
+Robert F. Van der Waag, of Van der Waag and Gray, for Philip L. Pascale.
+Thomas M. Melton and Karen L. Martinez, for the Division of Enforcement.
+Appeal filed: June 9, 2004 
+Last brief received: September 7, 2004 
+I.
+The Division of Enforcement and the Office of the Chief Accountant (collectively, the
+"Division") appeal from the decision of an administrative law judge dismissing this proceeding. 
+The law judge found that Philip L. Pascale did not willfully violate Section 17(a) of the
+Securities Act of 1933, 1/ Section 10(b) of the Securities Exchange Act of 1934, 2/ or Exchange
+Act Rule 10b-5. 3/  The law judge further found that Pascale did not willfully aid and abet or
+cause violations of Exchange Act Section 15(d) 4/ and Exchange Act Rules 15d-1 and 15d-13. 5/ 
+Because the law judge found that Pascale did not willfully commit or aid and abet the alleged
+violations, the law judge found that Pascale was not subject to discipline under Rule
+102(e)(1)(iii) of the Commission's Rules of Practice. 6/  The law judge further concluded that
+Pascale did not engage in improper professional conduct within the meaning of Rule 102(e)(1)(ii)
+3
+7/ 17 C.F.R. § 201.102(e)(1)(ii).  Rule 102(e)(1)(ii) permits the Commission to censure or
+deny, permanently or temporarily, the privilege of appearing or practicing before it to
+persons found to have engaged in improper professional conduct.  As applied to
+accountants, "improper professional conduct" includes, in relevant part, 
+(A) intentional or knowing conduct, including reckless conduct, that results in a
+violation of applicable professional standards; or 
+(B) . . . negligent conduct [consisting of]:  
+(1) a single instance of highly unreasonable conduct that results in a
+violation of applicable professional standards in circumstances in which an
+accountant knows, or should know, that heightened scrutiny is warranted.
+(2) repeated instances of unreasonable conduct, each resulting in a
+violation of applicable professional standards, that indicate a lack of
+competence to practice before the Commission.
+17 C.F.R. § 201.102(e)(1)(iv).
+of the Commission's Rules of Practice. 7/  We base our findings on an independent review of the
+record, except with respect to those findings not challenged on appeal.
+II.
+Background
+Pascale has been a certified public accountant since 1980.  He is licensed to practice in
+New York.  His firm, Pascale, Razzino, Alexanderson & Company ("the Firm"), concentrates in
+auditing not-for-profit entities, 401(k) pensions, and certain private companies.  Before founding
+the Firm in 1999, Pascale worked for several years at major accounting firms and was also the
+chief financial officer and senior vice president of a real estate development firm.  
+The allegations against Pascale arose in connection with audits of the financial statements
+of Composite Holdings, Inc. ("New Composite" or the "Company") for the fiscal years ending
+June 30, 1999, through December 31, 2001.  The financial statements were included in annual
+reports filed by the Company on Forms 10-KSB and incorporated by reference into several
+registration statements on Forms S-8.  Pascale also reviewed quarterly financial statements
+4
+8/ After the 2001 audit, the Firm ceased performing audit work for New Composite because
+New Composite owed the Firm fees.
+9/ The combined entity originally kept Affordable's name after the Affordable-Old
+Composite merger.  It changed its name to World Homes, Inc. in October 2000.  World
+Homes, Inc. then changed its name to Composite Holdings, Inc. in August 2001.  For
+purposes of this opinion, "New Composite" refers to the entity, regardless of its name at
+any point in time, that resulted from the merger of Old Composite into Affordable. 
+10/ Zawada allocated the Zawada shares among various persons, many of whom appear to
+have been members of his family.
+included in the Company's quarterly reports on Forms 10-QSB for the quarters ending
+September 30, 2000, through December 31, 2001. 8/
+III.
+The Valuation of the Merger
+A. New Composite was created from the April 1999 merger of Composite Industries, Inc.
+("Old Composite"), a Nevada corporation, into Affordable Homes of America, Inc.
+("Affordable"), a Nevada corporation. 9/  Pascale served as the engagement partner for the Firm's
+audits of the financial statements of Affordable for the year ending December 31, 1998, and of
+Old Composite from its inception (June 12, 1997) through June 30, 1998.  
+Merle Ferguson founded Old Composite in 1997.  Old Composite acquired patent rights 
+to a construction material called Z-Mix from Z-Mix's inventor, Joseph Zawada.  In filings with
+the Commission, the Company described Z-Mix as a "cementitious product that combines
+diatomaceous earth and used tires to create a lightweight building material that reduces the time
+and the cost for constructing a house."  At Old Composite's 1997 organizational meeting, Old
+Composite issued its founders 10,000,000 shares of common stock.  Zawada received 6,370,000
+of these shares (the "Zawada shares") in exchange for the Z-Mix patent rights. 10/  All 6,370,000
+of the Zawada shares were to carry a voting legend, specified and required by the Old Composite
+organizational minutes.  The restriction vested the voting rights for the Zawada shares with Old
+Composite's board of directors for a period of five years.  
+Ferguson founded Affordable in February 1997.  Affordable engaged in no business
+activities until November 1998, when it received an initial capital infusion of $100,000.  In
+March 1999, Kowtow, Inc., a public shell corporation, merged with Affordable.  Kowtow's 1998
+Annual Report, filed with the Commission on Form 10-K on March 19, 1999, states, "The
+Company has had no operational history and has yet to engage in business of any kind."  In the
+merger, Kowtow issued Affordable's sole shareholder, a corporation owned entirely by Ferguson,
+4,000,000 shares of Kowtow common stock, which represented approximately 80% of Kowtow's
+5
+11/ Ferguson became the merged Affordable's president, chief executive officer, and
+chairman of the board.  Susan Donohue was the only other member of Affordable's board.
+12/ As of November 1998, Ferguson was chairman of the board of directors of Old
+Composite.  The parties dispute whether Ferguson was an officer or director of Old
+Composite at the time of the Old Composite/ Affordable merger.
+13/ If companies that are parties to a business combination are under common control, the
+assets of the acquired company should be recorded at historical cost.  AICPA Accounting
+Interpretation of Accounting Principles Board ("APB") Opinion No. 16, "Business
+Combinations," Question No. 39, Paragraph 5.
+14/ An example of that common control is set forth in Note 11 to Old Composite's June 30,
+1998 financial statement.  According to the note, under an "Entire Output Agreement,"
+Old Composite agreed to sell its entire output of Z-Mix to Affordable (which had no
+then-current operations) for a ten-year period.  In fact, the note itself referred to
+Affordable as a "company under common control."  The sale was to be made at Old
+Composite's cost of production, thus producing no profit for Old Composite. These
+(continued...)
+issued and outstanding shares.  Two days after the completion of the merger, on March 19, 1999,
+Kowtow changed its name to Affordable. 11/  On April 13, 1999, Affordable common stock
+began to trade on the Over-the-Counter Bulletin Board.
+Old Composite merged into Affordable on April 28, 1999, 12/ forming New Composite. 
+Affordable exchanged approximately 6,514,000 shares of its common stock for all of the
+approximately 13,028,000 shares of Old Composite's common stock then issued and outstanding. 
+As a result of the merger, New Composite owned the patent rights to Z-Mix.
+During the 1999 audit, Ferguson suggested to Pascale that the Z-Mix patent was worth
+$6,500,000, or approximately the equivalent of $1.00 per share.  Pascale testified that Ferguson
+stated that he would obtain an appraisal of the patent.  However, Pascale never saw an appraisal.  
+Instead of accepting the patent value Ferguson provided him, Pascale, on behalf of the
+Firm, certified New Composite's 1999 financial statements, in which the Company valued
+Affordable's acquisition of Old Composite's assets at historical cost. 13/  The Company recorded
+the value of the Z-Mix patent at $394,313, reflecting the amount Old Composite spent to acquire
+the patent, plus other related costs.  Quarterly reports filed by the Company with the Commission
+in the remainder of 1999 and early 2000 reflect this historical cost accounting treatment.  The
+Company's 1999 Commission filings and the financial statements of Old Composite and
+Affordable certified by Pascale referred to the two companies as "entities under common
+control." 14/
+6
+14/(...continued)
+financial statements were incorporated into New Composite's Form 8-K announcing the
+merger transaction.
+15/ Pascale testified that he understood that Ferguson owned 16 % of Old Composite's stock
+at the time of the merger.  He now claims that he subsequently discovered that Ferguson
+owned only 3.5% of Old Composite's stock at that time.  The only evidence of this
+reduction in Ferguson's holdings is testimony by Pascale's expert witness, who stated that
+he spoke to Ferguson.  The expert was unable to obtain access to Old Composite's stock
+records to confirm Ferguson's assertions.  The documentary evidence in the record places
+Ferguson's holdings at 16% of Old Composite's issued and outstanding stock.
+16/ APB 16, paragraph 8 provided that a business combination of entities not under common
+control could be accounted for as a purchase or, if several criteria were met, as a "pooling
+of interests."  APB 16 has been superseded by Statement of Financial Accounting
+Standards ("FAS") No. 141.  FAS 141 no longer permits pooling.
+17/ In this proceeding, Pascale asserts that this determination that Affordable and Old
+Composite were not under common control was based on his determination that Ferguson
+(continued...)
+At the hearing, Pascale testified that he had based his determination to value the patent at
+its historical cost on his understanding that Affordable and Old Composite were under common
+control at the time of the merger.  Asked how he came to this conclusion, Pascale stated that he
+based his determination on "discussions with management, understanding that they were both
+giving me answers having to do with both companies . . . ."  Moreover, both companies used the
+same mailing address in Las Vegas, Nevada.
+During Pascale's 2000 audit of the Company, Schulman, the Company's chief financial
+officer beginning in June 2000, requested that Pascale reconsider the historical cost treatment of
+the merger in the 1999 audit.  According to Pascale, Schulman asserted that Old Composite and
+Affordable were not under common control at the time of the merger because Ferguson did not
+own a majority of Old Composite's voting stock.  Pascale testified that, in addition to Schulman's
+representations with respect to Ferguson's ownership, Pascale received a letter from Old
+Composite's outside counsel, Donald J. Stoecklein, confirming this assertion. 15/  
+Under Generally Accepted Accounting Principles ("GAAP") in effect at the time of the
+merger transaction, if Old Composite and Affordable were not under common control, a proper
+accounting treatment for the merger was purchase accounting, which would result in valuing the
+transaction at fair value, rather than at its historical cost. 16/  The acquisition cost is to be
+assigned to the assets acquired, and this would result in stepping up the value of the Z-Mix patent
+rights.   Based on Schulman's assertions that Old Composite and Affordable were not under
+common control at the time of the merger, Pascale determined that it was appropriate to restate
+the 1999 financial statements in connection with the 2000 audit. 17/   
+7
+17/(...continued)
+owned a minority of the shares of Old Composite at the time of the merger, thus requiring
+that he restate the Company's 1999 financial statements to record the merger transaction
+at fair value.  In Note 2 to the restatement, the Company explained the basis for the
+restatement differently.  
+The note to the restatement states, "During the fiscal year ended June 30, 1999,
+Affordable originally recorded the patent at the accumulated out-of-pocket costs incurred
+by [Old] Composite to secure the patent ($394,313).  That cost basis was subsequently
+deemed to be incorrect as there was crucial information about the legal form of the
+transaction that was not presented until the current year and which mandated a different
+accounting treatment.  Specifically, it was originally reported that Composite Industries
+merged into Affordable and the transaction was recorded similar to a pooling of interests. 
+In fact, Affordable acquired [Old] Composite by issuing 6,514,720 shares of its stock to
+acquire all of the shares of Composite Industries and then merged.  The resultant fair
+market value assigned to the patent was $17,198,099 and a corresponding deferred tax
+liability of $5,713,287 was recorded.  Management believes that in light of the new
+information and the resultant accounting ramifications that a correction is required to the
+financial statements for the year ended June 30, 1999."
+The Division asserts that Pascale erred when, in 2000, he changed his 1999 opinion that
+Old Composite and Affordable were under common control at the time of their merger. 
+In light of Pascale's other violations discussed below, we do not address the Division's
+charge with respect to Pascale's common control determination in this opinion.  
+Pascale acquiesced in Schulman's request that the transaction should be recorded as a
+purchase and that the value of the transaction, including the patent, should be stepped up. 
+Pascale valued the Affordable shares used to purchase Old Composite at approximately
+$18,000,000, of which Pascale's audit assigned $17,198,099 as the cost to acquire the patent. 
+The Company's quarterly reports for the remainder of 2000 and early 2001 reflected this restated
+valuation of the patent. 
+Under Accounting Principles Board Opinion 16 ("APB 16"), paragraph 67, when assets
+are acquired in a business combination in exchange for consideration other than cash, including
+stock, the transaction is to be valued at the fair value of the consideration given or the property
+acquired, whichever of the two is more evident.  That value must be assigned to the assets
+acquired.  The Firm's analysis of the valuation of the transaction attempted to address the value
+both of the Affordable stock used to purchase Old Composite and also of the Z-Mix patent 
+rights.
+Neither Pascale nor the Company obtained an appraisal to serve as the basis for the
+valuation assigned to the Affordable shares.  Nor did the Company provide a valuation for the
+8
+18/ Cheskes was not a member of the Firm.  He previously had performed a peer review of
+the Firm.  Cheskes testified before the law judge.  
+Pascale also testified that he spoke to Art Kappel at the American Institute of Certified
+Public Accountants.  According to Pascale, Kappel confirmed that a discount was
+appropriate.  Kappel did not testify.
+19/ 17 C.F.R. § 230.144 (permitting public sale in ordinary trading transactions of limited
+amounts of securities by affiliates of the issuer and by persons who have acquired
+restricted securities from the issuer).
+20/ For example, Pascale did not inquire whether the shares of Affordable issued to the
+holders of the Zawada shares were restricted as to voting rights.
+shares.  Instead, although neither Pascale nor his partners had expertise in the valuation of
+restricted stock, Pascale, in consultation with one of his partners at the Firm, attempted to
+establish the value of the Affordable shares used to purchase Old Composite after examining the
+average price at which Affordable's stock traded on April 26, 1999, and May 3, 1999, dates that
+bracketed the merger.  
+Prior to the April 28, 1999 merger, Affordable was closely held.  Ferguson's corporation
+and the former Kowtow shareholders held approximately 96% of the outstanding shares of
+Affordable prior to the merger.  Affordable's shares began trading on the Over-the-Counter
+Bulletin Board on April 13, 1999, less than three weeks before the merger date.  The average
+daily volume of trading in Affordable's shares during the weeks surrounding the merger was
+approximately 12,500 shares, although Affordable's shares did not trade every day during this
+period.  On April 26, 1999, the shares traded at $3.75 per share, and on May 3, 1999, the shares
+traded at $3.438 per share, for an average stock price of $3.59 per share.  The Firm's calculation
+excluded, as an "anomaly," trades of approximately 200 shares between these two dates at a
+closing price of $2.125 per share.  Pascale's work papers do not discuss why the trades were
+deemed to be anomalous.
+Pascale, after consultations with "several people," including his partners and Robert
+Cheskes, whom he asked to function as a third-party reviewer, 18/ determined to discount the
+$3.59 average share price by 24% (12% because transfer of the shares used in the merger
+transaction was restricted and 12% because Affordable's shares were relatively thinly traded). 
+Pascale's work papers in the record include a single, handwritten reference to the restriction as a
+"144 restriction," presumably referring to Rule 144 under the Securities Act, 19/ but there is
+nothing else in the record that indicates that Pascale inquired further into the nature of the
+restrictions imposed on the Affordable shares transferred in the merger. 20/  With the 24%
+discount, Pascale and the Firm determined that the fair value of Affordable's stock at the time of
+the merger was $2.73 per share.  Pascale then multiplied this $2.73 share price by the
+approximately 6,514,000 Affordable shares used to purchase Old Composite to arrive at a value
+9
+21/ On June 28, 1999, the Company issued 215,983 shares of "restricted Common Stock"
+valued at $2.43 per share to acquire Big Mountain Construction Company, Inc. 
+22/ The market price of Affordable stock began to decline after the merger.  During June 
+1999, Affordable's shares traded at prices generally between $2.00 and $3.00 per share. 
+After June 1999, the shares never again traded over $2.00 per share.  From the end of
+August 1999 through February 2000, Affordable shares traded at prices under $1.00 per
+share, and, less than a year after the date of the merger, in March and April of 2000, the
+Affordable shares were trading at around $1.00 per share.
+23/ AICPA, Codification of Statements on Auditing Standards, AU ("AICPA, AU") § 326.01
+requires that "[sufficient] competent evidential matter . . . be obtained through inspection,
+observation, inquiries, and confirmations to afford a reasonable basis for an opinion
+regarding the financial statements."
+of nearly $18,000,000.  After costs were assigned to other Old Composite assets acquired in the
+merger, Pascale determined that the patent's value was $17,198,099.  Pascale acknowledges that
+this was a material change to the value of the patent.  The cost of acquiring the patent represented
+more than eighty percent of Affordable's assets in 2000.
+Around the time of the merger, the Company also issued stock for services by vendors
+and consultants.  The Company's June 30, 1999 annual report on Form 10-K describes these
+transactions as "arm's length" transactions.  On May 24, 1999, the Company issued 550,000
+shares of Common Stock for services rendered valued at approximately $39,000, or
+approximately $0.0545 per share.  On June 23, 1999, according to the 1999 Form 10-K, the
+Company issued 19,149 shares of Common Stock for consulting services rendered to the
+Company valued at $9,575, or approximately $0.50 per share. 21/  Pascale ignored these
+issuances.  Moreover, when the Company restated its 2000 financial statements, he certified the
+Company's increase in the value of these issuances.  Note 13 to the Company's 2000 financial
+statements states, "Further, 569,149 shares of common stock that was issued for services
+rendered has been increased by $1,300,000 consistent with the value of the stock issued." 22/ 
+B. Under Generally Accepted Auditing Standards ("GAAS"), as specified in Statement of
+Auditing Standards ("SAS") 150.02 and 230.01, an auditor is required to exercise due
+professional care in the conduct of audits.  In exercising due professional care, an auditor is
+required to maintain "professional skepticism," defined in SAS 230.07 as "an attitude that
+includes a questioning mind and a critical assessment of audit evidence."  Under SAS 150.02 and
+326.01, an auditor is required to obtain sufficient evidential matter through inspection,
+observation, inquiries, and confirmation to afford a reasonable basis for his opinion regarding
+financial statements. 23/  SAS 333.02 provides that management's representations are part of the
+evidential matter an auditor must consider, but are not a substitute for the application of the
+auditing procedures necessary to provide the auditor with a reasonable basis for its opinion.
+10
+24/ Pascale was not charged in the OIP with violations of the independence rules under 
+GAAS. 
+25/ APB 16, paragraph 23.
+As an initial matter, an auditor should review financial statements prepared by a
+company's management, not make those determinations for management.  Pascale's own expert
+witness and Pascale himself recognized that the Firm's determination of the value of Affordable's
+shares, and its subsequent audit of its own work, deviated significantly from GAAS.  When an
+auditor finds itself in the position of reviewing its own valuation determination, it is extremely
+difficult for the auditor to have obtained the "sufficient competent evidential matter" or for it to
+exercise the due professional skepticism required for it to issue a reasonably based opinion. 24/  
+Pascale admits that he had no expertise in valuation.  SAS 326.21 states that evidence
+from independent sources outside the entity being audited provides greater assurance of
+reliability.  Pascale asserts correctly that APB 16 does not require the use of an appraiser or
+outside expert to value stock transferred in a business combination.  However, the Third Standard
+of Field Work under GAAS requires an auditor to obtain "[s]ufficient competent evidential
+matter . . . to afford a reasonable basis for an opinion regarding the financial statements under
+audit."  GAAS cautions that an auditor is not expected to have the expertise of a person qualified
+in another profession, such as valuation.  Under SAS 336.06 and 336.07, when the auditor faces
+issues that require expertise to be able to make a competent valuation, the auditor may use a
+specialist to obtain competent evidential matter for such purposes.
+APB 16, paragraph 67 provides that an asset acquired by issuing stock should be recorded
+at "cost."  APB 16, paragraph 67 further provides that "cost may be determined either by the fair
+value of the consideration given or by the fair value of the property acquired, whichever is the
+more clearly evident."  While, under APB 16, paragraph 67, "the quoted market price" may be
+used "to approximate the fair value of the company," APB 16, paragraph 23 warns that the fair
+value of stock "is not always objectively determinable."  The quoted market price may not be a
+reliable indicator of fair value "because the number of shares issued is relatively large, the market
+for the security is thin, the stock price is volatile, or other uncertainties influence the quoted
+price." 25/  Where the quoted market price is not reliable, under APB 16, paragraph 75,
+"independent appraisals may be used as an aid in determining the fair value of the securities
+issued."
+Although Pascale claims that his analysis was reasonable, he did not comply with APB
+16.  He used an average of selected prices.   He approved his partner's exclusion as "anomalous"
+of two trades at $2.125 per share from this average, although there is nothing in the work papers
+explaining that conclusion.  Pascale failed to consider evidence that this "average" price per share
+was questionable. 
+11
+Pascale also failed to weigh factors indicating that the contemporaneous trades of
+Affordable shares were not indicative of its fair value.  Affordable was closely held prior to the
+merger.  The market for Affordable shares was very thin, and it did not trade every day during the
+period immediately before the merger.  Only a small percentage of the total shares of Affordable
+were freely tradeable during April 1999, and Pascale should have considered that the price was
+very likely to drop appreciably as ownership of the shares became more diffuse and existing
+restrictions on resale were lifted.  
+Under APB 16, paragraphs 74 and 75, Pascale and the Firm needed to investigate
+thoroughly and understand the nature of the restrictions that served as the basis for half of the
+discount they applied to the Affordable share price.  Pascale noted that the Affordable shares
+issued to acquire Old Composite bore a "144 restriction" on resale, but there is little evidence in
+the record to establish that Pascale attempted to understand the nature of the restriction, or
+whether the shares bore other restrictions, such as the voting restriction on the Old Composite
+Zawada shares.
+We are particularly troubled by Pascale's disregard of issuances of restricted New
+Composite stock around the time of the merger from $0.05 per share to $2.43 per share.  In 2000,
+the Company, in financial statements certified by Pascale, restated the issuances at $0.05 and
+$0.50 per share to $2.43 per share.  Because these issuances were for services rendered and the
+dollar amount of these services had been set in 1999, there was no basis to revisit their value. 
+The significant increase in the value of these issuances – in one instance from approximately
+$39,000 to $1,300,000 –  as a result of the restatement should have caused Pascale to review the
+valuation of the Affordable shares exchanged in the merger with considerable professional
+skepticism.  Pascale also failed to consider that, beginning shortly after the merger, the market
+price for New Composite shares began to fall.  By the time Pascale was preparing the
+restatement, the price of New Composite's shares had fallen to $1.00 or below.
+Pascale notes that Cheskes approved the 24% discount the Firm applied to the Affordable
+"average" share price.  We recognize that Cheskes was aware of the discount and told Pascale
+that "some" discount was appropriate.  At the hearing, Cheskes testified that he eventually agreed
+that the discount was a "fair discount."  As Pascale was aware, Cheskes did not review Pascale's
+2000 work papers.  Moreover, Cheskes acknowledged that he personally had no expertise in the
+valuation of restricted stock.  
+Pascale's own expert witness conceded that the discount did not comply with GAAP.  
+Pascale acknowledges that the valuation methodology that the Firm employed (averaging
+Affordable's price on the Over-the-Counter Bulletin Board on selected days and applying a
+12
+26/ The parties debate whether Ferguson's 16% interest in Old Composite should have been
+stepped up or should have been recorded at historical cost.  Given our conclusion that the
+overall valuation of the Affordable stock was flawed, we do not reach this issue.
+discount to this figure) was the invention of one of Pascale's partners and that the 24% discount
+to the average share price of Affordable around the merger was not supported by GAAP. 26/   
+IV.
+Impairment of Carrying Value of the Z-Mix Patent
+A. APB 16, paragraph 67 requires that the cost of a transaction be assigned in proportion to
+the assets acquired in a purchase transaction.  Pascale, not New Composite, assigned the majority
+of the value of the Affordable shares used to purchase Old Composite to the Z-Mix patent rights,
+which were valued at $17,198,099.  Pascale failed to consider that Ferguson had told Pascale that
+the value of the patent rights was $6,500,000 only a year earlier in connection with the 1999
+audit.  Instead, Pascale stepped up the patent's value from $394,313 to over $17,000,000 without
+any question, even though the Company lacked any operating history, governmental approvals
+for the use of its patent, or contracts for the use, sale, or manufacture of the key product. 
+Statement of Financial Accounting Standards No. 121 ("FAS 121") required New
+Composite to review long-lived, non-cash assets, such as the patent rights.  If the auditor
+determines that the carrying amount is unrecoverable, under FAS 121 the expected future cash
+flows expected to be generated from the asset (in this case, the Z-Mix patent rights) must be
+compared to the carrying value of the asset.  The difference between these two figures is to be
+recorded as an impairment.  In considering whether an impairment exists, under FAS 121,
+paragraph 5(e), the auditor should determine whether the company in question has experienced "a
+current period operating or cash flow loss combined with a history of operating or cash flow
+losses or a projection or forecast that demonstrates continuing losses associated with an asset
+used for the purpose of producing revenue."
+  In reviewing the patent values in both 2000 and 2001, Pascale was required to consider
+whether the carrying amount assigned to the patent was recoverable.  At the end of New
+Composite's 2000 fiscal year, Z-Mix had not been used commercially.  New Composite had no
+machinery for the production of Z-Mix, nor did it have a facility in which the manufacture could
+occur.  Z-Mix had received no governmental or regulatory approval for use in construction of
+buildings in any jurisdiction, domestic or international.  Pascale testified that the Company
+needed approval from Underwriters' Laboratory in order for the product to be used in the United
+States, but Pascale understood that the Company had not obtained that approval.
+For the 2000 audit, Pascale determined not to require an impairment to the patent's value,
+based on revenue projections related to the patent that Pascale received from Schulman.  On a
+13
+27/ In notes accompanying his 2000 review, Cheskes raised the issue of whether an
+impairment to the patent value was appropriate.  The response to his inquiry is not
+recorded.
+single page, Schulman forecast revenue streams from two joint ventures the Company had
+entered with Tristar USA, Inc. ("Tristar") and AL NASR Trading & Industrial Corporation, LLC
+("AL NASR") for the use of Z-Mix in construction of low-cost housing in countries outside the
+United States.  The projections anticipated gross sales over the lives of the agreements (five years
+in one case and three years in another) totaling approximately $550,000,000.  During the 2000
+audit year, the projections expected that the company would earn profits of approximately
+$14,000,000.  However, the projections included no basis for these conclusions, such as a
+detailed business plan, a budget, or evidence of cost of goods, operations, and expenses.  Pascale
+relied exclusively on his conversations with Schulman and the projections provided by
+Schulman.
+Schulman also gave Pascale copies of the joint venture agreements.  However, Pascale
+did not review the agreements or contact representatives of Tristar or AL NASR.  The joint
+venture agreement with AL NASR required the Company to engage in a private placement to pay
+the costs of the joint venture itself.  These joint venture agreements were contingent on factors
+including the receipt of financing, government approvals for the use of Z-Mix, the establishment
+of relationships with buyers of Z-Mix, and the establishment of a facility for the production of Z-
+Mix.  The joint venturers had not agreed to purchase Z-Mix from the company or to use the
+product in construction projects.  Neither joint venturer had any contracts to construct houses
+using Z-Mix.  Pascale relied on the projections as the basis for supporting the carrying value of
+the patent without an impairment. 27/ 
+In the Company's 2001 audit, Pascale once again included no impairment to the Z-Mix
+patent.  At the time of Pascale's 2001 audit, the Company still had no contracts for the sale or
+manufacture of Z-Mix.  Z-Mix had received no domestic or foreign governmental or regulatory
+approvals for its use in construction.  New Composite had met none of its 2000 projections. 
+William Morris, who replaced Schulman as New Composite's chief financial officer, provided
+Pascale with a new set of projections for revenue derived from the patent rights through the joint
+ventures with Tristar and AL NASR.  These projections anticipated total gross profits from the
+joint ventures of over $15,000,000; they were based on the assumption that the joint venture
+projects would be operational and that home construction would have begun during the 2001
+fiscal year.  These projections were premised on the Company's obtaining governmental
+approvals for the use of Z-Mix and on the Company obtaining financing.  Because the Company
+had failed to achieve the joint venture revenue and profit projections from 2000, in connection
+with the 2001 audit Pascale requested additional information to verify the projections.  
+Pascale asked for the names of contact persons at the offices of the joint venturers. 
+Pascale spoke to the president of Tristar, Rodney Whitney, and John Switzer, an official at AL
+14
+28/ Cheskes reviewed the financial statements and some of Pascale's work papers in 2001 and
+concurred with Pascale's efforts in patent valuation in 2001.
+29/ In 2000, Ferguson wrote to Pascale, stating that the Company intended to make a private
+placement pursuant to Regulation D or Regulation S.  Pascale testified that he did not
+know whether that private placement occurred.
+30/ In a separate proceeding, the Company and Ferguson were permanently enjoined from
+(continued...)
+NASR.  While Tristar was in the home construction business, Pascale discovered that AL NASR
+was engaged solely in the packaging of financing for others to purchase or construct homes. 
+Although Whitney and Switzer expressed slight concerns about the strength and capability of the
+business, both ultimately told Pascale that their companies desired to go forward with their joint
+ventures with New Composite and that they were generally optimistic about the Company's
+prospects.  After these conversations with the parties to the Company's joint ventures, and
+although the joint ventures had not resulted in contracts to sell Z-Mix, Pascale calculated his own
+projections, which differed from those provided to him by the Company.  Pascale's own
+projections expected gross sales of $92,000,000 from the Tristar joint venture (projection of the
+sale of 4,000 units at an average price of $23,000 per unit) and $1,200,000,000 from the AL
+NASR joint venture (100,000 units sold at an average price of $12,000 per unit).  Pascale did not
+review detailed business plans or budgets in connection with his review of the joint ventures and
+his preparation of the revenue projections.  Pascale determined that it was appropriate to
+maintain the carrying value of the patent without impairment. 28/
+Because of the lack of evidence to support the likelihood of the revenue projections,
+Pascale expressed some concern to Ferguson about the ability of the Company to continue as a
+going concern.  Pascale requested, and received from Ferguson, a letter saying that Ferguson
+personally would supply sufficient working capital to allow the Company to continue to operate,
+if such a move became necessary.  Pascale reviewed no corroborating evidence, such as tax
+returns or financial statements, from Ferguson that would have substantiated his actual ability to
+make such payments. 29/  Pascale testified that he believed that the Company could be run "on a
+shoestring" if necessary, because of its lack of operations.  Despite all of these concerns, Pascale
+gave an unqualified certification of the Company's two sets of financial statements in 2000 and
+2001, each of which projected annual revenues from the patent rights in the tens of millions of
+dollars.
+In the third quarter of New Composite's 2002 fiscal year, Pascale requested that New
+Composite provide evidence that the revenues it projected for Z-Mix would be realized or, in the
+alternative, that Ferguson could infuse the Company with adequate cash to allow it to continue as
+a going concern.  Pascale received no such assurance.  Ultimately, the Company determined in
+2002 to write off the entire value of the Z-Mix patent rights, and Pascale resigned the New
+Composite account shortly thereafter. 30/
+15
+30/(...continued)
+future violations of the securities registration provisions of Section 5 of the Securities
+Act, 15 U.S.C. § 77e, and the antifraud provisions of Section 17(a) of the Securities Act
+and Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.  Ferguson was also
+ordered to pay a civil money penalty in the amount of $120,000.  The complaint alleged
+that the Company and Ferguson had distributed false press releases about the Company's
+progress in manufacturing Z-Mix, obtaining financing for the Company, and generating
+contracts for the use of Z-Mix, and that these false press releases resulted in an increase in
+the price of the Company's common stock and an increase in the volume of the
+Company's shares traded on the Over-the-Counter Bulletin Board.  SEC v. World Homes,
+Inc., Merle Ferguson, and Susan Donohue, Litigation Rel. No. 17328 (Jan. 22, 2002), 76
+SEC Docket 2364.
+B. Pascale failed to exercise due care or professional skepticism or to obtain sufficient,
+competent evidential material to support the conclusion that the carrying value of the Z-Mix
+patent was not impaired.  During each of his audits, New Composite remained a development
+stage company.  It had no operations or revenues from operations.  Z-Mix was never approved
+for use in construction anywhere.  The Company neither had contracts to sell Z-Mix nor the
+ability to manufacture it.
+Pascale asserts that his determination that the value of the Z-Mix patent was not impaired
+was reasonable based on the Company's projections.  Given the Company's situation, those
+projections were unreasonable on their face.  The 2000 projections consisted of a single page,
+with no back-up for the revenue and profit assumptions.  Although Pascale received the joint
+venture agreements, he did not read them, and he did not attempt to contact New Composite's
+joint venturers.  Had he reviewed them, Pascale would have discovered the various contingencies
+and the fact that New Composite was to pay the costs of the AL NASR joint venture.
+During the 2001 audit, Pascale learned that the Company had made no progress on its
+2000 projections.  It still had neither operations nor contracts to sell Z-Mix.  Pascale's 2001
+contacts with the principals of the joint ventures were insufficient to provide back-up for either
+the Company's projections or Pascale's re-computed projections.  The principals expressed
+enthusiasm for Z-Mix, but the joint ventures had not resulted in contracts for the Company to sell
+Z-Mix or even contracts to construct houses that might use Z-Mix.  Moreover, we note that
+Pascale concluded his audit after the first quarter of the succeeding fiscal year (i.e., after the first
+quarter of the 2001 fiscal year for the 2000 fiscal audit).  Yet, in the case of each audit, the
+Company had made no progress on its projections for the then-current year.  For example, the
+Company had made no sales of Z-Mix in the first quarter of 2001, which was inconsistent with
+the projections that Schulman had given Pascale in connection with the 2000 audit. 
+Pascale appears not to have considered the nature of the construction industry in which
+New Composite intended to operate.  Because construction projects are typically long-range in
+16
+31/ Pascale's expert witness characterized a statement by a member of the Commission staff
+that the staff would not "expect to see write-downs in the year after acquisition," warning
+practitioners to "[g]et your accounting right."  Pascale concedes that his expert "did not
+state that GAAP precludes taking an impairment loss in the year of a restatement."  
+As shown above, Pascale did not "get the accounting right" on the patent's value.  The 
+record and the Division's expert witness demonstrated that the 2000 valuation of the 1999
+acquisition of the patent lacked competent evidential matter to support it.  The evidence
+here of impairment also indicates that the restatement had substantially inflated the
+patent's value.  The Division's expert witness further corroborated that the revenue
+projections without any back-up were not sufficient to support a determination that the
+patent's value was unimpaired.
+nature, Pascale should have exercised considerable professional skepticism at management
+projections that were based on the production of a nearly immediate flow of revenues from the
+joint ventures.  In addition, Pascale accepted the revenue projections from Schulman in the first
+quarter of New Composite's 2001 fiscal year.  Although a portion of the time covered by the
+projections had run, New Composite still had no contracts for the use or production of Z-Mix. 
+Professional skepticism should have pushed Pascale to question the projections rather than
+simply to accept them at that time.
+Pascale recognized that there was a legitimate issue as to whether the Company could
+continue as a going concern.  Pascale claimed that he received assurances from Ferguson that
+Ferguson would supply the shortfall to make up for any lack of working capital.  Pascale
+obtained no evidential material to support that assertion until well into the 2002 fiscal year. 
+Pascale testified that he was not concerned because he concluded that Ferguson could operate the
+Company from his home on a "shoestring."  However, that conclusion further undercuts Pascale's
+reliance on the projections.  Pascale had to know that the Company could not generate the
+projected levels of revenue from a "shoestring" operation.
+Pascale notes that his expert witness testified that it "would have been extraordinarily
+unusual" to step up the value of an asset and then write it down in the same period. 31/  This
+testimony has no implication for Pascale's failure to assess an impairment in 2001.  In any event, 
+FAS 121 clearly dictates that companies are required to assess assets such as the patent rights for
+impairment when events indicate that the carrying value is likely not to be recoverable.  Pascale
+failed to do so in both his 2000 and 2001 audits.
+ In basing his analysis on the projections, Pascale did not exercise adequate professional
+skepticism and did not exhibit the proper degree of professional care.  The acceptance of the
+projections served as the basis for Pascale's determination that no impairment to the patent rights
+needed to be recorded in the Company's financial statements.
+17
+32/ 15 U.S.C. § 78u-3(a).
+V.
+The Deferred Tax Asset
+Under FAS 109, an entity may carry forward net operating losses as a deferred tax asset, 
+as long as those losses are more likely than not (i.e. more than 50% likely) to be recovered in
+future periods.  This determination is based on projections of future taxable income, derived from
+revenue projections.  In the event that some portion of a deferred tax asset is not likely to be
+realized, that portion of the deferred tax asset should be reduced by a valuation allowance.  FAS
+109 also requires that a deferred tax asset be netted against any deferred tax liabilities.  
+New Composite recorded net operating losses as deferred tax assets of $496,638 in 1999,
+$2,260,000 in 2000, and $2,390,000 in 2001.  At the time, New Composite had also recorded a
+deferred tax liability because the recorded carrying value of the Z-Mix patent rights was greater
+than its tax basis.  The deferred tax liability should have offset the deferred tax asset and, because
+the deferred tax liability was always greater than the deferred tax asset, there should have been no
+deferred tax asset recorded for the Company.  Pascale's expert witness testified, and Pascale
+concedes, that reporting the deferred tax asset was inconsistent with GAAP. 
+Moreover, even if a deferred tax asset had been proper, Pascale should have reduced the
+amount of the deferred tax asset by a valuation allowance.  For the same reasons discussed in
+Section IV above, the projections of future revenues and profits on which Pascale relied were
+without basis, and there were substantial questions as to whether the Company could continue as
+a going concern.  The Company was considerably more likely than not to fail to have taxable
+income from future operations that would allow it to use the deferred tax asset.  By relying
+exclusively on projections of these revenues and very brief conversations with the joint venturers,
+Pascale failed to exercise due care or professional skepticism, and to acquire sufficient competent
+evidential material.
+VI.
+Reporting and Recordkeeping Requirements
+Under Exchange Act Section 21C(a), we may order a person to cease and desist from
+certain conduct if the person "is violating, has violated, or is about to violate" any provision of
+the Exchange Act, or any rule or regulation thereunder. 32/  The section also authorizes us to
+order a person to cease and desist from certain conduct if the person "is, was or would be a cause
+of [a] violation [of the Exchange Act or the rules and regulations thereunder], due to an act or
+omission the person knew or should have known would contribute to such violation."
+18
+33/ SEC v. Savoy Indus., 587 F.2d 1149, 1165 (D.C. Cir. 1978) ("The reporting provisions of
+the Exchange Act are clear and unequivocal, and they are satisfied only by the filing of
+complete, accurate, and timely reports") (citing SEC v. IMC Int'l, Inc., 384 F.Supp. 889,
+893 (N.D. Tex.), aff'd mem., 505 F.2d 733 (5th Cir. 1974), cert. denied sub nom. Evans v.
+SEC, 420 U.S. 930 (1975).
+34/ See KPMG Peat Marwick LLP, 54 S.E.C. 1135, 1175-76 (2001) (finding that negligence
+may establish a determination that a respondent caused a violation of Exchange Act
+reporting requirements because the underlying primary violations are not scienter-based
+violations), petition denied, 289 F.3d 109 (D.C. Cir. 2002).
+35/ The OIP also charged Pascale with violations of Section 10(b) of the Exchange Act and
+Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act.  The OIP also charged
+Pascale with aiding and abetting the Company's reporting violations under Exchange Act
+Section 15(d) and Exchange Act Rules 15d-1 and 15d-13.  As a result, the OIP also
+alleged that Pascale is subject to discipline under Commission Rule of Practice
+102(e)(1)(iii).  Based on our determinations set forth in this opinion, we do not address
+these issues.
+ For the reasons discussed above, Pascale acted at least negligently, and his conduct
+resulted in his being a "cause" of the Company's violations of Section 15(d) of the Exchange Act
+and Exchange Act Rules 15d-1 and 15d-13.  Rules 15d-1 and 15d-13 require that public
+companies file annual and quarterly reports with the Commission.  The reporting mandates
+contain within them the requirement that the reports to be filed must be accurate. 33/  As
+established above, Pascale's audits were at least negligent, and this caused the Company to file
+materially misleading financial statements in numerous filings made on Forms 10-K, 10-KSB,
+and 10-QSB with the Commission. 34/  Both the audited financial statements certified by the
+Firm, with Pascale as engagement partner, and the quarterly financial statements reviewed by
+Pascale, which continued to apply the accounting principles approved in Pascale's audits, were
+materially false and misleading for the reasons discussed above. 35/
+VII.
+Rule 102(e)(1)(ii)
+Improper professional conduct by an accountant includes a single instance of highly
+unreasonable conduct that results in a violation of applicable professional standards in
+circumstances in which the accountant knows, or should know, that heightened scrutiny is
+warranted.  We have held that an accountant's conduct is highly unreasonable when he fails to
+19
+36/ James Thomas McCurdy, Exchange Act Rel. No. 49182 (Feb. 4, 2004), 82 SEC Docket
+271, 286, aff'd, McCurdy v. SEC, 396 F.3d 1258 (D.C. Cir. 2005).  Heightened scrutiny
+was clearly warranted here.  As the Court of Appeals for the District of Columbia Circuit
+observed in McCurdy, "[A]n auditor must exercise, not his 'inclination,' but his
+'professional judgment' and that judgment must be 'guided by sound' auditing principles,
+among which are a 'thorough . . . search for evidential matter,' AU § 326.23, and an
+'attitude that includes a questioning mind and a critical assessment of audit evidence,' AU
+§ 230.07." McCurdy, 396 F.3d at 1263.
+employ heightened scrutiny with regard to matters that are "important or material, or when
+warning signals or other factors should alert an accountant" to a heightened risk. 36/  
+Pascale failed to employ heightened scrutiny in conducting the audits of New Composite
+in question in this matter.  Pascale ignored numerous indicia that should have alerted him to the
+possibility that his audits would result in materially misleading financial statements.  He signed
+audit opinions that improperly represented that the Company's financial statements were
+presented in accordance with GAAP and that he conducted his audits in accordance with GAAS.  
+Pascale's work papers indicate that he understood that the valuation of the Affordable
+shares exchanged in the merger transaction and the valuation of the patent rights were critical
+audit topics.  The patent was the Company's chief asset.  Nevertheless, despite his and his Firm's
+lack of expertise in valuation issues, Pascale and the Firm undertook both of these valuations on
+their own.  Pascale did not consider the factors identified in APB 16, paragraphs 23, 74, and 75,
+in his valuation.  He ignored ample evidence that the trading price of Affordable's shares around
+the time of the merger did not provide useful guidance as to their fair value.  Pascale agreed to a
+24% discount of that price that had no basis and, as he admits, was inconsistent with GAAP.  
+In 2000, Pascale accepted unsubstantiated management projections of the future revenues
+to be derived from the patent rights.  In 2001, Pascale made his own projections after receiving a
+new set of unsubstantiated management projections that were provided by the Company's chief
+financial officer, but Pascale's own projections nonetheless appear to continue to rely
+significantly on the management projections provided at the time, although Pascale knew that the
+Company had no operating history, no governmental or regulatory approvals for use of Z-Mix, its
+key product, and no contracts for the use or manufacture of Z-Mix.  This lack of an operational
+history of the Company should have led Pascale to realize that an impairment to the patent value
+was necessary.  Furthermore, Pascale allowed the Company to record a deferred tax asset that
+was not netted against the deferred tax liability that arose from the step-up in the patent's value. 
+Even if the deferred tax asset had been appropriate, Pascale did not require the Company to take
+a valuation allowance against the deferred tax asset, although it was not likely that the Company
+could generate sufficient revenues to use the deferred tax asset, for the same reasons cited above
+in connection with the impairment analysis.  Pascale, as a result, is subject to discipline under
+Commission Rule of Practice 102(e)(1)(ii). 
+20
+37/ It is unclear from the record what Cheskes or Pascale understood to be Cheskes's role.  To
+the extent that Cheskes was supposed to act in a role similar to a "concurring partner" in
+an audit, we believe that Pascale should have known that Cheskes's efforts were
+inadequate.  A concurring partner is obligated to make an objective review of significant
+accounting, auditing, or reporting considerations.  That review includes review of
+selected working papers, as well as conversations with the engagement partner.  He or she
+is to exercise due care and to bring professional skepticism to bear on that review.  When
+a concurring partner identifies material errors or irregularities, the concurring partner
+should obtain sufficient competent evidential matter to determine their effect.  Robert D.
+Potts, CPA, 53 S.E.C. 187, 195-97 (1997), aff'd, 151 F.3d 810 (8th Cir. 1998).  
+Pascale notes that he sought out Cheskes, who concurred in his audits.  However, as
+Pascale was aware, Cheskes's involvement was limited. 37/  Cheskes testified that he spent
+approximately five hours on the 2000 audit and did not review the work papers.  The record is
+unclear about whether Cheskes reviewed Pascale's methodology for valuing the Affordable stock
+exchanged in the merger beyond concurring in the discount applied by Pascale.  It is also unclear
+what Cheskes knew about the basis for Pascale's determinations not to assess an impairment
+against the value of the Z-Mix patent or a valuation allowance against the deferred tax asset.  As
+the engagement partner at the Firm, Pascale was responsible for the audit.  He had ample
+evidence that the value of the Z-Mix patent was inflated and that the Company had not received
+the necessary regulatory approvals to develop the patent and had no contracts for the sale or
+manufacture of the product.  As discussed in Section IV above, the Company's revenue
+projections did not provide an adequate basis for maintaining the carrying value of the patent. 
+We conclude that Pascale's failures to apply due care, to exercise professional skepticism,
+and to obtain sufficient competent evidential information to support his audits were highly
+unreasonable.  His failures resulted in his improperly representing that his audits complied with
+GAAS and that the Company's financial statements comported with GAAP.  His conduct further
+demonstrates repeated instances of unreasonable conduct, each a violation of applicable
+professional standards, indicating a lack of competence to practice before the Commission.   
+21
+38/ Touche Ross & Co. v. SEC, 609 F.2d 570, 581 (2d Cir. 1979).
+39/ See, e.g. McCurdy, 396 F.3d at 1261 ("Investor confidence is bolstered by the knowledge
+that public financial statements have been subjected to the rigors of independent and
+objective investigation and analysis.").
+VIII.
+We have determined to impose a cease-and-desist order.  Pascale argues that his conduct
+of the audit, while not perfect, was reasonable.  He asserts that his interpretation of the authority
+in the area of common control provided a reasonable basis for the restatement in 2000 of the
+1999 audit.  Pascale points to the approval granted by Cheskes, the Firm's independent reviewing
+accountant, as indicating that his certification of the New Composite financial statements had an
+adequate evidential basis and that his treatment of the impairment and the deferred tax asset were
+not unreasonable.   
+Pascale was a cause of violations of the reporting and recordkeeping requirements in
+Section 15(d) of the Exchange Act and Exchange Act Rules 15d-1 and 15d-13 by New
+Composite.  Pascale's conduct of the New Composite audits had serious deficiencies.  Highly
+unreasonable failures to comply with auditing standards, such as those of Pascale, "jeopardize the
+achievement of the objectives of the securities laws and can inflict great damage on public
+investors." 38/  Pascale's audits did not comply with GAAS, and, contrary to his representations,
+the financial statements deviated from GAAP.  Pascale's conduct continued over three years in
+the face of numerous indications that his step-up of the valuation of the Z-Mix patent rights
+transferred in the merger transaction (which Pascale concedes was material), his failure to record
+an impairment to the Z-Mix patent, and the treatment of the deferred tax asset were without
+basis.  These failures resulted in materially misstated financial statements.    
+Pascale's conduct demonstrates a highly unreasonable disregard of his duties as an
+independent auditor.  His failures adversely affected the Commission's processes.  In addition to
+the factors discussed above, Pascale asserts that he has not engaged in another public company
+audit since ceasing his relationship with New Composite, but Pascale could return to public
+company audits in the future.  In addition, Pascale appears not to recognize the seriousness of his
+failures that attended the determinations at issue here.  The reliability and integrity of information
+provided in public financial statements is essential to the functioning of the markets, 39/ and 
+22
+40/ In light of our issuance of a cease and desist order, under the particular circumstances of
+this case, we have determined not to sanction Pascale for his improper professional
+conduct under Rule 102(e)(1)(ii). 
+41/ 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.
+Pascale's conduct calls his credibility in this area into question.   Thus, there is a sufficiently high
+level of risk of future violations that would endanger the public to warrant a cease-and-desist
+order.  A cease-and-desist order under Section 21C of the Exchange Act is therefore warranted to
+protect the public. 40/ 
+An appropriate order will issue. 41/
+By the Commission (Chairman DONALDSON and Commissioners GLASSMAN,
+GOLDSCHMID and ATKINS); Commissioner CAMPOS not participating.
+Jonathan G. Katz
+         Secretary 
+UNITED STATES OF AMERICA
+before the
+SECURITIES AND EXCHANGE COMMISSION
+SECURITIES ACT OF 1933
+Rel. No. 8555  / March 18, 2005
+SECURITIES EXCHANGE ACT OF 1934
+Rel. No. 51393 / March 18, 2005
+ACCOUNTING AND AUDITING ENFORCEMENT
+Rel. No. 2214 / March 18, 2005
+Admin. Proc. File No. 3-11194
+In the Matter of 
+PHILIP L. PASCALE, CPA
+ORDER IMPOSING REMEDIAL SANCTIONS
+On the basis of the Commission's opinion issued this day, it is 
+ORDERED that Philip L. Pascale cease and desist from causing any violation of the
+reporting provisions of Section 15(d) of the Securities Exchange Act of 1934 and Exchange Act
+Rules 15d-1 and 15d-13.
+By the Commission.
+Jonathan G. Katz
+         Secretary 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2218.txt b/raw/aaer/2005/AAER-2218.txt
new file mode 100644
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+              Kenneth W. Hawk, Michael J. Delargy, and Thomas R. De Jong
+           
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ LITIGATION RELEASE NO. 19156 / March 24, 2005  
+
+ ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 2218 
+
+ SEC v. KENNETH W. HAWK, MICHAEL J. DELARGY, AND THOMAS R. DE JONG, Civil Action No. CV-N-0172-LRH-VPC (D. Nev. March 24, 2005) 
+
+ SEC FILES FINANCIAL FRAUD ACTION AGAINST FORMER
+SENIOR OFFICERS OF IGO CORPORATION 
+
+ The Securities and Exchange Commission ("Commission") today filed a civil injunctive action in the United States District Court for the District of Nevada against three former senior officers of iGo Corporation ("iGo") for violations of the antifraud, periodic reporting, record keeping, internal controls, and lying to auditors provisions of the federal securities laws.  The Complaint alleges that the defendants engaged in fraudulent accounting practices in fiscal years 1999 and 2000 that caused iGo to materially overstate its revenues by millions of dollars. 
+
+ Named as defendants in the Complaint are Kenneth W. Hawk ("Hawk"), iGo's founder and former chairman of the board and chief executive officer; Michael J. Delargy ("Delargy"), iGo's former chief financial officer and chief operating officer; and Thomas R. de Jong ("de Jong"), iGo's former senior vice president of sales.  IGo, which was located in Reno, Nevada, manufactured and distributed parts and accessories for mobile technology products such as laptops and cellular phones.  IGo was acquired by Mobility Electronics, Inc. on September 4, 2002 and is no longer a public company. 
+
+ The Complaint alleges, among other things, that: 
+
+ On December 31, 1999, the last day of fiscal year 1999, Hawk and Delargy caused iGo to materially overstate its fourth quarter revenue by a total of approximately $912,100 by improperly recording $474,933 in revenue on consignment sales to Laptop Lane, Inc and improperly recording $437,254 in revenue on a transaction that was a loan to HardwareStreet.com.  The approximate 12% overstatement of fourth quarter revenue was disclosed to the public in a January 2000 earnings release and reported in iGo's fiscal 1999 Form 10-K filed with the Commission on March 29, 2000;  
+
+ At the end of iGo's third quarter of fiscal year 2000, the defendants caused iGo to fraudulently record revenue of approximately $688,100 on a sale to M.Block & Sons, Inc., which could not properly be recognized until the fourth quarter of fiscal year 2000.  In addition, Hawk and Delargy caused iGo to improperly record revenue of approximately $107,000 on continued consignment sales to Laptop Lane, Inc.  The approximate 7.6% overstatement of third quarter revenue was disclosed to the public in an October 2000 earnings release and reported in iGo's Form 10-Q for the third quarter of fiscal 2000 filed with the Commission on November 14, 2000;  
+
+ In the final days of the fourth quarter of fiscal year 2000, the defendants collectively caused iGo to recognize fraudulently approximately $1.18 million in fourth quarter revenue by improperly recognizing revenue on consignment sales, sham transactions, product that was not shipped, and product that was shipped after the end of the fiscal year.  The approximate 9% overstatement of fourth quarter revenue was disclosed to the public in a January 2001 earnings release.  IGo made additional materially false and misleading statements in two March 2001 releases regarding the amount of revenue it would record in the first quarter of fiscal 2001, and the reasons for those amounts, as a result of reversing improperly recorded fourth quarter 2000 transactions.  
+
+ Hawk and Delargy signed management representation letters, given to iGo's independent auditors in 2000, which were false and misleading.  In addition, in early 2001, Delargy and de Jong made false and misleading statements to iGo's independent auditors regarding the propriety of recording the M.Block transaction in the third quarter of fiscal year 2000.   
+
+ In its Complaint, the Commission requests that the Court issue a final judgment permanently restraining and enjoining the defendants from violating and/or aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2.  Also, as to Hawk, the Commission is seeking an order holding him liable as a control person, under Section 20(a) of the Exchange Act, for iGo's 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, 12b-20, 13a-1, 13a-13.  The Commission also is seeking an order that each defendant be prohibited from acting as an officer or director of a public company, that the defendants disgorge all ill-gotten gain, including compensation and other remuneration, they received by virtue of their misconduct, and that the defendants pay civil penalties. 
+
+ The Commission's investigation in this matter is continuing. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2219.txt b/raw/aaer/2005/AAER-2219.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5a98b0997cd092c424b17467f3b8a4bf11609d8d
--- /dev/null
+++ b/raw/aaer/2005/AAER-2219.txt
@@ -0,0 +1,1397 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
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+ 
+ 
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+     
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+     SEC.gov | Anuradha D. Saad, Richard P. Adelson, David J. Cammarata, Peter Torres, Robert McKie, Karin Gardner and Kenneth Jugan 
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+         !function(){var e=navigator.userAgent,a=document.documentElement,n=a.className;n=n.replace("no-js","js"),/iPad|iPhone|iPod/.test(e)&&!window.MSStream&&(n+=" ua-ios"),a.className=n}(); 
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+              Anuradha D. Saad, Richard P. Adelson, David J. Cammarata, Peter Torres, Robert McKie, Karin Gardner and Kenneth Jugan
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+        Anuradha D. Saad, Richard P. Adelson, David J. Cammarata, Peter Torres, Robert McKie, Karin Gardner and Kenneth Jugan
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19159 / March 29, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2219 / March 29, 2005 
+
+  SEC v. Anuradha D. Saad, Richard P. Adelson, David J. Cammarata, Peter Torres, Robert McKie, Karin Gardner and Kenneth Jugan,  05 CV 03308 (LTS) (SDNY) 
+
+ SEC CHARGES 7 FORMER IMPATH EXECUTIVES WITH FINANCIAL FRAUD 
+
+ On March 29, 2005, the Commission filed a civil injunctive action in the United States District Court for the Southern District of New York charging seven former executives of IMPATH, Inc. ("Impath") with securities fraud and related violations.  One defendant has agreed to settle the Commission's charges by paying a total of over $250,000 in disgorgement and civil penalties and consenting to permanent injunctive relief. 
+ The SEC's complaint alleges that from 1999 until 2003, the defendants engaged in fraudulent accounting practices and undisclosed self-dealing in violation of the applicable proxy rules.  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. 
+ Formerly based in New York City, Impath was a public company that provided diagnostic and other laboratory services used in the treatment of cancer and its stock was traded on the Nasdaq National Market.  Impath filed for bankruptcy in September 2003 and is in the process of being liquidated. 
+ Individuals Sued:  The Commission's complaint names the following defendants, who worked at Impath during the relevant period: 
+	  Anuradha D. Saad, age 48, former CEO and Chairman of the Board   
+	 Richard P. Adelson, age 39, former COO and President   
+	 David J. Cammarata, age 40, former CFO   
+	 Peter Torres, age 35, former Senior Vice President of Corporate Finance   
+	 Robert McKie, age 40, former Vice President, Finance and Operations at Impath Predictive Oncology, Inc. ("Predictive Oncology")    
+	 Karin Gardner, age 33, former Controller   
+	 Kenneth Jugan, age 43, former National Billing Director   
+	   Conduct:   The complaint alleges that the defendants engaged in a fraudulent scheme to inflate Impath's financial results, including revenue and net income, without any regard for generally accepted accounting principles or their financial reporting obligations.  Saad, Adelson and Cammarata directed the fraud, while Torres, McKie, Gardner and Jugan implemented the accounting schemes. 
+ Torres, Gardner and Jugan were senior members of Impath's corporate finance department and implemented the fraud by making, and directing members of their staff to make, the improper journal entries needed to carry out the scheme.  Each quarter, Torres conferred with Saad, Adelson or Cammarata about the gap between actual and projected results, and they told Torres how much phony revenue they wanted the finance department to record.  McKie was in charge of Predictive Oncology, one of Impath's subsidiaries, and together with other defendants, he fraudulently capitalized his unit's operating expenses to inflate net income and recognized revenue on a large transaction that never occurred.  Each defendant also engaged in misconduct designed to deceive Impath's outside auditor and conceal the fraud. 
+ As a result of this misconduct, Impath filed annual and quarterly reports with the Commission that included, among other misrepresentations and omissions, materially false and misleading financial statements.  Saad, Adelson, Cammarata and Torres each signed one or more of the periodic reports with full knowledge that those reports and the corresponding press releases announcing quarterly earnings materially misrepresented Impath's financial results. 
+ While the accounting fraud was occurring, Saad, Adelson and Cammarata also engaged in undisclosed self-dealing.  Not only did they exercise stock options and sell Impath stock during the fraud, they used over $850,000 in corporate funds to pay for option exercises without obtaining board approval or making the required proxy statement disclosures.  Saad also used corporate funds to pay for other personal expenses without the requisite approval or disclosure, including vacations, country club dues and artwork. 
+  Statutory Violations:   The Commission's complaint alleges that by engaging in this conduct, the defendants violated the antifraud provisions of the federal securities laws and are secondarily liable for Impath's violations of reporting, record-keeping, internal control and proxy solicitation provisions.  Specifically, the complaint alleges that each defendant violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1.  In addition, each defendant is alleged to be liable for Impath's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13.  Saad, Adelson, Cammarata and Torres are alleged to have also violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and to have made, or directed others to make, false statements to Impath's accountants in violation of Exchange Act Rule 13b2-2.  Saad, Adelson and Cammarata are also alleged to be liable for Impath's violations of Section 14(a) of the Exchange Act and Rules 14a-3 and 14a-9.  Finally, the complaint alleges that Saad also violated Exchange Act Rule 13a-14. 
+  Relief Sought:   The complaint seeks final judgments enjoining violations of these provisions of the federal securities laws; ordering all defendants to pay disgorgement and civil money penalties; and barring Saad, Adelson, Cammarata and Torres from acting as an officer or director of any public company. 
+  Settlement:   McKie, without admitting or denying the allegations in the Complaint, has agreed to:  (i) a permanent injunction against future violations of the relevant antifraud, reporting, books and records and internal controls provisions of the federal securities laws; (ii) disgorgement of the $100,000 in performance bonuses he received as result of the conduct alleged in the Complaint, plus prejudgment interest; and (iii) a civil penalty in the amount of $150,000. 
+ The Commission's claims against the other defendants are pending. 
+ The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation in this matter. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2220.txt b/raw/aaer/2005/AAER-2220.txt
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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51442 / March 29, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2220 / March 29, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11875 
+In the Matter of 
+MARK M. IWAN, CPA 
+Respondent. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against Mark M. Iwan, (“Respondent” or 
+“Iwan”) pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.
+1 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, Respondent consents to the entry of this Order Instituting Public Administrative 
+1 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or 
+improper professional conduct. 
+ 
+ 
+ 
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+                                                
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+ 
+Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and 
+Imposing Remedial Sanctions (“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds2 that: 
+A. RESPONDENT 
+Mark M. Iwan, 47, of Denver, Colorado, was the Global Managing Partner  
+at Arthur Andersen (“Andersen”) LLP, the outside auditor for Qwest Communications 
+International Inc. (“Qwest”), from 1999 to 2002. Iwan worked for Andersen between May 1979 
+and December 2002.  As Global Managing Partner, Iwan supervised the services Andersen 
+performed for Qwest.  Iwan was one of several Andersen partners providing auditing and 
+accounting services to Qwest, and was the audit engagement partner from June 1999 through and 
+including the filing of Qwest’s Form 10-Q for the quarter ended March 31, 2000, and from 
+March 2001 to May 2002. Andersen issued audi t reports, each signed by Iwan, with unqualified 
+opinions on Qwest’s 1999, 2000, and 2001 financial statements and reviewed Qwest’s quarterly 
+financial statements for the same period.  Iwan is a certified public accountant in Colorado, but 
+his license expired in May 2004. 
+B. OTHER ENTITY 
+Qwest is a Delaware corporation with its principal place of business in Denver, Colorado.  
+Qwest’s common stock is registered with the Commission pursuant to Section 12(b) of the 
+Securities Exchange Act of 1934 and trades on the New York Stock Exchange.  Qwest files 
+annual, quarterly, and current reports with the Commission on Forms 10-K, 10-Q, and 8-K, 
+respectively, and its fiscal year end is December 31.  Qwest’s financial statements were audited by 
+Andersen for Qwest’s fiscal years ended December 31, 1999, 2000, and 2001.  
+C. FACTS 
+1. From at least the second quarter ended June 30, 1999, and continuing through the 
+first quarter ended March 30, 2002, Qwest emphasized its projected revenues and earnings growth 
+in Commission filings and in public statements, 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  The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding 
+on any other person or entity in this or any other proceeding. 
+2
+ 
+ 
+  
+ 
+  
+                                                 
+2. To make up for the shortfall between 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.3 
+Qwest accounted for IRUs as sales-type leases, and recognized revenue immediately upon 
+purported delivery and acceptance of the capacity.  Qwest also sold capital equipment with 
+immediate revenue recognition.  Qwest failed adequately to make required disclosures under 
+generally accepted accounting principles (“GAAP”) in its 1999 and 2000 Forms 10-K and 10-Qs 
+regarding one-time IRU and equipment sale transactions.  Specifically, in Qwest’s 1999 and 2000 
+Forms 10-K, Qwest failed to disclose its revenue recognition policies for IRUs and equipment 
+sales; the dollar amount of IRUs and equipment sales; the amount of IRU inventory available for 
+sale; its nonmonetary exchange accounting for transactions where Qwest sold IRUs and purchased 
+equal amounts of IRUs at the same time from the same customer (“IRU swaps”); and its capital 
+lease treatment for IRUs.   
+3. Generally accepted auditing standards (“GAAS”) provide that if a company omits 
+from its financial statements information that is required under GAAP, the auditor should express a 
+qualified or adverse audit opinion and should provide the information in the auditors’ report.  
+Although Iwan required Qwest to increase disclosures and recommended still additional 
+disclosures concerning IRUs, he unreasonably failed to ensure that Qwest’s management included 
+all required disclosures under GAAP concerning Qwest’s IRU and capital equipment sales in 
+Qwest’s 1999 and 2000 financial statements.4  Iwan, therefore, failed to conduct his audit of Qwest 
+in accordance with GAAS when he signed the audit reports for inclusion in the 1999 and 2000 
+Forms 10-K.  
+4. In addition, Qwest’s IRU revenue recognition policy as applied by it failed to meet 
+several criteria under GAAP.  Among other things, Qwest’s immediate revenue recognition was 
+fundamentally flawed because Qwest gave IRU customers the right to return the assets purchased 
+in exchange for different assets (“porting”), and Qwest never established that title could transfer 
+and did not transfer the usual risks and rewards of ownership to the buyer. 
+5. Iwan relied unreasonably on management’s false representations that certain 
+revenue recognition criteria for immediate revenue recognition on IRUs were met.  For example, 
+Andersen allowed revenue recognition despite mounting evidence that Qwest’s IRU earnings 
+process was not complete because Qwest allowed customers to port capacity.  Iwan learned in mid-
+2001, that Qwest’s porting of capacity had risen to approximately ten percent of capacity sold.  
+Upon learning this, Iwan required Qwest to stop porting.  Iwan, however, failed to evaluate 
+whether Qwest’s prior revenue recognition was in conformity with GAAP because he relied 
+unreasonably on management’s false representations that Qwest had made no commitments to 
+allow its customers to port capacity, that it was never Qwest’s intention to allow customers to port 
+capacity, and that Qwest would not honor any future request to port capacity. 
+3  An IRU is an irrevocable right to use a specific amount of fiber optic cable or fiber capacity for 
+a specified time period.  
+4 Certain of the required disclosures appeared in the financial statements in the Annual Report 
+which included an audit report signed by Iwan, but not in the Form 10-K filed by Qwest. 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+6. Additionally, Iwan was aware of significant uncertainty regarding Qwest’s ability 
+to transfer title on IRUs.  Qwest’s management and legal counsel continually represented to 
+Andersen that title transferred on IRUs. Iwan, however, failed adequately to consider evidence to 
+the contrary.  Iwan knew by early 2000 that “[p]rior to EITF 00-11,” Qwest senior tax personnel 
+believed there were “significant uncertainties as to whether title transfer would occur,” and thus 
+Qwest would treat IRUs as operating leases for tax purposes.  Andersen rejected this tax treatment 
+and continued to rely on senior management representations that title would be transferred.  Iwan 
+failed to reconcile Qwest’s position on title transfer for IRUs for income tax reporting purposes 
+with its contrary position for accounting purposes.  In 2001, Iwan required Qwest to obtain an 
+outside legal opinion that Qwest had the ability to transfer title to the IRUs it sold over the past 
+three years.  Qwest provided to Iwan an abridged summary of the legal opinion which contained 
+significant assumptions, qualifications, ambiguities, and limitations that were critical to evaluating 
+whether Qwest met the ownership transfer requirements.  Notwithstanding the significant 
+uncertainty that continued to surround Qwest’s ability to transfer title on IRU sales transactions, 
+Iwan failed to consider adequately evidence to the contrary, and continued to rely unreasonably on 
+management’s and counsel’s earlier false representations that Qwest had the ability to transfer title, 
+and continued false representations that Qwest met the ownership transfer requirements and 
+satisfied the conditions in the legal opinion.   
+7. Although Iwan advised Qwest management regarding the requirements under 
+GAAP for proper revenue recognition on IRUs, Iwan failed to supervise others on the engagement 
+and to ensure that Andersen had obtained sufficient competent evidential matter to afford a 
+reasonable basis, pursuant to the requirements he set forth, for an unqualified audit report regarding 
+Qwest’s IRU revenue recognition policy.  Specifically, Andersen failed to obtain sufficient 
+evidentiary material to support management’s false representations that Qwest’s accounting for 
+IRUs was in accordance with GAAP.  Andersen unreasonably relied on management’s false 
+representations that Qwest’s accounting for IRUs was in accordance with GAAP, ultimately 
+resulting in Qwest improperly recognizing approximately $4 billion in IRU revenue during fiscal 
+years 1999 through 2001. Iwan, therefore, failed to exercise due professional care and skepticism 
+prior to signing the audit reports.  Had Andersen independently obtained and sought corroborating 
+evidence supporting management’s representations as required by GAAS, it would have concluded 
+that Qwest’s IRU revenue recognition was improper and that Qwest management had falsely 
+represented facts critical to its conclusion that Qwest’s IRU revenue recognition was consistent 
+with GAAP. 
+8. GAAS provides that an auditor can issue an audit report containing an unqualified 
+opinion only if he has conducted his audit in accordance with GAAS.  Because Iwan failed to 
+conduct the 1999 through 2001 audits of Qwest in accordance with GAAS by failing to ensure that 
+the audit team obtained sufficient competent evidential matter, he acted unreasonably in issuing 
+audit reports with unqualified opinions. 
+D. FINDINGS 
+Based on the foregoing, the Commission finds that Iwan engaged in improper professional 
+conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules of Practice by 
+4
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+   
+ 
+      
+        
+engaging in repeated instances of unreasonable conduct, each resulting in a violation of applicable 
+professional standards, that indicate a lack of competence to practice before the Commission.  
+Respondent’s Cooperation 
+In determining to accept his Offer, the Commission considered Respondent's cooperation 
+afforded the Commission staff. 
+Undertakings 
+In connection with this action and any related judicial or administrative proceeding or 
+investigation commenced by the Commission or to which the Commission is a party, Respondent 
+undertakes to cooperate with the Commission staff and:  (i) agrees to appear and be interviewed 
+by Commission staff at such times and places as the staff requests upon reasonable notice; (ii) will 
+accept service by mail or facsimile transmission of notices or subpoenas issued by the Commission 
+for documents or testimony at depositions, hearings, or trials, or in connection with any related 
+investigation by Commission staff; (iii) appoints Respondent’s attorney as agent to receive service 
+of such notices and subpoenas; (iv) with respect to such notices and subpoenas, waives the 
+territorial limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any 
+applicable local rules, provided that the party requesting the testimony reimburses Respondent’s 
+travel, lodging, and subsistence expenses at the then-prevailing U.S. Government per diem rates; 
+and (v) consents to personal jurisdiction over Respondent in any United States District Court for 
+purposes of enforcing any such subpoena. 
+In determining whether to accept the Offer, the Commission has considered these 
+undertakings.   
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Iwan’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Mark M. Iwan is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+B. After five years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+5
+ 
+ 
+ 
+      
+  
+      
+           
+ 
+ 
+ 
+ 
+      
+ 
+ 
+ 
+ 
+ 
+   
+ 
+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 or, if the Board has not conducted an 
+inspection, has received an unqualified report relating to his, or the firm’s, most recent peer 
+review conducted in accordance with the guidelines adopted by the former SEC Practice Section 
+of the American Institute of Certified Public Accountants Division for CPA Firms or an 
+organization providing equivalent oversight and quality control functions; 
+(c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+(d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards. 
+C. The Commission will consider an application by Respondent to resume appearing 
+or practicing before the Commission provided that his state CPA license is current and he has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, 
+if state licensure is dependant on reinstatement by the Commission, the Commission will 
+consider an application on its other merits.  The Commission’s review may include consideration 
+of, in addition to the matters referenced above, any other matters relating to Respondent’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ By the Commission. 
+       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-2221.txt b/raw/aaer/2005/AAER-2221.txt
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index 0000000000000000000000000000000000000000..edab2eb1f71128e8ed116620664eb6928988df54
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+              Eric Tyra, Scott Wynne, Peter Berman, and Scott Carey
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+        Eric Tyra, Scott Wynne, Peter Berman, and Scott Carey
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19163 / March 31, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2221 / March 31, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. Eric Tyra, Scott Wynne, Peter Berman, and Scott Carey,  Civil Action No. CV-04-P-1052-S (N.D. Al.). 
+
+ The Securities and Exchange Commission announced that the Honorable R. David Proctor, United States District Judge for the Northern District of Alabama, entered a Final Judgment As To Defendant Peter Berman ("Berman"), enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and 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.  Berman consented to the entry of the judgment without admitting or denying any of the allegations of the Commission's Complaint.  Further, the court ordered disgorgement and prejudgment interest against Berman in the respective amounts of $15,000 and $6,327.  Berman was also ordered  to pay a civil penalty of $30,000, and was prohibited from acting as an officer or director of any issuer that has a class of registered securities.    
+ Berman was the comptroller of Just for Feet, Inc., a large shoe and sports apparel retailer formerly headquartered in Birmingham, Alabama. The Commission's Complaint, filed on May 21, 2004, alleged that Berman and others caused the accounting department of Just for Feet to book receivables that he knew or should have known had not been earned, and failed to make necessary adjustments to the company's inventory obsolescence reserves. The overstatement of income and assets resulting from this misconduct was reflected on Just for Feet's financial statements included in its Form 10-K filed for fiscal year 1998, Forms 10-Q filed for the first and second quarters of fiscal year 1999, and in its registration statements on Forms S-8 and S-4 filed in May and June of 1999, respectively. 
+ See also: L.R.   18139  (May 15, 2003); L.R.  18571  (February 6, 2004); L.R.  18575  (February 13, 2004); and L.R.  18731  (June 1, 2004). 
+ 
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diff --git a/raw/aaer/2005/AAER-2222.txt b/raw/aaer/2005/AAER-2222.txt
new file mode 100644
index 0000000000000000000000000000000000000000..17555d811f2a7bd50486db3a38df329167f0adff
--- /dev/null
+++ b/raw/aaer/2005/AAER-2222.txt
@@ -0,0 +1,1368 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19165 / April 4, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2222 / April 4, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION V. AURORA FOODS INC., ET AL.,  Case No. 01 CIV 0554 (AKH) S.D.N.Y. 
+
+ FINAL JUDGMENT OF PERMANENT INJUNCTION AND OTHER RELIEF ENTERED AGAINST DEFENDANT KEITH LUECHTEFELD, FORMER EMPLOYEE OF AURORA FOODS INC. 
+
+ The Securities and Exchange Commission announced that on December 1, 2004, the United States District Court for the Southern District of New York entered a Final Judgment of Permanent Injunction and Other Relief against defendant Keith Luechtefeld (Luechtefeld).  Luechtefeld, a former division controller of Aurora Foods, Inc. (Aurora) was enjoined from future violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5 and 13b2-1 thereunder.  Luechtefeld consented to the entry of the final judgment without admitting or denying the allegations in the Commission's Complaint.  In addition to the injunctive relief, Luechtefeld was ordered to pay disgorgement of his ill-gotten gains and prejudgment interest in the amount of $62,500.   
+ According to the Commission's Complaint, which was filed on January 23, 2001, Luechtefeld assisted other co-defendants, including former members of Aurora's senior management, in a financial reporting fraud at Aurora in 1998 and 1999.  The Complaint alleged that during the relevant period, Aurora under-reported its trade marketing expenses by more than $43 million which resulted in material misstatements of earnings in Aurora's financial statements.  The Complaint alleged that Aurora's senior management was aware that Aurora was not accurately reporting trade marketing expense.  Instead of properly booking the expense, the Complaint alleged that senior management tried to conceal it from the independent auditors by directing division level officers and employees, including Luechtefeld, to make false entries in various accounts on Aurora's books.  The Complaint alleged that Luechtefeld assisted in these efforts.  As a result of the scheme, the Complaint alleged that Aurora falsely and substantially inflated its financial results.   
+ Previously, defendants Aurora, Ian R. Wilson, Ray Chung, M. Laurie Cummings, Timothy B. Andersen, Dirk Grizzle, Tammy Fancelli and James Elliott each consented to the entry of final judgments that permanently enjoined them from future violations of the federal securities laws.  In addition to the injunctive relief, Wilson, Chung, Cummings and Grizzle were permanently barred from serving as officers or directors of a public company.  Wilson, Chung, Cummings and Grizzle were also ordered to pay disgorgement of their ill-gotten gains and prejudgment interest in the amounts of $420,000, $142,000, $75,000, $102,000, respectively.  In addition, Chung, Cummings, Andersen, Grizzle, Fancelli and Elliott were ordered to pay civil penalties in the amounts of $125,000, $200,000, $125,000, $75,000, $20,000 and $10,000, respectively.   
+ In a related criminal case, Wilson, Cummings, Chung and Grizzle each pled guilty to various securities counts.  As a result, Wilson received a sentence of 33 months incarceration and was fined $1 million.  Cummings received a sentence of 41 months incarceration.  Chung was fined $500,000.  Grizzle received a sentence of six months incarceration and was fined $100,000. 
+ For further information, see Litigation Release Nos. 16866 (January 23, 2001) and 18851 (August 25, 2004).   
+
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diff --git a/raw/aaer/2005/AAER-2223.txt b/raw/aaer/2005/AAER-2223.txt
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+++ b/raw/aaer/2005/AAER-2223.txt
@@ -0,0 +1,1388 @@
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+              Drew S. Levin, Noel Cronin, and Michael Macchiarella; John D. Clutten
+           
+     
+ 
+
+   
+
+     
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+      
+             
+        Drew S. Levin, Noel Cronin, and Michael Macchiarella; John D. Clutten
+       
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19172 / April 6, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2223 / April 6, 2005 
+
+  Securities and Exchange Commission v. Drew S. Levin, Noel Cronin, and Michael Macchiarella,  Civil Action No. 05-2547 NM (RCx) (C.D. Cal.) (April 6, 2005) 
+
+ In the Matter of John D. Clutten, Administrative Proceeding File No.  3-11884 
+
+ SEC CHARGES DREW S. LEVIN, FORMER CEO OF TEAM COMMUNICATIONS GROUP, INC. AND TWO OTHERS WITH FRAUD; AND A THIRD FOR CAUSING FRAUD. 
+
+ On April 6, 2005, the Securities and Exchange Commission filed fraud and other charges against Drew S. Levin, Noel Cronin, and Michael Macchiarella for a financial fraud conducted at Team Communications Group, Inc.  The Commission also instituted a related administrative action against John D. Clutten. 
+ The compliant, filed in the United States District Court for the Central District of California, alleges that a financial fraud took place at Team from approximately 1999 through 2001 and that there were two major components of the fraudulent scheme.  The first component involved improperly accounting for "circular" sales transactions between Team and certain other companies, including companies controlled by Cronin.  The second component of the scheme involved non-binding, "minimum-guarantee" distribution contracts.  Under these contracts, Team improperly recognized minimum-guaranteed revenue (specified in the terms of those contracts) even though the counter-parties were assured that the minimum-guarantee numbers would not be enforced.  In fact, in most or all cases, the minimum-guarantee contractual obligations were voided by undisclosed side-letter agreements. 
+ The complaint also alleges that the fraudulent scheme resulted in material misstatements and omissions in Team's periodic reports filed with the Commission and other public statements related to the company's fiscal years 1999 and 2000 (Team's fiscal year ended on 12/31).  For example, the circular and minimum-guarantee transactions caused Team to report in its filings with the Commission materially misstated revenue, income, and assets for the periods ended 12/31/1999, 3/31/2000, 6/30/2000 and 9/30/2000. 
+ The complaint further alleges that Levin, Team's former Chief Executive Officer and Chairman of the Board, was the architect of the scheme and personally oversaw and directed its execution.  Levin's scheme was accomplished with the assistance of Cronin and Macchiarella.  During the relevant time period, Cronin was the head of Team's United Kingdom subsidiary, known as Team Dandelion.  Cronin and other companies in which he had an ownership interest were involved in the circular and minimum-guarantee transactions.  Macchiarella purportedly owned a film distribution company, which was not affiliated with Team and which entered into a guaranteed-minimum with Team.  Levin and Macchiarella made false statements to Team's auditors about Macchiarella's company and the contract.  In its administrative action against Clutten, the Commission alleges that Clutten was involved with the guaranteed-minimum contracts. 
+ Cronin has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to the entry of a judgment (a) permanently enjoining him from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder, and (b) prohibiting him from acting as an officer or director of a public company for five years. 
+ Macciarella has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to the entry of a judgment (a) permanently enjoining him from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-1 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13, and13b2-2 thereunder, and (b) requiring him to pay disgorgement of $25,000 plus prejudgment interest and a $25, 000 civil penalty. 
+ Clutten has agreed to settle the Commission's administrative action by consenting to the entry of an order, without admitting or denying the findings in the order, directing him to 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. 
+ The Commission will litigate the case against Levin.  The Commission's complaint alleges Levin violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and aided and abetted 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.  The Commission seeks an injunction against future violations of these provisions, an order prohibiting him from acting as an officer or director of a public company, disgorgement of all unlawful gains and prejudgment interest, and a civil monetary penalty. 
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diff --git a/raw/aaer/2005/AAER-2225.txt b/raw/aaer/2005/AAER-2225.txt
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+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51501 / April 7, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2225 / April 7, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11885 
+In the Matter of 
+STEPHEN C. JONES, CPA,
+ 
+Respondent. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-
+AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933, SECTION 
+21C OF THE SECURITIES EXCHANGE 
+ACT OF 1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND 
+ A CEASE-AND- DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against Stephen C. 
+Jones, CPA (“Jones” or “Respondent”) pursuant to Section 8A of the Securities Act of 1933 
+(“Securities Act”), Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and 
+Rule 102(e)(1)(ii) and 102(e)(1)(iii) of the Commission’s Rules of Practice.
+1 
+Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct. 
+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 vi olated, or willfully aided and abetted the violation of 
+any provision of the Federal securities laws or the rules and regulations thereunder. 
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+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) whic h the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisd iction over him and the subject matter of these 
+proceedings, 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 Pr actice, Making Findings, and Imposing Remedial 
+Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds2 that: 
+A. RESPONDENT 
+Stephen C. Jones , age 38, worked as a Senior Fina ncial Reporting Manager at Dollar 
+General Corporation (“Dollar General”) from Fe bruary 1998 through Apr il 1999, as a Senior 
+Accounting Manager at Dollar General from April 1999 through August 2000, and as the Director 
+of Financial Planning and Analysis at Dollar General from August 2000 through April 2002.  He is 
+a resident of Kentucky.  Respondent has been  licensed as a Certified Public Accountant in 
+Kentucky since 1994. 
+B. FACTS 
+1. Under-Reporting of Freight Expenses 
+a. Dollar General is a Tennessee corporation headquartered in Goodlettsville, 
+Tennessee.  Dollar General is a discount retailer of general merchandise.  The company operates 
+over 7,000 stores in 30 states.  Dollar General’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. In December 1999, Dollar General employees discovered that the Company 
+had failed to record millions of dollars in expenses relating to import freight costs associated with 
+transporting goods from foreign countries to Dolla r General (hereinafter re ferred to as “freight 
+expenses”). Dollar General’s accounting staff an alyzed the issue and determined that Dollar 
+The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding. 
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+General should have recognized an additional $13.4 million in freight expenses in fiscal year 1999 
+and prior years.  This issue was discussed in  a meeting held on January 27, 2000, which was 
+attended by Respondent. 
+c. Certain of Dollar General’s executives collectively determined to defer the 
+bulk of the freight expenses to fi scal year 2000, instead of record ing the expenses in the correct 
+periods (fiscal year 1999 and prior periods) as required by Generally Accepted Accounting 
+Principles (“GAAP”). The executives knew that de ferring the bulk of the expenses to fiscal year 
+2000 would avoid the negative impact on already a nnounced fiscal year 1999 earnings as well as 
+year-end bonus payments to Dollar General employees, including Respondent.   
+d. On or about February 2, 2000, in a meeting attended by several members of 
+Dollar General’s accounting team, including Respondent and Dollar General’s Controller and its 
+Treasurer, the Controller stated that the Company’s executive management had determined to book 
+most of the freight expenses in fiscal year 2000.  During this meeting, the Treasurer expressed his 
+view that management could be compromising their ethics by handling the expenses in that manner 
+and that he believed Dollar General’s financial statements would not be appropriately presented if 
+the freight expenses were deferred to fiscal year 2000.  Respondent and another Dollar General 
+accountant expressed their agreement with the Treasurer. 
+e. The Controller directed Respondent 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, the Controller directed 
+Respondent to move $1.3 million of the $9.4 million to the miscellaneous accrued liabilities 
+account, widely known at Dollar General as th e “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.  Respondent knew that this  accounting treatment was improper, but he 
+nevertheless followed the Controller’s instructions. 
+  f. Dollar General’s manipulation of  the freight expenses resulted in an 
+overstatement of Dollar General’s fiscal year 1998 pre-tax income by $ 5.9 million and its fiscal 
+year 1999 pre-tax income by $3.7 million, with corresponding understatements in the Company’s 
+fiscal year 2000. By deferring th e freight expenses, Dollar General met certain targets.  For 
+example, if the freight expenses had been recognized in fiscal year 1999 as required by GAAP, 
+bonuses for Dollar General executives and employees, including Respondent, would have been 
+lower. Further, the deferment enabled Dollar General to meet analysts’ expectations for its 
+earnings per share for fiscal year 1999.  If Dolla r General had recognized the freight expenses in 
+fiscal year 1999, it would have fallen short of the analysts’ e xpectations by two cents per share. 
+The freight expense deferment devised by others and implemented by Respondent and others was 
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+in clear violation of Accounting Principles Board Opinion No. 20, “Accounting Changes,” which 
+requires a material error in previously issued financial statements to be reported as a prior period 
+adjustment.  In addition, because the import freight expense was material to fiscal year 1999, if all 
+of it was recognized in the fourth quarter, the appropriate treatment of the expense was to allocate 
+it correctly across the prior reporting periods it affected in fiscal years 1998 and 1999.  That would 
+have required Dollar General to restate those pe riods, a material event avoided by spreading the 
+amount over fiscal year 2000. 
+g. Respondent knew or was reckless in not knowing that Dollar General’s 
+external auditors would disagree with the hand ling of these freight expenses.  Respondent, 
+knowing that it was wrong to do so, did not bring the issue to the attention of the auditors. 
+2. Overstatement of Cash Accounts
+ a. From approximately November 1997 until March 2000,  Dollar General 
+failed to properly or timely reconcile its consolidated retail store bank accounts to its general 
+ledger. Dollar General’s management was aware of this practice for years.  Upon ultimate 
+completion of the reconciliation process in Dollar  General’s fiscal year 2000, Dollar General’s 
+accounting group discovered an unexplained overstatement of retail cash of at least $4.7 million. 
+Dollar General’s Controller proposed that half of this amount be written off against sales expense 
+and the other half be written off against shrink (an expense relating to reduction in inventory) 
+instead of an appropriate administrative expe nse account.  These reco mmendations were in 
+contravention of GAAP.  Dollar General’s accounting staff, including Respondent, understood that 
+no one outside of the Company’s accounting department was to know of this cash issue.    
+b. In a later meeting, Respondent sugg ested to the Controller that the entire 
+overstatement of cash could be written off to th e “franchise purchase discount account.”  The 
+Controller adopted Respondent’s proposal and s ubsequently charged $3 million of the cash 
+overstatement as an expense to the franchise purchase discount account over six months in fiscal 
+year 2000. This was not consiste nt with GAAP because the franch ise purchase discount account 
+bears no relation to cash accounts at Dollar General.  Respondent knew that this suggestion was 
+not consistent with GAAP, but he believed it was an effective way to hide the cash problem.  The 
+Controller charged the remaining $1.9 million to Dollar General’s “Rainy Day Fund”, an action 
+also contrary to GAAP. Because  this $1.9 million was not expens ed by Dollar General in the 
+fourth quarter of fiscal year 2000, Dollar Gene ral’s fourth quarter 2000 pre-tax income was 
+overstated by that amount, or approximately 2% of Dollar General’s restated fourth quarter 2000 
+pre-tax income. 
+c. Dollar General filed registration st atements on August 1, 2000, August 9, 
+2000, and March 9, 2001 in connection with securities offerings by Dollar General that 
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+incorporated the false financial statements contained in Dollar General’s Form 10-K for fiscal year 
+1999. 
+C. VIOLATIONS 
+1. Section 17(a) of the Securities Act prohi bits misrepresentations or omissions of 
+material facts in the offer or sale of securities.  Section 10(b) of the Exchange Act and Rule 10b-5 
+thereunder prohibit fraud “in connection with the purchase or sale” of securities.  A person who 
+“had knowledge of the fraud and assisted in its perpetration” violates Section 10(b) and Rule 10b-
+5. SEC v. U.S. Environmental, Inc., 155 F.3d 107, 112 (2d Cir. 1998) (Section 10(b) liability not 
+limited to “supervisors or directors of securities fraud scheme” and includes “subordinates who 
+also violated the securities laws”). 
+2. To hold a person liable under Section 17(a) of the Securities Act, Section 10(b) of 
+the Exchange Act, and Rule 10b-5 thereunder, the misrepresentation or omission must be material, 
+meaning that a reasonable investor would have consid ered the misrepresented or omitted fact 
+important when deciding whether to buy, sell or hold the securities in question.  See Basic Inc. v. 
+Levinson, 485 U.S. 224, 231-32 (1988).  In addition, the person must act with scienter, which can 
+be shown by knowledge, or reckless disregard,  of the fraudulent scheme or the undisclosed 
+information.  See Aaron v. SEC, 446 U.S. 680, 701-02 (1980).     
+3. Respondent, through his conduct described above, willfully violated Section 17(a) 
+of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder.  Respondent 
+knowingly participated in and implemented a scheme to under-report Dollar General’s expenses in 
+its Fiscal Year 1999, thus causing  Dollar General’s earnings to be  overstated.  Respondent also 
+knowingly assisted Dollar General to overstate its cash accounts.      
+4. Section 13(a) of the Exchange Act requires issuers of registered securities to file 
+with the Commission factually accurate reports.  Exchange Act Rule 13a-1 requires the filing of 
+annual reports, and Exchange Act Rule 13a-13 requires the filing of quarterly reports on Form 10-
+Q. Rule 12b-20 requires disclosure of such add itional information as may be necessary to make 
+the required statements not misleading.  Implicit in these provisions is the requirement that the 
+information reported be true, correct and complete.  See United States v. Bilzerian, 926 F.2d 1285, 
+1298 (2d Cir. 1991).  No showing of scienter is required to violate Section 13(a).  See, e.g., SEC v. 
+Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978). 
+5. As discussed above, Respondent caused Dollar General to file false and misleading 
+quarterly and annual reports with the Commission that misrepresented the financial results of 
+Dollar General.  By his conduct described abov e, Respondent willfully aided and abetted and 
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+caused Dollar General’s violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 
+and 13a-13 thereunder. 
+6. Section 13(b)(2)(A) of the Exchange Act requires reporting companies registered 
+pursuant to Section 12 of the Exchange Act to  “make and keep books, records, and accounts, 
+which in reasonable detail, accurately and fairly refl ect the transactions . . . of the issuer.”  No 
+showing of scienter is required to establish a violation of Section 13(b)(2)(A).  See SEC v. World-
+Wide Coin Invs., Ltd. , 567 F. Supp. 724, 751 (N.D. Ga. 1983).  Section 13(b)(2)(B) of the 
+Exchange Act requires reporting companies to devise and maintain a system of internal accounting 
+controls sufficient to reasonably assure that, among other things, transactions are recorded and 
+financial statements are prepared in conformity with GAAP.  Section 13(b)(5) of the Exchange Act 
+provides that no person shall knowi ngly falsify any such book, record , or account or circumvent 
+internal controls. Rule 13b2-1 also prohibits th e falsification of any book, record, or account 
+subject to Section 13(b)(2)(A). 
+7. As described above, Respondent knowi ngly falsified Dollar General’s books and 
+records by recording freight expenses in 2000 that related to prior periods, contrary to GAAP.  As 
+a result, Respondent willfully violated Section 13(b)(5) and Rule 13b2-1 thereunder.  In addition, 
+Respondent willfully aided and abetted and caused Dollar General’s violations of 
+Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  
+D. FINDINGS 
+1. Based on the foregoin g, the Commission finds th at Respondent engaged in 
+improper professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules 
+of Practice and willfully violated and willfully aided and abetted the violation of provisions of the 
+federal securities laws within th e meaning of Rule 102(e)(1)(iii)  of the Commission’s Rules of 
+Practice. 
+2. Based on the foregoing, the Commission finds that Respondent (a) willfully 
+violated Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act 
+and Rules 10b-5 and 13b2-1 prom ulgated thereunder; and (b) willfully aided and abetted and 
+caused Dollar General’s violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange 
+Act, and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder. 
+E. UNDERTAKINGS 
+1. In connection with this proceeding and any related judicial or administrative 
+proceeding or investigation comm enced by the Commission or to which the Commission is a 
+party, Respondent undertakes and agrees (i) to appear and be interviewed by Commission staff at 
+such times and places as the staff requests upon reasonable notice; (ii) to accept service by mail or 
+6 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+    
+ 
+      
+        
+ 
+ 
+      
+  
+      
+facsimile transmission of notices or subpoena s issued by the Commiss ion for documents or 
+testimony at depositions, hearings, or trials, or in connection w ith any related investigation by 
+Commission staff; (iii) to appoint Respondent's attorney Therese D. Pritchard, Esq. of Bryan Cave 
+LLP, 700 Thirteenth Street, NW, Washington D.C. 20005-3960, as agent to receive service of such 
+notices and subpoenas; (iv) with respect to such  notices and subpoenas, to waive the territorial 
+limits on service contained in Rule 45 of the Federal Rules of Civil Procedure and any applicable 
+local rules; and (v) to consent to personal ju risdiction over Respondent in any United States 
+District Court for purposes of enforcing any such subpoena. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Respondent shall cease and desist from committing or causing an y violations and 
+any future violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the 
+Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereu nder; and from causing any 
+violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange 
+Act, and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder. 
+B. Respondent is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+C. After three years from the date of this Order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the Chief 
+Accountant) to resume appearing or practicing before the Commission as: 
+1. a preparer or reviewer, or a person respons ible 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 Respondent’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: 
+7 
+ 
+ 
+ 
+ 
+ 
+ 
+           
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+(a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Co mpany 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 quali ty 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 a ny 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 a nd the Board, including, but not limited to, all 
+requirements relating to registration, inspections , concurring partner reviews and quality control 
+standards. 
+D. The Commission will consider an application by Respondent to resume appearing 
+or practicing before the Commission provided that  his state CPA license is current and he has 
+resolved all other disciplinary issues with the appli cable state boards of accountancy.  However, 
+if state licensure is dependent on reinst atement 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 ma tters relating to Respondent’s 
+character, integrity, professional conduct, or qualifications to a ppear 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 ACT OF 1933 
+Release No. 8569 / April 18, 2005 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51565 / April 18, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2232 / April 18, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11902 
+ 
+ 
+In the Matter of 
+ 
+The Coca-Cola Company,  
+ 
+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 Commissi on (“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”) as to The Coca-Cola Company (“Coca-Cola” or 
+“Respondent”). 
+ 
+II. 
+ 
+ In anticipation of the institution of thes e proceedings, Respondent has submitted an 
+Offer of Settlement (the “Offer”) which the Commission has determined to accept.  Solely 
+for the purpose of these proceedings and any other proceedings brought by or on behalf of 
+the Commission, or to which the Commission is a party, and without admitting or denying 
+the findings herein, except as to the Commission’s jurisdiction over it and the subject 
+matter of these proceedings, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings, 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 that:1
+ 
+RESPONDENT
+ 
+1. Coca-Cola is a Delaware corporation headquartered in Atlanta, Georgia.  Coca-
+Cola’s common stock is registered with the Commission under Section 12(b) of the 
+Exchange Act and trades on the New York Stock Exchange under the symbol KO.  Coca-
+Cola is the largest manufacturer, distributor and marketer of nonalcoholic beverage 
+concentrates and syrups in the world.  Coca-Cola’s reported net operating revenues for 
+the past ten years have ranged between $16 billion and $22 billion. 
+ 
+2. Coca-Cola offered and sold securities in registered offerings during 1997, 1999 and 
+2000.  Specifically, Coca-Cola conducted securities offerings pursuant to employee benefit 
+plans and S-8 Registration Statements filed with the Commission in May 1997, May 1999 
+and April 2000, which incorporated by reference certain Forms 10-K, 10-Q and 8-K filed 
+by Coca-Cola during this period. 
+ 
+RELEVANT ENTITY
+ 
+3. The Coca-Cola (Japan) Company, Ltd. (“CCJC”) is a Japanese corporation and 
+wholly-owned subsidiary of Coca-Cola.  CCJC is engaged in the marketing, manufacture 
+and distribution of Coca-Cola beverage concentrate in Japan.   Historically, CCJC is one of 
+Coca-Cola’s two or three greatest sources of net operating revenue and, on a per gallon of 
+concentrate sold basis, CCJC is the most profitable operating division of Coca-Cola 
+throughout the world. 
+ 
+COCA-COLA HAD AN ESTABLISHED HISTORY 
+OF MEETING OR EXCEEDING EARNINGS EXPECTATIONS 
+ 
+4. From 1990 through 1996, Coca-Cola consistently met or exceeded earnings 
+expectations while achieving a compound annual earnings per share growth rate of 18.3 
+percent – more than twice the average growth rate of the S&P 500.  Coca-Cola’s superior 
+earnings performance resulted in its common stock trading at a price to earnings multiple 
+(“P/E Ratio”) of 38.1 by the end of 1996, as compared to the S&P 500’s P/E Ratio of 20.8. 
+ 
+5. In the mid-1990s, Coca-Cola began experiencing increased competition and more 
+difficult economic environments.  Nevertheless, Coca-Cola publicly maintained between 
+1996 and 1999 that it expected its earnings per share to continue to grow between 15 
+percent and 20 percent annually. 
+ 
+                                                 
+1 The findings herein ar e made pursuant to Coca-Cola’s Of fer of Settlement and 
+are not binding on any other person or entity in this or any other proceeding. 
+ -2-
+COCA-COLA “GALLON PUSHED” IN JAPAN TO MEET  
+BUSINESS PLAN TARGETS AND EARNINGS EXPECTATIONS 
+ 
+6. At or near the end of each reporting period between 1997 and 1999, Coca-Cola, 
+through its officers and employees implemented a “channel stuffing” practice in Japan 
+known as “gallon pushing.”  In connection with this practice, CCJC asked bottlers in Japan 
+to make additional purchases of concentrate for the purpose of generating revenue to meet 
+both annual business plan and earnings targets.  The income generated by gallon pushing in 
+Japan was the difference between Coca-Cola meeting or missing analysts’ consensus or 
+modified consensus earnings estimates for 8 out of 12 quarters from 1997 through 1999. 
+ 
+7. To accomplish gallon pushing’s purpose, at or near the end of reporting periods 
+CCJC offered extended credit terms to bottlers, as described below, to induce them to 
+purchase quantities of concentrate the bottlers otherwise would not have purchased until a 
+following period.  The quantities of concentrate CCJC sold to its bottlers in connection 
+with a gallon push were in excess of the bottlers’ forecasted demand; the bottlers 
+nevertheless purchased the concentrate to preserve their relationships with Coca-Cola. 
+ 
+8. Concentrate sales by CCJC to its bottlers typically track and correspond to 
+anticipated and actual bottler sales of finished products to retailers.  Increases in the 
+inventory level of concentrate held by bottlers often anticipate increases in sales of finished 
+products.  As a result of gallon pushing, however, concentrate inventory levels at CCJC’s 
+bottlers increased more than 60 percent from the start of 1997 through the close of 1999.  
+During this same time, bottler sales of finished products to retailers only increased 
+approximately 11 percent. 
+ 
+9. Coca-Cola estimated its bottlers’ inventory levels, forecasted purchasing demand, 
+and was aware that quarter-end gallon pushing likely could not continue at existing levels 
+and likely would cause a corresponding reduction in sales in a future period.  At no point 
+between 1997 and 1999, however, did Coca-Cola publicly disclose to shareholders the 
+existence of gallon pushing, the impact of gallon pushing on its current income, or the 
+likely impact of gallon pushing on its future income. 
+ 
+COCA-COLA GALLON PUSHED  
+ITS MOST PROFITABLE PRODUCTS 
+ 
+10. In connection with gallon pushes, bottlers primarily purchased only two products:  
+Georgia Coffee, a canned flavored coffee beverage, and branded Coca-Cola (“Coke”).  
+Georgia Coffee and Coke were typically two of the highest sales volume products for 
+CCJC to its bottlers.  Additionally, of Coca-Cola’s major products, Georgia Coffee and 
+Coke were two of the highest profit-margin per gallon products CCJC could include in a 
+gallon push.  From Coca-Cola and CCJC’s perspective, therefore, in order to generate sales 
+sufficient to meet the additional income targets, it was most efficient to push the bottlers to 
+purchase additional gallons of Georgia Coffee and Coke. 
+ 
+ -3-
+11. For CCJC’s bottlers, however, sales of Georgia Coffee and Coke to retailers were 
+actually declining from 1997 through 1999.  Hence, Coca-Cola, through CCJC, was 
+inducing its bottlers to purchase quantities of concentrate that were in excess of forecasted 
+sales demand for the current quarter. 
+ 
+12. Gallon pushing for the purpose of meeting earnings expectations occurred at no 
+Coca-Cola operating division other than CCJC.  As CCJC was Coca-Cola’s single most 
+profitable division throughout the world on a per gallon of concentrate sold basis, it was by 
+far the most efficient location from which to push additional inventory for the purpose of 
+managing earnings. 
+ 
+CCJC IMPLEMENTED GALLON PUSHING  
+THROUGH THE USE OF EXTENDED CREDIT TERMS 
+ 
+13. To encourage bottlers to purchase additional concentrate, CCJC extended more 
+favorable credit terms than usual to bottlers, typically increasing payment terms from eight 
+to twenty-eight or thirty days.  No rights of return on gallons sold pursuant to gallon 
+pushing were offered to bottlers, and no concentrate sold pursuant to gallon pushing was 
+returned to CCJC or Coca-Cola.  All concentrate sold pursuant to gallon pushing was paid 
+for by the bottlers. 
+ 
+14. CCJC’s extension of credit terms required the express approval of certain of Coca-
+Cola’s officers and employees in Atlanta.   In order to obtain approval for credit extensions, 
+CCJC’s finance department was required to submit formal Requests for Authorization 
+which identified both the approximate amount of gallons of concentrate to be sold with the 
+extended credit terms and the approximate amount of revenue to be generated by the 
+additional sales. 
+ 
+15. After receiving approved Requests for Authorization back from Atlanta, CCJC’s 
+finance department then contacted its bottlers’ finance departments, offering the more 
+favorable credit terms and requesting that the bottlers purchase specific quantities of 
+concentrate above the amounts that the bottlers already had planned to purchase to meet 
+forecasted demand for the period.  In contrast to sales made in connection with a gallon 
+push, routine concentrate sales involved CCJC’s sales and marketing departments 
+corresponding with the bottlers’ purchasing departments. 
+ 
+COCA-COLA’S RECURRING USE OF GALLON PUSHING TO 
+MEET ITS BUSINESS PLAN TARGETS AND EARNINGS ESTIMATES  
+ 
+16. Gallon pushing shifted concentrate purchases that bottlers would have made in a 
+future period into the then current period.  As a result, the previous period’s gallon push 
+caused bottlers to start the next quarter with more inventory than they anticipated needing 
+to meet forecasted demand and caused CCJC to start the future period with a sales 
+“deficit.”  In order to avoid selling less concentrate in the future period as a result of the 
+previous period’s gallon push, and having to lower income targets, Coca-Cola instead 
+ -4-
+would engage in another gallon push, again shifting future sales and income to the present 
+period. 
+ 
+17. CCJC’s gallon pushing practice was incorporated into its annual business plans – 
+not simply for the purpose of increasing sales and meeting Coca-Cola’s future earnings 
+targets, but also to prevent a decrease in concentrate sales and corresponding decrease in 
+earnings in the present period.  Gallon pushing therefore became a recurrent component of 
+CCJC’s annual business plan as Coca-Cola refused to allow CCJC to suffer the sales and 
+income declines resulting from a prior gallon push. 
+ 
+18. The chart below shows the estimated volume of gallons pushed and revenue 
+generated thereby for each quarter from 1997 through 1999.  In order to meet annual 
+business plan targets and consolidated earnings estimates CCJC continually had to push 
+more and more gallons of concentrate on the bottlers.  At the end of the fourth quarter of 
+1999, nearly one out of every two gallons of concentrate held in inventory by CCJC’s 
+bottlers had been sold in connection with a gallon push. 
+ 
+Reporting 
+Period 
+Bottlers Ending 
+Inventory (in gallons) 
+Gallons 
+Pushed  
+Revenue Generated  
+from Gallon Push 
+Q1 1997   15,571,000    3,317,000   $46,201,000 
+Q2 1997   18,408,000   4,380,000   $64,850,000 
+Q3 1997   17,569,000   3,012,000   $62,949,000 
+Q4 1997   20,016,000   8,090,000   $131,541,000 
+    
+Q1 1998   15,180,000   1,000,000   $17,061,000 
+Q2 1998   20,363,000   7,117,000   $98,253,000 
+Q3 1998   17,526,000   5,171,000   $79,807,000 
+Q4 1998   21,800,000   9,659,000   $181,331,000 
+    
+Q1 1999   17,053,000   4,180,000   $67,644,000 
+Q2 1999   23,544,000   8,181,000   $126,131,000 
+Q3 1999   18,833,000   7,105,000   $128,519,000 
+Q4 1999   22,017,000   10,116,000   $208,900,000 
+ 
+GALLON PUSHING INCREASED BOTTLER INVENTORY  
+LEVELS  BEYOND WHAT WAS NECESSARY TO MEET  
+FORECASTED DEMAND FOR THE PERIOD 
+ 
+19. For year end 1996 through year end 1999, bottler sales of finished products to 
+retailers in Japan increased approximately 11 percent in the aggregate amount.  As sales of 
+finished products by bottlers drive the sale of concentrate by CCJC, inventory levels at 
+CCJC’s bottlers should have increased approximately by a corresponding amount during 
+this same time period.  Gallon pushing, however, caused bottler inventory levels to increase 
+62 percent during this time period – a rate approximately six times greater than the increase 
+in bottler sales to retailers.   Hence, gallon pushing resulted in Japanese bottlers carrying 
+significantly higher levels of inventory than was necessary to meet forecasted demand in 
+the current quarter. 
+ 
+ -5-
+20. The concentrate inventory versus sales of finished products disparity was even 
+greater with respect to Georgia Coffee and Coke.  Given that sales by bottlers to retailers of 
+Georgia Coffee and Coke were in fact declining between 1997 and 1999, inventory levels 
+of Georgia Coffee and Coke should have declined as well.  Yet, it was gallon pushed sales 
+of Georgia Coffee and Coke concentrate alone that were causing the bottlers’ overall 
+inventory levels to rise six times faster than their overall sales of finished products to 
+retailers. 
+ 
+COCA-COLA’S GALLON PUSHING PUT FUTURE INCOME AT RISK 
+ 
+21. CCJC forecasted and tracked its actual results against its annual business plan 
+throughout the year in monthly “rolling estimates.”  In addition to containing balance sheet 
+and income statement information, CCJC’s rolling estimates included concentrate sales to 
+bottlers, bottlers’ sales to retailers, and estimated bottlers’ inventory levels. 
+ 
+22. CCJC’s rolling estimates also included summary sections explaining any 
+substantial variances within the rolling estimate as compared to the preexisting annual 
+business plan.  These variance summaries typically indicated that in the first and second 
+month of reporting periods between 1997 and 1999, gallon sales of concentrate and the 
+corresponding income generated by these concentrate sales were lower than expected as a 
+result of gallon pushing in the prior period.  The rolling estimates further illustrated that 
+gallon pushing during the third and final month of a reporting period was necessary for 
+CCJC to return to the sales and income targets contained within its annual business plan.   
+ 
+23. The monthly rolling estimate analyses submitted by CCJC illustrate that gallon 
+pushing during one reporting period negatively impacted the concentrate sales and income 
+that would be generated in the following reporting period. 
+ 
+24. CCJC also generated internal bottler inventory reports and bottler sales reports, 
+typically broken down into “major brand” categories.  The bottler inventory reports 
+indicated that bottlers were carrying inventory levels of Georgia Coffee and Coke that, 
+even considering their higher sales volume as compared to other products, were in excess 
+of all other products.  The bottler sales reports further indicated that although Georgia 
+Coffee and Coke were two of the highest volume products for bottlers, overall bottler sales 
+of Georgia Coffee and Coke were in fact decreasing compared to prior periods. 
+ 
+25. Moreover, since gallon pushing was designed to address earnings shortfalls rather 
+than actual forecasted demand for the current quarter, gallon pushing increased bottler 
+inventories of Georgia Coffee and Coke beyond what bottlers required to satisfy demand 
+for the period. 
+ 
+26. During 1999, bottler inventory levels had increased to the point that gallon pushing 
+could no longer be implemented at desired levels.  In May 1999, a request from Coca-Cola 
+was made to CCJC for a specific amount of income to be generated to assist Coca-Cola in 
+eliminating a consolidated earnings shortfall for the second quarter.  CCJC declined the 
+request because CCJC had already incorporated and planned a gallon push as part of 
+ -6-
+meeting its annual business plan and thought that it was impractical for bottlers to purchase 
+even more concentrate to address Coca-Cola’s anticipated earnings shortfall. 
+ 
+27. During the fourth quarter of 1999, CCJC conducted its largest gallon push – 
+generating revenue in excess of $208 million.  This fourth quarter 1999 gallon push 
+contributed roughly $0.02 to Coca-Cola’s consolidated earnings and, absent one time 
+items, enabled Coca-Cola to meet its modified earnings expectations.  While in the process 
+of implementing this gallon push, employees of CCJC’s finance department contacted 
+officers and employees of Coca-Cola and informed them that gallon pushing had reached 
+its maximum limit and was not sustainable at existing levels.  Coca-Cola’s future inability 
+to gallon push at existing levels necessitated that gallon pushing either significantly 
+decrease in scope or cease entirely – either of which would result in a substantial decrease 
+in revenue and income flowing to Coca-Cola from CCJC. 
+ 
+28. At no time between 1997 and 1999 did Coca-Cola disclose any information from 
+which investors could determine the existence of gallon pushing, the impact of such gallon 
+pushing on current income, or the likely impact of gallon pushing on future income. 
+ 
+COCA-COLA ISSUED A FORM 8-K  
+CONTAINING FALSE AND MISLEADING STATEMENTS  
+ 
+29. On January 26, 2000, Coca-Cola filed a Form 8-K with the Commission which 
+disclosed, among other things, a worldwide concentrate inventory reduction planned to 
+occur during the first half of the year 2000.  The inventory reduction was to be 
+accomplished by Coca-Cola’s operating divisions, specifically including CCJC, ceasing to 
+sell concentrate to bottlers until bottlers naturally reduced their inventory to purported 
+“optimum” levels.  The impact on Coca-Cola’s earnings for the first and second quarter of 
+2000 was estimated to be between $0.11 and $0.13 per share. 
+ 
+30. In describing the inventory reduction, Coca-Cola stated that: (a) “[t]hroughout the 
+past several months, [Coca-Cola had] worked with bottlers around the world to determine 
+the optimum level of bottler inventory;” (b) the management of Coca-Cola and its bottlers, 
+specifically including bottlers in Japan, had jointly determined “that opportunities exist to 
+reduce concentrate inventory carried by bottlers;” and (c) certain bottlers throughout the 
+world, specifically including those in Japan, had “indicated that they intend to reduce their 
+inventory levels during the first half of the year 2000.” 
+ 
+31. These statements are false and misleading as a review of inventory levels in the 
+context of determining an optimum level for bottlers had not occurred throughout the past 
+several months.  Such a review did not take place until, at the earliest, January 2000 – 
+immediately after the fourth quarter 1999 gallon push had occurred and CCJC finance 
+employees had informed Coca-Cola that gallon pushing could not continue at existing 
+levels.  Moreover, Coca-Cola did not identify a single bottler that, prior to the Form 8-K 
+being filed, was aware of any planned inventory reduction. 
+ 
+ -7-
+32. The Form 8-K further is misleading in that, despite its language describing the 
+inventory reduction as a joint proactive efficiency measure between Coca-Cola and its 
+bottlers, the inventory reduction was in fact solely a Coca-Cola initiative.  In addition, the 
+Form 8-K did not disclose that of the estimated $0.11 to $0.13 impact to earnings for the 
+Company as a whole, more than $0.05 would be attributable to an anticipated reduction of 
+sales for Japan.  CCJC’s portion of the estimated gross profit impact was more than five 
+times greater than that of any other operating division in the world. 
+ 
+COCA-COLA’S VIOLATIONS OF SECTIONS  
+17(A)(2) AND 17(A)(3) OF THE SECURITIES ACT 
+ 
+33. Sections 17(a)(2) and 17(a)(3) of the Securities Act prohibit making untrue 
+statements of fact and misleading omissions of facts in the offer or sale of a security. 
+Section 17(a)(2) specifically proscribes obtaining “money or property by means of any 
+untrue statement of a material fact or any omission to state a material fact necessary in 
+order to make the statements made, in light of the circumstances under which they were 
+made, not misleading.”  Section 17(a)(3) specifically proscribes engaging “in any 
+transaction, practice, or course of business which operates or would operate as a fraud or 
+deceit upon the purchaser.”  To constitute a violation of Sections 17(a)(2) and 17(a)(3), the 
+alleged untrue statements or omitted facts must be material.  Information is deemed 
+material upon a showing of a substantial likelihood that the misrepresented or omitted facts 
+would have assumed significance in the investment deliberations of a reasonable investor.  
+Basic, Inc. v. Levinson, 485 U.S. 224 (1988). Establishing violations of Sections 17(a)(2) 
+and 17(a)(3) does not require a showing of scienter; negligence is sufficient. Aaron v. SEC, 
+446 U.S. 680 (1980); SEC v. Hughes Capital Corp., 124 F.3d 449, 453-54 (3d Cir. 1997). 
+ 
+34. As set forth above, Coca-Cola’s Forms 10-K and 10-Q for the reporting periods 
+between 1997 and 1999, certain of which were incorporated by reference in Coca-Cola’s  
+S-8 Registration Statements filed with the Commission, were misleading in that they failed 
+to disclose within Management’s Discussion and Analysis of Financial Condition and 
+Results of Operations (“MD&A”), or anywhere else within such filings, the existence of 
+gallon pushing, the impact on Coca-Cola’s current income of gallon pushing, and the likely 
+impact of gallon pushing on its future income.  In addition to the substantial likelihood that 
+in making a decision regarding an investment in Coca-Cola, a reasonable investor, or 
+potential investor, would have wanted to know of the existence and purpose of gallon 
+pushing as an end of period sales practice, gallon pushing was further material in that in 8 
+out of 12 reporting periods from 1997 to 1999 and 6 out of 8 reporting periods from 1998 
+to 1999, it provided the income necessary for Coca-Cola to meet its modified earnings 
+expectations. 
+ 
+35. The investing public and analysts following Coca-Cola could not discern this 
+information from the public disclosures made by the Company.  Based on the conduct 
+described above, Coca-Cola violated Sections 17(a)(2) and 17(a)(3) of the Securities Act 
+with respect to its Forms 10-K and 10-Q filed with the Commission between 1997 and 
+1999 and incorporated by reference into its S-8 Registration Statements filed with the 
+Commission between 1997 and 2000. 
+ -8-
+ 
+36. As set forth above, Coca-Cola’s January 26, 2000, Form 8-K filed with the 
+Commission contained false statements concerning the existence of a several month long 
+optimum inventory study conducted as a joint effort between Coca-Cola and its bottlers.  
+Additionally, the Form 8-K was misleading by omission as it failed to disclose the impact 
+of past gallon pushing practices in Japan in the context of the planned inventory reduction.  
+There is a substantial likelihood that the false statements surrounding the inventory 
+reduction and misleading omissions regarding gallon pushing within the Form 8-K would 
+have assumed significance in the investment deliberations of a reasonable investor.  Based 
+on the conduct described above, Coca-Cola violated Sections 17(a)(2) and 17(a)(3) of the 
+Securities Act with respect to its January 26, 2000 Form 8-K filed with the Commission 
+and incorporated by reference into its S-8 Registration Statements filed between 1997 and 
+2000. 
+ 
+COCA-COLA’S REPORTING VIOLATIONS: SECTION 13(a) OF THE  
+EXCHANGE ACT AND RULES 12b-20, 13a-1, 13a-11, AND 13a-13 THEREUNDER 
+ 
+37. Section 13(a) of the Exchange Act requires issuers such as Coca-Cola to file 
+periodic reports with the Commission containing such information as the Commission 
+prescribes by rule. Exchange Act Rules 13a-1, 13a-11, and 13a-13 require, respectively, 
+issuers to file Forms 10-K, 8-K, and 10-Q.  Under Exchange Act Rule 12b-20, the reports 
+must contain, in addition to disclosures expressly required by statute and rules, such other 
+information as is necessary to ensure that the statements made are not, under the 
+circumstances, materially misleading.  The obligation to file reports includes the 
+requirement that the reports be true and correct.  United States v. Bilzerian, 926 F.2d 1285, 
+1298 (2d Cir. 1991). The reporting provisions are violated if false and misleading reports 
+are filed.  SEC v. Falstaff Brewing Corp., 629 F.2d 62, 67 (D.C. Cir. 1980). Scienter is not 
+an element of a Section 13(a) violation.  SEC v. Savoy Indus., Inc., 587 F.2d 1149,1167 
+(D.C. Cir. 1978). 
+ 
+38. As set forth above, Coca-Cola’s Forms 10-K and 10-Q for the reporting periods 
+between 1997 and 1999 were materially misleading because they failed to disclose the 
+existence of gallon pushing, the impact of gallon pushing on current earnings, and the 
+likely impact of gallon pushing on future earnings. 
+ 
+39. Additionally, Regulation S-K Item 303 requires registrants to disclose in the 
+MD&A sections of required periodic filings “any known trends or uncertainties that have 
+had or that the registrant reasonably expects will have a material … unfavorable impact on 
+net sales or revenues or income from continuing operations.”  The failure to comply with 
+Regulation S-K constitutes a violation under Section 13(a) of the Exchange Act.   
+ 
+40. Contrary to the requirements of Regulation S-K, Coca-Cola failed to disclose the 
+material impact of gallon pushing on current and future income within its required MD&A 
+sections. 
+ 
+ -9-
+41. As set forth above, Coca-Cola’s Form 8-K filed with the Commission on January 
+26, 2000 was materially false and misleading. 
+ 
+42. Based on the conduct described above, Coca-Cola violated Section 13(a) of the 
+Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. 
+ 
+REMEDIAL EFFORTS
+ 
+43. In determining to accept the Offer, the Commission considered the following 
+remedial efforts that the Respondent initiated prior to and during the Commission staff’s 
+investigation: 
+ 
+a. Coca-Cola has established an Ethics & Compliance Office to administer its 
+Code of Business Conduct and ensure, among other things, that the Respondent 
+conducts its business in compliance with the Code of Business Conduct and with 
+various laws; 
+ 
+b. Coca-Cola has established a Disclosure Committee to assist its Chief 
+Executive Officer and Chief Financial Officer in fulfilling their responsibility for 
+oversight of the accuracy and timeliness of the disclosures made by Coca-Cola; 
+ 
+c. Coca-Cola now requires that its divisions certify quarterly that they have not 
+changed or extended payment terms for any bottler or customer and have not 
+granted any special or unusual credit terms or incentives to any bottler or customer, 
+unless they received approval for such terms; and 
+ 
+d. Coca-Cola’s Audit Committee employs independent counsel experienced in 
+securities laws disclosure issues and will continue to employ such experienced legal 
+counsel chosen by the Audit Committee.  Such counsel shall advise the Audit 
+Committee as to implementation of the undertakings in this Order. 
+ 
+UNDERTAKINGS
+ 
+44. Respondent has undertaken to: 
+ 
+a. Permanently maintain the aforementioned remedial efforts or the functional 
+equivalents thereof, except as may be approved by the Commission; 
+ 
+b. Require the Audit Committee, within 90 days of the date of this Order, to 
+review with management of Respondent the process by which the MD&A sections 
+of periodic reports filed by Respondent with the Commission are prepared and 
+material information about the business and prospects, including but not limited to, 
+trend information and known events and uncertainties that may have a material 
+impact on liquidity or future financial performance, is identified for discussion in 
+the MD&A sections of such reports, and to approve a set of criteria to be used by 
+the Disclosure Committee and management to reasonably assure that appropriate 
+ -10-
+items are identified and discussed.  The Audit Committee will meet periodically, at 
+least annually, with the Chair of the Disclosure Committee to review such criteria, 
+and will review and discuss with the Chief Financial Officer the proposed MD&A 
+section of each periodic report to be filed with the Commission; 
+ 
+c. Require the Disclosure Committee to: (i) use the aforementioned criteria to 
+identify items that might need to be disclosed within the MD&A section of 
+Respondent’s periodic reports filed with the Commission; and (ii) use the 
+aforementioned criteria to evaluate those items and recommend whether, and to 
+what extent, disclosure is appropriate with respect to each item.  The Chair of the 
+Disclosure Committee will also report to the Audit Committee, on a quarterly basis, 
+any recommended departures from the aforementioned criteria and the rationale 
+supporting each such recommendation; 
+ 
+d. Adhere to the guidance articulated in SEC Staff Accounting Bulletin No. 
+101 on disclosures that are required with respect to the recognition of revenue; 
+ 
+e. Maintain for ten (10) years documentation sufficient to show for every of its 
+Forms 8-K filed with the Commission, the preparers of each Form 8-K and those 
+persons who reviewed and approved each Form 8-K; and 
+ 
+f. Provide a written report, within 120 days of the date of this Order, to the 
+Commission staff that details the Respondent’s implementation of the undertakings 
+articulated herein.  
+ 
+45. In determining whether to accept the Offer, the Commission has considered the 
+remedial acts promptly undertaken by Respondent and cooperation afforded the 
+Commission staff.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions specified in Respondent Coca-Cola’s Offer. 
+ 
+ ACCORDINGLY, IT IS HEREBY ORDERED: 
+ 
+ Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 
+Coca-Cola 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(a) of the 
+Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. 
+ 
+ By the Commission. 
+ 
+       J onathan G. Katz 
+       S ecretary 
+ -11-
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2233.txt b/raw/aaer/2005/AAER-2233.txt
new file mode 100644
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+++ b/raw/aaer/2005/AAER-2233.txt
@@ -0,0 +1,106 @@
+ 
+ 
+ 
+ 
+  
+ 
+                                                 
+    
+    
+ 
+ 
+ 
+ 
+    
+    
+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 51570 / April 19, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2233 / April 19, 2005 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-10476 
+: ORDER GRANTING APPLICATION FOR 
+: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT 
+: RESPONSIBLE FOR THE PREPARATION OR Craig R. Clark : REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+: TO BE FILED WITH THE COMMISSION 
+On May 7, 2001, Craig R. Clark (“Clark”) 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 Clark pursuant to Rule 102(e) of the Commission's Rules 
+of Practice.1  On September 27, 1999, the Commission filed a complaint against Clark and others 
+in SEC v. Jerry M. Walker and Craig R. Clark, Civ. 99-1737-PHX-ROS.  On March 16, 2001, 
+Clark consented to the entry of a Final Judgment of Permanent Injunction and Other Equitable 
+Relief ("Final Judgment"), without admitting or denying the allegations in the complaint, except 
+as to subject matter jurisdiction, which he admitted.  On April 11, 2001, the United States 
+District Court for the District of Arizona entered the Final Judgment, which permanently 
+enjoined Clark from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 
+1934 (“Exchange Act”) and Rules 10b-5, 13b2-1 thereunder, and aiding and abetting violations 
+of Section 13(a) of the Exchange Act and Rule 13a-13 thereunder, and ordered him to pay a 
+$15,000 civil penalty. 
+1 See Accounting and Auditing Enforcement Release No. 1391, dated May 7, 2001.  Clark 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). 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+Clark served in the capacity of Chief Financial Officer for Unison HealthCare 
+Corporation (“Unison”). The complaint alleges that Clark and other o fficers made unsupported 
+journal entries to the corporate accounting records that materially inflated Unison’s net income.  
+The unsupported entries alleged in the complaint include a $3.4 million adjustment to revenue 
+and a $1.7 million adjustment to expenses.  During the third quarter of 1996, these unsupported 
+adjustments enabled Unison to report net income of roughly $1.2 million verses a “true” net loss 
+of almost $4 million.  Furthermore, the complaint alleges that the unsupported journal entries 
+resulted in Unison filing materially false and misleading financial statements for the third quarter 
+ended September 30, 1996, and that Clark knew or was reckless in not knowing that the financial 
+statements were false and misleading. 
+This order is issued in response to Clark's application for reinstatement to practice before 
+the Commission as an accountant responsible for the preparation or review of financial 
+statements required to be filed with the Commission.  
+In his capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Clark 
+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. Clark is not, at this time, applying 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, Clark'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 Clark, it appears that he has complied with the terms of the May 7, 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 Clark, 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 
+Craig R. Clark 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-2234.txt b/raw/aaer/2005/AAER-2234.txt
new file mode 100644
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--- /dev/null
+++ b/raw/aaer/2005/AAER-2234.txt
@@ -0,0 +1,1639 @@
+ 
+ 
+ 
+ 
+ 
+             
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+  
+ 
+ 
+ 
+ 
+                                                
+ 
+   
+ 
+  
+     
+   
+ 
+UNITED STATES OF AMERICA 
+Before the 
+   SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51574 / April 19, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2234 / April 19, 2005 
+ADMINISTRATIVE PROCEEDING                                                                                                      
+File No. 3-11905 
+In the Matter of 
+KPMG LLP, 
+Respondent. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933, SECTION 
+21C OF THE SECURITIES EXCHANGE 
+ACT OF 1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A 
+CEASE-AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+public administrative and cease-and-desist proceedings be, and hereby are, instituted against 
+KPMG LLP (“KPMG” or “Respondent”) pursuant to Section 8A of the Securities Act of 1933 
+(“Securities Act”), Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and 
+Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.
+1 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+it . . . to any person who is found…to have willfully violated, or willfully aided and abetted the violation of 
+any provision of the Federal securities laws or the rules and regulations thereunder. 
+1
+ 
+1 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+   
+     
+    
+      
+     
+    
+   
+ 
+      
+ 
+ 
+findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, Respondent consents to the entry of this Order Instituting Public Administrative 
+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.2 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds3 that: 
+A. RESPONDENT AND ISSUER 
+KPMG LLP, the fourth largest public accounting firm in the United States, is a 
+Delaware limited liability partnership and headquartered in New York City.  KPMG was Xerox 
+Corporation’s auditor for approximately 40 years, through the audit of Xerox’s fiscal 2000 
+financial statements.  KPMG was paid $26 million for auditing Xerox’s financial statements for 
+fiscal years 1997 through 2000.  It was paid $55.8 million for non-audit services during that 
+period. KPMG maintained offices at Xerox’s Stamford location and its partners regularly met 
+with the company’s financial managers, attended meetings of the Audit Committee of the Board 
+of Directors and had access to Xerox financial records. 
+Xerox Corporation (“Xerox”) is a Stamford, Connecticut based company incorporated 
+in New York, which manufactures, sells and leases document imaging products, services and 
+supplies in the United States and 130 other countries.  In 2000, Xerox employed approximately 
+92,500 people worldwide, 50,000 of them in the United States.  In June 2002, Xerox reported 
+restated revenues of $18.8 billion (as compared to $18.7 billion originally reported) and a 
+restated net loss of $273 million (as compared to a net loss of $257 million originally reported) 
+for the year ended December 31, 2000. Xerox’s common stock is registered with the 
+Commission pursuant to Section 12(b) of the Exchange Act.  Throughout the relevant time 
+period, Xerox’s stock was listed on the New York and Chicago Stock Exchanges and also was 
+traded on the Boston, Cincinnati, Pacific Coast, Philadelphia, London and Switzerland 
+exchanges. On April 18, 2002, the U.S. District Court for the Southern District of New York 
+enjoined Xerox from future violations of antifraud and other provisions of the securities laws and 
+rules alleged to have been violated in a Complaint filed by the Commission on April 11, 2002 
+[SEC v. Xerox Corporation, 02 CV 2780 (DLC)]. Pursuant to a consent to settlement by Xerox, 
+2 Simultaneously with this proceeding, KPMG consented in the separate, previously filed civil action against 
+KPMG to the entry of a final judgment by the U.S. District Court for the Southern District of New York pursuant to 
+Section 20(d) of the Securities Act and Section 21(d) of the Exchange Act that:  finds that KPMG violated Section 
+10A of the Exchange Act; orders KPMG to pay a $10 million civil penalty; orders KPMG to pay disgorgement of its 
+1997-2000 audit fees in the amount of $9.8 million and to pay prejudgment interest thereon in the amount of 
+$2,675,000; and orders KPMG to undertake to alter or amend its audit practices in certain respects. SEC v. KPMG 
+LLP, 03 CV 671 (S.D.N.Y.) (DLC). 
+3 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding.  
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+                                                 
+    
+   
+   
+    
+ 
+  
+     
+ 
+the company also was assessed a civil penalty of $10 million.  In consenting to settlement, Xerox 
+neither admitted nor denied the allegations of the Commission’s Complaint. 
+B. SUMMARY 
+From 1997 through 2000, Xerox engaged in a fraudulent scheme that disguised Xerox’s 
+true operating performance through the use of accounting actions that accelerated the recognition 
+of equipment revenue by over $3 billion and increased pre-tax earnings by approximately $1.5 
+billion. Most of these acc ounting actions violated generally accepted accounting principles 
+(“GAAP”) and all of them should have been disclosed because they distorted the true picture of 
+its business performance.  The scheme allowed Xerox to “close the gap” between actual 
+operating results and results reported to the investing public, and to claim that it met performance 
+expectations of Wall Street analysts, to mislead investors and, consequently, to boost the 
+company’s stock price.   
+As part of its fraudulent scheme, Xerox included false and misleading financial 
+statements and information in quarterly and annual reports it filed with the Commission from 
+1997-2000 and in registration statements that were in effect or filed with the Commission during 
+this period through which Xerox registered billions of dollars of debt securities.  As a result, 
+Xerox violated the anti-fraud, reporting, recordkeeping and internal controls provisions of the 
+federal securities laws. 
+KPMG’s failure to comply with generally accepted auditing standards (“GAAS”) caused4 
+and willfully5 aided and abetted Xerox’s violations.  In each of the years 1997-2000, KPMG 
+audited the company’s annual financial statements and issued audit reports containing 
+unqualified opinions stating that KPMG had applied GAAS to its review of Xerox’s accounting, 
+that Xerox’s financial reporting was consistent with GAAP and that Xerox’s reported results 
+fairly represented the financial condition of the company.  However, throughout this period 
+KPMG’s failure to comply with GAAS allowed Xerox to utilize accounting devices that did not 
+comply with GAAP.  By doing so, KPMG allowed Xerox to manipulate its accounting practices 
+to distort the company’s financial results, failed to insist that Xerox disclose those practices and 
+their financial impacts in the company’s annual and quarterly reports, and allowed Xerox to 
+falsify its books and records and to fail to maintain adequate internal controls over its 
+accounting. KPMG’s failure to comply with GAAS  therefore caused and willfully aided and 
+abetted Xerox’s violations of Sections 17(a)(2) and (3) of the Securities Act and Sections 13(a) 
+and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 
+promulgated thereunder. 
+4 As described in this Order, the standard of liability as “a cause of” a violation under Section 21C of the 
+Exchange Act is negligence. See KPMG LLP v. SEC, 289 F. 3d 109, 112 (DC Cir. 2002).  In this instance, the 
+respondent engaged in an act or omission that it knew or should have known would contribute to the primary 
+violation. See Section 8A(a) of the Securities Act; Section 21C(a) of the Exchange Act. 
+5 “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).  
+3
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+KPMG also willfully violated Section 10A of the Exchange Act.  During its audits of 
+Xerox’s 1997-2000 financial statements, KPMG became aware of information indicating that 
+illegal acts had or may have occurred as a result of Xerox’s use of accounting actions.  Although 
+KPMG at times raised concerns to Xerox’s management about certain of these accounting 
+actions, KPMG failed prior to the SEC’s investigation in this matter to inform Xerox’s board of 
+directors or its audit committee about the illegal acts that had or may have occurred or that 
+otherwise came to its attention. 
+C. FACTS 
+1. Background and Impact of Xerox’s Manipulative Accounting 
+Xerox was a leading technological innovator for most of the last half of the 20th century.  
+But by the late 1990s, the company was confronting intense product and price competition from 
+its overseas rivals. As a result, increasing revenues and earnings became more difficult to 
+achieve. Xerox also faced additional pressure s from the investment climate of the 1990s in 
+which companies that failed to meet Wall Street’s earnings estimates by even a penny often were 
+punished by significant declines in stock price. 
+From at least 1997 through publication of the company’s 2000 financial report, Xerox 
+addressed these competitive business challenges and succumbed to Wall Street pressures by 
+using manipulative accounting actions at the end of each financial reporting period.  These 
+actions (hereinafter referred to generally as “topside accounting adjustments” or “topside 
+accounting actions”) increased equipment revenue and earnings through the improper 
+acceleration of revenue from long term leases of Xerox copiers.  These actions involved 
+manipulating Xerox’s historic accounting estimates and methods through changes that were 
+unsupported by economic or business circumstances which allowed immediate recognition of 
+revenue that otherwise would have been recognized over the term of the lease.  In addition, 
+Xerox inflated earnings through the use of excess or “cookie jar” reserves.   
+Most of Xerox’s topside accounting actions violated GAAP by inflating Xerox’s current 
+business performance.  Their impact and that of other manipulative accounting actions should 
+have been disclosed to the public in a timely fashion.  By violating GAAP and ignoring 
+disclosure obligations, Xerox’s financial reporting for the period 1997-2000 misled investors 
+about the quantity and quality of Xerox’s earnings.  These undisclosed actions overstated 
+Xerox’s true equipment revenues by at least $3 billion and overstated its true earnings by 
+approximately $1.5 billion during the four-year period (before taxes, minority interest and equity 
+income -- hereinafter, “pre-tax earnings”).  When Xerox finally restated its financial results for 
+1997-2000, it restated $6.1 billion in equipment revenues and $1.9 billion in pre-tax earnings -- 
+the largest restatement in U.S. history to that time.  As discussed further below, KPMG’s 
+conduct allowed Xerox to inflate equipment revenues by approximately $3 billion and inflate 
+earnings by approximately $1.2 billion in the company’s 1997-2000 financial results. 
+The undisclosed use of topside accounting actions accounted for 4 percent of Xerox’s 
+reported first quarter pre-tax earnings in 1997 and between 14 percent and 37 percent of reported 
+quarterly pre-tax earnings thereafter through 1999.  Similarly, the impact of these accounting 
+4
+ 
+ 
+ 
+  
+                                                 
+   
+ 
+ 
+ 
+actions on Xerox’s reported annual pre-tax earnings grew from 19 percent in 1997 to 27 percent 
+in 1998, and constituted 25 percent of 1999 reported pre-tax earnings.  Moreover, as illustrated in 
+the two charts below, had Xerox reported its revenues and earnings consistent with its 
+accounting in earlier years, Xerox would have failed to meet Wall Street earnings per share 
+(“EPS”) expectations in all quarters in 1997-1999 except the first quarter of 1997 and in all three 
+years 1997-1999.6  The blue or darker portion of each bar represents EPS as historically 
+calculated by Xerox. The yellow or  lighter portion represents the additional reported EPS that 
+resulted from undisclosed topside accounting actions, most of which did not comply with GAAP. 
+Black numbers reflect EPS accounted for by each color of each column, and the percentage each 
+method of calculation represented of total reported earnings for each period.  The red numbers 
+(the number above each column) represent Wall Street’s consensus earnings estimates. 
+The percentage impact on EPS reflected in the charts may be slightly lower than the percentage impact on 
+pre-tax earnings because pre-tax earnings exclude equity income, minority interests and other adjustments, while 
+EPS calculations do not. 
+5
+ 
+6 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Impact of Topside Accounting Actions on Quarterly 
+Reported EPS Compared to First Call Consensus Estimates 
+During 1997-1999 (In Dollars)
+ 
+(First Call consensus EPS estimates are shown in red)
+ 
+$0.84 
+$0.71 
+$0.37 $0.40 
+$0.34 
+$0.56 
+$0.07
+ 15%
+ $0.11
+ 24% 
+$0.17
+ 23%
+$0.54 
+$0.33 
+$0.47 
+$0.38 
+$0.54 
+$0.30 
+36%
+ $0.15 
+28%
+ $0.09 
+21%
+$0.62 
+$0.45 $0.07
+ 13% $0.52 
+$0.48$0.35 $0.47 
+$0.44 $0.41$0.01 $0.40 
+3% 
+$0.37 
+$0.48 
+$0.38 
+$0.27
+ $0.14 
+34%
+ $0.09 
+19%
+ $0.14 
+23%
+ $0.11
+ 23%
+1Q 97 2Q 97 3Q 97 4Q 97 1Q 98 2Q 98 3Q 98 4Q 98 1Q 99 2Q 99 3Q 99 4Q 99 
+Underlying EPS Topside Actions EPS First Call Consensus EPS 
+6
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Impact of Topside Accounting Actions on Annual Reported EPS and 
+Compared to First Call Consensus Estimates 
+For 1997-1999 (In Dollars)
+ 
+$1.65 $1.72 
+$1.48
+ $0.48
+   24%
+ $0.61
+ 26%
+ $0.37
+ 18% 
+First Call 
+Consensus EPS 
+$1.99 
+First Call
+  Consensus EPS 
+$2.33 First Call 
+Consensus EPS 
+$1.95 
+ Reported  EPS $2.02 
+Reported EPS $1.96 
+Reported EPS $2.33 
+FY 97 FY 98 FY 99 
+Topside Accounting Actions EPS Underlying EPS First Call Consensus EPS 
+2. Summary of KPMG’s Role in Xerox’s Manipulative Accounting 
+KPMG was intimately familiar with Xerox’s accounting actions it used on a quarterly 
+and annual basis to increase reported revenues and earnings during 1997-2000.  KPMG had 
+served as Xerox’s auditor for approximately 40 years and considered Xerox one of its largest and 
+most important clients, generating revenues for the firm of $26 million in audit fees and over 
+$55.8 million in non-audit fees during 1997-2000.  But from 1997-2000, KPMG failed to 
+conclude that topside accounting actions were unnecessary and distorted the true operating 
+performance of the company.  KPMG’s audit partners received many warnings from member 
+firms of KPMG International in Europe, Brazil, Canada and Japan that methods adopted by 
+Xerox to “close the gap” between actual and desired results were not based on adequate 
+7
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+evidentiary support. Even KPMG’s U.S. office in Rochester, N.Y., where Xerox had a major 
+manufacturing and administrative center, warned that topside adjustments were creating 
+unnecessary internal accounting control weaknesses. 
+Nevertheless, from at least 1997 through 2000, KPMG ignored these warnings and did 
+not demand evidence sufficient to establish that these accounting actions and the assumptions 
+Xerox asserted to justify their use were in fact grounded in business realities or fairly reflected 
+the company’s performance.  KPMG at times suggested to Xerox management that it test the 
+assumptions underlying its accounting and test the resulting accounting adjustments to ensure 
+they accurately portrayed Xerox’s business.  But year after year, Xerox management ignored 
+KPMG’s requests, and KPMG exerted no pressure on its client to perform such testing.  KPMG 
+did not demand that Xerox test, and KPMG itself never adequately tested, the assumptions Xerox 
+used to justify its topside accounting actions. Nor did KPMG test -- or demand that Xerox test -- 
+to determine if the topside accounting actions Xerox used resulted in financial statements which 
+fairly presented Xerox’s financial results.  Further, despite Xerox’s claimed inability to 
+reasonably estimate the fair value of its products without resort to topside estimates, KPMG 
+failed to identify those topside accounting actions as material internal accounting control 
+weaknesses. 
+Among other things, KPMG failed to perform the Xerox audits with the due care required 
+by Section 230 of the Codification of Statements on Auditing Standards (“AU”), which is issued 
+by the Auditing Standards Board, whose interpretations of the Statements on Auditing Standards 
+constitute an essential component of GAAS.  KPMG also failed to obtain, or demand that Xerox 
+produce, sufficient competent corroborating evidence of the need for, or adequacy of, topside 
+accounting actions (AU Section 326, Evidential Matter) that would satisfy an auditor applying an 
+appropriately professional degree of skepticism in any audit (AU Section 316, Consideration of 
+Fraud in a Financial Statement Audit). Nor did KPMG adequately analyze and assess the 
+control weaknesses inherent in permitting senior managers at Xerox who were compensated 
+based, in part, on financial results, to regularly increase revenue and earnings reported from the 
+field at the close of each reporting period.  (AU Section 319, Consideration of Internal Control 
+in a Financial Statement Audit). Nor did KPMG adequately assess the quan titative and 
+qualitative aspects of misstatements they identified during their audits. (AU Section 312, Audit 
+Risk and Materiality in Conducting an Audit). 
+Had KPMG performed an audit of Xerox’s financial statements with due professional 
+care as it represented, Xerox could not have filed with the Commission or distributed to the 
+public quarterly and audited annual financial reports which were not prepared in accordance with 
+GAAP in material respects and which contained material misstatements and omissions 
+fraudulently representing that Xerox’s revenue and earnings growth was due entirely to business 
+performance. 
+In addition, despite its knowledge of the nature and impact of topside accounting actions 
+on Xerox’s financial reporting, KPMG failed to require that Xerox disclose that it had changed 
+its methods of accounting in material respects from year to year and disclose the financial 
+impacts resulting from those changes and the accounting actions Xerox employed.  KPMG did 
+not insist that Xerox include these disclosures in its financial statements or in the Management’s 
+8
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Discussion and Analysis (“MD&A”) section of its quarterly or annual reports, which KPMG 
+auditors reviewed during 1997-2000 to insure they were not materially inconsistent with the 
+company’s financial statements.  KPMG’s failure in this regard also violated GAAP provisions -- 
+Opinions 20 and 28 of the Accounting Principles Board (“APB”) -- that require disclosure in 
+financial statements of material changes in accounting estimates or accounting methods.   
+In the summer or early fall of 1999, Xerox complained to KPMG’s chairman about the 
+performance of KPMG’s audit engagement partner.  That partner had questioned Xerox 
+management about several of the topside accounting actions that formed Xerox’s fraudulent 
+scheme.  Although KPMG policy was to limit assignments of an engagement partner on public 
+company audits to five years, and the partner had been assigned to Xerox less than two years, 
+KPMG replaced the partner after completion of the 1999 audit. 
+In each of the years 1997-2000, KPMG issued audit reports containing unqualified 
+opinions on Xerox’s annual financial statements which were misleading.  Each of those reports 
+represented that KPMG had conducted its audits in accordance with GAAS, that, in its opinion, 
+the consolidated financial statements of Xerox “present fairly, in all material respects, the 
+financial position of Xerox Corporation” as of year-end and that for those years and each of the 
+preceding three-year periods the financial results were presented “in conformity with generally 
+accepted accounting principles.”  In fact, KPMG failed to perform its audit in accordance with 
+GAAS and Xerox’s financial statements did not comply with GAAP in material respects and 
+omitted to disclose that earnings were materially increased by the numerous accounting actions 
+described below, rather than by operating success.  KPMG consented to the inclusion of these 
+audit reports in Xerox’s 1997-2000 Forms 10-K and in registration statements that were in effect 
+or were filed with the Commission during this period, including four offerings that registered 
+nearly $9 billion dollars worth of debt securities.  KPMG additionally permitted Xerox to invoke 
+its name and audit work in Xerox’s 1997-1999 annual reports to assure shareholders that KPMG 
+had conducted a professional audit, had found that the company’s financial reports were prepared 
+in accordance with GAAP. 
+3. 	 The Accounting Actions and KPMG’s Acts or Omissions that Caused and 
+Willfully Aided and Abetted Xerox’s Securities Violations 
+Although Xerox had resorted to a variety of accounting actions on a more modest scale 
+earlier, these tools grew more central to the company’s financial reporting strategy during the 
+period 1997-2000. By 1997, Xerox had substantia lly departed from GAAP to improperly 
+manage its earnings, to accelerate recognition of equipment revenue, to report higher earnings 
+growth and to meet Wall Street analyst expectations.  Despite the material impact of these 
+accounting actions, none was disclosed in Xerox’s quarterly and annual financial reports or in 
+registration statements filed with the Commission in 1997-2000.   
+Xerox adopted or increased its reliance upon the following accounting actions which 
+caused a material increase in the company’s reported equipment revenues and earnings, and 
+which made the company appear to have generated more revenue from its long term leases of 
+equipment than it would have reported under its prior accounting practices: (1) return on equity 
+(ROE); (2) margin normalization; (3) price increases and lease extensions; (4) retroactive 
+9
+ 
+     
+     
+  
+ 
+ 
+ 
+ 
+ 
+  
+                           
+                
+                
+        
+                
+          
+        
+      
+        
+         
+      
+        
+                
+         
+   
+ 
+ 
+ 
+ 
+   
+ 
+ 
+increases to residual values of leased equipment; (5) undisclosed dramatic increases in the sale of 
+future revenue streams; and (6) manipulation of reserves.  All but practice (5) constituted, 
+individually or in the aggregate, material GAAP violations.   
+KPMG’s failure to comply with its obligations under GAAS caused and aided and 
+abetted the misstatements of Xerox’s equipment revenues and earnings during 1997-2000 with 
+respect to these actions.  It also caused and aided and abetted Xerox’s misleading disclosures of 
+its financial performance.  The table below illustrates the annual gross and net impact on pre-tax 
+earnings from each of the actions that KPMG caused Xerox to misstate.  The net effect turns 
+negative for 2000 because of Xerox’s improper acceleration of revenues in earlier years, making 
+revenues unavailable in later years, when they should have been recognized.  (The hyphens in 
+the table indicate accounting actions that are not the subject of this Order.) 
+Xerox’s Topside Accounting Actions 
+Gross and Net Impact on Pre-Tax Earnings 
+(In Millions) 
+1997 1998 1999 2000 Total 
+ROE $ 455 $ 720 $ 569 $ 459 $ 2,203 
+Margin Normalization 55 168 202 192 617 
+Price Increases/Extensions - - 131 7 138 * 
+Residual Value Increases 36 45 15 0 96 
+PAS Transactions - - 400 - 400 
+Cushion Reserve Releases 90 115 196 23 424 ** 
+Total Gross Impact $ 636 $ 1,048 $ 1,513 $ 681 $ 3,878 
+Total Net Impact $ 258 $ 510 $ 481 $ (60) $ 1,189 
+* This gross amount does not reflect the reversal of $89 million made during the second 
+half of 1999. 
+** Included in the gross amounts are the effects of improperly timed reserve releases of $78 
+million which affected only interim periods within a fiscal year.
+ 
+(a) Xerox’s Fraudulent Lease Accounting 
+Xerox sells copiers and other office equipment outright to its customers for cash, but 
+more frequently enters into long-term lease agreements in which customers pay a single 
+negotiated monthly fee in return for the equipment, service, supplies and financing.  Xerox refers 
+10
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+to these arrangements as “bundled leases.”  Beginning at least in the early 1990s, bundled lease 
+transactions constituted the majority of Xerox’s sales revenue. 
+Financial Accounting Standard (“FAS”) 13, an Original Pronouncement of the Financial 
+Accounting Standards Board (“FASB”), sets forth the rules accountants must follow in 
+accounting for leases. Under FAS 13, monthly payments due under ordinary leases are 
+recognized only as they become due during the term of the lease.  But FAS 13 requires 
+equipment leases meeting certain criteria to be accounted for as if the lessor sold the equipment 
+and provided financing for the sale. This “sal es-type” lease accounting results in immediate 
+recognition of the fair value of the equipment in the quarter in which the equipment is delivered, 
+less any residual value the equipment is expected to retain once the lease expires.  Revenues 
+from financing, repair services and copier supplies, however, are recognized under FAS 13 over 
+the term of the lease.   
+Until the mid-1990s, Xerox had an accounting system in place which, with only minor 
+adjustments,  assigned fair value to the equipment portion (“the box”) as each sales-type lease 
+was entered into and assigned remaining anticipated lease revenues to financing, service and 
+supplies according to internal calculations made at the inception of the lease based on terms of 
+the contract, competitive conditions and market finance rates.  The fair value of the equipment 
+was recognized immediately as revenue in Xerox’s books and records, while revenue from 
+financing, service and supplies was recognized gradually over the life of the lease.  This book 
+entry system, which continued to be used at the operational level at Xerox, was deemed 
+satisfactory for accounting for sales revenues with only minor adjustments until the mid-1990s. 
+By 1997, Xerox management claimed the operating level allocation of box, service and 
+financing revenues was unreliable and misleading.  Despite the fact that it had been 
+manufacturing, selling and leasing copiers for decades, Xerox told KPMG throughout the 1997-
+2000 period that it was unable reasonably to assign a fair value to equipment sold under a sales-
+type lease, as it had in the past. Instead, for public financial reporting purposes, but not for 
+internal operating purposes, the company abandoned the value determinations made at the 
+inception of the lease and substituted a formula which management could, and did when it 
+encountered growing competition around the world and a perceived need to continue reporting 
+earnings increases in the 1997-2000 period, manipulate at will. Xerox did no testing to 
+determine if in fact its traditional manner of allocation was unreliable or if the new methodology 
+did a better job of accurately reflecting the fair value of its equipment. 
+Xerox’s topside lease accounting actions consistently increased the amount of lease 
+revenues which Xerox recognized at the inception of the lease and reduced the amount it 
+recognized over the life of the lease.  One method was called “ROE” (for “return on equity”), 
+which pulled forward a portion of finance income and recognized it immediately as equipment 
+revenue. The second, called “margin normalization,” pulled forward a portion of service income 
+and recognized it immediately as equipment revenue, too.  ROE and margin normalization 
+ignored GAAP’s FAS 13 requirement that leasing revenue allocations begin by identifying the 
+fair value of the equipment.  Instead, the ROE and margin normalization methods employed 
+subjective and defective procedures for estimating revenues from the finance and service 
+- 11 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+elements of the lease agreement.  The supposed fair value of the equipment was the remaining 
+value of the lease, after deductions for finance, service and supplies.
+ (i) 	 The ROE Model 
+(1) 	 Xerox’s Manipulation of ROE to Accelerate Revenues 
+and Earnings 
+Xerox began in 1995 to exploit accounting opportunities inherent in the ROE method and 
+to use the ROE methodology in violation of GAAP. A desired return on the finance division’s 
+equity always had been a factor in Xerox’s accounting for its finance charges.  In 1995, however, 
+Xerox formalized its ROE model in a manner that mechanically discounted lease payments at a 
+finance rate that had little relation to market interest rates available to the customer, the actual 
+return on financing to Xerox, or the price at which the equipment actually sold.  Between 1995 
+and 2000, Xerox always assumed a 15 percent return for its ROE formula, everywhere in the 
+world and under all financial and economic conditions, despite significant volatility in the returns 
+actually earned by leasing companies in this period. 
+In most cases, application of ROE was a topside adjustment directed by the Xerox 
+corporate office. Operating units allocated lease cash flows to the box, service and finance 
+components according to established prices set by management.  Xerox then recalculated these 
+allocations to insure that financing operations realized no more than a 15 percent return on 
+equity. This practice ignored th e real interest rates prevailing where the equipment was leased 
+and the interest rates available to the customer wishing to lease a copier over a 3-6 year term.  It 
+also artificially eliminated the volatility in Xerox’s wholly-owned credit subsidiaries’ return on 
+equity that a competitive market inevitably produces.  Initially, use of the ROE formula was 
+limited to the United States and to Xerox Brazil, where the formula was implemented by at least 
+1995. As the pressure to meet earnings targets gr ew, and competition made selling copiers more 
+difficult, ROE was expanded to Xerox in Europe. 
+Topside adjustments grew larger and larger from 1997 through 2000.  Altering 
+assumptions in the ROE formula produced lower and lower assumed finance, or “discount,” 
+rates, which enabled Xerox to account for more and more of the lease payments up front as 
+equipment revenue.  But the use of such lower discount rates was unsupported by either 
+verifiable objective evidence or economic reality.  Neither Xerox nor KPMG tested the 
+company’s claim that the topside adjustments were necessary to arrive at the actual fair value of 
+the equipment leased to the customer.  Thus, the effect of the topside adjustment on any 
+individual lease transaction’s interest rate or equipment price was never calculated and compared 
+to market rates or market prices.  Yet, the unrealistic discount rates produced by the ROE 
+formula were increasingly apparent in the operational markets in which ROE was used.  For 
+example, the discount rates that were applied to leases in the United States at times fell below 
+Xerox’s own incremental borrowing costs. 
+Continuous changes in underlying assumptions used to calculate the ROE formula and 
+expansion of the formula to new geographic areas resulted in larger and larger portions of 
+finance income being reallocated to equipment revenue for immediate recognition.  For example, 
+- 12 -
+
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+  
+a lease recorded as generating $15,000 in immediately recognized equipment revenue at the 
+operational level was increased at the corporate level for financial reporting purposes by 6 
+percent in 1997 and 13 percent in 2000.  In this way, additional millions of dollars of equipment 
+revenues and earnings were reported each quarter -- none of which necessarily resulted from the 
+sale of a single additional copier or other Xerox product.  Compared to the equipment revenues 
+that would have been reported based on allocations recorded at the operational level, Xerox’s 
+ROE formula pulled forward $2.2 billion in equipment revenue and $301 million in pre-tax 
+earnings in the period 1997 through 2000. 
+Xerox management defended its substitution of lower interest rates produced by the ROE 
+formula by arguing that the rates entered and relied upon at the operational level were too high.  
+But Xerox’s own marketing department monitored rates available from other sources and 
+concluded that the rates entered at the operational level were competitive or no more than 2 or 3 
+percentage points higher than competitor rates.  But the ROE formula reduced rates used to 
+prepare the public financial statements by as much as 6 percentage points.  In some reporting 
+periods, discount rates on five-year leases to some customers were recorded for financial 
+reporting purposes at a rate below that for which the U.S. government could borrow money for 
+90 days. 
+The failure of the ROE method to produce realistic market finance rates was particularly 
+pronounced in Brazil. For example, Xerox record ed all of its Brazilian leases in early 1997 
+assuming a finance rate of 8 percent, then dropped the rate to 7 percent in the third quarter of 
+1997, and then reduced the rate again to no more than 6 percent beginning in the first quarter of 
+1998 and continuing through the second quarter of 2000.  The ROE formula generated rates even 
+as low as zero percent in certain periods in 1999.  These ROE-derived finance rates were based 
+on the costs of Xerox’s U.S. finance operations, rather than the currency and costs which were 
+dictating the economic reality of Xerox’s lease contracts in Brazil.  By comparison even to the 
+short-term inter-bank rates in Brazil, which during the relevant period exceeded 20 percent until 
+the last few months of 1999, Xerox’s ROE formula produced clearly absurd results.  Had Xerox 
+used even the short-term inter-bank rates in Brazil as an estimate of prevailing finance rates, the 
+company’s equipment revenues reported for Brazil would have been reduced by an estimated 
+total of approximately $757 million during 1997-2000. 
+(2) KPMG Permits The Use Of ROE 
+KPMG’s audit partners were aware that Xerox changed the underlying assumptions of 
+ROE, that the changes were sometimes made by management at the ends of financial reporting 
+periods, that Xerox expanded ROE to foreign markets and that each change in the ROE method 
+accelerated recognition of more revenues and earnings.  They accepted Xerox’s claim that it 
+could not directly calculate the fair value of its products and they signed off on each resulting 
+accounting adjustment without testing, or requiring others to test, whether the results were 
+accurate. Nor did they carefully analyze the claimed need for topside adjustments as a material 
+internal controls deficiency. 
+KPMG allowed Xerox management to use ROE despite numerous warnings from 
+KPMG’s Rochester office and foreign member firms of KPMG International that the method 
+- 13 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+was unreliable, was not sufficiently tested and posed an unnecessary internal accounting control 
+risk in financial reporting. 
+For example, KPMG audit partners knew of the following information and received the 
+following warnings during the 1997 and 1998 audits or quarterly reviews of Xerox’s financial 
+statements: 
+•	 In a letter to the president of Xerox’s United States Customer Operations in Rochester 
+(“USCO”), dated February 7, 1997, a KPMG partner addressed the growing reliance 
+on ROE adjustments: 
+[W]e do not believe that the recognition of sale revenue and the related asset 
+without specific identification to a customer is an appropriate and prudent 
+accounting practice. Leases should be recorded in the detail accounting 
+records and the consolidated financial statements of the company based upon 
+a single fair market interest rate without adjustment for the intercompany 
+transfer of the leases to XCC [Xerox Credit Corporation, Xerox’s financing 
+arm]. We recommend that USCO disc ontinue the financing sale revenue 
+adjustment in 1997 to strengthen its revenue recognition policies, simplify its 
+accounting procedures and maximize cash collections in the event of early 
+settlement of a lease. 
+•	 KPMG Canada stated in 1997, in connection with the 1996 audit, that the ROE model 
+was “not supportable” and posed an “unnecessary control risk with regard to 
+accounting records”. 
+•	 In 1998, when Xerox expanded the use of the ROE model to Europe, KPMG-UK had 
+neither tested nor reached any conclusion as to whether the assumptions underlying 
+the ROE model in Europe were appropriate. 
+•	 In 1998, KPMG Brazil warned that Xerox was “constantly ‘fine tuning’ its 
+accounting policies in order to increase” profits and that “this ‘fine tuning’ [was] 
+carried out with the full knowledge (and often at the suggestion of)” Xerox corporate 
+headquarters in Connecticut. KPMG Brazil also warned that this “fine tuning” 
+increased the risk of fraudulent financial reporting and that the pressure imposed on 
+Xerox Brazil by headquarters to meet revenue and profit goals increased audit risk.   
+•	 In 1998, KPMG Brazil repeated the concern it identified in 1997:  that implied 
+interest rates generated by ROE were significantly below prevailing interest rates and 
+that ROE “did not consider all of the uncertainties inherent in [Xerox Brazil’s] 
+business and, consequently, on its cash flow.”  Although KPMG identified a $40 
+million audit difference in 1998 in connection with the use of a 6 percent discount 
+rate in Brazil (where market rates exceeded 20 percent), KPMG did not require Xerox 
+to record any adjustment to its books and records. 
+- 14 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+Similar warnings were provided to KPMG’s audit partners during the 1999 and 2000 
+audits or quarterly reviews of Xerox’s financial statements: 
+•	 In 1999, KPMG Brazil warned that the ROE model resulted in recording zero percent 
+interest rates for leases in the first and second quarters and urged that use of the ROE 
+model needed to be examined by KPMG in Stamford. 
+•	 KPMG Tokyo in 1999 objected to the use of the ROE formula by Fuji Xerox because 
+it did “not match the actual status” of Fuji’s business and no procedures had been 
+performed to determine if it might. 
+•	 KPMG-UK stated in 1999 (as it had in 1998) that it could not conclude that use of a 
+15 percent ROE target was appropriate for Europe. 
+•	 In 2000, the lead KPMG engagement partner concluded that the ROE model was 
+flawed because it generated discount rates that did not reflect the uncertainties 
+inherent in Xerox’s business, such as cancellations, bad debts and lease 
+renegotiations. 
+•	 In connection with Xerox’s audit committee’s special investigation related to the 
+2000 audit, KPMG learned what was or should have been apparent in prior years:  
+that Xerox had used ROE retroactively to close the gap between actual and planned 
+results. 
+Despite all of this and other information, KPMG failed to perform audit procedures -- and 
+failed to require that Xerox test -- to obtain competent evidence that ROE was necessary and 
+resulted in correctly reported revenue.  Instead, KPMG accepted the representations of Xerox 
+management to justify application of ROE without maintaining the appropriate degree of 
+professional skepticism in the light of higher than normal risk of financial misstatement and 
+without assessing the effectiveness of the company’s internal control systems.  
+(ii) 	 Margin Normalization 
+(1) 	 Xerox Manipulation of Margin Normalization to 
+Accelerate Revenues and Earnings 
+Competition in Xerox’s markets increased in the 1990s, as foreign manufacturers were 
+able to match Xerox technology at lower prices.  As a result, margins on Xerox equipment 
+declined, especially outside the United States. Observing this margin slippage in equipment 
+sales, Xerox reallocated anticipated leasing revenues outside the United States using an 
+accounting device referred to as “margin normalization.”  This “margin normalization” method, 
+which Xerox used to derive the equipment revenue for sales-type leases, did not comply with 
+GAAP and resulted in artificially high revenue and earnings reported by Xerox.  
+- 15 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Margin normalization, like ROE, was a topside adjustment directed by the Xerox 
+accounting department in Connecticut near the end of reporting periods.  Sales and allocation of 
+revenues were initially booked by operating units, which did not use margin normalization.  
+Then, on a consolidated basis, management in Stamford, Connecticut directed that revenue from 
+service be reallocated to the box based upon what management asserted the margins ought to be, 
+not as they were calculated locally. Xerox ev en made these reallocations retroactively to 
+transactions that had already been reported in its quarterly financial statements, also in violation 
+of GAAP. The result of these accounting actions was to reclassify anticipated service revenues, 
+which were required to be recognized over the life of the lease, as equipment revenues, which 
+Xerox recognized immediately.  Xerox was therefore able immediately to increase the revenues 
+and earnings it reported to meet internal goals and Wall Street estimates.  In addition to 
+misrepresenting the true financial picture of Xerox, use of this non-GAAP accounting procedure 
+accelerated into current reporting periods revenues and earnings which properly should have 
+been recognized in future reporting periods. 
+When the methodology was first implemented in Europe in 1997, management 
+reallocated revenue from service to the box so as to achieve equal gross margins on those two 
+components.  By the end of 1999, however, Xerox had changed the methodology so that its 
+reallocation of revenue resulted in a 17 percentage point gross margin differential between box 
+and service with no economic or business circumstances justifying such changes.  Margin 
+normalization, in essence, meant that Xerox recalculated its revenues in Europe, Brazil, Canada, 
+Mexico and Argentina to achieve relative profit margins on the service and box portions of its 
+bundled leases modeled, in large part, on margins realized in the United States.  Xerox ignored 
+regional economic and business factors in making these calculations and, therefore, reported 
+revenues and earnings that did not accurately reflect economic realities as recorded directly by 
+those regions at the inception of a lease.  The total equipment revenues pulled forward during 
+1997 through 2000 as a result of margin normalization was $617 million.  Of that amount, $358 
+million was recognized as pre-tax earnings. 
+(2) KPMG Permits the Use of Margin Normalization 
+KPMG knew about Xerox’s use of margin normalization from its inception in 1997.  As 
+it did with respect to the ROE model, Xerox management justified margin normalization by 
+representing to KPMG that it could not reasonably estimate the fair value of its equipment and, 
+therefore, could not allocate revenue appropriately among equipment, finance and service at the 
+inception of a lease.  KPMG accepted this proposition without performing procedures sufficient 
+to verify it. 
+As was the case with the ROE model, Xerox regularly changed the assumptions 
+underlying the methodology and expanded its application to new regions.  From 1997 to 1999, 
+the margin normalization methodology changed more than a dozen times.  With small 
+exceptions, each time the methodology changed, Xerox recognized an increasing amount of 
+revenue immediately and deferred less and less revenue to the future. 
+KPMG’s audit partners received numerous warning and concerns from foreign member 
+firms of KPMG International about the risk and appropriateness of using margin normalization.  
+- 16 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+The partners themselves reached conclusions during 1997-2000 that adequate corroborative 
+evidence did not exist to support management’s assumptions, that the methodology presented a 
+high risk of misstatement or fraud, that it should be controlled at the local level to avoid risk, and 
+that Xerox was engaged in quarter-end transactions to “bridge the gap” and made last minute 
+changes to the method to limit KPMG’s ability to review changes.  Nevertheless, KPMG’s 
+engagement partners signed off on the resulting accounting adjustments without any effort to test 
+whether the methodology was justified or produced results that reflected economic reality. 
+During the 1997 audit or quarterly reviews, for example, KPMG’s audit partner received 
+the following warnings and information from foreign member firms of KPMG International and 
+reached their own conclusions indicating that margin normalization was inappropriate under 
+GAAP. 
+•	 When Xerox implemented margin normalization in Europe to achieve equal gross 
+margins on the service and equipment components of its leases -- which Xerox 
+corporate represented was necessary because the margin on service exceeded the 
+margin on equipment in Europe -- KPMG UK informed KPMG’s audit partner that 
+there was no objective basis for equalizing margins and noted in their 1997 local 
+work papers that margin normalization carried a “high risk of significant 
+misstatement,” that reported margins on bundled contracts were “potentially 
+arbitrary” and that they were based on “little hard evidence.”  KPMG-UK also raised 
+the possibility of identifying an audit difference for the amount that Xerox had 
+booked due to margin normalization. 
+•	 Xerox restricted KPMG auditors in Europe from discussing margin normalization 
+adjustments with local Xerox management. 
+•	 KPMG’s audit partner, in planning the audit, concluded in his work papers that 
+margin normalization was a high risk accounting practice.   
+•	 KPMG’s audit team concluded with respect to margin normalization that “in our 
+view, central adjustments of this nature should be strongly discouraged.  We would 
+also expect this change to be fully implemented at a local level by the end of 1998.”  
+Nevertheless, Xerox’s senior management never implemented margin normalization at the local 
+level and KPMG never required them to do so. KPMG’s audit procedures were inadequate to 
+determine whether the diverging margins between the U.S. and Europe or Brazil were 
+economically justified or whether it was economically appropriate to equalize margins on service 
+and equipment. 
+During the 1998 audit or quarterly reviews, KPMG’s audit partner received similar 
+warnings and reached additional conclusions concerning margin normalization: 
+•	 KPMG-UK identified margin normalization as a matter for audit adjustment because 
+there was no support for the procedure and because it was applied in the fourth 
+quarter retroactively to the beginning of the year.  The UK auditors told KPMG that 
+- 17 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Xerox was “playing follow my leader -- whoever has the highest sales margins being 
+the leader” when it applied a margin differential based on U.S. leases.  
+•	 When Xerox corporate headquarters required Xerox Europe to calculate its margins 
+based on the relative margins between equipment and service achieved in the U.S., 
+KPMG-UK informed the KPMG audit partner that it was concerned about 
+management’s motives underlying that methodology, and recommended that Xerox 
+corporate headquarters be required to make a stronger defense of the accounting 
+methods imposed on Europe.  KPMG-UK also recommended that Xerox in London 
+carry out “a major exercise testing the U.S. allocation model on its leases to see what 
+differences arise.” KPMG, however, demanded no such defense or testing. 
+•	 In still other communications, KPMG-UK advised the KPMG audit partner that it 
+was concerned that the 1998 margin normalization change was driven by “pressure to 
+deliver budget.” The audit partner agreed, stating: 
+In the absence of objective evidence of fair value pricing, I am concerned that 
+there is too much judgment applied in the process, and the habit of periodic 
+adjustment of the formula when needed is driven by the wrong motives. 
+In 1999, additional admonitions were received from foreign member firms of KPMG 
+International and the KPMG audit partner himself identified and raised concerns about the use of 
+margin normalization, the lack of evidence justifying its application and the risks of material 
+misstatement of the financial statements, including from fraud. 
+•	 KPMG Brazil informed the KPMG audit partner that there were sufficient stand-
+alone service contracts in Brazil to calculate actual margins on service, rather than 
+accept for reporting purposes margins based on U.S. leases.  Xerox officers in 
+Stamford, however, told the partner that the Brazilian auditors were wrong and that 
+they were not to discuss margin normalization with local Xerox personnel.  Thus, by 
+the end of 1999, Xerox had imposed restrictions on KPMG discussions of margin 
+normalization with local managers in both Brazil and Europe.  
+•	 KPMG-UK again raised audit differences over use of margin normalization in Europe 
+in 1999 and urged that the procedure be studied to determine if it reflected 
+commercial realities. 
+•	 KPMG-UK told KPMG that Xerox Europe continued to make retroactive adjustments 
+to margin normalization for prior quarters despite KPMG-UK’s admonition that such 
+practices cease. 
+•	 KPMG acknowledged that the use of margin normalization and the ROE model could 
+result in a “significant accounting surprise” like those that had recently been 
+experienced by Cendant Corporation and Sunbeam, companies sued for financial 
+fraud. 
+- 18 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+•	 KPMG’s audit partner also observed in his completion memorandum for the 1999 
+audit, which was circulated within the KPMG audit team, that the accounting was at 
+risk because of the absence of objective data to support management’s assumption 
+that relative margins around the world should be comparable to U.S. margins.   
+•	 KPMG’s audit partner also told both KPMG’s relationship partner (“relationship 
+partner”) for Xerox and KPMG’s most senior partner with the firm’s Department of 
+Professional Practice (“DPP”) that he regarded the proposed 1999 expansion of 
+margin normalization to countries in Xerox’s developing markets organization as 
+“half-baked revenue recognition.” 
+In fact, shortly after the close of the third quarter of 1999, the KPMG audit partner 
+contacted the head of DPP and advised him about his heightened concern of the risk of 
+fraudulent financial reporting at Xerox.  The audit partner informed him that he was concerned 
+specifically about the “last minute” nature of Xerox’s changes to the margin normalization 
+method, and more generally about Xerox’s tendency to apply changes in estimates frequently 
+and at the end of reporting periods. The audit pa rtner also later informed the head of DPP and 
+the relationship partner that the problems at Xerox were getting worse.  He told them that Xerox 
+was engaged in “quarter-end transactions to ‘bridge the gap,’” and that Xerox intentionally 
+brought accounting changes or issues to KPMG’s attention at the last minute to limit the time 
+available for KPMG to complete the appropriate review.  Finally, the partner informed them (and 
+the KPMG concurring partner for the Xerox audit) that KPMG had a “professional obligation” 
+under GAAS to communicate his concerns to the Xerox Audit Committee.  However, KPMG 
+raised none of these issues at the next Audit Committee meeting and the audit partner signed off 
+on the 1999 audit without any qualification. 
+In 2000, the new lead engagement partner on the Xerox audit -- the head of DPP, who 
+was assigned to the audit after KPMG replaced the 1998-99 engagement partner at Xerox’s 
+request -- received further warnings about margin normalization.  When the audit partner visited 
+KPMG-UK in April 2000, the Xerox Europe audit team warned him that Xerox Europe “has 
+little empirical data to evidence commercial sales prices or service rates” and that the use of 
+margin normalization “might override/disguise genuine commercial trends.” The audit partner, 
+however, ignored these and other warnings about the use of margin normalization.  Instead, in 
+October 2000, he sent the Xerox Audit Committee an analysis of Xerox’s revenue allocation 
+methods which did not mention the skepticism of KPMG auditors in Europe and accepted 
+without question management representations that the margin normalization device was 
+appropriate: 
+These adjustments were made to obtain greater consistency in the worldwide process of 
+revenue allocation and because local and Corporate management collectively concluded 
+that changes occurring in pricing and competitive factors in the marketplace had caused a 
+distortion of revenue allocations from fair value. 
+KPMG signed off on Xerox’s 2000 financial statements, only requiring that Xerox restate to 
+correct the “retroactive” application of margin normalization. 
+- 19 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Despite the concerns raised by foreign member firms of KPMG International during 
+1997-2000 and the risks identified and acknowledged by the KPMG audit partners, including the 
+increased the risk of misstatements in Xerox financials, and despite the limitations Xerox 
+imposed on KPMG’s ability to discuss the methodology with local Xerox managers in both 
+Brazil and Europe, KPMG abandoned its professional skepticism and failed to perform audit 
+procedures to assess whether margin normalization resulted in recognizing the fair value of the 
+equipment at the inception of the lease.  Moreover, since it was adopted in Europe in 1997, 
+Xerox never demonstrated -- nor did KPMG require it to demonstrate -- how margin 
+normalization corrected any distortions of revenue allocations. 
+(iii) Price Increase and Lease Extensions 
+In addition to ROE and margin normalization, Xerox used non-GAAP accounting to 
+accelerate the recognition of revenues and earnings through price increases and extensions of 
+existing leases. From 1997 through the s econd quarter of 1999, Xerox pulled forward 
+approximately $300 million in equipment revenue and $200 million in pre-tax earnings in this 
+manner to close the gap between actual and expected financial performance.  The net impact on 
+pre-tax earnings for 1997-2000, even after accounting for the reversal of certain of these 
+adjustments in 1999 and the reversing impact of the adjustments made in earlier periods, was $58 
+million. 
+In certain regions, principally Brazil, Xerox negotiated or unilaterally imposed price 
+increases and lease extensions on existing lease customers. GAAP, including FAS 13 and FAS 
+27, requires that additional income realized from renegotiation of existing leases be recognized 
+over the remaining life of the lease (except when the renegotiation occurs in the last few months 
+of the lease term).  Xerox violated these GAAP provisions by recognizing immediately the 
+revenue from price increases and lease extensions negotiated much earlier than the last few 
+months of the lease term and failed to disclose in its public reports that this, rather than increased 
+sales, was another non-GAAP adjustment contributing to increased revenues and earnings. 
+KPMG, through the audit engagement and concurring partners, and the head of DPP and 
+relationship partner, knew about Xerox’s improper accounting for price increases and lease 
+extensions by at least the first quarter of 1999. Xerox told KPMG that, despite the contrary 
+requirements of GAAP, Xerox’s accounting treatment was appropriate because it was 
+“pragmatic” and “a fairer representation of the results” of its business.  KPMG accepted Xerox’s 
+position as it related to the company’s pre-1999 accounting, because it concluded it was “an 
+immaterial misapplication of GAAP.”  However, KPMG’s audit partner told Xerox’s CFO, 
+controller and other senior financial managers that, on a going forward basis, Xerox’s accounting 
+for these extensions and uplifts was wrong, and the company should discontinue the practices.  
+KPMG’s audit partner also communicated KPMG’s position to the head of Xerox’s Chairman of 
+the Audit Committee in a meeting with the CFO shortly after the first quarter close in 1999.  
+Xerox, however, did not stop using the accounting actions.  Instead, in the first quarter of 1999, 
+Xerox recognized revenue from these actions but arbitrarily reduced the amount to that which 
+KPMG deemed as quantitatively immaterial -- less than 5 percent of Xerox’s consolidated profit 
+before tax. Thus, KPMG knew that Xerox st ill recognized $84 million of non-GAAP equipment 
+revenue from these intentional and improper actions that resulted in a $68 million increase to 
+- 20 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Xerox’s pre-tax earnings -- which constituted approximately 14 percent (not 5 percent) of first 
+quarter pre-tax earnings. 
+Xerox’s non-GAAP accounting for price increases and lease extensions continued in 
+1999. During the second quarter of 1999, KPMG allowed Xerox to prematurely recognize $47 
+million equipment revenue that resulted in $32 million of pre-tax earnings from these accounting 
+actions.  Xerox committed to cease the practice altogether in the third quarter of 1999, when 
+KPMG learned in connection with the third quarter review that Xerox Brazil was still improperly 
+accounting for revenue from lease extensions and price increases. 
+At year-end 1999, although he had not objected in prior periods, the engagement partner 
+insisted that Xerox reverse the entire amount that KPMG had counted as improperly reported in 
+connection with price uplifts and lease extensions.  But, apparently undaunted by KPMG’s 
+repeated admonishments, several of Xerox’s Latin American operating units returned to 
+improperly accounting for price increases and lease extensions in 2000, which was corrected for 
+the 2000 financials as a result of Xerox’s audit committee’s special investigation and KPMG’s 
+expanded audit that year. 
+(iv) Improper Increases in Residual Values of Leased Equipment 
+GAAP requires that at the inception of a lease, the lessor must establish and record the 
+“estimated residual value” of the leased equipment, i.e., the estimated fair value of the 
+equipment, if any, at the end of the lease term.  FAS 13, as amended by FAS 23, prohibits 
+increasing the estimated residual value after it is first established. 
+Despite this prohibition, from 1997 to 1999, Xerox recorded adjustments of more than 
+$95 million in retroactive upward revisions to the net residual values of machines leased by its 
+Europe, Brazil, United States, Argentina and Mexico operating units.  These write-ups, which 
+had the effect of reducing the cost of sales, were often recorded close to the end of quarterly 
+reporting periods as a gap-closing measure to help Xerox meet or exceed internal and external 
+earnings expectations.  In some instances, the revisions increased the residual value of the 
+machines by as much as 50 percent.  In total, the revisions inflated Xerox’s reported pre-tax 
+earnings by a net of $43 million during 1997-2000. 
+Notwithstanding the clear requirements of FAS 13, Xerox created an internal accounting 
+policy in late 1996 that permitted retroactive write-ups of net residual values for leases originated 
+in the same year as the write-up.  KPMG’s audit partner knew that such write-ups were expressly 
+prohibited by GAAP and he communicated this to Xerox.  However, KPMG ultimately bowed to 
+Xerox management’s pressure and approved its implementation in 1997. 
+In 1997-1999, KPMG was aware that Xerox was retroactively increasing residual values 
+and that those increases boosted Xerox’s reported financial performance.  This violation of 
+GAAP contributed to Xerox materially misstating its financial results in numerous public filings, 
+including its second and third quarter reports in 1997, its annual report for 1997, its third quarter 
+report in 1998, and its annual report for 1998.  Despite the acceptance of this practice by KPMG, 
+the KPMG auditors of Xerox’s U.S. operations repeatedly noted in their 1997 completion 
+- 21 -
+
+ 
+ 
+  
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+   
+ 
+ 
+ 
+memoranda that retroactively raising residual values violated GAAP.  KPMG knew that these 
+write-ups were frequently recorded near the end of reporting periods and KPMG’s audit partner 
+in 1999 believed that this heightened the risk of fraud in the financial statements, a belief he 
+communicated to the head of DPP and to KPMG’s concurring partner.  Nevertheless, Xerox did 
+not disclose, and KPMG did not require Xerox to disclose, this intentional violation of GAAP or 
+its impact. 
+(b) Undisclosed Dramatic Increases in Sales of Future Revenues in 1999 
+In 1999, Xerox pulled forward approximately $398 million in revenue and $182 million 
+in profit before taxes by selling at a discount rights to future revenue streams from existing lease 
+portfolios. This allowed Xerox to immedi ately recognize revenues which, under GAAP, the 
+company otherwise would have had to recognize over the life of the leases.  These transactions 
+were known as “PAS” (“Portfolio Asset Strategy”) transactions. 
+Although Xerox had entered into PAS transactions prior to 1999, that year it quintupled 
+the amount of those transactions compared to 1998.  The dramatic and material increase in 
+Xerox’s 1999 PAS transactions resulted, in large part, from Xerox’s inability to sustain a 
+business model in Brazil that relied on sales-type leases.  In 1999, Xerox Brazil changed its 
+business model from its traditional sales-type lease model to one based on rental contracts.  
+Because, under GAAP, the revenue from rental contracts cannot be recognized immediately, 
+Xerox entered into PAS transactions to allow such immediate revenue recognition. 
+All of the 1999 PAS transactions were crucial to Xerox’s ability to close the gap  
+between actual and expected results, and they had a material impact on Xerox’s reported results 
+in 1999. The substantial increase in the amount of  PAS transactions used to close the gap was 
+material and should have been disclosed to shareholders. 
+KPMG was aware of and tracked Xerox’s use of PAS transactions.  KPMG knew that in 
+1999 Xerox materially increased use of those transactions to recognize $398 million in revenue 
+that otherwise would have been recognized in later periods under GAAP.  However, KPMG 
+failed to require that Xerox disclose the impact from these 1999 transactions, which disclosure 
+should have been required given the dramatic increase in revenues from these transactions 
+compared with earlier periods. 
+(c) Improper Creation and Use of Reserves 
+Xerox also pumped up its earnings by nearly $500 million through the release into 
+income of excess or “cushion” reserves.  The practice provided a “bank account” to help Xerox 
+meet earnings targets when necessary.  Xerox’s use of these reserves violated GAAP, and its 
+knowing or reckless use of reserves for this purpose without disclosure was fraudulent. 
+FAS 5, “Accounting for Contingencies,” allows a company to establish reserves only for 
+identifiable, probable and estimable risks and precludes the use of reserves, including excess 
+reserves, for general or unknown business risks because they do not meet the accrual 
+requirements of FAS 5.  When a reserve ceases to meet the accrual requirements of FAS 5, it 
+- 22 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+must be immediately released into income. The systematic or timed release of excess reserves 
+into income violates GAAP. 
+From 1997 through publication of its fiscal 2000 financial report, Xerox violated GAAP 
+by repeatedly manipulating the release of approximately $496 million of reserves to close the 
+gap between actual results and earnings targets.  This amount includes $78 million of improperly 
+timed reserve releases, which affected interim periods within a fiscal year.  The undisclosed 
+manipulation of these reserves caused Xerox’s financial reports to be materially false and 
+misleading. 
+i) The Rank Reserve 
+In June 1997, Xerox purchased the Rank Group plc’s 20 percent stake in Rank Xerox 
+Ltd., Xerox’s European subsidiary. In connection with this purchase, Xerox fraudulently 
+established a $100 million reserve for “unknown risks” arising out of the transaction.  In 
+establishing the reserve, Xerox violated GAAP by failing to comply with FAS 5. 
+Senior management at Xerox knew that the Rank reserve was created for “unknown risks 
+associated with” the transaction, as was documented in a memo by Xerox accounting.  In fact, 
+the Rank Group indemnified Xerox for any liabilities arising from the sale. 
+KPMG-UK, which performed the due diligence on behalf of Xerox preceding the 
+acquisition, advised the company and KPMG’s audit partner that the potential tax exposure 
+arising out of the transaction was “remote to low.”  KPMG’s audit partner at the time 
+nevertheless recommended that Xerox book a $100 million reserve in violation of FAS 5. 
+Beginning in mid-1998, Xerox began charging expenses against the Rank reserve for 
+items unrelated to the acquisition.  The accounting department continued to draw on the reserve 
+each quarter for expenses unrelated to the acquisition until it was exhausted at the end of 1999.  
+Internally, Xerox referred to the reserve as an “interdivisional opportunity” that Xerox Europe 
+used to boost its reported results as needed.  Xerox knew its use of the Rank reserve was not in 
+conformity with GAAP and caused its financial reporting to be false and misleading. 
+In 1999, KPMG learned or should have known that Xerox had improperly established the 
+Rank reserve in 1997 and released the reserve in 1998 and 1999 for expenses unrelated to the 
+purpose for which the reserve ostensibly had been established.  However, KPMG did not require 
+Xerox to make any disclosures on the subject or restate its financial statement to correct the 
+improperly accounted income.  
+ii) Excess or Cushion Reserves 
+Xerox fraudulently released into income approximately 20 other excess reserves totaling 
+$396 million to improve earnings from 1997 through 2000.  Staff in the controller’s office 
+tracked excess corporate reserves by preparing schedules called “Interdivisional Opportunities” 
+and “List of Unencumbered & Other Reserves.”  The controller’s office reviewed these excess 
+reserve schedules on a quarterly basis and released the reserves when they were needed to close 
+- 23 -
+
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+the gap between operational earnings and Wall Street expectations.  Two of the larger reserves 
+used to manipulate earnings are described below. 
+FAS 106 Reserve: Xerox created this  reserve in 1993 when it adopted FAS 106, which 
+relates to accounting for post-retirement benefits for employees.  The balance of Xerox’s FAS 
+106 reserve was $40 million at the end of 1996, when no additional liabilities remained.  During 
+1997 and 1998, Xerox systematically released the reserve into income at the rate of $5 million 
+per quarter until the reserve was exhausted. 
+Whiskers Reserve: The Whiskers reserve had been on Xerox’s books so long that neither 
+the controller nor the assistant controller could identify its original purpose and Xerox could not 
+produce any documentation to support it.  Rather than reverse Whiskers, as was required by FAS 
+5, Xerox used $2 million from the reserve to cover operating and litigation expenses in 1998.  In 
+the third quarter of 1999, the controller’s office released $16 million of the Whiskers reserve to 
+cover taxes for Brazilian contract extension issues.  Because the controller’s office failed to 
+immediately release this reserve at the time it could no longer determine its purpose, Xerox 
+artificially inflated its income from 1997 though 1999 by $31 million. 
+Some of the $396 million in reserves were maintained at the operational level, but a 
+substantial number -- $225 million as of December 31, 1996 -- were maintained on Xerox’s 
+corporate books by senior corporate financial management.  Most of these excess reserves were 
+quantified and reviewed by KPMG’s audit partners in 1997-1999, often on a quarterly basis. In 
+fact, many of these reserves were identified in KPMG audit differences work papers as either 
+“unspecified excess” reserves or as “opportunities.”  As with the Rank reserve, however, KPMG 
+did not require Xerox to disclose the use of this improper accounting or to restate its accounting. 
+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). Establis hing 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). 
+Section 13(a) of the Exchange Act and 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 Form 10-K and Form 10-Q, respectively.  Exchange Act Rule 12b-20 further 
+requires that, in addition to the information expressly required to be included in such reports, the 
+issuer must include such additional material information as may be necessary to make the 
+required statements, in light of the circumstances under which they were made, not misleading.    
+The obligation to file these periodic reports includes the obligation that they be complete and 
+accurate in all material respects. See, e.g., SEC v. 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 sc ienter is necessary to establish a 
+- 24 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+violation of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20. See Savoy 
+Indus., Inc., 587 F.2d at 1167; SEC v. Wills, 472 F. Supp. 1250, 1268 (D.D.C. 1978). 
+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.  
+Scienter and materiality are not elements of primary violations of these provisions. See SEC v. 
+McNulty, 137 F.3d 732, 740-741 (2d Cir. 1998); SEC v. WorldWide Coin Investments, Ltd., 567 
+F.Supp. 724, 749-50 (N.D. Ga. 1983). 
+Rule 13b2-1 of the Exchange Act prohibits any person from directly or indirectly 
+falsifying, or causing to be falsified, any book, record or account subject to Section 13(b)(2)(A) 
+of the Exchange Act. Scienter is not an   element  of a violation of Rule 13b2-1. McNulty, 137 
+F.3d at 740-741. 
+Xerox violated these provisions of the securities laws by, among other things, including 
+false and misleading financial statements and information in quarterly and annual reports filed 
+with the Commission from 1997 through the publication of its 2000 financial statements and in 
+registration statements that incorporated these periodic reports and financial information.  Xerox 
+failed to disclose in these reports the use and effect of the accounting actions described above, 
+most of which violated GAAP, that accelerated the recognition of equipment revenues by over 
+$3 billion and increased pre-tax earnings by approximately $1.5 billion.  This misconduct 
+allowed Xerox to “close the gap” between its true operating results and the financial results it 
+reported to the public; to improve earnings, revenues and margins in each quarter and year 
+during 1997-2000; to falsely portray its business and growth as far more robust in 1997-1999 
+than it actually was, including the false appearance of meeting or exceeding Wall Street earnings 
+estimates in 11 out of 12 quarters from 1997-1999; and to increase its underlying stock price 
+which in turn affected the ability of its executives to obtain performance based compensation and 
+reap profits from the sale of stock. 
+KPMG’s failure to comply with GAAS caused and willfully aided and abetted Xerox’s 
+violations. See footnotes 4 and 5, supra. For each of the years 1997-2000, KPMG issued audit 
+reports containing unqualified opinions stating that KPMG had conducted an audit of the 
+company’s annual financial statements in accordance with GAAS, that Xerox’s financial 
+reporting was consistent with GAAP and that Xerox’s reported results fairly represented the 
+financial condition of the company.  KPMG consented to the inclusion of these audit reports in 
+the company’s annual reports on Form 10-K for 1997-2000 and in registration statements filed or 
+in effect during that period. However, KPMG’s 1997-2000 audit reports were misleading 
+because KPMG failed to conduct its audits in accordance with GAAS.  KPMG also knew or 
+should have known that Xerox was engaged in non-GAAP and other accounting actions that 
+were not disclosed to investors and prevented Xerox’s reported financial results from fairly 
+representing the company’s financial condition. 
+- 25 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+In auditing Xerox’s accounting practices and methods for recognizing lease revenues, 
+including the ROE and margin normalization methods, KPMG failed under GAAS to exercise 
+due professional care and skepticism, failed to obtain sufficient competent evidential matter 
+justifying their use or verifying their results, substituted managements’ representations for 
+competent evidence supporting the accounting, failed to assess the claimed need for the practices 
+(that Xerox could not reliably determine the fair value of its own equipment) as a material 
+internal control weakness, and failed to properly plan or expand its procedures in the face of risk 
+of material misstatement of the financial statements including due to fraudulent accounting.  In 
+fact, although KPMG at times urged Xerox management to conduct testing of these methods, 
+KPMG never insisted that Xerox undertake such testing when it failed to do so, nor did KPMG 
+itself perform audit procedures to test and determine whether these accounting actions were 
+necessary or resulted in appropriate revenue allocations.  Had it done so, it would have 
+reasonably determined that these were arbitrary, non-GAAP accounting actions.  KPMG also 
+failed to assess adequately (or require Xerox to assess) the need to disclose in the MD&A or 
+financial statements the nature of and the impacts from these accounting actions, which 
+materially deviated from the company’s historical accounting and financial reporting and 
+accelerated $2.8 billion of equipment revenues and $659 million in pre-tax earnings that 
+otherwise would not have been recorded under GAAP.   
+In addition, KPMG permitted Xerox to use other accounting actions that KPMG knew or 
+reasonably should have known did not comply with GAAP and should have been disclosed to 
+investors because they materially increased and distorted the company’s financial results.  These 
+actions included price increases and lease extensions, retroactive increases to residual values of 
+leased equipment and manipulation of reserves.  KPMG also failed to require that Xerox disclose 
+the material increase in revenues and earnings in 1999 from PAS transactions as compared to 
+prior periods. 
+Despite these accounting and audit failures, and in further violation of GAAS, KPMG did 
+not express a qualified or adverse audit opinion, or refuse by disclaimer to express any opinion at 
+all, but instead issued audit reports that contained unqualified opinions on Xerox’s 1997-2000 
+financial statements.  Nor did KPMG require that Xerox correct its improper accounting or 
+disclose the use of and impacts from the accounting actions in the quarterly (unaudited) financial 
+statements and reports that KPMG reviewed during 1997-2000.  Accordingly, KPMG’s failure to 
+comply with GAAS caused and willfully aided and abetted Xerox’s violations of Section 
+17(a)(2) and (3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) and (B) of the 
+Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 promulgated thereunder. 
+KPMG also willfully violated Section 10A of the Exchange Act.  As discussed above, 
+during its audits of Xerox’s 1997-2000 financial statements, KPMG became aware of 
+information indicating that illegal acts had or may have occurred as a result of Xerox’s use of 
+numerous material accounting actions, most of which violated GAAP and were not disclosed to 
+investors. Although KPMG at times raised concerns to Xerox’s management about certain of 
+these accounting actions, KPMG failed to inform Xerox’s board of directors or its audit 
+committee about the illegal acts it detected or that otherwise came to its attention. 
+- 26 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+E. FINDINGS 
+Based on the foregoing, the Commission finds that KPMG willfully violated Section 10A 
+of the Exchange Act and caused and willfully aided and abetted Xerox’s violations of Section 
+17(a)(2) and (3) of the Securities Act and Sections 13(a) and 13(b)(2)(A) and (B) of the 
+Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 promulgated thereunder. 
+F. UNDERTAKINGS 
+As stated above in Footnote 2, simultaneously with this proceeding, KPMG consented in 
+a separate, previously filed civil action against KPMG to the entry of a final judgment (“Final 
+Judgment”) by the U.S. District Court for the Southern District of New York pursuant to Section 
+20(d) of the Securities Act and Section 21(d) of the Exchange Act  that, among other things, 
+orders KPMG to undertake to alter or amend its audit practices in the manner described as 
+follows. 
+1. Oversight of Engagement Partner Changes. The goal of this undertaking is for 
+KPMG to avoid circumstances where a client may improperly influence the firm’s assignment of 
+engagement partners, and for KPMG to reasonably document its consideration of these 
+circumstances if it is presented with a client’s attempt to influence the assignment of an 
+engagement partner.  Among the procedures to be implemented to effectuate this goal, KPMG 
+shall designate one or more senior partners w ith substantial audit and management experience 
+(“Senior Partner”) to investigate and document the circumstances surrounding any changes in 
+authority, reassignment or termination of an audit partner responsible for issuing the firm’s audit 
+report on the financial statements of a public company, other than changes to comply with rules 
+of the Commission concerning independence and partner rotation or by reason of retirement in 
+the ordinary course (“Change in Partner Review”).  Such procedures shall be implemented 
+within a reasonable time after the Final Judgment, but in no event later than ninety days after the 
+date of the Final Judgment. The Senior Partner shall not have previously been a member of the 
+audit engagement team for the client in question and shall not be in a position of supervising 
+directly the engagement partner who is the subject of the Change in Partner Review.  The Senior 
+Partner shall interview the engagement partner and any KPMG partner or employee who 
+participated in or was consulted regarding the change in assignment, and make any other 
+inquiries and review any documents he or she deems appropriate under the circumstances.  The 
+purpose of the Change in Partner Review shall be to identify and document the reasons for the 
+change in the engagement partner’s assignment and to determine whether those reasons are 
+consistent with maintaining the independence of the audit from undue client influence. If, in the 
+course of the Change in Partner Review, information comes to the attention of the Senior Partner 
+indicating that there may be a material error in  previously issued financial statements by the 
+client, or that the client may have engaged in an illegal act (as that term is used in Section 10A of 
+the Securities Exchange Act of 1934), and such issues had not been previously addressed by the 
+engagement team, the Senior Partner shall take such steps as are reasonable and necessary to 
+have those issues addressed in a timely and appropriate manner and to have such information and 
+such actions documented in the audit workpapers.  Additionally, if, as a result of the Change in 
+Partner Review, any disciplinary action against any member of the firm is warranted, or if any 
+changes in KPMG policies and practices are warranted, such actions and changes also shall be 
+- 27 -
+
+ 
+ 
+ 
+ 
+ 
+documented.  Documents prepared or collected during this review shall be retained for seven 
+years, and shall be produced on request to the Commission staff and to the consultant to be 
+appointed by KPMG pursuant to these undertakings. 
+2. “Whistle-blower” Channels of Communication. The goal of this undertaking is 
+for KPMG to create additional lines of communication within the firm to allow KPMG 
+professionals to raise issues, which they may believe have not been adequately addressed at the 
+engagement team level, to a more senior level within the firm. KPMG shall establish appropriate 
+policies and procedures to effectuate the goal, including those described herein.  KPMG shall 
+establish and publicize, on a regular basis, to its partners and employees (and to all partners and 
+employees of KPMG International member firms engaged to assist KPMG LLP in the audit of 
+foreign operations of publicly reporting U.S. companies upon whose financial statement’s 
+KPMG LLP is reporting) channels of communication that would enable engagement personnel to 
+raise any such issues or concerns to higher levels within the firm and with the option of doing so 
+in a confidential or anonymous manner. The initial designated recipient of such communications 
+shall be an ombudsman or similarly designated senior partner (“Ombudsman”). The Ombudsman 
+shall not be in a direct line of supervision over any member of any audit engagement team nor 
+may the Ombudsman be compensated based on the revenue generated with respect to any 
+specific audit engagement. The Ombudsman, as a partner in the firm, however, shall continue to 
+share in the profits and the losses of the firm. The Ombudsman shall have full authority to 
+conduct his or her own investigation of any matter identified to him or her, and may not be 
+required to identify the origin of the inquiry (except pursuant to a subpoena issued by a law 
+enforcement agency or demand by the Public Company Accounting Oversight Board 
+(“PCAOB”)).  The Ombudsman, in that role, shall report directly to the Chairman of KPMG.  
+KPMG shall retain written records of Ombudsman communications and of the Ombudsman’s 
+investigation and results of such investigation, for a period of seven years.  These documents 
+shall be made available on request to the Commission staff and subject to inspection by the 
+PCAOB and to the consultant to be appointed by KPMG pursuant to these undertakings. 
+3. Consultation Documentation . The goal of this undertak ing is for KPMG to ensure 
+that KPMG has policies and procedures designed to provide reasonable assurance that 
+workpapers prepared in connection with the audits of the financial statements of public 
+companies include documentation of significant consultations with KPMG’s Department of 
+Professional Practice, firm specialists or others within or without the firm.  The documentation of 
+such consultations should include a description of the issue considered, any action taken with 
+respect to the issue, and the basis for conclusion with respect to the issue.  Such documentation 
+shall be made available on request to the Commission staff and subject to inspection by the 
+PCAOB. The policies and procedures also shou ld provide reasonable assurance that significant 
+inquiries of employees of public audit clients are documented in the audit working papers. 
+4. Audit Evidence Training. The goal of this undertaking is for KPMG to provide 
+reasonable training to its audit professionals concerning evaluation of audit evidence in a 
+situation involving period-ending material adjustments by management to a company’s original 
+accounting system entries.  To implement this goal, KPMG shall develop and furnish to all audit 
+professionals, and incorporate in its training for new audit professionals, procedures for 
+evaluation of purportedly sufficient and competent evidence offered by management of public 
+- 28 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+company clients to justify departure from journal entries prepared within the client’s existing 
+accounting systems in favor of period-ending adjustments to the original accounting system 
+entries.  The training shall address audit strategies for verifying the need for the adjustments, to 
+assess whether the adjustments fairly state the accounts which have been adjusted and whether 
+the adjustments might be manipulative to achieve or disguise financial results. 
+5. Reassessing Departures from GAAP . It is recognized that from time to time an 
+entity may conclude that it need not account for transactions in accordance with GAAP because 
+the effect is not material to investors.  The goal of this undertaking is for KPMG to evaluate the 
+continued reasonableness of conclusions concerning a client’s prior departures from GAAP, to 
+the extent that the client continues to utilize the non-GAAP accounting in later years.  To 
+implement this goal, KPMG shall disseminate to all audit professionals, and incorporate in its 
+training for new audit professionals, requirements that auditors of public company clients at least 
+annually reassess a client’s justification for accounting practices which are not in accordance 
+with GAAP and assess the materiality of such departures.  The auditor should obtain competent 
+evidential material and document, consistent with auditing standards promulgated by PCAOB, 
+each quarter and at year end, that the departure from GAAP is reasonable and is not employed to 
+distort or present a materially false presentation in the financial statements.  A prior 
+determination about the appropriateness of the departure from GAAP or the materiality of the 
+departure may not, alone, be relied upon in subsequent audits. This undertaking shall not relate to 
+items that are clearly inconsequential as that expression is used in Section 10A of the Exchange 
+Act. 
+The chairman of KPMG shall certify compliance with each of the above undertakings. 
+The certification shall identify each of the above undertakings with which KPMG believes it has 
+complied by establishing appropriate policies, procedures and training, and shall provide written 
+evidence of compliance in the form of a narrative which is supported by exhibits sufficient to 
+establish compliance.  The Commission staff may request such further evidence of compliance as 
+is reasonable, and KPMG agrees to provide such evidence. The certification and supporting 
+material shall be submitted to the Director of the Division of Enforcement, or to such person 
+designated by him.  Certification of the satisfactory completion of all of the above undertakings 
+and sufficient evidence of completion shall be submitted to the Commission staff not later than 
+one year after the entry of the Final Judgment. 
+KPMG further undertakes to retain a consultant qualified to examine and assess 
+compliance with these undertakings two years after successfully certifying to the Commission 
+that all of the above undertakings have been completed.  Said consultant shall be selected by 
+KPMG, but shall be a person acceptable to the Commission staff in advance of the consultant’s 
+retention by KPMG. The limited pur pose of the consultant shall be to certify to the Commission 
+that the undertakings continue to be in effect, are being complied with and appear to be effective 
+in achieving their overall goals.  If the consultant cannot so certify, the consultant shall make 
+such recommendations to KPMG, as he or she deems appropriate, for the purpose of bringing 
+KPMG into effective compliance with the goals of the Undertakings.  A copy of his or her 
+certifications, conclusions and recommendation (the “Certification”) shall be submitted to the 
+Division of Enforcement. Once such Certification has been submitted, the limited role of the 
+consultant shall be concluded. KPMG consents to adoption of any recommendations of the 
+- 29 -
+
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+consultant unless it is able to establish to the satisfaction of the Division of Enforcement that 
+adoption of a particular recommendation is unnecessary or unreasonably onerous.  If the 
+Division requires that KPMG adopt a recommendation to which it objects, KPMG may request 
+that the Division present the issue to the Office of the Chief Accountant of the Commission in a 
+written memorandum, setting forth reasons why the recommended procedure is necessary 
+together with KPMG’s written objection, for which KPMG may request confidential treatment 
+under the Freedom of Information Act.  Until the Office of the Chief Accountant resolves the 
+objection, KPMG shall be under no obligation to accept the recommendation.  KPMG agrees that 
+the Office of the Chief Accountant’s decision shall be final and shall not be subject to any appeal 
+or other legal challenge by KPMG. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent KPMG’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that:  
+A. KPMG shall cease and desist from committing any violations and any future 
+violations of Section 10A of the Exchange Act; from committing or causing any violations or 
+any future violations of Section 17(a)(2) and (3) of the Securities Act and Rule 13b2-1 
+promulgated under the Exchange Act; and from causing any violations and any future violations 
+of Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1 and 
+13a-13 promulgated thereunder. 
+B. KPMG is censured pursuant to Rule 102(e)(1)(iii) of the Commission’s Rules of 
+Practice. 
+By the Commission. 
+      J o n a t h a n G . K a t z
+ Secretary 
+- 30 -
diff --git a/raw/aaer/2005/AAER-2235.txt b/raw/aaer/2005/AAER-2235.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c3eddda30294e27ecc441e5f6f57b18a90923735
--- /dev/null
+++ b/raw/aaer/2005/AAER-2235.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19191 / April 19, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2235 / April 19, 2005 
+
+  SEC v. KPMG LLP, et al.,  Civil Action No. 03 CV 0671 (DLC) (S.D.N.Y.) 
+
+ KPMG PAYS $22 MILLION TO SETTLE SEC LITIGATION RELATING TO XEROX AUDITS 
+
+ On April 19, 2005, the Securities and Exchange Commission announced that KPMG LLP has agreed to settle the SEC's charges against it in connection with the audits of Xerox Corp. from 1997 through 2000.  As part of the settlement, KPMG consented to the entry of a final judgment in the SEC's civil litigation against it pending in the U.S. District Court for the Southern District of New York.  The final judgment, which is subject to approval by the Honorable Denise L. Cote, orders KPMG to pay disgorgement of $9,800,000 (representing its audit fees for the 1997-2000 Xerox audits), prejudgment interest thereon in the amount of $2,675,000, and a $10,000,000 civil penalty, for a total payment of $22.475 million.  The final judgment also orders KPMG to undertake a series of reforms designed to prevent future violations of the securities laws.   
+ In addition, the SEC today entered an Order finding that KPMG caused and willfully aided and abetted Xerox's violations of the anti-fraud, reporting, recordkeeping and internal controls provisions of the federal securities laws.  The Order also finds that KPMG violated its obligations to disclose to Xerox illegal acts that came to its attention during the Xerox audits.  The Order censures KPMG and orders it to cease and desist from committing or causing these violations.  KPMG consented to the entry of the Order without admitting or denying the SEC's findings.   
+ The SEC's Order finds that from 1997 through 2000, KPMG permitted Xerox to manipulate its accounting practices to close a $3 billion "gap" between actual operating results and results reported to the investing public.  During this period, Xerox used topside accounting actions at the end of financial reporting periods to increase equipment revenue and earnings through the improper acceleration of revenue from long term leases of Xerox copiers and through manipulation of excess or "cookie jar" reserves.  Most of Xerox's topside accounting actions violated generally accepted accounting principles (GAAP) and all of them inflated and distorted Xerox's performance but were not disclosed to investors.  These undisclosed actions overstated Xerox's true equipment revenues by at least $3 billion and overstated its true earnings by approximately $1.5 billion during the four-year period.   
+ According to the Order, in each of the years 1997-2000, KPMG issued audit reports containing unqualified opinions stating that KPMG had applied generally accepted auditing standards (GAAS) to its review of Xerox's accounting, that Xerox's financial reporting was consistent with GAAP and that Xerox's reported results fairly represented the financial condition of the company.  However, the Order finds that throughout this period KPMG failed to comply with GAAS and allowed Xerox to utilize accounting actions that did not comply with GAAP.  By doing so, KPMG allowed Xerox to manipulate its accounting practices to distort the company's financial results, failed to insist that Xerox disclose those practices and their financial impacts in the company's annual and quarterly reports, and allowed Xerox to falsify its books and records and to fail to maintain adequate internal controls over its accounting.   
+ The Order finds that KPMG was intimately familiar with the accounting actions Xerox used on a quarterly and annual basis to increase reported revenues and earnings during 1997-2000.   KPMG's audit partners received many warnings from member firms of KPMG International in Europe, Brazil, Canada and Japan that methods adopted by Xerox to "close the gap" between actual and desired results were not based on adequate evidentiary support.  Even KPMG's U.S. office in Rochester, N.Y., where Xerox had a major manufacturing and administrative center, warned that topside adjustments were creating unnecessary internal accounting control weaknesses.  Nevertheless, from at least 1997 through 2000, KPMG ignored these warnings and did not demand evidence sufficient to establish that these accounting actions and the assumptions Xerox asserted to justify their use were in fact grounded in business realities or fairly reflected the company's performance. 
+ Although KPMG at times suggested to Xerox management that it test the assumptions and results of its accounting adjustments to ensure they accurately portrayed Xerox's business, year after year Xerox management ignored KPMG's requests, and KPMG exerted no pressure on its client to perform such testing.  KPMG did not demand that Xerox test, and KPMG itself never adequately tested, the assumptions Xerox used to justify its topside accounting actions.  Nor did KPMG test -- or demand that Xerox test -- to determine if the topside accounting actions Xerox used resulted in financial statements which fairly presented Xerox's financial results.   
+ In addition, the Order finds that during its audits of Xerox's 1997-2000 financial statements, KPMG became aware of information indicating that illegal acts had or may have occurred as a result of Xerox's use of accounting actions.  Although KPMG at times raised concerns to Xerox's management about certain of these accounting actions, KPMG failed prior to the SEC's investigation in this matter to inform Xerox's board of directors or its audit committee about these illegal acts.  Moreover, in 1999 when Xerox complained to KPMG's chairman about the performance of KPMG's audit engagement partner, KPMG replaced the partner after completion of the 1999 audit. 
+ As a result of these findings, the SEC's Order finds that KPMG willfully violated Section 10A of the Securities Exchange Act of 1934 (Exchange Act) and caused and willfully aided and abetted Xerox's violations of Section 17(a)(2) and (3) of the Securities Act of 1933 and Sections 13(a) and 13(b)(2)(A) and (B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13 and 13b2-1 promulgated thereunder.  The SEC ordered KPMG to cease and desist from committing or causing these violations and censured the firm pursuant to Rule 102(e)(1)(iii) of the Commission's Rules of Practice. 
+ In the separate federal court litigation, KPMG consented to the entry of a final judgment finding that it violated Section 10A of the Exchange Act and ordering it to pay the disgorgement, interest and civil penalty identified above.  As part of the settlement, the SEC agreed to dismiss the other claims asserted against KPMG in the federal court action.  In addition, KPMG consented to perform remedial undertakings designed to prevent future violations of the securities laws that arose from circumstances that were present in this case.  The remedial undertakings include reforms in the following areas: 
+	  examination of an audit client's justification for using accounting practices that depart from GAAP;   
+	 examination of an audit client's justification for departing from its existing accounting systems in favor of making material period-ending adjustments;   
+	 documenting in audit work papers consultations with individuals outside the audit engagement team to the extent the consultation is relied on for purposes of designing the audit program, expressing an opinion on the financial statements or for purposes of client retention;   
+	 reviewing and documenting the circumstances surrounding any change in authority, reassignment or termination of an engagement partner from an audit, other than changes to comply with rules of the SEC concerning independence and partner rotation; and   
+	 establishment of "whistle-blower" channels of communication within KPMG to enable any member of an audit engagement team (including foreign affiliates that provide services in connection with the audit) to express concerns on a confidential and anonymous basis regarding audit procedures or the reasonableness of judgments made in the course of an audit engagement.   
+	 The Chairman of KPMG is required to certify to the SEC that these undertakings have been complied with and to provide the SEC with evidence of such compliance.     
+	 Two years after successfully certifying that the undertakings have been completed, KPMG is required to retain a consultant qualified to examine and assess compliance with these undertakings, who shall certify to the SEC that the undertakings continue to be in effect, are being complied with and appear to be effective in achieving their overall goals.     
+	 The consultant shall also make such recommendations to KPMG as he or she deems appropriate to upgrade and improve the undertakings to make them more effective.   
+  	  The SEC's civil fraud injunctive action against the five KPMG audit partners involved in the Xerox audits during 1997 through 2000 is ongoing.  That action was originally filed against four partners (and KPMG) on January 23, 2003.  The SEC filed an amended complaint on October 3, 2003, to include charges of fraud against an additional KPMG partner.   Securities and Exchange Commission v. KPMG LLP, et al. , Civil Action No. 03 CV 0671 (DLC) (S.D.N.Y.).   See  Litigation Release No. 17954 / January 29, 2003/Accounting and Auditing Enforcement Release No. 1709/ January 29, 2003; Litigation Release No.  18389  / October 3, 2003.  
+ On April 11, 2002, the Commission brought an injunctive action against Xerox based on some of the same allegations of accounting fraud as are alleged against the KPMG defendants, as well as other allegations.  Without admitting or denying the allegations of the complaint, Xerox consented to the entry of a Final Judgment that permanently enjoined the company from violating the antifraud, reporting and record keeping provisions of the federal securities laws.  Xerox also paid a $10 million civil penalty, agreed to restate its financial statements and agreed to hire a consultant to review the company's internal accounting controls and policies.   Securities and Exchange Commission v. Xerox Corporation , Civil Action No. 02-CV-2780 (DLC) (S.D.N.Y.) (April 11, 2002).   See  Litigation Release No.  17465  / April 11, 2002 / Accounting and Auditing Enforcement Release No. 1542 / April 11, 2002. 
+ On June 5, 2003, the Commission also brought an injunctive action against six former senior executives of Xerox - Paul A. Allaire, G. Richard Thoman, Barry D. Romeril, Philip D. Fishbach, Daniel S. Marchibroda, and Gregory B. Tayler -- based on some of the same allegations of accounting fraud as are alleged against the KPMG defendants, as well as other allegations.  Without admitting or denying the allegations of the complaint, each of these six former senior executives consented to the entry of a Final Judgment that permanently enjoined them from violating the antifraud, reporting and record keeping provisions of the federal securities laws.  Together, they paid over $22 million in penalties, disgorgement and interest.  That final judgment also barred Allaire, Thoman, Romeril and Fishbach from serving as officers and directors of public companies for certain periods - Allaire (5 years), Thoman (3 years), Romeril (permanently) and Fishbach (5 years).  In addition, Romeril and Tayler agreed to the entry by the Commission of an Order pursuant to Rule 102(e) of the Commission's Rules of Practice that suspends each of them from appearing or practicing before the SEC as an accountant.  This Order suspended Romeril permanently and suspended Tayler for three years with a right to apply for reinstatement after the three-year period.   Securities and Exchange Commission v. Paul A. Allaire, G. Richard Thoman, Barry D. Romeril, Philip D. Fishbach, Daniel S. Marchibroda and Gregory B. Tayler , Civil Action No. 03-CV-4087 (DLC) (S.D.N.Y.) (June 5, 2003).   See  Litigation Release No.  18174  / June 5, 2003 / Accounting and Auditing Enforcement Release No. 1796 / June 5, 2003. 
+
+    
+See Also:  Administrative Proceeding Release No. 34-51574  
+
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diff --git a/raw/aaer/2005/AAER-2236.txt b/raw/aaer/2005/AAER-2236.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19202 / April 26, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2236 / April 26, 2005 
+
+  Securities and Exchange Commission v. Deloitte & Touche LLP,  05 CV 4119 (April 26, 2005 S.D.N.Y.)  
+
+ SEC Brings Settled Action Against Deloitte & Touche LLP and Obtains $25 Million Civil Penalty 
+
+ On April 26, 2005, the Securities and Exchange Commission filed a settled action for a civil money penalty against Deloitte & Touche LLP ("Deloitte") for committing violations of Section 10A(a) of the Securities and Exchange Act of 1934 ("Exchange Act") in its audit of Adelphia Communications Corporation ("Adelphia") for the year ended December 31, 2000.  The SEC alleged that Deloitte failed to implement audit procedures designed to detect the illegal acts at Adelphia.  Without admitting or denying the allegations in the Commission's complaint, Deloitte agreed to pay a $25 million penalty, which will be deposited into a fund to compensate victims of Adelphia's fraud.  The district court settlement is subject to court approval.   
+ In a related administrative proceeding, the Commission censured Deloitte for improper professional conduct under Rule 102(e) of the Commission's Rules of Practice, and Deloitte agreed to pay an additional $25 million into a fund to compensate victims of Adelphia's fraud, making a total of $50 million to be paid to victims of Adelphia's fraud.  Deloitte also agreed to substantive undertakings designed to address its audit of high-risk clients in the future. 
+ The Commission's Complaint 
+ The Commission's complaint against Deloitte alleges that, during Deloitte's audit of Adelphia's financial statements for the year ended December 31, 2000, Deloitte failed to implement audit procedures designed to detect the illegal acts at Adelphia and failed to implement audit procedures designed to identify material related party transactions or related party transactions otherwise requiring disclosure.  Among other things, Adelphia understated its subsidiary debt by $1.6 billion, overstated equity by at least $368 million, improperly netted related party receivables and payables between Adelphia and related parties, and failed to disclose the extent of related party transactions.   
+ The Commission's complaint charges Deloitte with violating Section 10A(a) of the Exchange Act. 
+ The Settlement  
+ Deloitte has consented to the entry of an order requiring the firm to pay a civil money penalty pursuant to Section 21(d)(3) of the Exchange Act of $25 million and disgorgement of $1, which will be deposited into a fund to compensate victims of Adelphia's fraud. The Commission also censured Deloitte for improper professional conduct in a separate administrative proceeding brought under Rule 102(e) of the Commission's Rules of Practice, and Deloitte agreed to pay $25 million, which will also be deposited into a fund to compensate victims of Adelphia's fraud.  In addition to the $50 million in total payments to Adelphia investors, Deloitte agreed in the administrative proceeding to substantive undertakings designed to address its audit of high-risk clients in the future.   
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diff --git a/raw/aaer/2005/AAER-2237.txt b/raw/aaer/2005/AAER-2237.txt
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+ 
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+  
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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. 51606 / April 26, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2237 / April 26, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11910 
+In the Matter of 
+DELOITTE & TOUCHE LLP 
+Respondent 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted pursuant to Rule 102(e)(1)(ii)
+1 of the 
+Commission’s Rules of Practice against Deloitte & Touche LLP (“Deloitte”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“Offer”) that the Commission has determined to accept.2  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+1	 Rule 102(e)(1) provides, in pertinent part, that: 
+The Commission may censure a person or deny, temporarily or permanently, the 
+privilege of appearing or practicing before it in any way to any person who is found . . . 
+(ii) . . . 	to have engaged in . . . improper professional conduct. 
+2	 Simultaneously with this proceeding the Commission has filed a settled action SEC v. 
+Deloitte & Touche LLP, 05 Civ 4119 (S.D.N.Y), in which Deloitte consented to the entry 
+of a judgment by the United States District Court for the Southern District of New York, 
+pursuant to Section 21(d) of the Securities Exchange Act of 1934 (“Exchange Act”), 
+ordering Deloitte to pay a $25 million civil penalty. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+                                                 
+  
+  
+ 
+to the Commission’s jurisdiction over it and the subject matter of these proceedings, Respondent 
+consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 
+102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds
+3 that: 
+A. RESPONDENT AND OT HER RELEVANT ENTITIES 
+Deloitte & Touche LLP is a Delaware limited liability partnership that is headquartered in 
+New York City.  As of October 22, 2003, Deloitte was registered with the Public Company 
+Accounting Oversight Board, pursuant to Section 102 of the Sarbanes Oxley Act of 2002, to 
+prepare and issue audit reports on U.S. public companies.  Deloitte served as the independent 
+auditor for Adelphia Communications Corporation (“Adelphia”) from at least 1986, the year when 
+Adelphia’s securities became publicly traded, until May 14, 2002, when Deloitte suspended its 
+work on the audit for the year-ended December 31, 2001, citing, among other concerns, that 
+Adelphia’s books and records had been falsified.  Starting in 1993, and until the audit was 
+suspended in 2002, Deloitte serviced the Adelphia account through its Pittsburgh, Pennsylvania 
+office (the “Pittsburgh Office”). Adelphia was one of the Pittsburgh Office’s largest clients.  In 
+addition, Adelphia was deemed by the Pittsburgh Office to have “much greater than normal audit 
+risk.” Deloitte’s engagement team included a Lead Client Service Partner (the “Engagement 
+Partner”), a concurring review partner (the “Concurring Partner”) and a Special Review Partner. 
+Adelphia Communications Corporation, a Delaware corporation that was headquartered in 
+Coudersport, Pennsylvania, is the sixth largest cable television operator in the United States and, 
+through numerous consolidated subsidiaries, provides cable television and local telephone service 
+to customers in twenty-nine states and Puerto Rico.  Prior to June 3, 2002, Adelphia’s Class A 
+shares were listed on the NASDAQ’s National Market, while the Company’s Class B shares were 
+never publicly traded.  Citing public interest concerns and Adelphia’s failure to comply with 
+NASDAQ Rule 431(c)(14), which requires an issuer, among other things, to timely file its Form 
+10-K, a NASDAQ Listing Qualifications Panel de-listed Adelphia stock, effective June 3, 2002.  
+Adelphia shares are now quoted by Pink Sheets, LLC.  On July 24, 2002, the Commission filed 
+SEC v. Adelphia Communications Corporation, et al., 02 Civ. 5776 (S.D.N.Y.) (PKC) (“SEC v. 
+Adelphia”), alleging that Adelphia and six senior officers, including four members of the Rigas 
+family, had engaged, between at least 1998 and March 2002, in widespread financial fraud and 
+reporting violations. That action is pending.  Since June 25, 2002, Adelphia and its subsidiaries 
+have operated under the protection of Chapter 11 of the U.S. Bankruptcy Code. 
+The findings herein are made pursuant to Respondent's Offer and are not binding on any 
+other person or entity in this or any other proceeding. 
+2
+ 
+3 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+The Rigases include John Rigas (J. Rigas), his sons, Timothy J. Rigas (“T. Rigas”), 
+Michael J. Rigas (“M. Rigas”) and James P. Rigas (“J.P. Rigas”), his daughter, Ellen Rigas Venetis 
+(“E. Rigas”) and his spouse, Doris Nielsen Rigas (“D. Rigas”).  At all relevant times, J. Rigas and 
+members of his immediate family held five of Adelphia’s nine Board of Directors positions, and 
+exercised voting control of Adelphia stock.  Specifically, J. Rigas was Adelphia’s Chief Executive 
+Officer and Chairman of its Board of Directors.  T. Rigas, M. Rigas, and J.P. Rigas each were 
+directors of Adelphia and held the positions, respectively, of Chief Financial and Accounting 
+Officer, Executive Vice President for Operations, and Executive Vice President for Strategic 
+Planning. J. Rigas and T. Rigas were convicted, in US v. John J. Rigas, et al., 02 Crim. 1236 
+(S.D.N.Y.)(LBS), of a total of eighteen counts of securities fraud, bank fraud and conspiracy to 
+commit securities fraud, bank fraud, and making or causing to be made false statements in 
+Commission filings.   
+Rigas Entities consist of approximately 63 various partnerships, corporations, or limited 
+liability companies exclusively owned or controlled by members of the Rigas family. While 
+approximately fourteen of the Rigas Entities were engaged in the ownership and operation of cable 
+television systems and other related ventures (the “Rigas Cable Entities”), the balance, or 
+approximately forty-nine of the Rigas Entities, were involved in businesses completely unrelated to 
+cable television (the “Rigas Non-Cable Entities”), including, but not limited to, Christmas tree 
+farming, interior design, furniture retailing, honey cultivation and sales, ownership of a National 
+Hockey League team franchise, venture capital, residential and commercial landscaping, and film 
+production by E. Rigas. Adelphia managed and maintained virtually every aspect of the Rigas 
+Cable Entities, including maintaining their books and records on a general ledger system shared 
+with Adelphia and its subsidiaries.  Adelphia and the Rigas Entities, participated jointly in a cash 
+management system (“CMS”) operated by Adelphia.  This resulted in the commingling of funds 
+among the Adelphia CMS participants, including Adelphia subsidiaries and Rigas Entities.  As 
+detailed below, the sharing by Adelphia and the Rigas Entities of the same management, general 
+ledger system, and cash management system greatly facilitated the fraud at Adelphia.  
+The Co-Borrowing Credit Facilities: Since at least 1996, Adelphia negotiated and 
+established various commercial loans, credit facilities, and other credit arrangements for its benefit 
+and the benefit of the Rigas Cable Entities.  Among these credit facilities were four facilities, dated 
+respectively, March 29, 1996, May 6, 1999, April 14, 2000, and September 28, 2001, in which 
+certain subsidiaries of Adelphia became co-borrowers with certain Rigas Cable Entities (the “Rigas 
+Co-Borrowers”). Under the terms of these credit facilities (the “Co-Borrowing Credit Facilities”) 
+the co-borrowers under each Facility constituted a “borrowing group” for that Facility and, as a 
+group, prepared and submitted annually to the lending banks audited combined financial 
+statements, including a balance sheet and an income statement.  From December 31, 1996 through 
+at least December 31, 2000, Deloitte audited the annual financial statements of each borrowing 
+group and, in each instance, issued an audit report containing an unqualified opinion on those 
+financial statements.  Also, under the terms of the Co-Borrowing Credit Facilities, each co-
+borrower had the ability to borrow up to the entire amount of the available credit under the 
+applicable Facility and was jointly and severally liable for the entire outstanding balance under that 
+Facility. 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+B. SUMMARY 
+This case concerns a critically flawed audit by Deloitte.  Deloitte did not act in accordance 
+with Generally Accepted Auditing Standards (“GAAS”) and it failed to detect a massive fraud 
+perpetrated by Adelphia and the Rigases.  From at least 1998 through March 2002, at the direction 
+of senior management, Adelphia transferred billions of dollars of liabilities to off-balance sheet 
+affiliates, inflated earnings to meet Wall Street’s expectations, falsified operational statistics, and 
+concealed varied instances of blatant self-dealing by the Rigases. On March 27, 2002, Adelphia 
+revealed that it was jointly and severally liable for approximately $2.3 billion (as of December 31, 
+2001) of bank loans incurred by the Rigas Entities.  Revelations of further fraud followed:  in 
+addition to understating co-borrowing debt on its balance sheet, Adelphia had also overstated its 
+operational and financial performance and concealed rampant self-dealing by the Rigases.  As the 
+fraud became known, Adelphia’s share price plummeted, erasing as much as $8 billion of 
+shareholder value. 
+Deloitte served as Adelphia’s independent auditor during the course of the misconduct and 
+each year issued audit reports containing unqualified opinions on Adelphia’s annual financial 
+statements filed with the Commission on Form 10-K.  Adelphia’s Form 10-K for the 2000 fiscal 
+year (the “Relevant Period”) contained significant material misstatements. In its Form 10-K for 
+2000, Adelphia understated its subsidiary debt by $1.6 billion, overstated equity by at least $368 
+million, and improperly netted related party receivables and payables between Adelphia and the 
+Rigas Entities. Adelphia further failed to disclose the nature and extent of related party 
+transactions between Adelphia and the Rigases.  The Deloitte engagement team’s failure to object 
+to these particular misstatements permitted Adelphia to engage in certain accounting practices that 
+departed from Generally Accepted Accounting Principles (“GAAP”).  Accordingly, Deloitte 
+caused Adelphia’s violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act 
+and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+C. FACTS 
+Deloitte’s Risk Management Program  
+During the Relevant Period, Deloitte had a Risk Management Program for clients deemed 
+to have “much greater than normal” audit risk.  This program was not required by GAAS but was 
+instead established by Deloitte for the purpose of better managing risks inherent in its audits of 
+certain higher risk clients. According to Deloitte’s Accounting and Audit Procedures Manual 
+(“AAPMS”), in effect during the Relevant Period, a client’s level of audit risk represented a 
+measure of the possibility that fraudulent financial reporting or misappropriation of assets might 
+have occurred at a client during the period being audited.  Under the Risk Management Program 
+guidance issued to Deloitte personnel, a Deloitte partner designated as a Special Review Partner 
+was to provide an additional level of consultation and review beyond that provided by the 
+engagement team.  This Special Review Partner’s duties included (i) discussing specific risk areas 
+and plans to respond to them; (ii) consulting with the engagement and concurring partners; (iii) 
+reviewing the audit workpapers concerning risk areas of the engagement; and (iv) reviewing the 
+4
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+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 Special Review Partner was to complete a memorandum to 
+Deloitte’s National Office confirming that he had completed his duties as Special Review Partner 
+and assessing whether adequate attention and resources had been dedicated to the management of 
+the risks of the engagement. 
+Deloitte Recognized that Adelphia Was Among Its Highest Risk Clients 
+As part of its annual audit planning process, Deloitte assessed the level of Adelphia’s audit 
+risk. From at least 1998, Deloitte concluded that Adelphia presented “much greater than normal” 
+audit risk, which was the highest level of risk that Deloitte could assign to any client under 
+guidelines set forth in the AAPMS.  In reaching this conclusion, Deloitte identified a number of 
+what it called “pervasive risk factors” posed by the Adelphia audit as a whole and “specific risks” 
+associated with particular account balances examined during the audit.  This risk assessment was 
+reviewed by the Special Review Partner, who, in this case, had National Office clearing authority.  
+Many of the pervasive risk factors and the specific risks were directly associated with Adelphia’s 
+extensive relationship with the Rigases and Rigas Entities, as well as its heavy reliance on debt and 
+equity funding for its operating and capital needs.  Among the pervasive risk factors identified by 
+Deloitte in 2000 were: 
+•	 Management is dominated by one strong personality or concentrated in a small 
+group without compensating controls.  
+•	 Management appears willing to accept unusually high levels of risk. 
+•	 Management tends to interpret accounting standards aggressively. 
+•	 The organizational [and/or reporting] structures are unduly complex. 
+•	 There is substantial debt from unusual sources (e.g., related parties) or on unusual 
+terms. 
+•	 There are significant affiliated entities or other related parties that we will not audit 
+and with whom significant transactions might have occurred. 
+•	 [Adelphia] engages in unique, highly complex and material transactions that pose 
+difficult “substance over form” questions. 
+•	 [Adelphia] is under significant pressure to obtain additional capital necessary to 
+stay competitive, and is growing and is near the limit of its financial resources. 
+•	 There have been frequent disputes with Deloitte . . . on accounting, auditing, or 
+reporting matters. 
+5
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Deloitte further identified “specific risks” including “numerous related party transactions” 
+and observed that because “[Adelphia and its subsidiaries] are highly leveraged, compliance with 
+debt covenants is critical to the operations of these entities.”  Deloitte considered these “specific 
+risks” as affecting, among others, Adelphia’s account balances for “notes payable, long term debt 
+and interest” and “cash.” The “specific risks” identified for the 2000 Audit were communicated to 
+Deloitte’s National Office.   
+Despite Adelphia’s risk level, Deloitte failed to tailor an audit approach that adequately 
+responded to the risks identified in Deloitte’s audit planning. Moreover, Deloitte did not 
+implement appropriate follow-up procedures to make sure not only that the audit testing and 
+fieldwork used in the audit mitigated Adelphia’s audit risk, but also that the quality control 
+protections intended to be provided by the presence of both Concurring and Special Review 
+Partners actually functioned as those controls were designed to work in the circumstances of a high 
+risk client audit. 
+Deloitte Failed to Ensure that Adelphia’s Disclosure of its Liabilities Was Proper 
+Under the terms of the Co-Borrowing Credit Facilities, Adelphia and the Rigas Co-
+Borrowers each contributed various assets as collateral for the extension of credit.  While it 
+appears that the Rigas Co-Borrowers contributed approximately 66% of the total collateral 
+underlying the 1996 Co-Borrowing Credit Facility, in 1999 to 2001, the Rigas Co-Borrowers 
+contributed significantly less collateral – 19% in 1999 and 4% in both 2000 and 2001.  The 
+balance of the collateral was contributed by Adelphia subsidiaries.  During the Relevant Period, 
+Deloitte audited the annual financial statements of each borrowing group and in each instance 
+issued an audit report containing an unqualified opinion on those financial statements.  As of 
+December 31, 2000, the total borrowing capacity under the three Co-Borrowing Credit Facilities 
+then in existence was $3.751 billion. 
+As of December 31, 2000, the Co-Borrowing Credit Facilities were completely drawn- 
+down. Of the $3.751 billion outstanding, approximately $1.6 billion of Co-Borrowing debt was 
+improperly excluded from Adelphia’s balance sheet for the year-ended 2000 as an Adelphia 
+liability. Moreover, Adelphia’s 2000 Form 10-K included a footnote disclosure that was at best 
+ambiguous and was misleading in that it suggested that all of the debt for which Adelphia was 
+liable, including the $1.6 billion owed by the Rigas Co-Borrowers, was properly reflected on 
+Adelphia’s balance sheet. This amount represented over 28% of Adelphia’s reported bank debt 
+and nearly 10% of Adelphia’s reported total liabilities.   
+Adelphia’s rationale to Deloitte for excluding $1.6 billion in debt from its balance sheet 
+was that it was a mere “guarantor” of the Rigas Co-Borrowers, and therefore did not have to 
+reflect such debt as a liability on its balance sheet.  Adelphia, however, provided Deloitte’s 
+engagement team copies of the agreements underlying the Co-Borrowing Credit Facilities, which 
+revealed that Adelphia was jointly and severally liable for the full amount of such debt.  
+Deloitte’s engagement team failed to recognize this discrepancy or to take steps to understand 
+the impact of joint and several liability.    
+6
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                
+ 
+   
+ 
+ 
+ 
+ 
+4 
+Even under Adelphia’s characterization of the debt as a “guarantee,” Deloitte’s 
+engagement team knew or should have known that Adelphia did not perform the assessments 
+required under Statement of Financial Accounting Standards No. 5 (“FAS 5”) to determine if its 
+potential contingency for the amount of co-borrowing debt that it excluded from its balance sheet 
+was “probable” or even “reasonably possible” under FAS 5 and would have had to be disclosed.4 
+Indeed, other than a cursory calculation not documented in the workpapers, Deloitte did nothing 
+to determine whether the Rigas Entities had the financial wherewithal to repay the debt.  In any 
+event, Deloitte should have known that Adelphia had an obligation to disclose this debt even if it 
+determined that its loss contingency was “remote.”  
+In addition, during the 2000 Audit, Deloitte repeatedly proposed disclosure of the full 
+amount of the Co-Borrowing debt.  Deloitte inserted more explicit disclosure, including the 
+amount of Rigas Co-Borrowing debt, in at least six drafts of Adelphia’s 2000 Form 10-K.  But 
+when Adelphia’s management resisted, Deloitte abandoned its attempts to make the disclosure 
+more accurate. 
+Deloitte knew or should have known that Adelphia’s failure to include all Co-Borrowing 
+debt on its balance sheet, or to otherwise disclose that a portion had been excluded, did not 
+conform to GAAP. 
+Deloitte Knew or Should Have Known That the $1.6 Billion Was Adelphia’s Liability and 
+Should Have Been Reflected in its Financial Statements 
+Adelphia’s exclusion of Co-Borrowing debt from its balance sheet was also improper 
+because virtually all of the Co-Borrowing debt excluded was in fact Adelphia’s liability that had 
+been improperly shifted from Adelphia’s books to the books of the Rigas Co-Borrowers.  
+Adelphia excluded Co-Borrowing debt from its balance sheet in a number of ways.  It: (i) 
+“reclassified” some debt to the books of the Rigas Co-Borrowers through the use of sham journal 
+entries, (ii) improperly transferred debt in  connection with direct placements of Adelphia 
+FAS 5 requires a company to include a contingent amount in its financial statements when 
+that contingency is “probable.”  Paragraphs 10 and 11 of FAS 5 provide guidance on when 
+a contingency needs only to be disclosed by a company in footnotes to its financial 
+statements.  Paragraph 10 provides, in pertinent part, that:  “[d]isclosure of the 
+contingency shall be made when there is at least a reasonable possibility that a loss or an 
+additional loss may have been incurred . . .” [Emphasis added].  Under these principles, 
+even if a loss contingency does not meet the threshold for inclusion in a company’s 
+financial statements, disclosure of the contingency is still required where there is a 
+reasonable possibility of having to incur a liability under the contingency.  Paragraph 12 
+of FAS 5 goes further and states that when a contingency is a guarantee of indebtedness of 
+others—which Adelphia claimed the Rigas Co-Borrowing debt was—a company should 
+nevertheless disclose the nature and amount of the guarantee even if the guarantee is 
+assessed as “remote.”   
+7
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+                                                
+ 
+   
+ 
+securities to the Rigases (approximately $513 million in 2000); and (iii) recorded debt only on 
+the books of the Rigas Co-Borrowers without appropriate extinguishment of Adelphia’s liability, 
+even though Adelphia remained ultimately liable for such debt. 
+Adelphia’s practice of reclassifying or otherwise transferring Co-Borrowing debt from its 
+books was improper. This practice had the effect  of transforming Adelphia’s Co-Borrowing debt 
+into affiliate payables.  This in turn reduced Adelphia’s disclosed Co-Borrowing debt and created 
+a means for Adelphia to conceal its ever-growing balance of affiliate receivables from Rigas 
+Entities and individual Rigases.  These affiliate receivables were the result of the Rigases’ 
+fraudulent draining of Adelphia’s cash and other resources.  By netting the fake affiliate payables 
+against the affiliate receivables, Adelphia hid the existence of these receivables from investors, 
+and reduced the amount of Co-Borrowing debt recorded on its books and records, thereby 
+facilitating Adelphia’s access to the capital markets.  
+Adelphia’s practice of drawing down co-borrowing funds into an Adelphia bank account 
+but recording debt on the books of the Rigas Co-Borrowers was equally improper.  Such 
+practices did not conform to GAAP, which requires that certain requirements be met before a 
+liability can be extinguished.  Deloitte knew or should have known that this practice was a 
+violation of GAAP. 5 
+Deloitte failed to recognize numerous red flags that indicated the existence of fraudulent 
+entries throughout Adelphia’s general ledger.  For example, the general ledger included millions 
+of dollars in payments to individual Rigases, a cost center for Doris Rigas’s design company, and 
+a $375 million receivable from a Rigas entity that had purchased Adelphia stock in a direct 
+placement.  If Deloitte had conducted a more careful review of the relationship between the 
+payables and receivables, it would have been able to determine that a large portion of the 
+subsidiary debt should have remained on Adelphia’s books.  The result of Adelphia’s fraudulent 
+conduct was that the Rigases were able to loot Adelphia at the expense of Adelphia’s 
+shareholders and Adelphia was able to falsely represent that it was de-leveraging.  
+Deloitte Improperly Failed to Object to Adelphia’s Netting of Related Party Payables and 
+Receivables 
+Adelphia was required by Regulation S-X paragraphs 210.5-02.3 and 210.5.02.19 to report 
+related party receivables and payables as gross numbers on its balance sheet.  Generally, and 
+except in limited circumstances and in the absence of an explicit and legal right of offset, 
+Statement of Financial Accounting Standard No. 125 (FAS 125) required that once 
+Adelphia drew down on the Co-Borrowing Credit Facilities, it had to either pay off the 
+debt by the transfer of assets to the creditor or be legally released as primary obligor by 
+the creditor, neither of which occurred.  Attempting to “extinguish” debt by “assigning” it 
+to a related party is not sufficient—the credito r must be paid or must legally release the 
+borrower. (FAS 125 was superseded by FAS 140, effective March 31, 2001.)  
+8
+ 
+5 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+  
+  
+ 
+ 
+ 
+ 
+Regulation S-X requires that certain information about related party receivables and payables be 
+disclosed on the balance sheet. 
+The information that should appear on the face of the balance sheet or related notes and is 
+required in SEC filings by Regulation S-X as separately stated line items  (S-X at 210.05-02) 
+includes: (1) amounts receivable from related parties (S-X at 210.05-02.3(a)(2); and, (2) amounts 
+payable to related parties  (S-X at 210.05.02.19(a)(5).  In addition, if the amounts due are not 
+current then Regulation S-X requires separate disclosure of "Indebtedness of related parties - not 
+current" (S-X at 210.05-02.11) and "Indebtedness to related parties - not current" (S-X at 210.05-
+02.23). 
+Further, Accounting Research Bulletin 43, Chapter 1 at paragraph 5 states “Notes or 
+accounts receivable due from officers, employees, or affiliated companies must be shown 
+separately . . . .”  Accordingly, Adelphia was required both by GAAP and by Commission 
+regulations to report related party transactions with the Rigas Entities in a gross presentation. 
+Adelphia improperly netted, or offset, related party payables and related party receivables 
+as of year-end, and presented only that net balance on its balance sheet in a line item called 
+“Related-party Receivables—Net.”  This practice did not conform to GAAP, obscured the extent 
+and magnitude of Rigas self-dealing and assisted Adelphia in creating the appearance of de-
+leveraging. Paragraph 7 of Accounting Principles Board Opinion No. 10 (“APB 10”) states that “it 
+is a general principle of accounting that the offsetting of assets and liabilities in the balance sheet is 
+improper except where a right of setoff exists.”  Financial Accounting Standards Board 
+Interpretation No. 39 (“FIN 39”), in turn, defines a right of setoff as “a debtor’s legal right, by 
+contract or otherwise, to discharge all or a portion of the debt owed to another party by applying 
+against the debt an amount that the other party owes to the debtor.”  FIN 39 sets forth four 
+conditions that must be met for netting to be proper: 
+(a) 	Each of two parties owes the other determinable amounts; 
+(b) 	The reporting party has the right to set off the amount owed 
+with the amount owed by the other party;  
+(c) 	The reporting party intends to set off; and 
+(d) 	The right to set off is enforceable at law.   
+(Emphasis in original) 
+Adelphia’s practice of netting was a fraudulent device used to conceal its liabilities.  No 
+agreements, written or otherwise, existed that established any legal right by Adelphia to setoff 
+amounts owed to it by the Rigas Entities or individual Rigases.  Adelphia netted unrelated non-
+mutual balances without any attempt to match affiliate receivables with affiliate payables to the 
+appropriate entities. Deloitte’s failure to challenge Adelphia’s practice of netting and its issuance 
+of an audit report containing an unqualified opinion on the December 31, 2000 financial statements 
+permitted Adelphia to reflect a mere $3 million net receivable in its 2000 Form 10-K.  If Deloitte 
+had taken the appropriate action to correct Adelphia’s disclosure, however, Adelphia would have 
+had to report that, as of the year-ended December 31, 2000, Adelphia had gross related party 
+9
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+receivables of $1.3513 billion and gross related party payables of $1.348 billion, much more 
+relevant numbers. 
+Deloitte Failed to Object to Adelphia’s Overstatement of its Stockholders’ Equity 
+On January 24, 2000, a Rigas Entity acquired $368 million of Adelphia Class B shares, 
+purportedly paid in immediately available funds.  In fact, the Rigas Entity paid nothing and 
+Adelphia booked an affiliate receivable from that entity for the purchase price of the shares.  This 
+receivable was never satisfied for cash but, along with other affiliate receivables, was netted 
+against and reduced by the fake affiliate payables created by Adelphia’s reclassification.  Certain 
+members of Deloitte’s engagement team were aware of a $375 million receivable ($7 million of 
+which was actually paid) created in connection with this purchase.  Such a receivable created a 
+stock subscription, which should have resulted in Adelphia recording a $375 million contra-equity 
+(a direct decrease to equity). Instead, through its failure to object, Deloitte allowed Adelphia to 
+overstate its stockholders’ equity by $368 million, thereby improving Adelphia’s overall financial 
+picture. 
+Deloitte Failed to Address Each Risk Factor Identified By its Risk Management Program 
+At the conclusion of the 2000 audit, notwithstanding that Deloitte had identified nine 
+specific audit risks, Deloitte failed to do any meaningful assessment of whether those risks had 
+been appropriately addressed. Rather, Deloitte did a cursory review of the audit plan and the risk 
+factors and decided, with no further analysis, that the risk factors had been adequately addressed.  
+This failure to follow up on the enumerated risk factors resulted in Deloitte’s oversight of 
+numerous red flags described above that indicated the existence of Adelphia’s fraud.  
+Adelphia’s Violations  
+Section 13(a) and Rules 13a-1 and 13a-13 of the Exchange Act require issuers to file 
+annual and quarterly reports with the Commission and to keep this information current.  Rule 12b-
+20 requires disclosure of such additional information as may be necessary to make the required 
+statements not misleading.  Implicit in these provisions is the requirement that the information 
+reported be true, correct and complete.  See United States v. Bilzerian, 926 F.2d 1285, 1298 (2d 
+Cir. 1991); SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978). 
+As described above, Adelphia misstated its total liabilities, equity, and related party 
+receivables in its 2000 Form 10-K.  Accordingly, Adelphia violated Section 13(a) of the Exchange 
+Act and Rules 12b-20, 13a-1 and 13a-13. 
+Adelphia also violated Section 13(b)(2)(A) of the Exchange Act by failing to make and 
+keep books, records, and accounts that accurately, and in reasonable detail, reflected transactions 
+and dispositions of its assets or liabilities.  In addition, Adelphia failed to devise and maintain a 
+system of internal accounting controls sufficient to provide reasonable assurances that transactions 
+were recorded as necessary to permit preparation of financial statements in conformity with 
+GAAP, thereby violating Section 13(b)(2)(B) of the Exchange Act. Adelphia’s internal controls 
+10
+ 
+ 
+  
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+  
+ 
+ 
+                                                 
+  
+were not sufficient to prevent the recording of numerous false journal entries, specifically the 
+quarterly reclassification of debt, without proper basis or support.   
+D. DELOITTE’S IMPROPER  PROFESSIONAL CONDUCT 
+By virtue of the conduct alleged above, Deloitte failed to conduct its audit of Adelphia’s 
+2000 financial statements in accordance with GAAS.  Rather, Deloitte issued an audit report 
+containing an unqualified opinion on Adelphia’s 2000 financial statements while it knew or should 
+have known that Adelphia: (a) failed to record all co-borrowing debt on its balance sheet or 
+otherwise disclose that a portion had been excluded; (b) failed to disclose significant related party 
+transactions by improperly netting related party payables and receivables; and (c) overstated its 
+stockholders’ equity by $375 million.  Moreover, Deloitte failed to tailor an audit approach that 
+adequately responded to the risks identified in Deloitte’s planning of its audit of Adelphia’s 2000 
+financial statements.  
+GAAS requires that auditors exercise due professional care in performing an audit and in 
+preparing the audit report.  AU § 230.01. Due professional care requires that the auditor exercise 
+professional skepticism in performing audit procedures and gathering and analyzing audit evidence.  
+AU § 230.07-.08. “In exercising professional skepticism, the auditor should not be satisfied with 
+less than persuasive evidence because of a belief that management is honest.” AU § 230.09.  
+Moreover, GAAS requires that an auditor must obtain “sufficient competent evidential matter” to 
+provide “a reasonable basis for forming an opinion.”  AU §326.22. 
+More specifically, when auditing a client identified to be at higher risk for material 
+misstatement of the financial statements, GAAS makes clear that “the auditor should consider this 
+conclusion in determining the nature, timing, or extent of procedures.”  AU §312.17. GAAS 
+further states that “[h]igher risk may cause the auditor to expand the extent of procedures applied, 
+apply procedures closer to or as of year end, particularly in critical audit areas, or modify the nature 
+of procedures to obtain more persuasive evidence.” Id. GAAS also requires that professional 
+skepticism increase with a higher level of risk assessment. As set forth in paragraph 27 of SAS 
+82, "examples demonstrating the application of professional skepticism in response to the 
+auditor's assessment of the risk of material misstatement due to fraud include (a) increased 
+sensitivity in the selection of the nature and extent of documentation to be examined in support 
+of material transactions, and (b) increased recognition of the need to corroborate management 
+explanations or representations concerning material matters — such as further analytical 
+procedures, examination of documentation, or discussion with others within or outside the 
+entity."6 
+Deloitte departed from the applicable GAAS provisions cited above by failing to exercise 
+due professional care and skepticism and obtain sufficient competent evidential matter; substituting 
+management representations for competent evidence; failing to take appropriate action to correct 
+Adelphia’s inconsistent and deficient disclosure; and issuing inaccurate audit reports.  
+SAS 82 has been superceded by SAS 99 (AU § 316.46) which became effective for 
+audits of financial statements for the periods beginning on or after December 15, 2002. 
+11
+ 
+6 
+ 
+ 
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+ 
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+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+In addition to its departure from GAAS, Deloitte caused Adelphia’s violations of  Sections 
+13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  Adelphia could not have filed its 
+misleading 2000 Form 10-K without Deloitte’s audit report.  By failing to detect the fraud and 
+issuing an audit report on Adelphia’s financial statements that incorporated the company's 
+violations of GAAP, yet stating that such financial statements "presented fairly, in all material 
+respects" Adelphia’s financial condition and results of operations, Deloitte caused Adelphia’s 
+violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+As Adelphia’s auditor, and for the purpose of determining the extent of reliance that 
+Deloitte’s engagement team could place in Adelphia’ systems, Deloitte evaluated Adelphia’s 
+internal controls pursuant to GAAS. Deloitte made use of its knowledge of Adelphia’s internal 
+controls in planning the scope, timing, and substance of the audit work. Deloitte knew or should 
+have known that Adelphia’s books and records did not accurately reflect transactions (such as co-
+borrowing debt, Rigas securities purchases and other related party transactions).  Further, Deloitte 
+knew or should have known that Adelphia had significant flaws in its internal controls. 
+Accordingly, by failing to recognize and object to the significant flaws in Adelphia’s books and 
+records and internal controls, Deloitte caused Adelphia’s violations of Sections 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act. 
+E. FINDINGS 
+Based on the foregoing, the Commission finds that Deloitte engaged in improper 
+professional conduct in connection with the 2000 Adelphia audit pursuant to Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice by engaging in repeated instances of unreasonable conduct, 
+each resulting in a violation of applicable professional standards, that indicate a lack of 
+competence to practice before the Commission. 
+F. CERTAIN STEPS TAKEN BY DELOITTE SINCE THE ADELPHIA AUDIT 
+Deloitte now uses a proprietary financial analysis tool (“Deloitte Radar” or “DDAR”) to 
+assist in its assessment of substantially all of its U.S. public company clients with publicly traded 
+equity securities as to their potential for financial statement fraud or business failure.  This 
+information is used by Deloitte in planning its risk-based audit procedures, including Deloitte’s 
+assessment of whether a client should be included in the Risk Management Program. 
+After May 2002, but before the entry of this Order, for the audits of public companies 
+placed in the Risk Management Program, Deloitte established and implemented the following 
+enhancements to its audit policies and procedures: 
+a. Deloitte now notifies the Audit Committee about a client’s placement in the Risk 
+Management Program. 
+12
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+   
+   
+ 
+ 
+ 
+b. Deloitte forensic specialists are now involved in the audit planning for certain 
+clients in the Risk Management Program that are determined by Deloitte to be at a high risk of 
+fraud.  The Audit Engagement Partner also retains the discretion to have Deloitte forensic 
+specialists involved in audit planning in other audits in the Risk Management Program. 
+c. The Audit Engagement Partner now conducts a detailed review of the principal 
+audit workpapers and the Concurring Partner must do an overriding review.  
+d. At the conclusion of the audit of clients in the Risk Management Program the 
+engagement team must document its conclusions about the effectiveness of audit response to 
+identified audit risks, and the Special Review Partner must concur. 
+e. Deloitte now develops and documents circumstances specific to each particular 
+client under which the client would be permitted by Deloitte to exit the Risk Management 
+Program. 
+G. UNDERTAKINGS BY DELOITTE 
+1. Upon submission of its Offer, Deloitte will deposit $25 million into an escrow account.  
+Within 10 days of the date of this order, those funds shall be paid to the Clerk of the United States 
+District Court for the Southern District of New York, together with a cover letter identifying 
+Deloitte as the defendant in SEC v. Deloitte 05 Civ. 4119 (S.D.N.Y), and specifying that the 
+payment is made in connection with the Commission's administrative proceeding. Deloitte shall 
+simultaneously transmit photocopies of such payment and letter to Helene T. Glotzer, Securities 
+and Exchange Commission, 3 World Financial Center, New York, NY 10281. By making this 
+payment, Deloitte relinquishes all legal and equitable right, title, and interest in such funds, and 
+no part of the funds shall be returned to Deloitte. Once the Respondent has paid these funds 
+pursuant to this Order, the Respondent shall have no further obligation, liability or responsibility 
+with respect to these funds. The Clerk shall de posit the funds into an interest bearing account. 
+These funds, together with any interest and income earned thereon (collectively, the "Fund"), 
+shall be held until further order of the Court. In accordance with the guidelines set by the 
+Director of the Administrative Office of the United States District Courts, the Clerk is directed, 
+without further order of the Court, to deduct from the income earned on the money in the Fund a 
+fee equal to ten percent of the income earned on the Fund. Such fee shall not exceed that 
+authorized by the Judicial Conference of the United States. The Commission may by motion 
+propose a plan to distribute the Fund subject to the Court's approval. Such a plan may provide 
+that the Fund shall be distributed pursuant to the Fair Fund provisions of Section 308(a) of the 
+Sarbanes-Oxley Act of 2002.  Deloitte acknowledges that such funds will not be used to pay 
+attorneys' fees in any private damages action brought against Deloitte by or on behalf of one or 
+more Adelphia investors. 
+2. For audits of public companies placed in the Risk Management Program and commencing 
+with audits of financial statements with a year-ended June 30, 2005, Deloitte will establish and 
+implement the following policies and procedures: 
+13
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+a. Knowledgeable and experienced partners shall be appointed as Special Review 
+Partners to oversee the planning and design of audit procedures for audit risks that have been 
+identified in the planning stage of the audit, and these audit procedures will be specifically tailored 
+to the particular audit risks identified in connection with the audit 
+b. Deloitte will utilize Deloitte forensic specialists in the planning stage of audits of all 
+clients in the Risk Management Program. 
+c. Prior to the issuance of a Report of an Independent Public Accountant, the 
+Engagement Partner will be responsible for the preparation of a written memorandum: (1) listing 
+specific and pervasive audit risks identified at the planning stage of the audit as well as any 
+significant issues that arose during the engagement; (2) describing procedures used to address each 
+identified risk and issue; and (3) explaining why such procedures adequately address the risk or 
+issue. The Special Review Partner will: (1) review the memorandum; (2) determine through 
+review of the memorandum, inquiry of the Engagement Partner, and, if the Special Review Partner 
+deems appropriate, review of certain workpapers, whether the Special Review Partner concurs with 
+the view of the Engagement Partner that the procedures adequately addressed the risk or issue; and 
+(3) document that concurrence in the workpapers. 
+d. The Engagement Partner and the Special Review Partner will review any 
+significant issues arising during the audit to determine whether it is appropriate under the 
+circumstances to consult with Deloitte’s National Office about the issue.  If consultation over such 
+an issue occurs, the engagement team will ensure that the audit workpapers document any such 
+consultation involving Deloitte’s National Office. 
+3. Within 24 months from the date of this order, Deloitte will take reasonable steps to ensure 
+that all Deloitte audit professionals have completed 8 hours of training on: (a) fraud detection; and 
+(b) operation of, and an auditor’s responsibilities under, Section 10A of the Exchange Act, based 
+upon training materials approved by an individual or organization not unacceptable to the staff of 
+the Commission.  Training will include techniques in detecting or responding to possible fraud by 
+audit clients, or by employees, officers or directors of audit clients. 
+4. Within ten days of the date of this Order, Deloitte shall distribute copies of the Order to all 
+audit professionals. 
+5. Eighteen months from the date of this Order, Deloitte will retain, at its own expense, an 
+independent consultant not unacceptable to the staff of the Commission, to review Deloitte’s 
+compliance with the undertakings set forth in this Section.  The consultant will, within 120 days of 
+commencing his/her review, provide a report of the results of that review to the staff of the 
+Commission. In addition, Deloitte shall require the Consultant to enter into an agreement that 
+provides that for the period of engagement and for a period of two years from completion of the 
+engagement, the Consultant shall not enter into any employment, consultant, attorney-client, 
+auditing or other professional relationship with Deloitte, or any of its present or former affiliates, 
+directors, officers, employees, or agents acting in their capacity as such.  The agreement will also 
+14
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+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
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+   
+ 
+provide that the Consultant will require that any firm with which he/she is affiliated or of which 
+he/she is a member, and any person engaged to assist the Consultant in the performance of his/her 
+duties under this Order shall not, without prior written consent of the Commission’s staff, enter 
+into any employment, consultant, attorney-client, auditing or other professional relationship with 
+Deloitte, 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. 
+6. The above policies and procedures are intended to enhance the procedures applied to those 
+clients placed in the Risk Management Program and to enhance the training of Deloitte personnel.  
+Both Deloitte and the Commission recognize that auditing standards and procedures are constantly 
+evolving and improving, and that such developments may dictate that a change in approach from 
+these undertakings may be appropriate.  Accordingly at any time within the term of this order, 
+Deloitte may make a request to the staff of the Commission’s Office of the Chief Accountant to 
+alter or modify these policies or procedures and the Office of the Chief Accountant will determine 
+whether it is necessary or appropriate for the Commission to approve such a change. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Deloitte’s Offer. 
+Accordingly, IT IS HEREBY ORDERED, effective immediately, that Deloitte is censured 
+pursuant to Rule 102(e) 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 
+15
+ 
\ No newline at end of file
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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. 51629 / April 28, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2240 / April 28, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11918 
+In the Matter of 
+Dawn Diaz, CPA 
+Respondent. 
+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 Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice
+1 and Section 21C of the Securities Exchange 
+Act of 1934 (“Exchange Act”) against Dawn Diaz, CPA (“Diaz” or  “Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over her and the subject matter of these proceedings, Respondent 
+consents to the entry of this Order Instituting Public Administrative and Cease-and-Desist 
+Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of 
+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 f ound…to have engaged in…improper professional 
+conduct. 
+ 
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+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 Respondent’s Offer, the Commission finds that: 
+A. RESPONDENT 
+Dawn Diaz, age 41, was Chief Financial Officer of Rexhall Industries, Inc. (“Rexhall”) 
+from February 2001 to July 2002, when her employment was terminated.  Diaz is, and at all 
+relevant times was, licensed in California as a certified public accountant.  Prior to joining Rexhall, 
+Diaz worked for three years at a large public accounting firm, and held various accounting 
+positions at public and private companies, including director of accounting, controller, and vice-
+president of finance. 
+B. RELEVANT ENTITY 
+Rexhall Industries, Inc., based in Lancaster, California, designs, manufactures, and sells 
+various models of motor homes.  At all relevant times, Rexhall’s common stock was registered 
+under Section 12(g) of the Exchange Act and traded on the Nasdaq National Market.    
+C. SUMMARY 
+In preparing Rexhall’s financial statements for the first quarter of 2002, Diaz was presented 
+with two materially different calculations for raw materials inventory; one calculation was based 
+on a physical inventory count, and the second calculation was based on a computer model that she 
+designed.  The computer model figure was materially higher than the physical count figure.  
+Without reconciling the two figures, and without bringing the discrepancy to the attention of the 
+outside audit firm, Diaz used the higher figure in preparing the financial statements for the quarter.  
+In fact, the higher figure that Diaz used was incorrect.  As a result, the company incorrectly 
+reported net income of $181,000 (earnings of $.03 per share) in its Form 10-Q for the quarter.  
+When Rexhall later discovered that Diaz had used the incorrect figure, the company restated its 
+financial statements for the quarter to reflect the correct figure.  Rexhall’s restatement reported a 
+net loss for the quarter of $253,000 (a loss of $.04 per share) instead of the previously reported net 
+income of $181,000 (earnings of $.03 per share).      
+D. FACTS 
+1. Raw Materials Inventory and Its Relationship to Earnings 
+Rexhall’s raw materials inventory includes all parts, other than the chassis, required to 
+manufacture its motor homes.  Raw materials inventory is one component of the cost of goods 
+sold. When raw materials inventory is higher, cost of goods sold will be lower.  And when cost of 
+goods sold is lower, net income will be higher.  Therefore, a higher raw materials inventory figure 
+will result in higher earnings. 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+2. The 1st Quarter Inventory Calculations and Erroneous Reporting of Earnings 
+As part of its procedures for preparing quarterly financial statements, Rexhall conducts a 
+physical count of raw materials inventory at the close of each quarter.  At the close of the first 
+quarter of 2002, Diaz received the physical count for the quarter which showed a raw materials 
+inventory amount of $2,695,872. At about the same time, Diaz used a computer model she had 
+designed to derive a second inventory figure.  Diaz’s computer model showed a raw materials 
+inventory calculation of $3,374,024, which was $678,152 higher than the physical count 
+calculation. 
+Without reconciling the discrepancy between the two figures, and without bringing the 
+$678,152 discrepancy to the attention of the company’s outside audit firm, Diaz used the higher 
+figure in preparing Rexhall’s financial statements for the quarter.  It was later discovered that the 
+higher figure was incorrect. By us ing the incorrect higher figure, the financial statements for the 
+quarter reflected a lower cost of goods sold and correspondingly higher net income than if the 
+lower (correct) inventory figure had been used.  Accordingly, in its Form 10-Q for the first 
+quarter of 2002, Rexhall incorrectly reported net income of $181,000 and earnings of $.03 a 
+share. 
+The error was discovered at the end of the second quarter 2002, as Diaz prepared 
+Rexhall’s financial statements.  At that time, Diaz’s computer model showed an inventory 
+calculation that was approximately $1.5 million higher than the physical count inventory 
+calculation.  Diaz told Rexhall’s chief operating officer about the $1.5 million discrepancy and 
+her inability to reconcile the two numbers.  At about the same time, Diaz also informed the chief 
+operating officer that she had used an unreconciled inventory calculation in the financial 
+statements that were included in the Form 10-Q for the first quarter. 
+In July 2002, after Rexhall learned the full extent of the inventory calculation 
+discrepancies for the first and second quarters, Diaz submitted a resignation letter to the 
+company, and the company terminated her employment that same day.  Rexhall also delayed 
+filing its Form 10-Q for the second quarter and disclosed the nature of the accounting problems 
+in a press release. Re xhall’s audit committee retained outside counsel to conduct an independent 
+investigation of the problems, and Rexhall shared the findings of the independent investigation 
+with the Commission staff. 
+Upon completion of the investigation by outside counsel, Rexhall restated its first quarter 
+earnings to reflect the accurate calculation for raw materials inventory.  As a result of the 
+restatement, Rexhall reported a net loss of $253,000 and loss of $.04 a share for the quarter, 
+rather than the originally reported net income of $181,000 and earnings of $.03 a share. 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+E.	 VIOLATIONS 
+1.	 Reporting Violations:  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 with 
+securities registered under Section 12 of the Exchange Act to file quarterly reports with the 
+Commission.  See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. 
+denied, 440 U.S. 913 (1979). Rule 12b-20 under the Exch ange Act similarly requires that these 
+reports contain any material information necessary to make the required statements made in the 
+report not misleading. SEC v. Falstaff Brewing, 629 F.2d 62, 72 (D.C. Cir. 1980). 
+As discussed above, for the first quarter of 2002, Diaz caused Rexhall to file a false and 
+misleading quarterly report with the Commission that misrepresented the financial results of 
+Rexhall, overstating net income and earnings.  Diaz caused Rexhall’s violations of Section 13(a) 
+and Rules 12b-20 and 13a-13 thereunder by participating in preparing and signing the quarterly 
+report that included the overstated net income and earnings.   
+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 the actions taken by Diaz as described above, for the first quarter of 2002, 
+Rexhall’s books and records reflecting the transactions and dispositions of its assets were 
+inaccurate.  Diaz therefore caused Rexhall’s violation of Section 13(b)(2)(A) and 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.      
+Diaz caused Rexhall’s violation of Section 13(b)(2)(B).  As Rexhall’s CFO, she 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 utilized.  By recording materially 
+incorrect inventory results in Rexhall’s books and records, Diaz failed to assure that Rexhall 
+maintained an adequate system of internal accounting controls to properly account for inventory.  
+4
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+Diaz also violated Section 13(b)(5) by entering into Rexhall’s financial statements her calculated 
+inventory number rather than the correct physical count.  
+4. 	 Improper Professional Conduct: Rule 102(e)(1)(ii) of the Commission’s Rules 
+of Practice 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides, in part, that the 
+Commission may censure or deny 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)(1) defines one type of improper professional conduct with respect to persons 
+licensed to practice as accountants to mean “a single instance of highly unreasonable conduct that 
+results in a violation of applicable professional standards in circumstances in which an accountant 
+knows, or should know, that heightened scrutiny is warranted.”    
+As Rexhall’s Chief Financial Officer, Diaz 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.  In the 
+preparation of Rexhall’s first quarter financials, Diaz failed to reconcile the discrepancy between 
+the physical inventory count and an internally generated figure, failed to bring the discrepancy to 
+the attention of the outside audit firm, and recorded the incorrect inventory amount in the financial 
+statements for the quarter.  The improper recording of the inventory figure caused Rexhall’s 
+income statement to be misstated by a material amount.  Diaz’s actions in connection with the 
+reporting of Rexhall’s materially incorrect financial statements for the first quarter of 2002 
+constitute improper professional conduct. 
+F.	 Findings 
+1. Based on the foregoing, the Commission finds that Diaz:  (a) caused Rexhall’s 
+violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 
+and 13a-13 thereunder; and (b) violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 
+thereunder. 
+2. Based on the foregoing, the Commission finds that Diaz engaged in improper 
+professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Diaz shall cease and desist from causing any violations and any future violations of 
+Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 
+5
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+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 thereunder. 
+B. Diaz is denied the privilege of appearing or practicing before the Commission as an 
+accountant. 
+C. After three years from the date of this Order, Diaz 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 Diaz’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) Diaz, 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) Diaz, 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 Diaz’s or the firm’s quality control system that would indicate that Diaz 
+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) Diaz 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) Diaz 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.   
+D. The Commission will consider an application by Diaz to resume appearing or 
+practicing before the Commission provided that her state CPA license is current and she has 
+6
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+ 
+  
+ 
+ 
+ 
+ 
+ 
+   
+ 
+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 Diaz’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 
+7
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2242.txt b/raw/aaer/2005/AAER-2242.txt
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+     SEC.gov | Chesapeake Corporation, et al. 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19215 / May 3, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2242 / May 3, 2005 
+
+  Securities and Exchange Commission v. Chesapeake Corporation, et al.,  C.A. No. 05 CV 00872 (D.D.C.) (HHK) 
+
+ SEC Sues Chesapeake Corporation and Four Former Executives in Financial Fraud Case 
+
+ On May 3, 2005, the Commission filed a civil injunctive action in the United States District Court for the District of Columbia against Chesapeake Corporation, a company headquartered in Richmond, Virginia; William T. Tolley, Chesapeake's former chief financial officer; Carlos A. Gonzalez, Chesapeake's former corporate controller; William D. Wiseman, a former chief financial officer of Chesapeake's former subsidiary, Chesapeake Display & Packaging ("CD&P"); and Douglas J. Rex, the former controller of CD&P's largest business unit, U.S. Display.  Without admitting or denying the allegations of the Commission's complaint, four of the defendants have agreed to settle this matter by consenting to the entry of final judgments against them.  The fifth, defendant Rex, has consented to the entry of a judgment which imposes injunctive and other non-monetary relief against him but defers for determination by the Court the amount of civil money penalty he will be ordered to pay.    
+ The Commission's complaint alleges, among other things, that the defendants engaged in a financial fraud which resulted in Chesapeake materially misstating its reported quarterly earnings for the first and second quarters of 2000 and its anticipated earnings for the third quarter of 2000.  Specifically, the complaint alleges that, in an effort to bolster CD&P's flagging financial performance and forestall a possible sale of CD&P, Wiseman and Rex improperly recorded revenue and delayed recording write-offs which had the result of materially overstating Chesapeake's net income for the first quarter of 2000, and smoothing improperly the earnings impact of the delayed write-offs over the second and third quarters of 2000.  Tolley and Gonzalez knew, or were reckless in not knowing, of certain of the improper accounting practices prior to Chesapeake's filing of its first and second quarter financial statements with the Commission in quarterly Forms 10-Q, which Tolley signed in his capacity as Chesapeake's chief financial officer and Senior Vice President of Finance, and Chesapeake's issuance of an October 2, 2000 press release announcing its anticipated third-quarter earnings.   
+ As alleged in the complaint, these improper accounting practices included:  
+	  failing to offset $1 million in credit memos issued by U.S. Display to its customers in the first quarter of 2000 against first quarter 2000 revenues, and then improperly amortizing the $1 million in credit memos over the second and third quarters of 2000;    
+	 failing to correct a $4.8 million overstatement of inventory in the first quarter 2000, opting instead to improperly amortize the $4.8 million incrementally over the second and third quarters of 2000;    
+	 improperly recognizing a purported $1.5 million contingent receivable in the first quarter of 2000; and    
+	 failing to write off approximately $1.1 million of this same receivable in the second quarter of 2000 when it became apparent that U.S. Display was unlikely to collect that amount, opting instead to improperly amortize the uncollectible portion in $214,000 increments each month through the close of the fiscal year.     
+	  In addition to the foregoing, the complaint also alleges that Rex posted two unsupported and fictitious journal entries, which Wiseman approved, that artificially increased U.S. Display's third-quarter 2000 earnings by $7.3 million in order to meet the earnings forecast previously provided to Chesapeake's senior management.  These false journal entries were discovered before Chesapeake filed its third-quarter Form 10-Q with the Commission.  Chesapeake undertook an internal investigation that identified certain of the accounting improprieties alleged in the complaint.  In November 2000, Chesapeake restated its reported earnings for the first and second quarters of 2000 in filings with the Commission, and reduced its previously announced earnings for the third quarter of 2000.   
+ Based on the facts alleged, the Commission charged the following violations: 
+	  Chesapeake was charged with: (i) securities fraud in violation of  Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Exchange Act Rule 10b-5; and (ii) with violating the reporting, books-and-records and internal controls provisions of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Exchange Act Rules 12b-20 and 13a-13;   
+	 Tolley, Gonzalez, Wiseman and Rex were each charged with: (i) securities fraud in violation of Exchange Act Section 10(b) and Exchange Act Rule 10b-5; (ii) knowingly falsifying Chesapeake's books, records, and accounts, and circumventing or failing to implement internal accounting controls, in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1; and (iii) aiding and abetting Chesapeake's violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20 and 13a-13; and   
+	 Tolley was charged with making false representations to Chesapeake's outside auditors, in violation of Exchange Act Rule 13b2-2, in connection with the outside auditors' reviews of Chesapeake's first and second quarter 2000 financial statements.    
+	  Without admitting or denying the allegations of the complaint, all of the defendants have agreed to settle the Commission's charges by consenting to the entry of final judgments (or, in the case of Rex, a judgment) that, if approved by the Court, would permanently enjoin each of them from further violations of the federal securities laws.  In addition, Wiseman and Rex have consented to be permanently barred from serving as officers or directors of any public company.  Tolley and Wiseman have consented to pay civil penalties in the amount of $50,000 each, and Gonzalez has consented to pay a civil penalty of $45,000.  Rex has consented to the entry of a judgment which defers for determination by the Court the amount of civil penalty he will be ordered to pay.   
+ Based upon the Court's anticipated entry of a final judgment permanently enjoining him, Wiseman has also consented to the Commission's issuance of an administrative order, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, that will suspend him from appearing or practicing before the Commission as an accountant.     
+
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diff --git a/raw/aaer/2005/AAER-2243.txt b/raw/aaer/2005/AAER-2243.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19218 / May 4, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2243 / May 4, 2005 
+
+  SEC v. Stuart Wolff and Peter Tafeen (U.S. District Court for the Central District of California,  Civil Action No. CV 05 3132 GAF (RZx) 
+
+ HOMESTORE'S FORMER CEO AND EXECUTIVE VICE PRESIDENT CHARGED FOR ALLEGED ROLES IN MULTI-MILLION DOLLAR SCHEME TO FRAUDULENTLY INFLATE COMPANY'S REVENUE 
+
+ Two former top officials, including the ex-CEO, of Homestore.com, Inc. have been charged in both criminal and civil cases that allege they directed and participated in a scheme to inflate the company's on-line advertising revenues through a series of fraudulent transactions in 2001. 
+ Stuart Wolff, the former chief executive officer and chairman of the board of Homestore.com, and Peter Tafeen, the company's former executive vice president of business development, were named in an indictment returned yesterday by a federal grand jury in Los Angeles. In addition to the criminal charges, the United States Securities and Exchange Commission filed a civil lawsuit in federal district court against the two men. 
+ With the filing of its case today, the Commission has now sued a total of 16 individuals for their roles in the Homestore scheme. Wolff and Tafeen have become the tenth and eleventh defendants to face criminal charges in relation to the scheme. All of the defendants except Wolff and Tafeen have settled the Commission charges, pleaded guilty to the criminal charges where applicable and agreed to cooperate with the government.  
+ The civil lawsuit and criminal indictment allege that Tafeen orchestrated the fraud scheme, and that Wolff and Tafeen participated in executing fraudulent "round-trip" transactions to artificially inflate Homestore's revenue in order to exceed Wall Street analysts' expectations. Wolff and Tafeen allegedly knew that the transactions fraudulently generated a circular flow of money in which Homestore recognized its own cash as revenue and concealed the scheme from the company's auditors. The civil and criminal cases also allege that Wolff misled investors and analysts about Homestore's true financial condition and used the September 11, 2001 terrorist attacks as a pretense for Homestore's financial decline. Wolff and Tafeen both exercised stock options during the course of the fraudulent scheme, obtaining millions of dollars in proceeds.  
+ Homestore.com is now known as Homestore, Inc., a Westlake Village, California, company that provides real estate listings and related services on the Internet.   
+ Wolff, 42, of Westlake Village, California, was Homestore's CEO and chairman of the board from 1997 until he resigned in January 2002 during an internal investigation into the fraudulent scheme. 
+ Tafeen 36, of Parkland, Florida, was the executive vice president of business development at Homestore from 1997 until November 2001.  During his tenure, Tafeen reported directly to Wolff. 
+ The grand jury indictment charges Wolff and Tafeen with conspiracy to violate the securities laws, insider trading, creating false books and records and lying to Homestore's accountants. Each defendant is charged with 19 counts, and each defendant faces a maximum possible sentence of 185 years in federal prison. 
+ An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty. 
+ The Commission charged Wolff and Tafeen variously with violating or aiding and abetting violations of numerous provisions of the federal securities laws, including the antifraud provisions, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; reporting provisions, Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder; record-keeping provisions, Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder; internal controls provisions, Section 13(b)(5) of the Exchange Act; and, as to Wolff, lying to the auditors provisions, Rule 13b2-2 under the Exchange Act.  The Commission is seeking permanent injunctions, penalties, disgorgement of ill-gotten gains and prejudgment interest, and an order permanently barring Wolff and Tafeen from serving as an officer or director of a public company. 
+ Previously in this investigation, nine defendants have pleaded guilty to criminal charges related to the fraudulent "round-trip" transactions, and two defendants have admitted in plea agreements that Homestore shareholders suffered losses of at least $100 million when the company's stock price dropped precipitously in 2002 when news of an investigation into accounting irregularities became public. 
+ The criminal case is the product of an investigation by the Federal Bureau of Investigation. The civil case was investigated by the United States Securities and Exchange Commission. 
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diff --git a/raw/aaer/2005/AAER-2244.pdf b/raw/aaer/2005/AAER-2244.pdf
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+ 
+ 
+ 
+ 
+ 
+__________________________________________ 
+   
+   
+   
+      
+   
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51719 / May 19, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2246 / May 19, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11932 
+: 
+In the Matter of : ORDER INSTITUTING CEASE-
+: AND-DESIST PROCEEDINGS, 
+Kevin Rodgers, : MAKING FINDINGS, AND 
+: IMPOSING A CEASE-AND- 
+Respondent. : 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 Kevin Rodgers (“Rodgers” 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: 
+Respondent and Related Party 
+1. Rodgers, age 54, was the president of National Equipment Services, Inc. (“NES”) 
+from 1996 to October 2002.  Rodgers resigned in late 2002.  He was also a member of the board 
+of directors.  Rodgers is a resident of Glenview, Illinois. 
+2. National Equipment Services, Inc., founded in 1996, is a Delaware corporation 
+based in Evanston, Illinois. During the releva nt period, NES’s common stock was registered 
+with the Commission pursuant to Section 12(b) of the Exchange Act.  NES filed periodic and 
+other reports with the Commission pursuant to Section 13(a) of the Exchange Act.  NES’s 
+common stock was traded on the New York Stock Exchange. 
+Summary 
+3. NES overstated its assets, net income and earnings per share in its periodic filings 
+with the Commission from 1999 through September 2001 by failing to take appropriate actions 
+to correct unsubstantiated asset balances.  Prior to the end of NES’s fiscal year ended December 
+31, 2000, Rodgers learned that significant accounts receivable, inventory and equipment 
+balances at two subsidiaries had not be substantiated by local employees.  However, NES did not 
+write off or otherwise correct its unsubstantiated asset balances until October 2001.  While 
+closing NES’s books in early 2002, NES’s new CFO concluded that certain of the October write-
+offs should have been taken earlier and identified other issues.  On April 2, 2002, NES 
+announced that it was restating its previously reported results for 1999 and 2000.  NES also 
+restated its first three quarters of 2001.  NES restated its net income for 1999 from $21.093 
+million to $19.456 million.  NES restated its net income for 2000 from $11.009 million to $6.053 
+million.  Rodgers caused NES’s reporting violations by approving the filing of NES’s 2000 
+annual report and 2001 quarterly reports that contained materially inaccurate financial 
+information.  
+Background 
+4. A venture capital group formed NES in 1996 to pursue a roll-up growth strategy 
+in the equipment rental industry.  NES thereafter acquired 45 rental companies between 1997 
+and 2001. As the number of acquisitions grew, NES began to regionalize its operating and 
+accounting functions. Its Gulf Coast Region cons isted of a number of rental companies, 
+including R&R Rentals (“R&R”), Elite Rentals (“Elite”) and Genpower Pump and Equipment 
+(“Genpower”). NES combined the R&R and Elite  subsidiaries in April 2000 (“R&R Elite”). 
+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
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+NES generated capital for its acquisitions from several sources, including an initial public 
+offering in July 1998. 
+NES Misstated Accounts Receivable, Equipment and Inventory 
+5. NES employees were not able to substantiate significant account balances in the 
+company’s Gulf Coast Region at year-end 2000. 
+6. R&R Elite’s accounts receivable balance in its general ledger was approximately 
+$2.7 million higher than the balance in its subsidiary detail ledger.  NES employees and outside 
+consultants had investigated the issue and believed that the ledgers were out of balance because 
+R&R Elite’s former controller made a journal entry to increase prepaid expenses during a 
+conversion which combined R&R and Elite’s books in April 2000.  It appeared that the entry 
+was recorded to make the system agree with results reported to NES headquarters from 1998 
+through April 2000. NES’s employees and its consultants were not able to locate any support for 
+the journal entry or otherwise substantiate the higher general ledger balance. 
+7. R&R Elite and Genpower’s general ledgers and subsidiary detail ledgers for 
+rental equipment and inventory were also out of balance.  Equipment and inventory counts by 
+employees at both subsidiaries tended to confirm approximately a $2.7 million shortage of 
+equipment at R&R Elite, a $1.9 million shortage of equipment at Genpower, and a $662,000 
+shortage of inventory at Genpower.  NES employees had ruled out several theories that may have 
+accounted for the missing equipment, such as a transfer between regions, and had not been able 
+to substantiate the higher general ledger balances. 
+8. R&R Elite and Genpower also carried uncollectible and old accounts receivable 
+on their books, prompting the local controllers to recommend $1.8 million in aged accounts 
+receivable and other receivables write-offs. 
+9.   Rodgers learned about the potential problems in the Gulf Coast Region from 
+NES’s CFO at the time.  Rodgers agreed with the CFO’s decision to include the higher general 
+ledger balances for accounts receivable, rental equipment and inventory from the Gulf Coast 
+Region in NES’s consolidated financial statements while NES employees continued to 
+investigate the issues, even though NES employees had not been able to substantiate those 
+balances at year-end 2000. Rodgers thought th at the CFO had disclosed the amount of the 
+unsubstantiated account balances to NES’s auditors, who issued an audit report containing an 
+unqualified opinion on NES’s December 31, 2000 financial statements. 
+10. NES’s December 31, 2000 financial statements overstated NES’s asset balances.  
+Had NES written off the unsubstantiated accounts receivable, equipment and inventory balances 
+in the Gulf Coast Region, the adjustments would have materially lowered NES’s net income and 
+earnings per share for 2000. However, NES did not write off, adequately reserve for or disclose 
+the potential problems in its Gulf Coast Region.  NES included its inaccurate December 31, 2000 
+financial statements in its annual report on Form 10-K, which it filed with the Commission and 
+distributed to the public. As a result, NES’s 2000 Form 10-K contained false information about 
+NES’s financial condition and results of operations.  Rodgers signed NES’s Form 10-K.       
+3
+ 
+ 
+ 
+      
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+  
+ 
+11. NES employees continued to investigate the out-of-balance accounts receivable, 
+equipment and inventory issues at R&R Elite and Genpower in 2001, but additional inquiry did 
+not materially reduce the discrepancies.  In July 2001, the CFO informed Rodgers that write-offs 
+would be necessary. Rodgers instructed the CFO to prepare a summary of the write-offs.  After 
+reviewing the summary, Rodgers instructed the CFO to gather additional information in support 
+of the proposed write-offs. NES eventually reco rded the write-offs relating to the Gulf Coast 
+Region in the fourth quarter of 2001. At that time, NES did not adjust prior period results.  
+Therefore, NES’s 2001 quarterly reports included inaccurate information about NES’s financial 
+condition and results of operations. 
+NES’s Restatements 
+12. NES hired a new CFO at the beginning of 2002.  NES’s new CFO determined that 
+it was necessary to restate NES’s financial statements for 1999, 2000 and certain quarters in 
+2001. The 1999 and 2000 restatements related primarily to accounts receivable, inventory and 
+equipment.  According to NES, it adjusted its balance sheets and income statements by 
+decreasing its accounts receivable, inventory and equipment and increasing its selling, general 
+and administrative (“SG&A”) expenses and costs of revenue
+2 for 1999 and 2000.3  NES’s 
+accounts receivable write-off resulted in an income statement expense increase of $1.530 million 
+in 1999 and $2.412 million in 2000.  NES’s inventory and equipment write-offs resulted in an 
+income statement expense increase of $1.128 million in 1999 and $5.276 million in 2000.  The 
+adjustments reconciled discrepancies between the company’s detail ledgers, general ledgers and 
+physical asset inventory counts taken during 1999 and 2000.  The adjustments also corrected an 
+erroneous accounting for certain leases as capital leases rather than operating leases. 
+13. As a result of increasing its reported expenses, NES’s net income decreased 
+$1.637 million in 1999 (from $21.093 million to $19.456 million) and decreased $4.956 million 
+in 2000 (from $11.009 million to $6.053 million).  Therefore, NES overstated its net income and 
+basic earnings per share in 1999 and 2000. NES also filed amended Forms 10-Q for 2001 
+quarterly results, allocating write-offs to earlier quarters. 
+Violations of the Exchange Act 
+14. Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 
+thereunder require issuers with securities registered under Section 12 of the Exchange Act to file 
+quarterly and annual reports with the Commission and to keep this information current.  The 
+obligation to file such reports embodies the requirement that they be true and correct.  See, e.g., 
+SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978). 
+15. As a result of the conduct described above, NES committed violations of Section 
+13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder by failing to write off 
+or reserve for accounts receivable, rental equipment and inventory in the proper periods in 
+accordance with GAAP, thereby overstating its net income and earnings per share in Forms 10-K 
+2 NES uses the term “cost of revenue” rather than “cost of  sales” or “cost of goods sold” because its income is
+ 
+derived primarily from equipment rentals, not sales.
+3 NES also decreased its prepaid assets and increased its SG&A expenses by $358,000 for 2000 to correct erroneous 
+journal entries to prepaid asset accounts. 
+4
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+and 10-Q filed with the Commission from 1999 through September 2001.  Rodgers caused 
+NES’s reporting violations by signing NES’s 2000 10-K and by reviewing and approving NES’s 
+2001 quarterly reports that contained materially inaccurate financial information. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED that: 
+Pursuant to Section 21C of the Exchange Act, Respondent Kevin Rodgers cease and 
+desist from causing any violations and any future violations of Section 13(a) of the Exchange 
+Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. 
+By the Commission. 
+       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-2248.txt b/raw/aaer/2005/AAER-2248.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2918900a4dd1f5908405bb75a94519237274c576
--- /dev/null
+++ b/raw/aaer/2005/AAER-2248.txt
@@ -0,0 +1,1367 @@
+
+
+ 
+ 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19233 / May 20, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2248 / May 20, 2005 
+
+  Securities and Exchange Commission v. M&A West, Inc., et al.,  Civil Action No. 01-3376 VRW (Northern District of California) 
+
+ On April 27, 2005, United States District Judge Vaughn R. Walker granted the Securities and Exchange Commission's motion for summary judgment against F. Thomas Eck, III, and ordered Eck to pay $550,000 in civil monetary penalties for his role in a case involving a "pump and dump" scheme.  According to the Court's order, Eck and others devised a scheme to distribute to the public securities issued by companies controlled by M&A West.  Through a series of transactions, Eck and others initially sold the companies' securities to various nominees that Eck and others controlled.  Then, after creating artificial investor demand by trading among the nominees, the nominees sold the securities to the public.  Eck and the others thereby effected unregistered distributions of the securities to the public.  As a further result of their scheme, M&A West's financial statements were falsified.  
+ Based on the Commission's unopposed motion, which relied upon Eck's plea agreement in the related criminal securities fraud case,  United States v. Eck , No. CR-01-325 VRW (N.D. Cal.), the Court found Eck liable for:  aiding and abetting securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5; the unregistered sale and distribution of securities in violation of Section 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"); aiding and abetting the filing of false reports in violation of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13; falsifying books and records in violation of Section 13(b)(5) of the Exchange Act and Rule 13b2-1; aiding and abetting the failure to keep accurate books, records and accounts, and internal accounting controls, in violation Section 13(b)(2) of the Exchange Act; and aiding and abetting the making of false representations to auditors, in violation of Rule 13b2-2 under the Exchange Act.  The Court also enjoined Eck against future violations of each of these provisions.   
+ The Commission filed this action in 2001 against M&A West, Eck, and four other individuals, alleging fraud against the company, Eck, and three other defendants, and the unregistered sale of securities against the company, Eck, and three other defendants.  The Commission continues to litigate its case against each of the other defendants. 
+ Related Litigation Release No.  17118  
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diff --git a/raw/aaer/2005/AAER-2252.txt b/raw/aaer/2005/AAER-2252.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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+                                                 
+      
+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 -
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+ 
+ 
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+  
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+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 -
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+       
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+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 -
diff --git a/raw/aaer/2005/AAER-2255.txt b/raw/aaer/2005/AAER-2255.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1c3ec4949900f4e6cf8b3adc05a0c20b7363c5e5
--- /dev/null
+++ b/raw/aaer/2005/AAER-2255.txt
@@ -0,0 +1,100 @@
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+    
+ 
+ 
+ 
+ 
+    
+    
+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 51802 / June 8, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2255 / June 8, 2005 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-10406 
+: ORDER GRANTING APPLICATION FOR 
+: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT 
+: RESPONSIBLE FOR THE PREPARATION OR Mark Steven Lynch, CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+: TO BE FILED WITH THE COMMISSION 
+On January 17, 2001, Mark Steven Lynch (“Lynch”) 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 Lynch pursuant to Rule 102(e) of the 
+Commission's Rules of Practice.1  This order is issued in response to Lynch’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. 
+The suspension stemmed from a final judgment entered by the United States District 
+Court for the District of Columbia permanently enjoining Lynch from violating Section 17(a) of 
+the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 
+10b-5 and 13b2-1 promulgated thereunder. Lynch consented to the entry of the final judgment 
+without admitting or denying the allegations of the Commission’s complaint.  The Commission’s 
+complaint alleged that Lynch knowingly or recklessly participated in the material overstatement 
+of MicroStrategy Inc.’s (“MicroStrategy”) revenues and earnings in its financial statements 
+included in periodic reports and registration statements filed with the Commission.  The 
+1 See Accounting and Auditing Enforcement Release No. 1359, dated January 17, 2001.  Lynch 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). 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+company’s reporting failures primarily derived from its premature recognition of revenue in 
+multiple element deals involving software sales.  The premature recognition also extended to 
+revenue on contracts that had not been properly executed in the same fiscal period that the 
+revenue was recorded. Furthermore, Lynch was alleged to have directly or indirectly falsified or 
+caused to be falsified MicroStrategy’s books and records. 
+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, Lynch 
+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. Lynch 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, Lynch’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 Lynch, it appears that he has complied with the terms of the January 17, 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 Lynch, 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 
+Mark Steven Lynch, 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-2256.txt b/raw/aaer/2005/AAER-2256.txt
new file mode 100644
index 0000000000000000000000000000000000000000..f27aa391eeae58ae28a9a0b40c9dfbfed81b7e9d
--- /dev/null
+++ b/raw/aaer/2005/AAER-2256.txt
@@ -0,0 +1,1377 @@
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+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ LITIGATION RELEASE NO. 19253 / June 7, 2005 
+
+ ACCOUNTING AND AUDITING RELEASE NO. 2256 / June 7, 2005 
+
+ FORMER GENERAL COUNSEL OF INSO, CORP. CONVICTED OF PERJURY IN TESTIMONY BEFORE THE SECURITIES AND EXCHANGE COMMISSION 
+
+  SECURITIES AND EXCHANGE COMMISSION v. BRUCE HILL, ET AL. , (United States District Court for the District of Massachusetts, Civil Action No. 02-11244 (EFH), filed June 21, 2002) 
+
+  UNITED STATES v. GRAHAM MARSHALL and BRUCE HILL , (United States District Court for the District of Massachusetts, Criminal Action No. 03-10344 (DPW), filed November 12, 2003) 
+
+ The Securities and Exchange Commission ("Commission") announced that on June 6, 2005 a federal jury convicted, Bruce Hill, of Belmont, Massachusetts, of committing perjury in his investigative testimony before the Commission, which was investigating whether fraud was committed in connection with the reporting of revenues by the former Inso Corporation, Inc. (later known as eBT International, Inc.), a now defunct software company headquartered in Boston, Massachusetts.  Hill, age 41, the former General Counsel of Inso Corporation, was convicted by a jury sitting before U.S. District Judge Douglas P. Woodlock on charges brought by the United States Attorney for the District of Massachusetts.  The jury was deadlocked as to the five remaining counts against Hill: one count of securities fraud, two counts of wire fraud, one count of false statements to accountants and a second perjury count.  The Court declared a mistrial as to those counts. 
+
+ Evidence was presented at the month-long criminal trial that at the end of September 1998, Inso Corporation arranged a sham transaction whereby a Malaysian software distributor signed a purchase order for roughly $3 million upon assurances that Inso would actually sell the software to another customer within a few days or weeks.  At the end of 1998, Hill, who was the Vice President, Secretary, and General Counsel of Inso, played a pivotal role in arranging a series of deals that were designed to create the appearance that the Malaysian software distributor had paid Inso $3 million for software products that Inso had reported as sold during the third quarter of 1998.  In sworn testimony during a Commission investigation, Hill disavowed any knowledge about the preparation of a fraudulent certificate which purported to reflect approval by Inso's Board of Directors of the issuance of approximately $4 million in letters of credit that were used to create the appearance that Inso received $3 million in payment for the reported third quarter sale.  The United States presented evidence at the criminal trial that, contrary to his sworn investigative testimony, Hill had personally directed the preparation of the certificate and approved its signing. 
+
+ Judge Woodlock has not yet scheduled a date for sentencing.  For his perjury conviction, Hill faces a maximum penalty of 5 years imprisonment to be followed by 3 years of supervised release and a $250,000 fine. 
+
+ Hill is the third individual to face criminal charges arising from revenue overstatement at the former Inso Corporation.  On September 30, 2003, Richard Vatcher, Inso's former Vice-President in charge of worldwide sales pled guilty to violations of the securities laws. Charges are still pending against Hill's co-defendant Graham Marshall, Inso's former Vice President and Manager of the Electronic Publishing Division.  Marshall, age 58, of Aslackby, Sleaford Lincolnshire, United Kingdom, is subject to ongoing extradition proceedings. 
+
+ On June 21, 2002, the Commission filed related civil enforcement actions against Hill and certain other senior officers of Inso.  The Commission's action against Hill remains pending. 
+
+ For more information see  Litigation Release No. 18753  (June 17, 2004),  Litigation Release No. 18699  (May 7, 2004),  Litigation Release No. 18467  (November 17, 2003),  Litigation Release No. 18394  (October 4, 2003) and  Litigation Release No. 17578  (June 21, 2002). 
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diff --git a/raw/aaer/2005/AAER-2257.txt b/raw/aaer/2005/AAER-2257.txt
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+              Louis E. Rivelli, Rodney B. Johnson, Stephen G. Burke, Teresa W. Ayers, Craig L. Stevenson, Robert T. Hoffman
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Louis E. Rivelli, Rodney B. Johnson, Stephen G. Burke, Teresa W. Ayers, Craig L. Stevenson, Robert T. Hoffman
+       
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+             
+   
+
+
+        
+                   
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+                        
+                   U.S. Securities and Exchange Commission 
+
+ Litigation Release No. 19255 / June 8, 2005 
+
+ Accounting and Auditing Enforcement Release No. 2257 / June 8, 2005 
+
+ SECURITIES AND EXCHANGE COMMISSION v. LOUIS E. RIVELLI, RODNEY B. JOHNSON, STEPHEN G. BURKE, TERESA W. AYERS, CRAIG L. STEVENSON, ROBERT T. HOFFMAN, CIV. NO. 05-CV-1039 (RPM) (UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO).  June 7, 2005 
+
+ The Commission filed civil fraud charges today against six individuals formerly associated with Fischer Imaging Corporation ("Fischer"):  chief executive officer ("CEO") and president Louis E. Rivelli; chief financial officers ("CFOs") Rodney B. Johnson and Stephen G. Burke; chair of the audit committee Teresa W. Ayers; and senior sales executives Craig L. Stevenson and Robert T. Hoffman.  Fischer is a medical equipment company based in Denver, Colorado.  The Commission's complaint, filed in the United States District Court for the District of Colorado, alleges that these six individuals were responsible for Fischer's reporting of materially false financial results in Commission filings, press releases, and other public statements for periods from January 2000 through September 2002.   
+
+ According to the complaint, each of the named defendants was responsible for Fischer's improper recognition of revenue on sales of equipment that Fischer had not delivered to customers, but instead had shipped to third party warehouses where Fischer controlled the equipment, paid to store it, and insured it.  Additionally, Rivelli, Johnson, Stevenson, and Hoffman were involved in formulating or reviewing contingent sales terms, which were documented in side letters, with knowledge that Fischer improperly recognized revenue before the contingencies were resolved.  The complaint further alleges that Rivelli, Johnson, and Burke were responsible for Fischer's material misstatements of its inventory account and its gross profits based on various other improper accounting practices.  The complaint alleges that each of the defendants provided false or misleading documents or information to Fischer's accountants or auditors in an attempt to conceal Fischer's improper accounting practices.  
+
+ Based on this conduct, the Commission claims that each of the defendants violated or aided and abetted violations of some or all of the following provisions of the federal securities laws:  Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2), and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, and 13b2-2 thereunder.  The complaint seeks final judgments enjoining the defendants from future violations of these provisions, and ordering each of them to disgorge ill-gotten gains and pay civil money penalties.  The Commission also seeks an order barring Rivelli, Johnson, Burke and Ayers from serving as an officer or director of a public company. 
+
+ On November 15, 2004, with Fischer's consent, the Commission ordered Fischer to cease-and-desist from violating the antifraud, reporting, and recordkeeping provisions of the federal securities laws based on the same accounting misstatements.  The Commission's investigation is continuing. 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2005/AAER-2259.pdf b/raw/aaer/2005/AAER-2259.pdf
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+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+     
+ 
+ 
+  
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+  
+     
+ 
+  ______________________________  
+ 
+ 
+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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+
+
+ 
+ 
+   
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+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | John Houldsworth And Richard Napier 
+     
+     
+     
+     
+     
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19264 / JUNE 10, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2261 / June 10, 2005 
+
+  Securities and Exchange Commission v. John Houldsworth And Richard Napier,  Case No. 05 CV 5325 (LAP) S.D.N.Y. 
+
+ SEC CHARGES A SECOND GEN RE EXECUTIVE FOR AIDING IN AIG SECURITIES FRAUD 
+
+ The Securities and Exchange Commission announced today that it has charged a second senior executive of General Re Corporation (Gen Re), Richard Napier (Napier), for his role in aiding and abetting a securities fraud committed by American International Group, Inc. (AIG).  In an amended complaint filed today in federal court in Manhattan, the Commission added Napier as a defendant in the action it instituted on June 6, 2005 against John Houldsworth (Houldsworth), a former Gen Re executive and former CEO of a Gen Re subsidiary, Cologne Re Dublin.  Napier was a Gen Re Senior Vice President and the executive responsible for Gen Re's relationship with AIG.  The amended complaint alleges that Napier, together with Houldsworth and others, helped AIG structure two sham reinsurance transactions that had as their only purpose to allow 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 transactions were initiated by AIG to quell criticism by analysts concerning a reduction in the company's loss reserves in the third quarter of 2000.   
+ In partial settlement of the Commission's claims, without admitting or denying the allegations, Napier has consented to the entry of a partial final judgment, which resolves all issues of liability against him and defers the determination of disgorgement and penalties until a later date.  As part of his settlement, Napier has agreed to cooperate fully with the Commission's continuing investigation of this matter.   
+ In connection with the same conduct, both Napier and Houldsworth have also entered guilty pleas to criminal charges filed by the U.S. Department of Justice, Fraud Section (DOJ) in a Virginia federal court.  Under the respective plea agreements, each defendant has agreed to cooperate fully with DOJ's continuing investigation. 
+ The Commission's amended complaint charges Napier with aiding and abetting the violations by AIG and others of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 of the Securities Exchange Act of 1934.  Napier, in addition to undertaking to cooperate fully with the Commission, consented to the entry of a partial final judgment permanently enjoining him from future violations of the above-cited provisions, barring him from serving as an officer or director of a public company for five years following the entry of the partial final judgment against him and deferring the determination of civil penalties and disgorgement to a later date.   
+ The Commission's investigation is continuing.  The Commission acknowledges the assistance and cooperation of the U.S. Department of Justice Criminal Fraud Division and the U.S. Postal Inspection Service in this matter. 
+
+ For additional information see:  SEC v. Houldsworth - Litigation Release LR-19248  (June 6, 2005) 
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diff --git a/raw/aaer/2005/AAER-2265.txt b/raw/aaer/2005/AAER-2265.txt
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+              Schick Technologies, Inc., David B. Schick and Fred Levine
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+        Schick Technologies, Inc., David B. Schick and Fred Levine
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19279 / June 22, 2005 
+
+  SEC v. Schick Technologies, Inc., David B. Schick and Fred Levine,  Civil Action No. CV-03-5766-CBA (CBA) (E.D.N.Y.) 
+
+ Accounting and Auditing Enforcement Release No.  2265 
+
+ FINAL JUDGMENTS ENTERED IMPOSING PERMANENT INJUNCTIONS AGAINST SCHICK TECHNOLOGIES, INC., DAVID B. SCHICK AND FRED LEVINE, AND ALSO IMPOSING CIVIL PENALTIES AND OTHER RELIEF AGAINST THE INDIVIDUAL DEFENDANTS 
+
+ The Securities and Exchange Commission announced that on June 21, 2005, the United States District Court for the Eastern District of New York entered final judgments against defendants Schick Technologies, Inc. ("STI"), David B. Schick and Fred Levine, fully resolving the litigation against all three defendants.  Schick and Levine, without admitting or denying the allegations of the Commission's complaint, consented to final judgments that permanently enjoined them from violating, or aiding and abetting 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 against 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.  Schick and Levine further consented to permanent bars from serving as officers or directors of any issuer of public securities. The final judgment against Schick requires that he pay a civil penalty of $330,000 and the final judgment against Levine requires that he pay a total monetary award of $250,000, comprised of disgorgement and interest totaling $71,000 and a civil penalty of $179,000.  STI, without admitting or denying the allegations of the complaint, consented to a final judgment permanently enjoining it from violating Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.   
+ The Commission's complaint, filed on November 14, 2003, alleged that STI improperly booked and reported revenue from sales practices including end of quarter shipments to warehouses, consignment sales and merchandise shipped to customers pursuant to two loaner programs where the customers accepted the product on a trial basis with no obligation to purchase the product.  The Commission further alleged that the defendants failed to account properly for massive product returns and to establish sufficient sales return reserves. The fraud, which led to two restatements, caused STI to overstate materially its reported revenue for the June, September and December quarters of 1998.  At the time of the fraud, Schick was STI's CEO, President and Chairman, and made or controlled STI's accounting decisions and practices.  Levine, STI's Vice President of Sales and Director, was in charge of all product sales.  The complaint alleges that Schick and Levine knew of or recklessly disregarded the fraudulent practices and deception of Schick's independent auditors, and were responsible for STI's improper recording and reporting of the inflated revenue.  Schick and Levine are no longer employees, officers or directors of STI. 
+ For further information see Litigation Release  No. 18464  (November 17, 2003). 
+
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diff --git a/raw/aaer/2005/AAER-2266.txt b/raw/aaer/2005/AAER-2266.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.  51927 / June 27, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2266 / June 27, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11966 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+DAVID S. KLARMAN, ESQ., : 102(e) OF THE COMMISSION’S RULES OF 
+: PRACTICE, MAKING FINDINGS, AND 
+Respondent. : IMPOSING REMEDIAL SANCTIONS 
+: 
+: 
+____________________________________ : 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against David 
+S. Klarman (“Respondent” or “Klarman”) 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 attorney . . . 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.2. below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, 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. Klarman was admitted to practice law in the State of New York in 1991.  
+He was admitted to practice law in the State of California in 1997, and in 2003 was suspended 
+from practice for failing to pay bar dues.  Klarman was formerly Vice President, General Counsel, 
+and Secretary of U.S. Wireless Corporation (“USW”), a company whose common stock was 
+registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 
+(“Exchange Act”) and which filed periodic reports with the Commission. 
+2.          On June 23, 2005, a final judgment was entered against Klarman pursuant to his 
+written consent, permanently enjoining him from future violations of Section 17(a) of the 
+Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-
+1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of 
+the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder, in the civil action entitled 
+Securities and Exchange Commission v. Oliver Hilsenrath and David S. Klarman, Civil Action 
+Number C-03-3252-WHA, in the United States District Court for the Northern District of 
+California. The judgment also provided that Klarman is prohibited for 10 years from acting as 
+an officer or director of any issuer that has a class of securities registered pursuant to Section 12 
+of the Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange 
+Act. The judgment further provided that Klarman is liable for disgorgement plus prejudgment 
+interest of $3,862,929, and that the amount of any civil penalties will be determined at a later 
+hearing. 
+3. The Commission’s complaint alleges, among other things, as follows:  
+From August 1997 to January 2000, Klarman and another USW officer, Oliver Hilsenrath 
+(“Hilsenrath”), had USW transfer common stock worth approximately $3.2 million and cash 
+totaling approximately $428,000 to several offshore entities that they secretly owned and 
+controlled. The transfers were part  of a scheme by Hilsenrath and Klarman to extract assets from 
+USW without providing any consideration in return.  Under the direction of Hilsenrath and 
+Klarman, the cash and stock transfers were originally recorded in USW’s books and financial 
+statements as compensation for services or as the sale of stock for valid consideration.  In early 
+2001, USW’s Board of Directors received information challenging the validity of the transfers.  
+Once the unauthorized and illegal character of the transfers was recognized, USW restated its 
+financial results for fiscal 2000 to increase its annual net loss from $11.4 million to $17.7 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+  
+ 
+ 
+ 
+ 
+   
+ 
+million, or by 35%.  In essence, USW treated the improper cash and stock transfers as the 
+embezzlement of company assets by Hilsenrath and Klarman.   
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Klarman’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+Klarman is suspended from appearing or practicing before the Commission as an attorney.   
+ 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-2267.txt b/raw/aaer/2005/AAER-2267.txt
new file mode 100644
index 0000000000000000000000000000000000000000..494196291dd5208f4b5149755f8f7963184c67f5
--- /dev/null
+++ b/raw/aaer/2005/AAER-2267.txt
@@ -0,0 +1,1371 @@
+
+
+ 
+ 
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+     SEC.gov | Oliver Hilsenrath and David S. Klarman 
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+        Oliver Hilsenrath and David S. Klarman
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19286 / June 27, 2005 
+
+ Accounting and Auditing 
+Release No. 2267/ June 27, 2005 
+
+  SEC v. Oliver Hilsenrath and David S. Klarman,  Civil Action No. C-03-3252 (N.D. Cal.). 
+
+ FORMER GENERAL COUNSEL OF U.S. WIRELESS HELD LIABLE FOR $3.9 MILLION AND BARRED FROM SERVING AS AN OFFICER OR DIRECTOR OF A PUBLIC COMPANY 
+
+ In a financial fraud case initiated by the U.S. Securities and Exchange Commission in July 2003, a federal court has ordered that David S. Klarman, former general counsel of U.S. Wireless Corporation, is liable for approximately $3.9 million in disgorgement of ill-gotten gains and prejudgment interest.  The Court's order also prohibits Klarman from serving as an officer or director of a public company for ten years and permanently enjoins him from violating antifraud and other provisions of the federal securities laws.   
+ Klarman consented to the order without admitting or denying the substantive allegations in the Commission's complaint.  Klarman has similarly consented to a separate administrative order suspending him from appearing or practicing before the Commission as an attorney. 
+ Klarman, age 40, of New York, was the general counsel of U.S. Wireless, a now-bankrupt company based in San Ramon, California.  The Commission's complaint alleged that Klarman and Oliver Hilsenrath, the former CEO of U.S. Wireless, embezzled assets by having U.S. Wireless transfer stock and cash to several offshore entities that they secretly owned and controlled.  The Commission further alleged that as part of the scheme, Klarman and Hilsenrath caused U.S. Wireless to file false and misleading periodic reports with the Commission, falsified entries in the company's books and records, and made false statements to the company's auditors.   
+ The Court's order deems Klarman liable for approximately $3.9 million, representing $3.2 million in disgorgement of ill-gotten gains plus $700,000 in prejudgment interest on the disgorgement amount.  The order also enjoins Klarman from violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1, and 13b2-2 thereunder.  The order further provides that Klarman is prohibited for ten years 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.  A separate hearing will be held to determine whether civil money penalties will be assessed against Klarman. 
+ Klarman has entered a plea of guilty in a related criminal action brought by the U.S. Attorney's Office for the Northern District of California.  The order in the Commission's case provides that for amounts Klarman pays toward his criminal sentence, he will receive a credit toward his liability for disgorgement, prejudgment interest, and civil penalties. 
+ The Commission's litigation against Hilsenrath is ongoing. 
+ For more formation, see  Lit. Release 18275 , Aug. 6, 2003. 
+
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diff --git a/raw/aaer/2005/AAER-2268.txt b/raw/aaer/2005/AAER-2268.txt
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@@ -0,0 +1,1369 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19289 / June 29, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2268 / June 29, 2005 
+
+  Securities and Exchange Commission v. Donald M. Fitzpatrick,  No. C 04 4120 (N.D. Cal.) 
+
+ FORMER LIBERATE TECHNOLOGIES EXECUTIVE TO PAY $222,499 TO SETTLE FINANCIAL REPORTING FRAUD CHARGES WITH SEC   
+
+ The Securities and Exchange Commission today announced that it has settled financial reporting fraud charges in a lawsuit it previously filed against Donald M. Fitzpatrick, the former Chief Operating Officer and head of sales of Liberate Technologies.  The Commission's complaint charged Fitzpatrick with inflating Liberate's revenues through fraudulent sales transactions, and then misleading Liberate's finance department and outside auditors about the deals, in a scheme that ran from November 2001 to September 2002.  Liberate is a San Mateo, California-based provider of software and services for interactive television. 
+ In the settlement announced today, Fitzpatrick consented to a court order that directs him to pay a total of $222,499, consisting of $97,499 in disgorgement of commissions and bonuses plus prejudgment interest, and a monetary penalty of $125,000.  In addition, the order bars Fitzpatrick from serving as an officer or director of any publicly traded company, and enjoins him from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-2 thereunder.  Fitzpatrick consented to the order without admitting or denying the allegations in the Commission's complaint. 
+ The Commission's complaint, which was filed in September 2004, alleged that Fitzpatrick used a variety of methods to fraudulently inflate Liberate's financial results.  These included arranging a so-called "round-trip" transaction, in which Liberate provided all of the funds that a customer needed to purchase Liberate product; entering into a "side deal" that allowed a customer to return excess Liberate product; and granting undisclosed concessions to induce a customer to purchase Liberate products.  In each instance, the complaint alleges, Fitzpatrick misrepresented or withheld key information about the transactions from Liberate's finance department and its outside auditors. 
+ In January 2005, the Commission settled charges against former Liberate sales executive Thomas R. Stitt for his role in the fraud described above.  Without admitting or denying the allegations in the Commission's complaint, Stitt consented to a court order that imposed disgorgement and penalties totaling $78,000, as well as a ten-year officer and director bar and an injunction against future securities law violations. 
+ For additional information, see Litigation Release No. 18911 (Sept. 29, 2004). 
+
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diff --git a/raw/aaer/2005/AAER-2269.txt b/raw/aaer/2005/AAER-2269.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c2f6c1850da021e2c0329b5ddfd3a85ea941b43d
--- /dev/null
+++ b/raw/aaer/2005/AAER-2269.txt
@@ -0,0 +1,815 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 51946 / June 30, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2269 / June 30, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11970 
+ 
+ 
+ 
+In the Matter of 
+ 
+KPMG LLP, 
+            Gary Bentham, C.A. and 
+            John Gordon, C.A., 
+ 
+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 Commissi on (“Commission”) deems it appropriate that 
+public administrative proceedings be, and hereby are, instituted against KPMG LLP, a limited 
+liability partnership organized under the laws of Ontario, Canada, (“KPMG Canada”), Gary 
+Bentham (“Bentham”) and John Gordon (“Gordon”) (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, the Respondents have each 
+submitted an Offer of Settlement (the “Offers”) which the Commission has determined to accept.  
+Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of 
+                                                 
+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 . . . improper professional conduct. 
+ 
+the Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 
+these proceedings, the 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. 
+ 
+III. 
+ 
+On the basis of this Order and Respondents’ Offers, the Commission finds2 that: 
+ 
+A. SUMMARY 
+ 
+  KPMG Canada, Bentham and Gordon lacked professional independence when they 
+audited Southwestern Water Exploration Co.’s (“Southwestern”) fiscal year 1999 through 2002 
+financial statements.  Specifically, in each year, after KPMG Canada prepared certain of 
+Southwestern’s basic accounting records and financial statements, it issued a purportedly 
+independent audit report on those financial statements.  KPMG Canada’s audit reports were 
+included in Southwestern’s public filings with the Commission.   
+ 
+  Bentham, the audit engagement partner, authorized accountants employed by KPMG 
+Canada to provide the bookkeeping services to Southwestern and supervised the work.  Gordon, 
+the concurring and SEC reviewing partner, was informed that KPMG Canada was preparing 
+certain of Southwestern’s basic accounting records and financial statements, yet he concurred in 
+the issuance of the audit reports as concurring partner and did not require KPMG Canada to 
+withhold its audit reports as SEC reviewing partner.  KPMG Canada issued purportedly 
+independent audit reports in spite of the bookkeeping work it performed.  KPMG Canada, 
+Bentham and Gordon thereby violated the auditor independence requirements imposed by the 
+Commission’s rules and guidance and by generally accepted auditing standards (“GAAS”) in the 
+United States.  Moreover, KPMG Canada lacked adequate policies and procedures to prevent 
+and detect the independence problem that occurred with Southwestern.  Accordingly, KPMG 
+Canada, Bentham and Gordon engaged in improper professional conduct within the meaning of 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+B. RESPONDENTS 
+ 
+ 1. KPMG Canada is the Canadian member firm of KPMG International, a Swiss 
+cooperative, and is a limited liability partnership headquartered in Toronto, Canada.  KPMG 
+Canada is engaged in the business of providing, among other things, accounting and auditing 
+services.  KPMG Canada audited Southwestern Water Exploration Co.’s fiscal year 1999 
+through 2002 financial statements.  (Southwestern’s fiscal year ends on March 31.)  KPMG 
+Canada’s Calgary office audit group also performed bookkeeping services for Southwestern.  
+KPMG Canada received $60,148 in fees from the audit and bookkeeping services it performed 
+for Southwestern for fiscal years 1999 through 2002.   
+                                                 
+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
+ 2. Gary Bentham, age 51, a Charted Accountant (“C.A.”) licensed in Saskatchewan and 
+Alberta, Canada, was the engagement partner on the Southwestern audits.  Bentham was a 
+partner in KPMG Canada’s Calgary office from 1984 to December 2004.  From 1997 to 1999, 
+Bentham managed the service industries line of business in KPMG Canada’s Calgary office.  
+Bentham managed KPMG Canada’s information, communications, and entertainment practice in 
+KPMG Canada’s Calgary office from 2000 until 2004.  Bentham left KPMG Canada in 
+December 2004. 
+ 
+ 3.  John Gordon, age 48, a C.A. licensed in Alberta, Canada, was the concurring partner 
+and SEC reviewing partner on Southwestern’s fiscal year 1999, 2000, 2001 and 2002 audits.  He 
+has been a partner with KPMG Canada since 1993.   
+ 
+C. RELEVANT ENTITY 
+  
+ 1. Southwestern, d/b/a Aqua4, Inc., is a development stage Colorado corporation that 
+purports to engage in exploring and producing potable water from deep aquifers in the American 
+Southwest.  Southwestern filed for Chapter 7 Bankruptcy on November 20, 2003, and is in the 
+process of being liquidated.  
+ 
+D. FACT S 
+ 
+ 1.  KPMG Canada Prepared Southwestern’s Fiscal Year 1998 Books, Records and 
+Financial Statements 
+ 
+Bentham knew that during fiscal year 1998, Southwestern did not have an internal or 
+outside accountant prepare its books and records.  Bentham authorized KPMG Canada to prepare 
+Southwestern’s books, records and financial statements, and Bentham supervised this work.   
+ 
+The Business Review workpaper3 which Bentham initialed stated: 
+ 
+In previous years it was found that the accounting records of the company were poor.  No 
+records have been kept this year.  [Southwestern’s founder and president/CEO 
+(“Southwestern’s founder”)] is therefore to reconcile the bank and provide complete 
+listings to KPMG [Canada] of cheques issued, from this KPMG [Canada] will prepare the 
+[financial statements].4   
+ 
+                                                 
+3 The purpose of the Business Review workpaper is to provide the audit engagement team with 
+an understanding of the client’s business sufficient to develop strategies for performing the audit, 
+risk management and client service.  This specific workpaper provides general background 
+information on Southwestern and explains its business objectives and risks. 
+ 
+4 Bentham failed to have a concurring/SEC reviewing partner for the 1998 fiscal year audit, in 
+violation of KPMG Canada’s policies.  A concurring/SEC reviewing partner typically reviews 
+the Business Review workpaper.  A concurring/SEC reviewing partner generally would have 
+uncovered the independence problems. 
+ 
+ 3
+Specifically, Southwestern did not maintain accounting journals of original entry or a 
+general ledger for fiscal year 1998.  Instead, Southwestern’s founder provided KPMG Canada 
+with listings of Southwestern’s bank transactions from which the KPMG Canada audit 
+engagement staff prepared Southwestern’s books, records and financial statements for the audit.   
+ 
+The audit engagement senior used the listings of bank transactions Southwestern 
+provided to create two summary schedules:  one schedule for Southwestern’s United States 
+dollar bank transactions and one schedule for Southwestern’s Canadian dollar bank transactions.  
+The audit engagement senior also created a trial balance entitled “Cash Synoptic (in US$)” that 
+classified all of the banking transactions and accrual entries for fiscal year 1998.  The auditors 
+also recorded Southwestern’s accruals to bring the accounting from a cash to an accrual basis.    
+ 
+ 2.  KPMG Canada Prepared Southwestern’s 1999 Fiscal Year Books, Records and 
+Financial Statements 
+  
+Bentham knew that Southwestern had no accountant to prepare its books and records in 
+fiscal year 1999.  Under Bentham’s supervision and with his participation, KPMG Canada 
+accounting staff or audit engagement staff prepared Southwestern’s books, records and quarterly 
+and year-end financial statements for fiscal year 1999 from bank statements, summaries of bank 
+statements and related party invoices (i.e., source documents) that Southwestern provided.  
+KPMG Canada, in consultation with Southwestern’s founder, classified the transactions by 
+category of asset, expense, revenue and liability.  For the first three quarters of fiscal year 1999, 
+KPMG Canada accounting staff performed the work which KPMG Canada audit engagement 
+staff then reviewed.  For the year-end financial statements, KPMG Canada audit engagement 
+staff performed the work.   
+    
+Bentham also determined the accounting for, and recorded, certain of Southwestern’s 
+stock issuances during the fiscal year 1999 audit.5  During the audit, based on discussions with 
+Southwestern, KPMG Canada recorded 360,000 shares of stock (which Southwestern had failed 
+to record) as having been issued for consulting services.  Then, after the financial statements had 
+been issued, Southwestern’s founder and Southwestern’s counsel contacted Bentham and told 
+him that 60,000 of the 360,000 shares had actually been issued to AIFE Ltd., an entity 
+Southwestern’s founder controlled, to satisfy an amount Southwestern owed to AIFE Ltd.  As a 
+result, KPMG Canada prepared restated 1999 year-end financial statements and issued an audit 
+report for Southwestern’s amended Form 10-KSB, which was filed with the Commission on 
+January 10, 2000.6      
+ 
+                                                 
+5 At least since 1997, Bentham was aware of Southwestern’s lack of records regarding stock 
+issuances and that KPMG Canada had to “piece together” the stock issuances.     
+ 
+6 Gordon was not involved with the audit of Southwestern’s restated financial statements. 
+ 
+ 4
+ 3. KPMG Canada, Bentham and Gordon Issued an Audit Report for Fiscal Year 1999 
+on the Bookkeeping Work KPMG Canada Performed in Fiscal Years 1998 and 1999 
+ 
+  a. Gordon becomes the concurring and SEC reviewing partner 
+ 
+  From May 1999 until January 2000, Gordon worked in New York in the Department of 
+Professional Practice of KPMG US,7 which was part of the National Office of KPMG US, in 
+order to become a KPMG Canada SEC reviewing partner.  Gordon became one of the first four 
+SEC reviewing partners at KPMG Canada.  Gordon had responsibility to perform SEC reviews 
+on audits from various KPMG Canada offices.   
+ 
+  In the summer of 1999, Bentham asked Gordon to perform a concurring partner review 
+and an SEC review of KPMG Canada’s 1999 year-end audit of Southwestern.  Because Gordon 
+had not yet been designated an SEC reviewing partner, he told Bentham that he would assist the 
+audit in that role, but he may need to involve someone else prior to the completion of the work.  
+However, Gordon did not involve anyone else and no one else at KPMG Canada acted as the 
+SEC reviewing partner for Southwestern’s 1999 year-end audit.       
+ 
+Gordon was informed that KPMG Canada was preparing Southwestern’s financial 
+statements from Southwestern’s bank records and invoices.  Bentham told Gordon that 
+Southwestern’s accounting records were not in good shape, and that members of the audit 
+engagement team were working extensively with bank documents and source invoices in order to 
+complete the audit procedures.  Gordon also was aware that KPMG Canada was recording 
+numerous journal entries or adjusting entries for Southwestern.  In addition, in July of 1999, 
+Bentham e-mailed Gordon two documents.  The first document, the “Partner’s Audit Strategy” 
+workpaper, stated, “KPMG [Canada] is to prepare the F/S using the first three quarter[ly] 
+financial statements previously prepared from the bank statements and related party invoice 
+supplied by the client.”  The second document, the “Business Review” workpaper, stated, “In 
+previous years it was found that the accounting records of the company were poor.  KPMG 
+[Canada] has prepared the quarterly financial statements (Notice to Reader) for the Company 
+using information provided by [Southwestern’s founder] . . . .”  Gordon reviewed the Partner’s 
+Audit Strategy and the Business Review workpapers.   
+ 
+ b. KPMG Canada, Bentham and Gordon failed to follow the Commission’s 
+independence guidance in conducting the 1999 fiscal year-end audit 
+ 
+  KPMG Canada’s written policies in 1999 provided that:   
+ 
+Members of the management group who are responsible for engagements when the client 
+or its parent is an SEC registrant have an ongoing responsibility to be knowledgeable 
+about current independence rules and interpretations of the SEC and to ensure that we are 
+in compliance with such rules. 
+                                                 
+7 KPMG US refers to KPMG LLP, the U.S. member firm of KPMG International, a Swiss 
+cooperative.  KPMG US is a limited liability partnership headquartered in New York.  KPMG 
+US is engaged in the business of providing audit, risk advisory and tax services.     
+ 
+ 5
+ 
+Contrary to this policy, KPMG Canada, Bentham and Gordon failed to follow the Commission’s 
+independence guidance in conducting the 1999 fiscal year audit.  Section 602.02.c.i of the 
+Commission’s Codification of Financial Reporting Policies states that an auditor is not 
+independent if it has participated closely in maintenance of a company’s basic accounting 
+records and preparation of the financial statements.   
+  
+ Bentham did not review the Codification of Financial Reporting Policies or any other 
+SEC guidance relating to independence until after he completed his work on all of the 
+Southwestern engagements in 2002.  In addition, no one on the engagement team consulted SEC 
+guidance relating to independence for the 1999 fiscal year audit even though SEC rules and 
+regulations were available in KPMG Canada’s Calgary office.   
+ 
+  As part of Gordon’s SEC review for the fiscal year-end 1999 audit, Gordon gave the 
+following written comment on Southwestern’s financial statements to the audit engagement 
+team:  “Are we independent pursuant to SEC requirements”.  Gordon was familiar with SEC 
+independence guidance because he had served as an engagement partner for SEC clients and had 
+been trained at the National Office of KPMG US in New York.  Bentham discussed Gordon’s 
+comment with the audit engagement manager.  The audit engagement manager responded to 
+Gordon’s comment by writing “no consulting” and telling Gordon in a conversation regarding 
+these written comments that KPMG Canada was not providing any prohibited services to 
+Southwestern.  Despite the fact that Gordon had been informed that KPMG Canada was 
+providing bookkeeping services, and notwithstanding Gordon’s responsibilities as an SEC 
+reviewing partner to ensure the audit team’s familiarity with SEC independence standards, 
+Gordon never specifically discussed this issue with the engagement team or asked Bentham if he 
+had read the SEC independence rules.   
+  
+ Contrary to the Commission’s guidance, KPMG Canada, Bentham and Gordon audited 
+KPMG Canada’s own work in preparing Southwestern’s fiscal year 1999 books, records and 
+financial statements.  KPMG Canada’s audit report (dated July 15, 1999), which stated that 
+KPMG Canada was independent, was filed with the Commission on November 12, 1999 with 
+Southwestern’s Form 10-KSB for March 31, 1999.  In addition, the audit report stated that 
+KPMG Canada audited Southwestern’s statements of loss and deficit and cash flows for the 
+period from commencement of operations on April 1, 1992 to March 31, 1999.  This period 
+included fiscal year 1998, a fiscal year for which KPMG Canada prepared Southwestern’s books, 
+records and financial statements, as described above.  Bentham and Gordon both understood that 
+KPMG Canada’s audits of Southwestern, a development stage company, would look back to 
+Southwestern’s commencement of operations for the statements of loss and deficit and cash 
+flows.  As a result, KPMG Canada, Bentham and Gordon issued an audit report for March 31, 
+1999 in spite of the bookkeeping work that KPMG Canada performed for fiscal years 1998 and 
+1999.    
+    
+ 6
+ 4.  KPMG Canada Prepared Certain of Southwestern’s Fiscal Year 2000 Books, 
+Records and Financial Statements, and KPMG Canada, Bentham and Gordon 
+Audited KPMG Canada’s Work  
+ 
+Southwestern hired an outside accounting firm, which compiled Southwestern’s quarterly 
+financial statements until December 31, 1999 (the first three quarters of fiscal year 2000), and 
+prepared a trial balance as of December 31, 1999 for the preceding nine-month period.  
+However, Bentham knew that Southwestern did not have any internal or outside accountant for 
+the fourth quarter and during that period KPMG Canada prepared certain of Southwestern’s 
+books, records and financial statements.   
+   
+Bentham also knew that KPMG Canada audit engagement staff prepared a trial balance 
+(“Working Trial Balance”) for the 2000 fiscal year-end from, among other things, information 
+provided by the client regarding Southwestern’s cash transactions.  The audit engagement senior 
+created bank transaction summaries for Southwestern’s United States and Canadian bank 
+accounts.  KPMG Canada then entered the information from the bank transaction summaries 
+onto the Working Trial Balance in order “[t]o record the Canadian Cash Transactions for the 
+year” and “[t]o record the US Cash Transactions for the year.”  The Working Trial Balance 
+created by KPMG Canada is the only record to summarize all of the journal entries by account 
+classification.  The Working Trial Balance functioned as the company’s general ledger, which is 
+a basic accounting record.    
+   
+Gordon was informed that KPMG Canada continued to prepare Southwestern’s financial 
+statements from Southwestern’s bank records and invoices.  The Partner’s Audit Strategy, a 
+workpaper used to help plan the audit, stated, “KPMG [Canada] is to prepare the F/S from the 
+bank statements and related party invoices supplied by the client.”  Bentham initialed and 
+Gordon reviewed this workpaper.   
+ 
+  KPMG Canada’s written policies require SEC reviewing partners to discuss with the 
+audit engagement partner the engagement team’s familiarity with U.S. independence standards.  
+Notwithstanding this requirement, Gordon failed to ask Bentham to demonstrate his general 
+knowledge of independence requirements and failed to ask whether Bentham had read the SEC 
+independence rules.  If Gordon had asked Bentham this, he would have learned that Bentham 
+had not read the rules.  KPMG Canada’s written policies also require SEC reviewing partners to 
+discuss with the audit engagement partner any significant independence matters that come to the 
+attention of the filing reviewer in the course of his review.  Nevertheless, Gordon failed to 
+discuss with Bentham KPMG Canada’s lack of independence as a result of its providing 
+bookkeeping services to Southwestern.   
+ 
+ When KPMG Canada, Bentham and Gordon audited Southwestern’s fiscal year 2000 
+financial statements, they audited KPMG Canada’s work in preparing Southwestern’s 2000 fiscal 
+year books, records and financial statements.  In addition, because Southwestern was a 
+development stage company, KPMG Canada, Bentham and Gordon audited Southwestern’s 
+statements of loss and deficit and cash flows for the period April 1, 1992 to March 31, 2000.  
+Accordingly, KPMG Canada, Bentham and Gordon issued an audit report for fiscal year 2000 in 
+spite of the bookkeeping work KPMG Canada had performed in the current and prior fiscal 
+ 7
+years.  KPMG Canada’s audit report (dated June 23, 2000), which stated that KPMG Canada was 
+independent, was filed with the Commission on July 17, 2002 with Southwestern’s March 31, 
+2000 Form 10-KSB.   
+ 
+ 5.  KPMG Canada Prepared Certain of Southwestern’s Fiscal Year 2001 Books, 
+Records and Financial Statements, and KPMG Canada, Bentham and Gordon 
+Audited KPMG Canada’s Work 
+ 
+Bentham knew that for the first quarter of fiscal year 2001, Southwestern did not have 
+any accounting staff and KPMG Canada prepared Southwestern’s financial statements from 
+information Southwestern provided.   
+ 
+  In addition, KPMG Canada prepared certain first quarter books and records that enabled 
+KPMG Canada to prepare the financial statements.  In particular, KPMG Canada prepared an 
+adjusted trial balance with supporting schedules for the three months ended June 30, 2000.  Two 
+of the supporting schedules classify Southwestern’s Canadian and United States bank account 
+transactions.  Southwestern provided KPMG Canada with the bank transactions from which 
+KPMG Canada prepared these schedules.   
+ 
+  In late 2000 or early 2001, Bentham began to have concerns that KPMG Canada could 
+not audit Southwestern and be independent unless Southwestern hired an in-house or outside 
+accountant to prepare its books and records and financial statements.  KPMG Canada employees 
+began receiving more information regarding permitted and prohibited services for SEC clients, 
+and Bentham attended a training course on U.S. generally accepted accounting principles 
+(“GAAP”) and GAAS.  Bentham recommended to Southwestern’s founder that Southwestern 
+hire in-house accounting staff and introduced a contract accountant as a potential hire.  He also 
+discussed with the audit manager that KPMG Canada could not be doing accounting work or 
+preparing financial statements for Southwestern.8  Although Bentham informed Southwestern 
+that KPMG Canada could not continue providing certain bookkeeping services, Bentham failed 
+to document this issue in the workpapers or prepare a Significant Issues and Decisions 
+Document, even though KPMG Canada policies required such a document.9   
+ 
+ Effective February 2001, the Commission adopted Rule 2-01(c)(4)(i)(A) of Regulation S-
+X, which incorporated previous requirements and provides that “[a]n accountant is not 
+independent, if, at any point during the audit and professional engagement period, the accountant 
+provides . . . [b]ookkeeping . . . services” to an audit client related to that client’s accounting 
+records or financial statements.  KPMG Canada and Bentham, nevertheless, continued to provide 
+prohibited services.  Specifically, during the audit, Bentham participated in deciding how to 
+record stock issuances which Southwestern had not recorded in the third and fourth quarters of 
+                                                 
+8 The contract accountant (the first of two) began preparing accounting records for Southwestern 
+as of the second quarter of fiscal year 2001 (beginning July 1, 2000). 
+ 
+9 The following year, bookkeeping services that KPMG Canada provided Southwestern were 
+detailed in a Significant Issues and Decisions Document. 
+ 
+ 8
+fiscal year 2001.  Southwestern’s founder had originally informed KPMG Canada that certain 
+shares had been issued for cash.  KPMG Canada, however, was having difficulty reconciling the 
+amount of shares Southwestern had issued with the cash it received.  KPMG Canada also was 
+unable to reconcile Southwestern’s records with the transfer agent’s confirmation regarding the 
+amount of shares issued.  Bentham told Southwestern’s founder that KPMG Canada could not 
+determine where the cash had been deposited.  Southwestern’s founder did not provide any 
+explanation for the lack of funds for the issued shares.  In early-February 2002, Bentham asked 
+Southwestern’s founder whether certain explanations could account for the lack of funds, such as 
+if these shares had been issued for services provided rather than having been issued for cash.  
+Southwestern’s founder then confirmed that the shares had been issued for services provided.  
+KPMG Canada’s audit fees for fiscal year 2001 tripled primarily because of the amount of work 
+KPMG Canada did to record and reconcile the stock transactions.   
+   
+When Gordon reviewed the workpapers for fiscal year 2001, they did not include a 
+Significant Issues and Decisions Document.10  According to KPMG Canada policy, a Significant 
+Issues and Decisions Document must be prepared for each audit.  Gordon failed to ask anyone on 
+the audit engagement team for the missing workpaper.  Additionally, Gordon did not discuss 
+with Bentham SEC independence requirements related to bookkeeping services, even though 
+Gordon had previously been advised that Southwestern’s records were poor and KPMG Canada 
+was preparing Southwestern’s financial statements.  Gordon understood there was no change in 
+these circumstances in fiscal year 2001. 
+ 
+ When KPMG Canada, Bentham and Gordon audited Southwestern’s fiscal year 2001 
+financial statements, they audited KPMG Canada’s work in preparing the fiscal year 2001 first 
+quarter financial statements and recording stock issuances for the third and fourth quarters of 
+fiscal year 2001.  Moreover, KPMG Canada, Bentham and Gordon audited Southwestern’s 
+statements of loss and deficit and cash flows for the period April 1, 1992 to March 31, 2001.  As 
+a result, KPMG Canada, Bentham and Gordon issued an audit report for fiscal year 2001 in spite 
+of the bookkeeping work KPMG Canada had performed in the current and prior fiscal years.  
+KPMG Canada’s audit report (dated February 19, 2002), which stated that KPMG Canada was 
+independent, was filed with the Commission on August 8, 2002 with Southwestern’s Form 10-
+KSB for March 31, 2001.   
+  
+6.  For Fiscal Year 2002, KPMG Canada, Bentham and Gordon Audited KPMG 
+Canada’s Work in Recording 2002 Stock Transactions, Drilling Costs and Other 
+Liabilities and Expenses 
+   
+ KPMG Canada again provided bookkeeping services to Southwestern in fiscal year 2002.  
+Southwestern’s first outside accountant transferred the company’s accounting records to a 
+second outside accountant in early to mid-2002.  The second outside accountant was involved in 
+preparing Southwestern’s books and records for fiscal year 2002.  The outside accountant’s 
+work, however, centered on recording cash transactions.  Bentham knew that, during the audit, a 
+                                                 
+10 Because the March 31, 2001 year-end filing was delayed, Gordon reviewed the fiscal year 
+2001 workpapers at about the same time he reviewed the fiscal year 2002 workpapers.   
+ 
+ 9
+member of KPMG Canada’s audit engagement team made nineteen journal entries, many of 
+which were to record non-cash stock transactions and to accrue various liabilities and to record 
+various expenses, including the drilling costs on Southwestern’s first and only well, which 
+activity Southwestern had failed to record as of fiscal year-end 2002.   
+ 
+ Gordon knew that KPMG Canada was recording Southwestern’s stock transactions for 
+fiscal year 2002.  The Significant Issues and Decisions Document for fiscal year 2002, which 
+Bentham initialed and Gordon reviewed, stated that “KPMG [Canada] booked [adjusting journal 
+entries] to account for the expense [o]f issuing shares and warrants for services.”  This 
+Significant Issues and Decisions Document also described several other instances where KPMG 
+Canada recorded accounting transactions for Southwestern for fiscal year 2002.  For example, 
+the Significant Issues and Decisions Document stated that “no amount has been accrued [by 
+Southwestern] for the drilled well,” KPMG Canada’s planned audit procedure was to “review the 
+invoices from [the drilling company] to determine the amount to be accrued in the financial 
+statements” and that an accrual for the well was then “booked as an [adjusting journal entry].”  
+The Significant Issues and Decisions Document also noted that “KPMG [Canada] posted an 
+[adjusting journal entry] to accrue for the costs of [a] contract” that Southwestern had not 
+recorded.  The same document explained that KPMG Canada “booked” an adjusting journal 
+entry to record depreciation on assets Southwestern purchased during the year when 
+Southwestern had taken no depreciation on those assets.  Because Southwestern had not booked 
+these items, KPMG Canada’s adjusting journal entries functioned as Southwestern’s journal 
+entries.  Thus, KPMG Canada determined the accounting for, and recorded, the stock and 
+warrant issuances and certain liabilities and expenses for the year.   
+ 
+ When KPMG Canada, Bentham and Gordon audited Southwestern’s fiscal year-end 2002 
+financial statements, they audited KPMG Canada’s work in recording fiscal year 2002 stock 
+transactions, drilling costs and certain liabilities and expenses.  Furthermore, KPMG Canada, 
+Bentham and Gordon audited Southwestern’s statements of loss and deficit and cash flows for 
+the period April 1, 1992 to March 31, 2002.  As a result, KPMG Canada, Bentham and Gordon 
+issued an audit report for fiscal year 2002 in spite of the bookkeeping work KPMG Canada also 
+had performed in prior fiscal years.  KPMG Canada’s audit report (dated July 19, 2002), which 
+stated that KPMG Canada was independent, was filed with the Commission on August 28, 2002 
+with Southwestern’s Form 10-KSB for March 31, 2002.   
+     
+7. KPMG Canada Lacked Adequate Policies and Procedures to Prevent and Detect the 
+Independence Problem that Occurred with Southwestern 
+  
+While KPMG Canada was providing bookkeeping services to Southwestern, it had no 
+policy or procedure requiring audit engagement partners to consult with anyone at KPMG 
+Canada in deciding whether to provide bookkeeping services to audit clients.  Indeed, Bentham 
+did not seek approval from anyone before authorizing the bookkeeping services for 
+Southwestern.    
+ 
+In December 2000, KPMG Canada designated an Ethics and Independence Partner 
+(“Independence Partner”) in its National Office with responsibility for ensuring the firm’s 
+compliance with the rules of Professional Conduct of the Provincial Institutes/Ordre of Chartered 
+Accountants and the Commission.  Although KPMG Canada began to set new policies, it still 
+ 10
+lacked effective monitoring procedures to detect and prevent the continuing independence 
+problems with the Southwestern audits in fiscal years 2001 and 2002.    
+ 
+  Additionally, KPMG Canada had no formal independence training for its staff until after 
+the last of the Southwestern audits were completed in 2002.  KPMG Canada also did not have 
+any requirements to document threats to independence and related safeguards until 2004, after 
+Canadian independence standards had been proposed addressing analysis of, and documentation 
+relating to, such threats and safeguards.   
+ 
+  Moreover, KPMG Canada’s quality control procedures relating to client continuance 
+were insufficient.  KPMG Canada policies required client continuance forms to be completed 
+yearly by the engagement team and reviewed by a professional practice partner.  Client 
+continuance forms included a consideration of KPMG Canada’s compliance with independence 
+requirements and an assessment of the risks associated with auditing clients, including the 
+adequacy of the client’s accounting records.  However, Bentham failed to complete client 
+continuance forms for Southwestern every year from 1999 through 2002, and KPMG Canada 
+failed to detect this failure.  Since no forms had been completed, no reviews by a professional 
+practice partner could occur. 
+ 
+  Furtherm ore, KPMG Canada failed to conduct appropriate reviews of its engagement 
+partners’ audit files to determine compliance with KPMG Canada policies and procedures related 
+to, among other things, independence.  The risk management group in KPMG Canada’s National 
+Office oversees the Quality Performance Review (“QPR”) program.  Partners were subject to a 
+QPR once every three years.  Several client files were examined for each partner, and the files 
+selected were to be weighted towards higher risk clients.  Nonetheless, the audit files for 
+Southwestern were never subject to a QPR review.   
+ 
+  Southwestern was a high risk client.  KPMG Canada policies provided that all public 
+companies, like Southwestern, must have a concurring review and that such clients are high risk.  
+Additionally, according to KPMG Canada’s risk criteria in its client continuance forms, 
+Southwestern should have been identified as a high risk client because, among other things, 
+Southwestern’s accounting records and internal controls were inadequate; Southwestern had no 
+audit committee; Southwestern faced financing difficulties; each year, KPMG Canada’s audit 
+report disclosed that Southwestern’s ability to continue to operate was dependent upon its raising 
+additional financing; Southwestern had significant related party transactions; and Southwestern’s 
+founder was a particularly dominant CEO.   
+ 
+ 11
+Despite all of these factors, neither Bentham nor Gordon11 considered Southwestern to be 
+a high risk client.  Moreover, Southwestern was not selected in Bentham’s partner QPRs in 1998 
+and 2001 notwithstanding the fact that it clearly fit KPMG Canada’s definition of a high risk 
+client, and even though Southwestern was Bentham’s only SEC engagement client in 1998.     
+ 
+  KPMG Canada’s QPRs include reviewing compliance with policies in key risk 
+management areas, including independence.  QPR objectives include assessing the engagement 
+team’s compliance with firm and professional standards and assessing adherence to relevant 
+statutory requirements.  Professional standards and statutory requirements would include SEC 
+independence standards.  As a result, had KPMG Canada performed QPRs of Southwestern in 
+1998 or 2001, it should have discovered that KPMG Canada’s independence was compromised 
+because the firm provided prohibited bookkeeping services.   
+ 
+E. LEGAL ANALYSIS 
+ 
+  An independent auditor “assumes a public responsibility transcending any employment 
+relationship with the client [and] owes ultimate allegiance to the corporation’s creditors and 
+stockholders, as well as to the investing public.  This ‘public watchdog’ function demands that 
+the accountant maintain total independence from the client at all times and requires complete 
+fidelity to the public trust.”  United States v. Arthur Young & Co., 465 U.S. 805, 817-18 (1984). 
+ 
+ “Because of the importance of an accountant’s independence to the integrity of the financial 
+reporting system, the Commission has concluded that circumstances that raise questions about an 
+accountant’s independence always merit heightened scrutiny.”  Section III.C.I. of Amendment to 
+Rule 102(e) of the Commission’s Rules of Practice, Release No. 33-7593 (October 19, 1998).   
+ 
+Section 602.02.c.i of the Commission’s Codification of Financial Reporting Policies 
+provides:  “It is the Commission’s position that an accounting firm cannot be deemed 
+independent with regard to auditing financial statements of a client if it has participated closely, 
+either manually or through its computer services, in maintenance of the basic accounting records 
+and preparation of the financial statements.”   
+ 
+  Rule 2-01(c)(4)(i)(A) of Regulation S-X, which became effective in February 2001, 
+similarly provides that “[a]n accountant is not independent, if, at any point during the audit and 
+professional engagement period, the accountant provides . . . [b]ookkeeping or other services” to 
+an audit client related to that client’s accounting records or financial statements, including:  “(1) 
+Maintaining or preparing the audit client’s accounting records; (2) Preparing the audit client’s 
+financial statements that are filed with the Commission or form the basis of financial statements 
+                                                 
+11 In December 2000, KPMG Canada required concurring partners to review a planning 
+memorandum prior to the commencement of significant fieldwork for the audit of an SEC 
+registrant engagement or other engagements identified as “high risk.”  Because Gordon did not 
+consider Southwestern to be a high risk client, he did not review planning memoranda prior to 
+the commencement of significant fieldwork for Southwestern.  KPMG Canada’s quality control 
+policies and procedures failed to surface these deficiencies.  KPMG Canada likewise did not 
+detect that Gordon, in certain years, had failed to sign off on Southwestern’s audit workpapers as 
+concurring and/or SEC reviewing partner.  
+ 12
+filed with the Commission; or (3) Preparing or originating source data underlying the audit 
+client’s financial statements.”   
+ 
+  Rule 2-02(b)(1) of Regulation S-X also requires the accountant’s report to “state whether 
+the audit was made in accordance with generally accepted auditing standards.”  17 C.F.R. ' 
+210.2-02 (1998).  Codification of Statements on Auditing Standards (“SAS”), AU Section 220, 
+provides that an auditor “should administer his practice within the spirit of [the Commission’s] 
+precepts and rules” in order to be independent.  SAS, AU Section 150.02, states that the audit 
+“report should contain a clear-cut indication of the character of the auditor’s work, if any, and the 
+degree of responsibility the auditor is taking.”   
+ 
+  As described above, KPMG Canada participated closely in the maintenance of certain of 
+Southwestern’s basic accounting records and prepared Southwestern’s financial statements for 
+the fiscal years ended March 31, 1998, 1999, 2000, 2001 and 2002.  Each fiscal year from 1999 
+through 2002 included operating results from prior fiscal year(s) that were audited by Bentham 
+and Gordon during which time KPMG Canada also provided bookkeeping services.  As the 
+engagement partner, Bentham was primarily responsible for the audits.  Bentham also supervised 
+the bookkeeping services and participated in some of that work.  Gordon, the concurring and 
+SEC reviewing partner, was informed that KPMG Canada was preparing certain of 
+Southwestern’s basic accounting records and financial statements, yet he concurred in the 
+issuance of the audit reports as concurring partner and did not require KPMG Canada to 
+withhold its audit reports as SEC reviewing partner.  Therefore, KPMG Canada, Bentham and 
+Gordon lacked independence from Southwestern when KPMG Canada issued its audit reports on 
+Southwestern’s financial statements for its 1999, 2000, 2001 and 2002 fiscal years, all of which 
+were included in the company’s public filings with the Commission.  
+ 
+  Additionally, KPMG Canada’s audit reports stated that the audits were conducted in 
+accordance with GAAS when they were not.  As set forth above, KPMG Canada, Bentham and 
+Gordon violated AU Section 220 by lacking independence under the Commission’s rules and 
+guidance.  KPMG Canada also violated AU Section 150.02 because its audit reports did not 
+accurately describe the character of KPMG Canada’s work.  These reports stated that KPMG 
+Canada was independent when it was not and failed to disclose the bookkeeping services it 
+provided Southwestern.  KPMG Canada, Bentham and Gordon thereby violated the auditor 
+independence requirements imposed by the Commission’s rules and guidance and by GAAS.   
+ 
+  The Respondents engaged in improper professional conduct under the negligence 
+standards of Rule 102(e)(1)(ii) of the Commission’s Rules of Practice, as defined in Rule 
+102(e)(1)(iv)(B).  Specifically, KPMG Canada, Bentham and Gordon engaged in:  1) highly 
+unreasonable conduct that resulted in a violation of applicable professional standards in 
+circumstances in which KPMG Canada, Bentham and Gordon knew or should have known 
+heightened scrutiny was warranted; and 2) repeated instances of unreasonable conduct, each 
+resulting in a violation of applicable professional standards that indicate a lack of competence to 
+practice before the Commission.   
+ 
+ 13
+F.  FINDINGS 
+ 
+  Based on the foregoing, the Commission finds that KPMG Canada, Bentham and Gordon 
+engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s 
+Rules of Practice. 
+ 
+G. CERTAIN STEPS KPMG CANADA HAS TAKEN SINCE ITS AUDITS OF  
+      SOUTHWESTERN   
+ 
+  KPMG Canada introduced a mandatory annual independence training course in 
+November 2002.  The course content includes SEC independence rules and Canadian 
+independence standards.  All client service professionals are required to take this training once 
+each year and pass a mastery exam at the end of the course.  The results are centrally monitored 
+by KPMG Canada’s National Office to confirm that all client service professionals have taken 
+the course. 
+ 
+  In 2003, KPMG Canada implemented a new electronic system (“the Sentinel system”) 
+that helps to detect when non-audit services are provided to SEC registrants.  Individuals who 
+propose new engagements/projects for SEC registrant audit clients must describe the 
+engagement/project in the Sentinel system.  The Sentinel system automatically sends the request 
+to the lead audit engagement partner, who determines whether the engagement/project is a 
+permissible service under auditor independence rules and determines whether the 
+engagement/project requires separate pre-approval from the client’s audit committee.  Once the 
+lead audit engagement partner approves the engagement/project, the Sentinel system assigns the 
+engagement/project a Sentinel Approval Number, which is necessary in order to open a new 
+engagement/project in KPMG Canada’s Time and Billing system.   
+ 
+  In April 2003, KPMG Canada imposed the following requirements for all high risk 
+clients, including SEC registrants, on an annual basis:  1) the engagement team must complete a 
+client retention workpaper, WP-100, which contains a more detailed assessment of client risk 
+factors than previous workpapers; and 2) the engagement partner and a professional practice 
+partner or risk management partner must approve WP-100.  WP-100 also requires the 
+engagement team to list non-audit services that are being, or are expected to be, provided to the 
+client, including bookkeeping services. 
+ 
+  In addition, in October 2004, KPMG Canada implemented the workpaper, Evaluation of 
+Threats to Independence and Safeguards – Canada (“Threats and Safeguards”), as a result of 
+recent Canadian independence standards that require each audit engagement team to document 
+all of the actual and perceived threats to independence, as well as the safeguards that have been 
+implemented to address those threats.  The Threats and Safeguards workpaper, which is the basis 
+for preparing the annual independence letter to the audit committee (U.S. Independence 
+Standards Board #1 Letter (“ISB #1 Letter”)), is reviewed by the concurring partner after it has 
+been completed.  The concurring partner also reviews the ISB #1 Letter. 
+ 
+ 14
+  Furthermore, since 2004, KPMG Canada now requires publicly listed entities to be 
+subject to a QPR once every five years.  Beginning with the 2004 QPR program, KPMG Canada 
+required retention of documentation from SEC engagement reviews for seven years.   
+ 
+H. UNDERTAKINGS BY KPMG CANADA 
+ 
+Respondent KPMG Canada undertakes the following: 
+ 
+1. Within 10 days of the date of this Order, KPMG Canada shall pay $73,682 to the United 
+States Treasury, which represents $60,148 in KPMG Canada’s fees from the audit and 
+bookkeeping services it performed for Southwestern for fiscal year 1999 through 2002, and 
+$13,534 in prejudgment interest.  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 
+KPMG Canada as a Respondent in these proceedings, the file number of these proceedings, a 
+copy of which cover letter and money order or check shall be sent to Antonia Chion, Division of 
+Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 
+20549-8549-A. 
+ 
+2. Firm-Wide Auditor Independence Training:  KPMG Canada shall continue to require all 
+audit professionals to annually undergo training regarding auditor independence requirements 
+and guidance. 
+ 
+3. Maintenance of Independence Partner:  KPMG Canada shall maintain at least one 
+partner in its National Office with responsibility for ensuring the firm’s compliance with auditor 
+independence requirements and guidance, including, without limitation, the adoption, 
+implementation and oversight of firm policies and procedures designed to ensure such 
+compliance (“Independence Partner”).   
+ 
+4. Implementation of Policies Preventing Prohibited Bookkeeping Services from Being 
+Provided to SEC Registrant Audit Clients:  KPMG Canada shall adopt and implement within 90 
+days of this Order written procedures to provide reasonable assurance that prohibited 
+bookkeeping services will not be provided to SEC registrant audit clients, including:   
+  
+ i. Procedures requiring that client continuance forms (containing an assessment of 
+risks and a listing of non-audit services being provided) for all SEC registrant audit 
+clients to be completed and reviewed annually; and further requiring KPMG Canada’s 
+National Office to monitor the annual completion and review of client continuance forms 
+for all SEC registrant audit clients. 
+ 
+ ii. Procedures requiring an Independence Partner to annually review such 
+documents, forms and other information relating to all SEC registrant audit clients 
+(including, but not limited to, client continuance forms and information in the Sentinel 
+ 15
+system) sufficient to determine whether any prohibited bookkeeping services are being 
+provided to SEC registrant audit clients. 
+ 
+5. Documentation of Concurring Partner Review for SEC Registrant Audit Clients:  KPMG 
+Canada shall adopt and implement written procedures within 90 days of this Order requiring 
+concurring partners to sign and date workpapers (including planning memoranda) for all SEC 
+registrant audit clients on the date they review such workpapers. 
+ 
+6. Retention of QPR Documentation for SEC Registrant Audit Clients:  KPMG Canada shall 
+maintain its policy requiring retention of all documentation from QPRs of SEC registrant audit 
+engagements for at least seven years.  
+ 
+7. Distribution of Order:  KPMG Canada shall distribute a copy of this Order to all of its 
+audit professionals within 10 business days after entry of the Order. 
+ 
+8. Report on Compliance:  Within 120 days from the entry of this Order, KPMG Canada 
+shall certify in writing to Commission staff that it is in compliance with the undertakings set 
+forth in paragraphs H.1 through H.7. 
+ 
+  In determining to accept the Offer of KPMG Canada, the Commission considered 
+remedial acts promptly undertaken by KPMG Canada, cooperation afforded the Commission 
+staff and the undertakings set forth above. 
+ 
+I. UNDERTAKINGS BY GORDON  
+ 
+Gordon undertakes that: 
+      
+1.         As long as he practices before the Commission as a preparer or reviewer, or a person 
+responsible for the preparation or review, of any public company’s financial statements that are 
+filed with the Commission, Gordon’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; and/or 
+  
+2.         As long as he appears or practices before the Commission as an independent accountant: 
+ 
+(a)        Gordon, or the public accounting firm with which he is associated, is and will 
+remain registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002; and 
+ 
+(b)        Gordon will 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.   
+ 
+  In determining to accept the Offer of Gordon, the Commission considered the 
+undertakings set forth above. 
+ 
+ 16
+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: 
+ 
+KPMG Canada 
+ 
+ A. KPMG Canada is censured pursuant to Rule 102(e)(1)(ii).    
+ 
+Bentham 
+ 
+B. Bentham is denied the privilege of appearing or practicing before the Commission 
+as an accountant.   
+  
+C. After two years from the date of this Order, Bentham 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 Bentham’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) Bentham, 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) Bentham, or the registered public accounting firm with which he is 
+associated, has been inspected by the Board or equivalent Canadian organization and that 
+inspection did not identify any criticisms of or potential defects in Bentham’s or the firm’s 
+quality control system that would indicate that Bentham 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) Bentham has resolved all disciplinary issues with the Board or 
+equivalent Canadian organization, and has complied with all terms and conditions of any 
+sanctions imposed (other than reinstatement by the Commission); and 
+ 17
+ 
+(d) Bentham acknowledges his responsibility, as long as Bentham 
+appears or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards.   
+      
+D. The Commission will consider an application by Bentham to resume appearing or 
+practicing before the Commission provided that his chartered accountant license is current and 
+he has resolved all other disciplinary issues with the applicable Canadian institute of chartered 
+accountants.  However, if licensure is dependent on reinstatement by the Commission, the 
+Commission will consider an application on its other merits.  The Commission’s review may 
+include consideration of, in addition to the matters referenced above, any other matters relating 
+to Bentham’s character, integrity, professional conduct, or qualifications to appear or practice 
+before the Commission. 
+ 
+Gordon  
+ 
+E. Gordon is denied the privilege of appearing or practicing before the Commission 
+as an accountant for nine months from the date of this Order. 
+ 
+   By the Commission. 
+ 
+ 
+ 
+         J onathan G. Katz 
+          S ecretary 
+ 18
\ No newline at end of file
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+++ b/raw/aaer/2005/AAER-2272.txt
@@ -0,0 +1,28 @@
+  
+ 
+UNITED STATES OF AMERICA
+ 
+before the
+ 
+SECURITIES AND EXCHANGE COMMISSION
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Rel. No. 51979 / July 6, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 2272 / July 6, 2005 
+Admin. Proc. File No. 3-9608 
+In the Matter of 
+JEFFREY STEINBERG ORDER 
+DISMISSING 
+and PROCEEDINGS 
+JOHN GERON 
+The Commission is evenly divided as to whether the allegations in the Order Instituting 
+Proceedings in this matter have been established.  Accordingly, it is 
+ORDERED that the proceeding instituted against Jeffrey Steinberg and John Geron be, 
+and it hereby is, dismissed. 
+By the Commission (Acting Chairman GLASSMAN and Commissioner ATKINS for 
+dismissal; Commissioners GOLDSCHMID and CAMPOS against dismissal). */ 
+Jonathan G. Katz
+     Secretary 
+*/ Former Chairman William F. Donaldson resigned on June 30, 2005.  Prior to his 
+resignation, he did not participate in this matter. 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2273.txt b/raw/aaer/2005/AAER-2273.txt
new file mode 100644
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+++ b/raw/aaer/2005/AAER-2273.txt
@@ -0,0 +1,152 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  51995 / July 8, 2005 
+ 
+ACCOUNTING AND AUDIT ENFORCEMENT 
+Release No.  2273 / July 8, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.   3-11974 
+ 
+In the Matter of 
+ 
+DUKE ENERGY 
+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 Duke Energy Corporation (“Duke” or 
+“Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below.   
+ 
+ 
+ 
+ 
+ 2
+III. 
+ 
+ On the basis of this Order and Res pondent’s Offer, the Commission finds1 that:  
+ 
+1. Duke, a North Carolina corporation with its principal executive offices in 
+Charlotte, North Carolina, is an integrated provider of energy and energy services.  Duke’s 
+common stock is registered with the Commission under Section 12(b) of the Exchange Act and 
+trades on the NYSE under the symbol DUK. 
+2. From at least June 1997 through at least November 2002, Duke traded 
+electricity and natural gas products with other energy companies.  The trading unit that is the focus 
+of this matter was located in Houston, Texas.   
+3. Duke engaged in trading electric ity and natural gas products for two 
+principal purposes:  (a) to hedge against Duke’s exposure to the risk of unanticipated swings in the 
+price of electricity and natural gas; and (b) to profit through speculative trading. 
+4. Duke maintained separate “b ooks” for the company’s hedging and 
+speculative trading activities and, in conformity with Generally Accepted Accounting Principles 
+(“GAAP”), the books were treated differently for accounting purposes.  Under GAAP, only if a 
+transaction was properly designated as a hedging transaction would it qualify for accrual 
+accounting treatment in which at least a portion of the gain or loss on the transaction could be 
+deferred until a later period.  Conversely, in conformity with GAAP, the gain or loss on all 
+speculative transactions should have been recognized currently in earnings, on a mark-to-market 
+basis.  
+5. From approximately 199 7 to 2002, Duke’s internal accounting controls 
+were insufficient to ensure that its traders properly recorded their trading activities in Duke’s books 
+and records.  As a result, certain traders manipulated those books and records in order to maximize 
+the size of their year-end bonuses and other performance-based compensation. 
+6. Duke’s internal accounting controls deficiencies included the following:  
+First, while Duke awarded year-end bonuses and other performance-based compensation primarily 
+on the basis of traders’ profitability for the past year, Duke allowed certain traders to have control 
+over both accrual and mark-to-market accounted trading books, thereby giving these traders an 
+opportunity improperly to shift losses into their accrual books where at least a portion of the losses 
+would not be recognized until a later period, after the traders’ annual bonus determinations already 
+had been made.  Second, although Duke’s policies and procedures required traders to enter their 
+trades promptly into Duke’s systems, Duke failed to monitor traders to ensure that, in practice, the 
+traders actually assigned each trade to a particular book at the time that the trader entered into the 
+trade.  This failure allowed traders to assign trades based upon whether the trades resulted in gains 
+                                                 
+1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding 
+on any other person or entity in this or any other proceeding. 
+ 
+ 3
+(in which case, the trades could be assigned to a trader’s mark-to-market book where the gains 
+would be recognized in full in the current period), or losses (in which case, the trades could be 
+assigned to a trader’s accrual book where at least a portion of the losses could be deferred until 
+later periods).  Third, Duke did not require traders to maintain time-stamped trading tickets that 
+recorded the time at which each trade was entered into, making it more difficult for Respondent to 
+detect misclassifications of trading transactions because of the lack of an audit trail Duke could 
+follow to determine the time at which a trade was entered into, relative to the time when the trader 
+actually assigned the trade to a particular book.  Fourth, Duke failed to establish a system whereby 
+internal compliance personnel would monitor a trader’s individual decision to move a trade from 
+one book to another, which allowed traders to move losing positions from a mark-to-market book 
+to an accrual book.   
+7. As a result of Duke’s internal acco unting controls deficiencies, between 
+approximately January 1, 2001 and June 30, 2002, three individuals in Duke’s trading operation 
+misclassified approximately $56.2 million of trading losses as hedge trading losses, to be 
+accounted for in Respondent’s books and records on an accrual basis, when, in fact, those trading 
+losses were speculative trading losses that, under GAAP, should have been accounted for in 
+Respondent’s books and records on a mark-to-market basis.  Further, as a result of these 
+misclassifications, these three traders were awarded bonuses by Duke, for the year ended 
+December 31, 2001, in amounts that the traders would not otherwise have been awarded. 
+8. Although the misclassifications de tailed above did not have a material 
+impact on Duke’s financial statements, as a result of the conduct described above, Duke committed 
+violations of Section 13(b)(2)(A) of the Exchange Act, which 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. 
+9. Also as a result of the conduct desc ribed above, Duke committed violations 
+of Section 13(b)(2)(B) of the Exchange Act, which requires issuers to devise and maintain a 
+system of internal accounting controls sufficient to provide reasonable assurances that transactions 
+are executed in accordance with management’s general or specific authorization, transactions are 
+recorded as necessary to permit preparation of financial statements in conformity with GAAP, and 
+to maintain accountability for assets, 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 differences. 
+Duke’s Remedial Efforts 
+In determining to accept the Offer, the Commission considered remedial acts promptly 
+undertaken by Respondent and the cooperation Respondent afforded the Commission staff. 
+ 
+ 
+ 
+ 
+ 4
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Duke’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that Respondent Duke cease and desist from 
+committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       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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new file mode 100644
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--- /dev/null
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@@ -0,0 +1,253 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52006 / July 11, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2274 / July 11, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.   3-11977 
+ 
+ 
+In the Matter of 
+ 
+Foamex International, Inc.,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Foamex International, Inc. (“Foamex”). 
+ 
+II. 
+ 
+ In anticipation of the institution of these pr oceedings, Foamex 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, Foamex 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 Foamex ’s Offer, the Commission finds that:  
+ 
+Respondent 
+ 
+ 1. Foamex, a Delaware corporation based in Linwood, Pennsylvania, 
+manufactures and distributes flexible polyurethane and advanced polymer foam products.  
+Foamex’s common stock is registered under Section 12(g) of the Exchange Act and is traded on 
+the NASDAQ National Market System. 
+ 
+Summary
+ 
+ 2. This matter involves Foamex’s need to address deficiencies in its internal 
+accounting controls.  Since at least 1999, Foamex’s auditors have advised the company that these 
+internal control deficiencies created “reportable conditions.”1  In particular, the auditors identified 
+internal control deficiencies in Foamex’s: (i) information technology systems; (ii) inventory 
+procedures, processes and systems; and (iii) preparation of quarterly financial reports.  In addition, 
+since 1999, Foamex restated many of its interim financial reports because of material errors in its 
+financial statements which resulted, in part, from its internal control issues.  For example, in 
+January 2004, Foamex had to restate its financial reports for the first three quarters of 2003 due to 
+an overstatement of certain inventory.  Foamex, under new management, has engaged in 
+meaningful efforts to remediate the reportable conditions.  However, the repeated findings of its 
+auditors with respect to certain reportable conditions show that Foamex did not undertake such 
+remediation on a timely basis.   
+ 
+Discussion 
+   
+3. Through a series of acquisitions  between 1983 and 2001, Foamex’s 
+operations expanded to encompass over fifty manufacturing and distribution facilities in the United 
+States, Canada and Mexico.  The companies Foamex acquired utilized different accounting 
+procedures, computer systems and software, and Foamex did not integrate all of these systems.  
+These differing systems, particularly those related to inventory, created inconsistencies in the 
+company’s books and records, which the company did not reconcile in a timely manner.  
+ 
+4. In August 1999, Foamex’s auditor notified Foamex’s Audit Committee that 
+Foamex needed to improve its internal controls.  In particular, the auditor reported that Foamex’s 
+systems for the preparation of interim financial information did not provide an adequate basis for 
+the auditor to complete, prior to certain filing deadlines, its reviews of Foamex’s interim financial 
+statements. 
+                                                 
+1 A reportable condition is a significant deficiency in the design or operation of an internal 
+control, which could adversely affect the organization’s ability to record, process, summarize 
+and report financial data consistent with the assertions of management in the financial 
+statements. AICPA Statement on Auditing Standards No. 60. 
+ 3
+ 
+5. In May 2000, Foamex’s auditor issued a Report to Management in 
+connection with its audit of Foamex’s financial statements for the year ended December 31, 1999.  
+In that report, Foamex’s auditor identified reportable conditions and recommended that Foamex:  
+(i) make significant improvements in the control environment and reporting practices of Foamex’s 
+foreign operations; (ii) conduct a comprehensive analysis of financial results on a quarterly basis; 
+(iii) improve inventory reporting; and (iv) develop a comprehensive information technology (“IT”) 
+strategy, including an enterprise-wide security program. 
+ 
+  6. In February and March 2001, in connection with its audit of Foamex’s 
+financial statements for the year ended December 31, 2000, Foamex’s auditor advised Foamex’s 
+Audit Committee of reportable conditions similar to those above.  In June 2001, Foamex’s auditor 
+resigned and, in July 2001, Foamex retained a new auditor. 
+ 
+  7. Although Foamex’s prior manageme nt informed the Commission’s staff in 
+mid-2002 that the company was initiating prompt corrective actions to address its internal control 
+deficiencies, its new auditor issued a report to Foamex’s Audit Committee in March 2003.  The 
+report identified reportable conditions similar to those previously identified by Foamex’s prior 
+auditor: (i) oversight of financial reporting by international subsidiaries; (ii) inventory procedures, 
+processes and systems; (iii) integration of IT systems; (iv) access and security for IT systems; and 
+(v) process for reviewing and approving journal entries.   
+ 
+  8. In January 2004, Foamex restated its financial reports for the first three 
+quarters of 2003 because it had overstated its in-transit raw material inventory.  This error, which 
+has been corrected, occurred during Foamex’s implementation of a new system to calculate the 
+value of certain in-transit raw material inventory.  In particular, the new system failed to apply 
+certain rebates, resulting in inaccurate inventory values.   
+ 
+  9. In March 2004, Foamex’s audito r issued a report to Foamex’s Audit 
+Committee identifying four reportable conditions, three of which had been previously identified.  
+The reportable conditions pertained to: (i) the integration of IT systems; (ii) access and security for 
+IT systems; (iii) inventory procedures, processes and systems; and (iv) quarterly financial 
+reporting.   
+ 
+10. In April 2004, Foamex’s Audit Comm ittee retained a new auditor.  Foamex, 
+under the mandate of a new management team, has initiated steps to remediate the reportable 
+conditions.  It has strengthened financial management through the hiring of additional financial and 
+accounting personnel and continues to implement an enterprise-wide IT system.  Foamex has also 
+retained, through its counsel, a special consultant on internal accounting controls.  Nevertheless, 
+the repeated observations of the auditors and Foamex’s history of restating its interim financial 
+reports show that Foamex did not devote the appropriate managerial effort and other resources to 
+remediate its deficient internal controls, which were identified as reportable conditions in 1999.  As 
+a result, Foamex encountered undue delays in implementing an effective remediation program.  
+ 
+ 
+ 4
+Violations 
+ 
+11. As a result of the conduct described above, Foamex violated: 
+ 
+a. Section 13(a) of the Exchange Act,  which requires reporting companies to 
+file periodic and other reports with the Commission containing such information as 
+the Commission's rules prescribe, and Rule 13a-13, promulgated pursuant to Section 
+13(a) of the Exchange Act, which requires issuers to file accurate quarterly reports 
+with the Commission on a Form 10-Q. 
+ 
+b. Section l3(b)(2)(A) of  the Exchange Act, which requires all reporting 
+companies to make and keep books, records, and accounts, which, in reasonable 
+detail, accurately reflect the transactions and dispositions of assets; and  
+ 
+c. Section l3(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 assurance that transactions are recorded as 
+necessary to permit preparation of financial statements in conformity with generally 
+accepted accounting principles and to maintain accountability of assets. 
+  
+Undertakings
+ 
+  12. Foamex undertakes to: 
+ 
+a. Cooperate fully with its auditors  in connection with their audit of 
+Foamex’s financial statements, which will include, in accordance with 
+Section 404 of the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7262, a review and 
+evaluation of Foamex management’s assessment of internal control over financial 
+reporting as well as a report containing an opinion on the effectiveness of 
+Foamex’s internal control over financial reporting.  Foamex shall, on a timely 
+basis, provide the auditors with access to its files, books, records and personnel as 
+reasonably requested for the review.  In connection therewith, the auditors will 
+issue a written report (“Section 404 Report”) to Foamex’s Audit Committee with 
+regard to whether it concurs with management’s assessment of internal control 
+over financial reporting and will address any significant deficiencies, as defined in 
+Auditing Standard No. 2 of the Public Company Accounting Oversight Board, 2 
+                                                 
+2   A significant deficiency is a control deficiency, or combination of control 
+deficiencies, that adversely affects the company's ability to initiate, authorize, record, 
+process, or report external financial data reliably in accordance with generally accepted 
+accounting principles such that there is more than a remote likelihood that a 
+misstatement of the company's annual or interim financial statements that is more than 
+inconsequential will not be prevented or detected.  Public Company Accounting Oversight Board 
+Bylaws and Rules – Standards – AS2 (Mar. 9, 2004). 
+ 
+ 
+ 5
+that it has identified and that were not identified and remediated by management.  
+Promptly after receipt of the Section 404 Report, Foamex’s Audit Committee will 
+forward the Section 404 Report to the Commission’s staff and to Foamex’s 
+Special Consultant, which was previously retained through its counsel. 
+b. Require the Special Consultant to review the Section 404 Report and issue 
+a written report (“Special Consultant Report”) to Foamex’s Audit Committee and 
+the Commission’s staff.  The Special Consultant Report shall include 
+recommendations relating to modifications of, or additions to, internal control 
+over financial reporting to address the significant deficiencies identified in the 
+Section 404 Report, as well as procedures to implement such modifications or 
+additions.  The Special Consultant Report shall be issued no later than 90 days 
+following the issuance of the Section 404 Report or such other date mutually 
+agreed upon by Foamex and the Commission’s staff after consultation with the 
+Special Consultant.   
+c. Adopt all recommendations in the Special Consultant Report, provided, 
+however, that within 30 days after the Special Consultant delivers the Special 
+Consultant Report, Foamex shall in writing advise the Special Consultant and the 
+Commission’s staff of any recommendations that it considers unduly burdensome, 
+impractical or costly.  Foamex need not adopt such recommendations 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 
+Foamex and the Special Consultant do not agree, such parties shall attempt in 
+good faith to reach an agreement within 30 days after Foamex delivers the written 
+advice.  In the event Foamex and the Special Consultant are unable to agree on an 
+alternative proposal, Foamex shall abide by the determinations of the Special 
+Consultant.   
+d. Require the Special Consultant to review Foamex’s progress in correcting 
+significant deficiencies, if any, identified in the Section 404 Report and to provide 
+a written report to the Audit Committee and the Commission’s staff on the status 
+of Foamex’s remediation efforts each calendar quarter thereafter until the reported 
+deficiencies have been remediated, provided that such remediation efforts shall be 
+completed no later than 18 months from the date that Foamex receives the Special 
+Consultant Report. 
+e. For good cause shown, and upon receipt of a timely application from the 
+Special Consultant or Foamex, the Commission’s staff may extend any of the 
+procedural dates set forth above. 
+Foamex’s Remedial Efforts 
+ 
+13. In determining to accept the Offer, the Commission considered remedial 
+acts undertaken by Foamex’s new management and cooperation afforded the Commission’s 
+staff. 
+ 6
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Foamex’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Foamex 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 Rule 13a-13 
+thereunder. 
+  
+ B. Foamex shall comply wi th the undertakings enumerated in Section III.12. 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  
\ No newline at end of file
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new file mode 100644
index 0000000000000000000000000000000000000000..1620d46e47cdbe6d30691337f347c8a320d5af74
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@@ -0,0 +1,1365 @@
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+        Andrew J. Zahn, Philip J. Sexauer, and Cynthia K. Berryman
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19297 / July 11, 2005 
+
+ Accounting and Auditing Enforcement Release No.  2275 / July 11, 2005 
+
+  Securities and Exchange Commission v. Andrew J. Zahn, Philip J. Sexauer, and Cynthia K. Berryman,  Case No. 04C4948 (N.D. Ill.) 
+
+ The Commission announced that on May 10, 2005 the United States District Court for the District of Illinois entered a Final Judgment as to Defendant Cynthia K. Berryman, based on her Consent.  In SEC v. Andrew J. Zahn, Philip J. Sexauer, and Cynthia K. Berryman, each of the defendants is a former officer of DFG, L.L.C. ("DFG"), a Chicago-based company that was a subsidiary of a subsidiary of IBP, Inc. ("IBP").  
+ The Commission alleged in the complaint that Berryman, among other defendants, engaged in an array of accounting improprieties to inflate DFG's earnings.  These misstatements caused IBP to materially misstate its own financial results for the fourth quarter of 1999 and the first three quarters of 2000. Specifically, the Commission alleged that Berryman and others directed that DFG not charge certain expense items in the period they were incurred, but instead improperly included these amounts in inventory, prepaid expense, and accounts receivable asset accounts to overstate DFG's earnings. The Commission alleged that Berryman was motivated by personal compensation tied to DFG's financial performance. 
+ In its complaint, the Commission claims that, through these actions, each of the defendants violated Section 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 13b2-1 thereunder, and aided and abetted IBP's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. It further claims that Berryman violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13a-13 thereunder.  
+ The Final Judgment enjoins Berryman from future violations of the federal securities laws and imposes a five year officer and director bar.  Berryman was also ordered to pay disgorgement and prejudgment interest in the amount of $26,997.20 and a civil penalty of $50,000.00. 
+
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diff --git a/raw/aaer/2005/AAER-2278.txt b/raw/aaer/2005/AAER-2278.txt
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@@ -0,0 +1,473 @@
+ 
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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52041 / July 15, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2278 / July 15, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11984 
+ORDER INSTITUTING CEASE-AND-
+In the Matter of 
+Comerica, Inc., 
+DESIST PROCEEDINGS, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+Respondent. EXCHANGE ACT OF 1934 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease­
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Comerica, Inc. (“Comerica” or “Respondent”).  
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease­
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+A. Facts 
+1. Summary 
+This matter involves the filing of an inaccurate quarterly report with the Commission by 
+Comerica. During the quarter ended June 30, 2002, Comerica failed to establish an appropriate 
+allowance for loan and lease losses (“ALLL”) for its subsidiary Comerica Bank-California.  This 
+failure stemmed from the flawed methodology that Comerica used for determining the ALLL.  As 
+a consequence of understating the ALLL, Comerica’s net income was materially overstated for the 
+quarter ended June 30, 2002 and not in accordance with Generally Accepted Accounting Principles 
+(“GAAP”). Accordingly, on October 2, 2002, Comerica restated the financial statements included 
+in its Form 10-Q for the period ended June 30, 2002.  The restatement reflected that Comerica’s 
+second quarter income before income taxes had been overstated by approximately 14.8%.  
+Following the announcement of the restatement and two larger unrelated charges being taken in the 
+third quarter, the closing price of Comerica’s stock fell 20% from the previous day’s close.  
+Accordingly, Comerica violated the reporting provisions of the Exchange Act.  Moreover, by 
+failing to document the ALLL in accordance with GAAP, Comerica violated the recordkeeping 
+and internal controls provisions of the Exchange Act.   
+2. Respondent 
+Comerica is a Delaware corporation headquartered in Detroit, Michigan.  Comerica is a 
+holding company for business, consumer, and investment banks with operations in the United 
+States, Canada, and Mexico.  During the relevant period, Comerica had three primary U.S. 
+subsidiary banks: (1) Comerica Bank-Michigan; (2) Comerica Bank-Texas; and (3) Comerica 
+Bank-California.  Comerica’s common stock is registered with the Commission pursuant to 
+Section 12(b) of the Exchange Act and is listed for trading on the New York Stock Exchange under 
+the stock symbol “CMA.” 
+3. General Description of ALLL 
+Regardless of how well a bank’s lending is done, the bank will have loan and lease losses.  
+To absorb these losses, banks are required to maintain an ALLL, which is also referred to as an 
+“allowance for credit losses” or “loan-loss reserve.”  The ALLL represents the bank’s assessment 
+of probable credit losses inherent in its loan portfolio as of a specific balance sheet date, whether 
+related to specifically identified loans or not.   
+The ALLL is established and adjusted by charges against the bank’s operating income.  
+The ALLL is presented on the balance sheet as a contra-asset account that reduces the amount of 
+the loan portfolio reported on the balance sheet.  The ALLL must be adjusted to reflect the current 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
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+   
+ 
+                                                 
+  
+level of probable estimated credit losses through a provision for loan and lease losses.  This 
+provision appears as an expense item on the bank’s income statement and decreases the net income 
+for that period.   
+4. Comerica’s Methodology for Determining its ALLL 
+Comerica’s ALLL was comprised of the loan loss reserves for its three U.S. subsidiary 
+banks.  Each subsidiary bank’s ALLL was comprised of standard, specific, and unallocated 
+reserves. 
+Every commercial loan made by a Comerica subsidiary bank was rated by the subsidiary’s 
+credit officers on a scale from 1 to 8 based on risk characteristics.  A loan rated 1 (called a “grade 1 
+loan”) had little or no risk and a loan rated 8 was a non-performing loan that was a confirmed loss 
+requiring a charge off.1  Standard reserves for all loans were determined by grouping together loans 
+with the same loan grades, then applying to each loan grade projected loss ratios set by Comerica 
+based on numerous factors. 
+As to specific reserves, every quarter Credit Quality Review (“CQR”) meetings were 
+convened at each subsidiary to review the subsidiary’s loan portfolio.  The attendees of these 
+meetings were known as the “CQR committee.”  The committee would review the bank’s large 
+grade 5, 6, and 7 loans for individual impairment every quarter to determine whether they required 
+a specific reserve as opposed to the standard reserve allocation.  The CQR committee’s 
+determination of the reserve amount for a specific loan was recorded in a one or two page 
+summary called the “CQR report.”  These reports include a short synopsis of the borrower, the 
+loan, the loan grade, action plans to reduce the risk of the bank, and developments at the borrower. 
+However, the CQR reports often did not provide any narrative explanation for why the CQR 
+committee assigned a particular loan grade or specific reserve allocation to a certain loan.  The 
+CQR committee would also review the loan grades for the large grade 5, 6, and 7 loans in 
+Comerica Bank-California’s loan portfolio and, as necessary, revise the grade and recommend 
+charge-offs. 
+Unallocated reserves were intended to cover potential losses on categories of loan 
+portfolios that had been identified as having specific loss characteristics that had not otherwise 
+been considered.  Comerica determined its unallocated reserve by first setting a separate range of 
+minimum and maximum reserve percentages for each portfolio category, based on industry, 
+geographic, and economic factors.  Comerica used the same percentages for all three of its 
+subsidiaries, notwithstanding the different factors that might have applied to the loan portfolios of 
+Comerica Bank-Texas, Comerica Bank-Michigan, and Comerica Bank-California. 
+Comerica used a separate methodology for determining its reserves for retail loans.  For 
+the period ended June 30, 2002, the reserves for retail loans accounted for less than 2% of 
+Comerica’s entire ALLL. 
+3
+ 
+1 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+  
+ 
+ 
+For each subsidiary, the uniform minimum and maximum percentages for each portfolio 
+category were multiplied by the aggregate loan amounts in each portfolio category.  The 
+minimum and maximum figures for each portfolio category at each subsidiary were then added 
+together to create the total minimum and maximum limit for each subsidiary's unallocated reserve.  
+This process created three separate minimum and maximum ranges corresponding to the three 
+subsidiaries.  Comerica's chief credit officer would then select a number within the minimum and 
+maximum range for each subsidiary bank to be the preliminary unallocated reserve for that 
+subsidiary. The unallocated reserve figures for all three subsidiary banks were then totaled to form 
+Comerica's preliminary unallocated reserve.  That was the final component to determining 
+Comerica's preliminary ALLL.  Later, Comerica's management would either accept that 
+preliminary figure as the final unallocated reserve for all three subsidiary banks, or decrease or 
+increase it, to determine Comerica's final ALLL. 
+The calculation of Comerica’s ALLL was partially documented each quarter in a binder 
+titled “Credit Loss Reserve Analysis” (“Credit Loss Reserve binder”).   First, a preliminary version 
+of the binder was prepared by Comerica’s credit department.  It set forth the results of the above-
+described quarterly procedure through the determination of the preliminary ALLL.  Within a few 
+days after the end of each quarter, a group of Comerica’s senior officers would meet to review the 
+adequacy of the ALLL, as reflected in the preliminary Credit Loss Reserve binder.  At this 
+meeting, Comerica’s management would, as described above, determine the final unallocated 
+reserve and the final quarterly ALLL figure.  The results of the quarterly meeting were reflected in 
+the final Credit Loss Reserve binder, but meeting minutes were not maintained.   
+5. Problems Relating to Comerica Bank-California’s ALLL 
+Comerica Bank-California’s ALLL process was not properly documented and there was an 
+insufficient link between the CQR process and the quarterly ALLL figure recorded in the Call 
+Report.2  Furthermore, Comerica Bank-California’s methodology was not sufficiently auditable, 
+allocated losses were not representative of current conditions, the documentation of unallocated 
+reserves was inadequate, and recognition of loan losses, and downgrades were delayed.  With 
+respect to this last point, Comerica Bank-California’s CQR committee meetings were held during 
+the second month of each financial quarter.  At those meetings, certain incremental probable credit 
+losses were measured, but Comerica Bank-California did not always reflect the incremental losses 
+in its Call Report for that quarter.   
+Federal law requires all banks to file quarterly with the appropriate federal banking 
+agency a Report of Condition and Income (or “Call Report”).  See 12 U.S.C. §161 (National 
+banks), 12 U.S.C. §324 (State member banks), and 12 U.S.C. §1817 (State nonmember banks).  
+This report collects basic financial data from banks in the form of a balance sheet, an income 
+statement, and supporting schedules.  It is a primary source of financial data used for the 
+supervision and regulation of banks. 
+4
+ 
+2 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+In late 2001 and early 2002, the Federal Reserve Bank of San Francisco (“Federal Reserve-
+San Francisco”) expressed concerns regarding Comerica Bank-California’s increased credit risk 
+profile and that the methodology used by Comerica Bank-California appeared inadequate to ensure 
+that the ALLL kept pace with the deterioration of the bank’s loan portfolio.  At a preliminary 
+meeting held on July 31, 2002, during a regularly scheduled examination, Federal Reserve-San 
+Francisco examiners told Comerica Bank-California’s management and Comerica’s chief credit 
+officer that they had preliminarily identified an addition to the provision for loan losses relating to 
+specifically identified loans and additional charge-offs that were required for the period ended June 
+30, 2002. The Federal Reserve-San Francisco examiners and Comerica Bank-California 
+management agreed to discuss the issues further. 
+On or about August 5, 2002, at a meeting of Comerica’s senior management, Comerica’s 
+chief credit officer reported that discussions with the Federal Reserve-San Francisco concerning 
+additional provisions and charge-offs were ongoing. 
+6. 	 Comerica Files a Form 10-Q for the Period Ended June 30, 2002 Containing a 
+Materially Understated ALLL 
+On the evening of August 12, 2002, Comerica filed its second quarter Form 10-Q, which 
+reported a materially understated ALLL and overstated net income figures for the period ended 
+June 30, 2002. Comerica did not disclose in the Management’s Discussion and Analysis of 
+Financial Condition and Results of Operations (MD&A) section of the Form 10-Q any information 
+concerning Comerica Bank-California’s increased risk profile. 
+7. 	 Restatement of the Second Quarter 2002 Comerica Bank-California Call 
+Report 
+After several additional communications between Comerica and the Federal Reserve-San 
+Francisco examiners, the Federal Reserve-San Francisco and Comerica Bank-California met on 
+September 18, 2002.  The regulators directed Comerica Bank-California to restate the June 30, 
+2002 Call Report to reflect an incremental $40 million provision for credit losses, which included 
+$22 million in charge-offs. 
+8. 	 Restatement of the Financial Statements Contained in Comerica’s June 30, 
+2002 Form 10-Q 
+Comerica restated the Call Report as directed.  As a result of restating the Call Report, on 
+October 2, 2002, Comerica filed an amended quarterly report on Form 10-Q/A for the period ended 
+June 30, 2002. Comerica restated its second quarter income before income taxes from $272 million 
+to $237 million, reflecting an overstatement of about 14.8%, and its second quarter diluted net 
+income per share from $1.03 to $0.90, reflecting an overstatement of about 14.4%.  The 
+overstatements in income before income taxes and diluted net income per share were caused 
+primarily by Comerica’s failure to make the incremental credit loss provision of $40 million. 
+5
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+    
+ 
+ 
+ 
+ 
+The day before the amended filing, on October 1, 2002, Comerica’s stock price had closed 
+at $50.19 per share.  After the press release on the morning of October 2, 2002 announcing the 
+restatement and two larger unrelated charges taken in the third quarter, Comerica’s stock traded as 
+low as $39.11 per share and closed the day at $40.00 per share, a decrease of about 20% from the 
+previous day’s closing price.  Trading volume increased from 903,300 shares on October 1 to 
+10,855,200 on October 2 and market capitalization decreased from $8,767,685,629 on October 1 to 
+$6,987,595,640 on October 2. 
+B. Legal Analysis 
+1. Violations of the Reporting Provisions of the Exchange Act 
+Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers with 
+securities registered under Section 12 of the Securities Act of 1933 to file quarterly reports with 
+the Commission.  The obligation to file such reports embodies the requirement  
+that they be true and correct. See SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 
+1978), cert. denied sub nom. Zimmerman v. SEC, 440 U.S. 913 (1979). Article 4 of Regulation 
+S-X requires that financial statements filed with the Commission pursuant to Section 13(a) of the 
+Exchange Act be prepared in accordance with GAAP or such statements will be presumed to be 
+misleading or inaccurate.  17 CFR § 210.4-01(a)(1).  Furthermore, Articles 9 and 10 of 
+Regulation S-X require creditors to disclose their ALLL in the interim financial statements 
+included in their quarterly reports. 17 CFR §§ 210.9-03(7) & 210.10-01(a).  Therefore, banks 
+filing quarterly reports with the Commission must disclose their ALLL in the interim financial 
+statements and the ALLL must be calculated in accordance with GAAP. 
+Guidance under GAAP for recognition of loan losses is provided by Statement of 
+Financial Accounting Standards No. 5, Accounting for Contingencies (FAS 5), and Statement of 
+Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan (FAS 114).  
+See SEC Staff Accounting Bulletin 102 (“SAB 102”).  FAS 5 provides that an estimated loss 
+from the collectibility of a loan should be accrued when, based on information available prior to 
+the issuance of the financial statements, it is probable the loan has been impaired at the date of 
+the financial statements and the amount of the loss can be reasonably estimated.  FAS 114 
+provides specific guidance on the measurement of loan impairment and related disclosures, but 
+does not change the fundamental recognition criteria for loan losses provided by FAS 5.   
+On July 6, 2001, the Commission staff issued interpretive guidance on FAS 5 and 114 in 
+the form of SAB 102.  In SAB 102, the staff expressed the view that it normally would expect a 
+registrant that engages in lending activities to develop a systematic methodology to determine its 
+ALLL in accordance with GAAP as of each financial reporting date.  Comerica failed to develop 
+a systematic methodology for determining the ALLL in accordance with GAAP.  Under GAAP, 
+if an issuer can measure a reasonably estimable and incremental probable credit loss in a 
+particular financial quarter, the issuer must recognize the loss in that same quarter.  See FAS 5, ¶ 
+8. Although Comerica’s loan review process measured incremental probable credit losses in the 
+second month of a financial quarter, Comerica sometimes did not recognize those incremental 
+6
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+  
+ 
+ 
+3 
+probable credit losses until the following quarter. This practice contradicts FAS 5, FAS 114, and 
+Commission staff guidance.  The failure to recognize incremental probable credit losses inherent 
+in Comerica Bank-California’s loan portfolio in a timely manner resulted in Comerica’s filing of 
+financial statements with the Commission that contained material departures from GAAP.  By 
+understating its ALLL in the Form 10-Q for the period ended June 30, 2002, Comerica 
+materially overstated its income before income taxes by $35 million and diluted net income per 
+share by $0.13. In percentage terms, Comerica ov erstated its income before income taxes and 
+diluted net income per share by 14.8% and 14.4%, respectively.   
+In addition to the above reporting requirements, Item 303 of Regulation S-K requires a 
+registrant to describe in the MD&A section of the Form 10-Q any known uncertainties that it 
+reasonably expects will have a materially unfavorable impact on revenues or income from 
+continuing operations. Comerica failed to comply with the disclosure requirements contained in 
+Item 303 by failing to disclose in the MD&A section of its Form 10-Q for the period ended June 
+30, 2002 the known uncertainty associated with Comerica Bank-California’s increased risk profile 
+(specifically, the deteriorating trend of the subsidiary bank’s loan portfolio), which should have 
+been expected by Comerica to have a materially unfavorable impact on income.
+3 
+Furthermore, Exchange Act Rule 12b-20 provides: “In addition to the information 
+expressly required to be included in a statement or report, there shall be added such further 
+material information, if any, as may be necessary to make the required statements, in light of the 
+circumstances under which they are made not misleading.”  Comerica failed to comply with this 
+rule by failing to add material information necessary to make the financial statements included in 
+its Form 10-Q for the period ended June 30, 2002 not misleading. 
+Accordingly, Comerica violated Section 13(a) of the Exchange Act and Exchange Act 
+Rules 12b-20 and 13a-13.   
+2. Violations of the Recordkeeping Provisions of the Exchange Act 
+Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, 
+and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and 
+This Order does not address whether Comerica, as a bank holding company supervised 
+and regulated by the Federal Reserve Board, was required by Item 303 to disclose “confidential 
+supervisory information” as defined in 12 CFR § 261.2(c).  The Commission understands that 
+the Board considers documentation obtained from financial institutions during the course of 
+examinations or inspections, as well as examiner workpapers, memoranda, and reports of 
+examination or inspection, to be confidential supervisory information, and that it is the Board's 
+practice to protect confidential supervisory information from disclosure to third parties to the 
+greatest extent possible consistent with applicable law and the public interest.  See, e.g., SR 97­
+17 (SUP) (June 6, 1997) (Access to Books and Records of Financial Institutions During 
+Examinations and Inspections).   
+7
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+dispositions of the assets of the issuer. Comerica’s filing of an inaccurate Form 10-Q on August 
+12, 2002 evidenced a failure to maintain books and records that accurately and fairly reflected the 
+ALLL, income before income taxes, and diluted net income per share figures for the period ended 
+June 30, 2002. Accordingly, Comerica violated Section 13(b)(2)(A) of the Exchange Act. 
+3. Violations of the Internal Controls Provisions of the Exchange Act 
+Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system 
+of internal controls sufficient to provide reasonable assurances that, among other things, 
+transactions are recorded as necessary to permit preparation of financial statements in conformity  
+with GAAP and to maintain the accountability of assets.  Pursuant to SAB 102, a registrant is 
+expected to maintain documentation of the rationale supporting each period’s determination that 
+the reported ALLL figures were adequate.  A financial institution is expected to maintain 
+documentation supporting its ALLL policies and procedures, the loan grading system or process, 
+the summary or consolidation of the ALLL balance, the validation of the ALLL methodology, and 
+the periodic adjustments to the ALLL process.  See SAB 102. 
+Comerica failed to adequately document the underlying rationale for making adjustments to 
+the ALLL. Moreover, Comerica did not maintain documentation that linked the components of the 
+loan review process to the final ALLL reported in the financial statements.  As a consequence of 
+these practices, Comerica recorded its June 30, 2002 ALLL, income before income taxes, and 
+diluted net income per share in a manner that was not in conformity with GAAP.  Based on the 
+foregoing conduct, Comerica 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 Comerica’s Offer. 
+8
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+Accordingly, it is hereby ORDERED that:
+ Respondent Comerica cease and desist from committing or causing any violations and any 
+future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 
+12b-20 and 13a-13 thereunder.   
+ 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-2280.txt b/raw/aaer/2005/AAER-2280.txt
new file mode 100644
index 0000000000000000000000000000000000000000..88f90e4cbbe36f33ca83d07bf7facd053552f395
--- /dev/null
+++ b/raw/aaer/2005/AAER-2280.txt
@@ -0,0 +1,1381 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19309 / July 25, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2280 / July 25, 2005 
+
+  Securities and Exchange Commission v. Glenn E. Glasshagel,  Civil Action No. 05-61159-CIV-COOKE (S. D. Fla., filed July 15, 2005) 
+
+ The Securities and Exchange Commission (SEC) announced that on July 15, 2005, it filed civil fraud charges against Glenn E. Glasshagel, the former Chief Financial Officer of Roadhouse Grill, Inc., a Pompano Beach, Florida restaurant chain.  The SEC's complaint, which alleges that Glasshagel orchestrated a scheme to manipulate Roadhouse Grill's earnings between 1999 and 2000, seeks injunctive relief, disgorgement plus prejudgment interest, civil money penalties, and an officer and director bar. 
+ According to the SEC's Complaint, during Roadhouse Grill's 1999 and 2000 fiscal years, Glasshagel implemented various accounting schemes designed to artificially inflate Roadhouse Grill's reported pre-tax earnings in order to meet the expectations of the one Wall Street analyst that covered the company.  The Complaint alleges, for example, that Glasshagel caused Roadhouse Grill to inflate its earnings by understating various accrual accounts.  Accrual accounts contain provisions for anticipated expenses that companies expect to incur within a fiscal year.  According to the Commission's Complaint, at the end of certain periods during the 1999 and 2000 fiscal years, Glasshagel made improper reductions in these accrual accounts in order to improve Roadhouse Grill's earnings.   
+ The Complaint also alleges that Glasshagel caused Roadhouse Grill to overstate its fiscal 2000 net income by recording a non-existent rebate receivable from one of the company's suppliers.  According to the Commission's Complaint, this rebate never existed and Roadhouse Grill never received it.  Based on these various improper entries, the Commission's Complaint alleges that Glasshagel caused Roadhouse Grill to overstate its fiscal 1999 net income by 5% and its fiscal 2000 net income by 35%.  In both of those fiscal years, Roadhouse Grill met the expectations set by the Wall Street analyst that covered the company. 
+ After Glasshagel resigned from Roadhouse Grill in July 2000, the company's new management discovered his misconduct.   On August 1, 2001, Roadhouse Grill issued a press release announcing that it had overstated its net income during its fiscal years ended 1999 and 2000 and the intervening quarterly periods, and that it would be restating its prior financial results.   
+ The SEC's Complaint alleges that, as a result of Glasshagel's conduct, he violated 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 that he aided and abetted Roadhouse Grill'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.    
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diff --git a/raw/aaer/2005/AAER-2281.txt b/raw/aaer/2005/AAER-2281.txt
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@@ -0,0 +1,1393 @@
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+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19310 / July 26, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2281 / July 26, 2005 
+
+  Securities and Exchange Commission v. Gary K. Bennett,  United States District Court for the District of Columbia, Civil Action No. 1:05CV 01464 (GK) 
+
+  Securities and Exchange Commission v. Bernard J. Demko,  United States District Court for the District of Columbia, Civil Action No. 1:05CV 01465 (CKK) 
+
+ SEC FILES SETTLED ENFORCEMENT ACTIONS AGAINST GARY K. BENNETT, BERNARD J. DEMKO AND MICHAEL J. CHESHIRE 
+
+ The Securities and Exchange Commission today announced the filing of complaints in the United States District Court for the District of Columbia against Gary K. Bennett and Bernard J. Demko.  The Commission charged Bennett and Demko with violating the antifraud provisions of the federal securities laws for engaging in misconduct that led Gerber Scientific, Inc. to improperly exclude a $1.5 million charge from its financial results when the company filed its Form 10-K for the fiscal year ended April 30, 2000.  At the time, Bennett was the company's Chief Financial Officer and Demko was its Controller.  Bennett was also charged with improperly maintaining and using certain corporate reserves in 1998 and 1999. 
+ The complaints allege that in June 2000, while Gerber was finalizing its annual report on Form 10-K for fiscal year 2000, Bennett and Demko learned that, due to a clerical error, the company had failed to record approximately $1.5 million of a required $6 million inventory write-down.  Instead of correcting the mistake, the company went ahead and filed its Form 10-K, which contained materially inaccurate financial statements and related disclosures.  Then, without disclosure, Bennett and Demko sought to eliminate the error by improperly amortizing the $1.5 million charge over the next four fiscal quarters.  As a result, Gerber's reported earnings for the fourth quarter of fiscal 2000 were overstated by 100% and reported earnings for the year were overstated by 3.5%.  According to the complaint, after discovering the $1.5 million error, Bennett also failed to correct a press release, dated May 25, 2000, that he knew or was reckless in not knowing was materially inaccurate, and he signed a subsequent events letter to the company's auditor that omitted any reference to the error.  
+ With respect to the improper corporate reserves, the complaint alleges that Bennett approved the maintenance and use of corporate-level reserves for which there was no specific contingency.  He also approved the establishment and use of a reserve set up in connection with Gerber's sale of a subsidiary for which there was insufficient support.  The use of the corporate-level reserves resulted in overstatements of net earnings in both 1998 and 1999, and the use of the reserve relating to the subsidiary sale in 1999 resulted in an increase in Gerber's reported income for that year. 
+ Without admitting or denying the Commission's allegations, Bennett and Demko consented to the entry of final judgments that permanently enjoin them from violating or aiding and abetting violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b 20, 13a 1 and 13a 13 thereunder.  Bennett also consented to be enjoined from violating Exchange Act Rule 13b2-2 and to be barred from serving as an officer or director of a public company for five years.  In addition, Bennett and Demko each agreed to pay a civil penalty of $25,000.  The final judgments are subject to Court approval. 
+ In a related enforcement action announced today, the Commission instituted a settled cease-and-desist proceeding against Michael J. Cheshire, who was Gerber's Chief Executive Officer during the relevant time.  Cheshire consented to the issuance of the order instituting proceedings without admitting or denying the findings therein, including findings that he was a cause of Gerber's reporting violations.  He was ordered to cease and desist from committing or causing violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.  (Rel. No. 34-52126: File No. 3-11990). 
+ The Commission previously issued a settled cease-and-desist order against Gerber relating to the same issues.  In the Matter of Gerber Scientific, Inc., Exchange Act Release No. 49541 (April 8, 2004). 
+
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+   SEC Complaint in this matter  (Gary K. Bennett) 
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+   SEC Complaint in this matter  (Bernard J. Demko) 
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diff --git a/raw/aaer/2005/AAER-2282.txt b/raw/aaer/2005/AAER-2282.txt
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+ 
+ 
+ 
+  
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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. 52126 / July 26, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2282 / July 26, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-11990 
+:  ORDER INSTITUTING CEASE-AND- 
+In the Matter of :  DESIST PROCEEDINGS, MAKING
+ :  F I N D I N G S , AND IMPOSING A CEASE- 
+MICHAEL J. CHESHIRE : AND-DESIST ORDER PURSUANT TO 
+:  S E C T I O N 2 1 C O F T H E S E C U R I T I E S 
+Respondent. :  EXCHANGE ACT OF 1934 
+: 
+: 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Michael J. Cheshire (“Cheshire” or 
+“Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement of Michael J. Cheshire (“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 as follows: 
+RESPONDENT 
+Cheshire, age 56, was the president and chief operating officer of Gerber Scientific, Inc. 
+from February 1997 to September 1998 and chief executive officer and Chairman of the Board of 
+Directors from September 1998 until November 2001.  Mr. Cheshire resides in Farmington, 
+Connecticut. 
+RELEVANT ENTITY 
+Gerber Scientific, Inc. (“Gerber” or “Company”), a Connecticut corporation with its 
+headquarters in South Windsor, Connecticut, at all relevant times, was a provider of sign making 
+and specialty graphics, apparel and flexible materials, and ophthalmic lens processing goods and 
+services. During those times, Gerber conducted its business primarily through four subsidiaries:  
+Gerber Scientific Products, Inc. (“GSP”); Spandex PLC; Gerber Technology, Inc.; and Gerber 
+Coburn Optical, Inc. (“Gerber Coburn”).  Gerber uses a fiscal year that ends on April 30.  Its 
+common stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act 
+and is listed on the New York Stock Exchange. 
+SUMMARY
+    While Gerber was preparing its annual report on Form 10-K for fiscal year 2000, 
+Cheshire learned that, due to a clerical error, the Company had failed to record approximately 
+$1.5 million of a $6.2 million decrease in the value of the inventory of the Company’s GSP 
+subsidiary for the fourth quarter. Notwithstanding this information, the Company did not 
+disclose this mistake by correcting its previously issued press release reporting earnings for the 
+quarter and year ended April 30, 2000, and then filed its annual report on Form 10-K with 
+materially inaccurate financial statements and related disclosures.  Had Gerber correctly 
+recorded the entire $6.2 million in the fourth quarter of 2000, its reported net earnings would 
+have been $725,000 or $0.04 per share for the quarter and $24.9 million or $1.12 per share for 
+the year. Instead, Gerber erroneously reported net earnings of $1.7 million, or $0.08 per share, 
+for the quarter, and net earnings of $25.875 million, or $1.16 per share, for the year.  Cheshire 
+knew or should have known of the inaccuracies but nonetheless signed the Form 10-K.  Due to 
+his actions, Cheshire was a cause of Gerber’s violation of Section 13(a) of the Exchange Act and 
+Exchange Act Rules 12b-20 and 13a-1 resulting from the materially inaccurate financial 
+1 The findings herein are made pursuant to Respondent's Offer and are not binding on any 
+other person or entity in this or any other proceeding. 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+                                                 
+statements and disclosures that the Company included in its Form 10-K for fiscal year 2000 as a 
+result of the failure to record the $1.5 million.    
+FACTS 
+By late February 2000, Cheshire had been informed of a large discrepancy between the 
+estimated value of GSP’s physical inventory and the value of that inventory reflected on the 
+Company’s books.  As a result, Cheshire ordered an expanded annual review of GSP’s 
+inventory. The review was be gun by GSP personnel and then completed by a special internal 
+audit team formed to determine the precise amount of the discrepancy.  By no later than April 
+25, 2000, the special audit team informed Cheshire that GSP’s inventory was overstated by 
+approximately $6 million. 
+On April 26, 2000, Gerber issued a press release disclosing that it would record a charge 
+of approximately $6 million to write down the value of GSP’s inventory.  The Company reported 
+that it expected that the charge would equal $.17 per share and that, before any restructuring 
+charges, it expected earnings for the fourth quarter of fiscal year 2000 to be reduced to $.08 to 
+$.12 per share and earnings for the year to be $1.16 to $1.20 per share. 
+By early May 2000, the special audit team informed Cheshire that the exact amount of 
+the overstatement of GSP’s inventory was $6.2 million.  On May 25, 2000, Gerber issued a press 
+release announcing its results for the fourth quarter and year ended April 30, 2000.  Gerber 
+reported net earnings of $1.7 million, or $.08 per share, for the quarter and net earnings of $25.9 
+million, or $1.16 per share, for the year.  Gerber announced that the write-down equaled $.18 per 
+share, gave the write-down as one of two principal reasons why its earnings for the quarter were 
+lower than the prior year’s fourth quarter earnings, and stated that, without the write-down, per 
+share earnings for the year would have been $1.34 and thus would have exceeded the prior year’s 
+earnings of $1.29 per share. 
+During GSP’s budgeting process in June 2000, GSP management discovered that the 
+Company actually had recorded only $4.7 million of the $6.2 million charge for the inventory 
+overstatement.  In late June 2000, Cheshire was informed of the $1.5 million error.  In early July 
+2000, Cheshire discussed how to handle the error with Gerber’s chief financial officer and 
+controller. 
+Notwithstanding the discovery of the failure to record $1.5 million of the $6.2 million 
+charge, the Company, on July 27, 2000, filed its annual report on Form 10-K for 2000 that 
+reported the same results that the Company had announced in its May 25, 2000, press release.
+2 
+In addition, in footnotes to the financial statements and other disclosures in the Form 10-K, the 
+Company misrepresented that it had recorded the entire $6.2 million charge.  Had Gerber 
+recorded the entire $6.2 million in the fourth quarter of fiscal year 2000, reported net earnings 
+would have been $725,000, or $.04 per share, for the quarter and $24.9 million, or $1.12 per 
+2 The Company also did not correct the May 25, 2000, press release. 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+ 
+ 
+share, for the year.  Even though he was aware of the $1.5 million error, Cheshire signed the 
+Form 10-K with the inaccurate financial statements and disclosures that resulted from the failure 
+to record the entire $6.2 million charge.3 
+DISCUSSION 
+Section 13(a) of the Exchange Act requires issuers of registered securities to file periodic 
+reports with the Commission containing information prescribed by specific Commission rules.  
+Rule 13a-1 requires the filing of annual reports on Form 10-K.  Rule 12b-20 requires, in addition 
+to information required by Commission rules to be included in periodic reports, such further 
+material information as may be necessary to make the required statements not misleading.  These 
+reports are required to be complete and accurate.  See SEC v. Savoy Industries, Inc., 587 F.2d 
+1149, 1165 (D.C. Cir. 1978). 
+As a result of its failure to record the $1.5 million error in the fourth quarter of fiscal year 
+2000, Gerber violated Section 13(a) of the Exchange Act and Exchange Act Rules 12b-20 and  
+13a-1.
+4  In its annual report on Form 10-K for 2000, the Company misstated its earnings for both 
+the fourth quarter and the year.  In addition, the Company misrepresented that it had recorded the 
+entire $6.2 million charge when, in fact, it had recorded only $4.7 million. 
+Cheshire knew or should have known that, as a result of the failure to record the $1.5 
+million, reported earnings and other disclosures in the Form 10-K were inaccurate.  By then 
+signing the Form 10-K, Cheshire was a cause of Gerber’s violation of Section 13(a) of the 
+Exchange Act and Exchange Act Rules 12b-20 and 13a-1. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+specified in Respondent Michael J. Cheshire’s Offer. 
+3 On August 27, 2002, Gerber filed its annual report on Form 10-K for its fiscal year ended April 
+30, 2002. In that Form 10-K, Gerber included restat ed financial statements for its fiscal years 
+ended April 30, 2000, and April 30, 2001, and for the seven quarters ended January 31, 2002.  It 
+also restated its retained earnings as of April 30, 1999.  Among other things, the Company 
+included a restatement for its failure to record the $1.5 million in the fourth quarter of fiscal year 
+2000. 
+4 The Commission previously issued an 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 finding that Gerber violated, among other provisions, Section 13(a) of the 
+Exchange Act and Exchange Act Rules 12b-20 and 13a-1. See Gerber Scientific, Inc., Exchange 
+Act Release No. 49541 (Apr. 8, 2004). Gerber consen ted to the issuance of the order without 
+admitting or denying the findings other than those as to jurisdiction.  Id. 
+4
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ACCORDINGLY, IT IS ORDERED THAT, pursuant to Section 21C of the Exchange 
+Act, Michael J. Cheshire cease and desist from causing any violations and any future violations of 
+Section 13(a) of the Exchange Act and Exchange Act Rules 12b-20 and 13a-1. 
+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
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+
+
+ 
+ 
+   
+     
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+ 
+ 
+
+     
+     
+     SEC.gov | Joseph P. Nacchio, Robert S. Woodruff, Robin R. Szeliga, Afshin Mohebbi, Gregory M. Casey, James J. Koslowski and Frank T. Noyes 
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+              Joseph P. Nacchio, Robert S. Woodruff, Robin R. Szeliga, Afshin Mohebbi, Gregory M. Casey, James J. Koslowski and Frank T. Noyes
+           
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+        Joseph P. Nacchio, Robert S. Woodruff, Robin R. Szeliga, Afshin Mohebbi, Gregory M. Casey, James J. Koslowski and Frank T. Noyes
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19313 / July 26, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2283 / July 26, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. JOSEPH P. NACCHIO, ROBERT S. WOODRUFF, ROBIN R. SZELIGA, AFSHIN MOHEBBI, GREGORY M. CASEY, JAMES J. KOSLOWSKI AND FRANK T. NOYES,  Civ. No. 05-MK-480 (OES) (USDC D. Colorado). 
+
+ SEC SETTLES WITH FORMER QWEST EXECUTIVE VICE PRESIDENT 
+
+ The Securities and Exchange Commission today settled its claims against Gregory M. Casey, a resident of Houston, Texas, and a former executive vice president of Qwest Communications International Inc. ("Qwest").  Casey, without admitting or denying the Commission's claims, consented to the entry of a judgment dismissing the claims against him for primary liability pursuant to 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 thereunder; enjoining him from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; directing him to pay $1,390,344 of disgorgement, plus $456,481 of prejudgment interest, and a $250,000 civil penalty; and prohibiting him from acting as an officer or director of any public company for five years.  
+ According to the SEC's Complaint, filed in the United States District Court for the District of Colorado in March 2005, Casey's actions in several indefeasible rights of use ("IRUs") transactions were part of a scheme by Qwest to inflate revenue and earnings artificially.  Specifically, Casey provided, or knew others provided, secret side agreements to IRU customers allowing those customers to exchange, or "port," the capacity purchased for different capacity.  The purpose of the secret side agreements was to conceal from Qwest's accountants and auditors the purchasers' ability to port, as such exchange rights would have defeated, under GAAP, the immediate recognition of revenue.  Additionally, Casey participated in backdating IRU agreements to demonstrate falsely that the agreements were completed by the end of the quarter as required by GAAP to recognize revenue in that quarter.  Finally, to close IRU sales, Casey caused Qwest to purchase capacity Qwest did not need.  Under GAAP, Qwest should not have recognized revenue where there was no legitimate business need for the IRU assets received. 
+
+ Related Actions 
+ In March 2005, the Commission filed a civil action against Joseph Nacchio, Robert Woodruff, Robin Szeliga, Afshin Mohebbi, Casey, James Kozlowski, and Frank Noyes (Litigation Release No. 19136). 
+ In March 2005, the Commission filed a settled civil injunctive action against Roger B. Hoaglund, a former Qwest senior vice president (Litigation Release No. 19136).  
+ In March 2005, the Commission filed a settled civil injunction action against William L. Eveleth, a former Qwest vice president of finance (Litigation Release No. 19136). 
+ In March 2005, the Commission instituted settled cease-and-desist proceedings and filed related civil actions for penalties against Mark A. Schumacher and Brian K. Treadway, former controllers at Qwest (Litigation Release Nos. 19134 and 19135; Sec. Exch. Act. Rel. Nos. 34-51373 and 34-51375). 
+ In March 2005, the Commission instituted settled cease-and-desist proceedings against Jennifer J. Black, a former director of finance at Qwest (Sec. Exch. Act. Rel. No. 34-51374). 
+ In October 2004, the Commission filed a settled civil action against Qwest Communications International Inc. (Litigation Release No. 18936). 
+ In July 2004, the Commission filed a civil injunctive action against Michael Felicissimo, the former CFO of Qwest's wireless division (Litigation Release No. 18800). 
+ In June 2004, the Commission instituted settled cease-and-desist proceedings and filed related civil actions for penalties against Augustine M. Cruciotti, a former Qwest executive vice president, and Steven L. Haggerty, a former Qwest senior vice president (Litigation Release Nos. 18754 and 18755). 
+ In September 2003, the Commission instituted and settled cease-and-desist proceedings and filed a related civil action for penalties against Loren D. Pfau, a former Qwest sales manager (Litigation Release No. 18374). 
+ In February 2003, the Commission filed a civil injunctive action against former Qwest officers Joel M. Arnold, William L. Eveleth, Grant Graham, Thomas W. Hall, Douglas K. Hutchins, Bryan K. Treadway, John M. Walker, and Richard L. Weston (Litigation Release No. 17996). 
+
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diff --git a/raw/aaer/2005/AAER-2285.txt b/raw/aaer/2005/AAER-2285.txt
new file mode 100644
index 0000000000000000000000000000000000000000..1be7a49bbb57e5d0cb6158392e7fa72214bdab01
--- /dev/null
+++ b/raw/aaer/2005/AAER-2285.txt
@@ -0,0 +1,982 @@
+ 
+ 
+ 
+ 
+ 
+               
+ 
+ 
+   
+  
+   
+      
+      
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+ 
+ 
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+ 
+ 
+ 
+ 
+ 
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 8596 / July 28, 2005 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52159 / July 28, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2285 / July 28, 2005 
+Administrative Proceeding 
+File No. 3-11996 
+: ORDER INSTITUTING CEASE-AND- 
+In the Matter of : DESIST PROCEEDINGS PURSUANT 
+: TO SECTION 8A OF THE SECURITIES 
+Microtune, Inc., William L. Housley, : ACT OF 1933 AND SECTION 21C OF      
+Jeffrey W. Davis, and Everett Rogers, : THE SECURITIES EXCHANGE ACT 
+: OF 1934, MAKING FINDINGS AND 
+Respondents. : IMPOSING REMEDIAL SANCTIONS 
+: AND A CEASE-AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 
+1933 (the “Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (the “Exchange 
+Act”) against Microtune, Inc. (“Microtune” or the “company”), William L. Housley, Jeffrey W. 
+Davis and Everett Rogers. 
+II. 
+In anticipation of the institution of these proceedings, Microtune, Housley, Davis and Rogers 
+have submitted Offers of Settlement (“Offers”) that the Commission has determined to accept. 
+Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+contained herein, except that Microtune, Hous ley, Davis and Rogers admit the Commission’s 
+jurisdiction over them and over the subject matter of these proceedings, Microtune, Housley, Davis 
+and Rogers consent to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+     
+ 
+ 
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+Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, 
+Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order. 
+III. 
+FINDINGS
+ 
+The Commission makes the following findings1: 
+A. RESPONDENTS 
+Microtune, a Delaware corporation headquartered in Plano, Texas, develops and sells 
+integrated radio frequency-based products for the broadband and automotive markets.  Microtune’s 
+common stock is registered with the Commission under Section 12(g) of the Exchange Act and is 
+traded on the NASDAQ National Market.2 
+Housley, age 49, is a resident of Tempe, Arizona.  Housley joined Microtune in April 2001 
+as its vice president of marketing and sales.  In that capacity, Housley was responsible for directing 
+Microtune’s marketing strategies and managing the sales force and customer service department. 
+Housley became Microtune’s chief operating officer (“COO”) in August 2001 and its president in 
+December 2001, before his termination in April 2003.  During 2001 and 2002, Housley exercised 
+options upon 39,319 shares of Microtune common stock and sold 29,444 of those shares for a net 
+profit of approximately $288,000. 
+Rogers, age 48, is a resident of Vincennes, Indiana.  Rogers joined Microtune in 1998 and 
+became its chief financial officer (“CFO”) in January 2000.  Rogers signed Microtune’s Form 10-Q 
+for the third quarter of 2001, 2001 Form 10-K, and Form 10-Q for the first quarter of 2002.  Rogers 
+has never been a licensed CPA and had no CFO experience prior to his employment at Microtune. 
+Rogers served as CFO until July 2002, when Microtune’s board of directors reassigned him to vice 
+president of investor relations; Rogers resigned three months later.   
+Davis, age 45, is a resident of Prosper, Texas.  Davis joined Microtune in September 2001 as 
+vice president of worldwide sales and marketing and was later promoted to executive vice president 
+of worldwide sales and marketing in Janua ry 2002.  Following his promotion, Davis, under 
+Housley’s supervision, assumed responsibility for the Microtune sales force and the customer 
+service department, which processed customer orders.  Davis left Microtune in August 2003. 
+1 The findings herein are made pursuant to Respondents’ Offers and are not binding on any other person or entity 
+in these or any other proceedings. 
+2 For approximately ten months between July 2003 and April 2004, Microtune’s common stock was quoted on 
+the “pink sheets,” after it was delisted by NASDAQ for Microt une’s failure to file timely with the Commission its 
+periodic reports.  However, during the course of the scheme discussed herein, Microtune’s common stock traded on the 
+NASDAQ National Market. 
+2
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+ 
+B. FACTS 
+1. Background 
+Microtune, formed in 1996, was a typical “high tech” start-up company employing a 
+preponderance of engineers focused on resear ch and development.  From 1996 through 2001, 
+Microtune experienced rapid growth through multiple acquisitions, an initial public offering, and 
+a registered follow-on offering. As the compa ny grew, various departments such as accounting, 
+customer service, manufacturing, and sales were  established at its Plano headquarters. 
+Microtune had no revenues prior to its Ja nuary 2000 acquisition of Temic Telefunken 
+Hochfrequenztechnik GmbH (“Temic”), a German supplier of radio frequency-based products. 
+In late 2001, Microtune continued its rapid growth by acquiring a wireless company and 
+completing a $109 million registered offering.  
+2. Housley’s Arrival at Microtune 
+Prior to Housley’s arrival at Microtune in  April 2001, substantially all of Microtune’s 
+revenues were derived from sales to end-users of the company’s products.  In April 2001, Housley 
+and others realized that the customer sales forecasted for the second half of 2001 would not match 
+quarterly revenue projections of 5-10% consecutive year, same-quarter growth.  This shortfall was 
+due to a depressed business environment in the semiconductor sector, exacerbated by the events of 
+September 11, 2001.  Instead of reducing its revenue  projections, Microtune modified its sales 
+strategy by emphasizing sales to distributors, which generally purchase and stock large quantities of 
+product for eventual resale to end-use customers.  As discussed below, Housley used various 
+incentives to entice distributors (and, in some instances, end-use customers) to place large orders or 
+accept large shipments of product for Microtune to meet the company’s revenue forecasts.   
+By means of the scheme described herein, Microtune met or exceeded the second, third, and 
+fourth quarter revenue projections in 2001. Fo llowing Microtune’s successful acquisition of a 
+wireless company (“Transilica”) and its registered offering in the fourth quarter of 2001, Microtune 
+published even more aggressive revenue projections for 2002, relying heavily on anticipated 
+revenues from its newly acquired, yet unproven, wireless company.  In order to meet the projections, 
+Microtune expanded the scheme in 2002.  Microtune met its quarterly revenue projections for the 
+first half of 2002; in the third quarter of 2002, however, Microtune missed its revenue projection, 
+and the scheme began to unravel. 
+3. The Elements of Microtune’s Revenue-Inflation Scheme
+ a. Sales Concessions 
+In order to meet revenue projections, Housley and Davis granted sales concessions to 
+Microtune’s customers and distributors to indu ce them to issue purchase orders (“POs”) for 
+quantities of product exceeding their inventory needs and current demands.  The concessions took 
+various forms: price protection, expanded rights of return and extended payment terms.  They were 
+conveyed to customers and distributors orally, by e-mail, and through side agreements; as a result of 
+3
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+the concessions, Microtune was precluded, pursuant to Generally Accepted Accounting Principles 
+(“GAAP”), from immediately recognizing revenue from the sales.  As discussed more fully below, 
+Housley and Davis did not disclose many of the concessions to Microtune’s accounting department 
+and its outside auditors; in a few instances the concessions appeared on POs from customers or 
+distributors, but were not detected by the accounting department due to the company’s poor internal 
+controls. 
+Housley knew or was reckless in not knowing and Davis knew or should have known that 
+the undisclosed concessions could be improper: in December 2001, the company’s controller 
+outlined to Housley and Davis how sales concessions such as rights of return, stock rotation rights, 
+price protection, “flexible” payment terms and extended payment terms in some circumstances can 
+preclude revenue recognition under GAAP. The cont roller also emphasized the importance of his 
+reviewing all distributor agreements before execution to avoid accounting issues that could cause 
+“surprising negative consequences to revenue after the fact.”  Housley and Davis failed to follow the 
+controller’s accounting advice. In many cases, Housley knew or was reckless in not knowing and 
+Davis knew or should have known that revenue recognition could be negated if they granted the 
+sales concessions; in other instances, they discove red after the fact that the concessions were 
+improper for purposes of recognizing revenue from the sales.  In both cases, there were occasions 
+when Microtune’s accounting department was not notified of the concessions and the revenue was 
+improperly recognized. 
+(1) Price Protection 
+Price protection was offered as a concession to Microtune’s distributors, sometimes to 
+guarantee that the distributor would earn a minimum profit upon resale of a product, and other 
+times to guarantee that the distributor would not lose money upon resale.
+3  The mechanism for 
+making good on the guarantees was a “price protec tion credit” payable by Microtune to the 
+distributor upon the distributor’s resale of th e goods.  The payment of the credit, at times, 
+occurred many quarters after the underlying sale of Microtune’s product to the distributor. 
+While price protection arrangements are not per se improper, Microtune recognized revenue 
+from sales subject to price protection when  it should not have under GAAP.  GAAP precludes 
+recognizing revenue from a sale of goods until it is realized or realizable and earned.  See 
+Statement of Financial Accounti ng Concepts No. 5 (“CON 5”); see also SEC Staff Accounting 
+Bulletin No. 101 (“SAB 101”). Under GAAP, if a company can reasonably and reliably estimate 
+the amount of price protection expos ure at the time of the sale, the sale (net of an allowance for 
+the price protection credit expected to be paid) can be recognized as revenue. 4  But if price 
+3 In either instance, price protection effectively reduced Microtune’s aggregate sales price and should have, under 
+GAAP, reduced its revenue from the underlying sale.   
+4 For example, assume a company sold a product for $100 to a distributor subject to price protection.  If the 
+company can reasonably and reliably estimate its price protection exposure (for example, by establishing a minimum 
+price for the distributor’s resale), then the company can record the sale as revenue net of a price protection allowance.  In 
+this example, if the company established a $95 resale price, then the company can properly record $95 as revenue at the 
+time of shipment and a $5 price protection allowance. 
+4
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+protection exposure cannot be reasonably and relia bly estimated, all revenue must be deferred 
+until such estimate can be made or the price protection period ends ( i.e., the distributor sells the 
+product to its end customer).     
+Because Microtune did not establish a minimum price at which distributors were required 
+to resell their product, the company had no way of predicting price protection exposure until a 
+distributor actually sold the product to its e nd customer.  Therefore, Microtune could not 
+estimate an allowance for price protection and should have deferred all revenue from sales 
+subject to price protection. Instead, Microtune recognized 100 percent of the revenue at the time 
+the product was shipped to distributors – in violation of GAAP. 
+(2) Expanded Rights of Return 
+Another form of sales concession involved expanded rights of return.  Housley and Davis 
+at times agreed to excessive stock rotation for Microtune products that remained unsold in a 
+distributor’s inventory for as long as one year after initial delivery of the product. 5  Moreover, 
+Housley granted broad return rights with no requi rement that the distributor buy an offsetting 
+amount of Microtune products.  Under Statemen t of Financial Accounting Standards No. 48 
+(“SFAS 48”), the revenue from a sale with a right of return cannot be recognized if, among other 
+things, the buyer has not paid the seller and has no obligation to pay until the product is resold. 
+Because Housley granted return rights to customers and distributors who had not paid for the 
+products and had no obligation to pay until th ey sold the products, Microtune’s upfront 
+recognition of revenue was improper.  Such expa nded rights of return were not disclosed to 
+Microtune’s accounting department or to its outside auditors.  
+(3) Extended Payment Terms 
+The final type of sales concession granted by Microtune was extended payment terms. 
+Pursuant to Microtune’s credit policy, payment wa s required within 30 days, or, alternatively, a 
+letter of credit for the full amount owed was required.  Housley and Davis, however, made 
+exceptions to this policy, granting 60-180 day payment terms.  Housley even gave extensions of 
+these outlying due dates. At other times, Hous ley and Davis granted “flexible” payment terms, 
+where the distributor was expected to pay Microtune only after the distributor sold the product to 
+an end customer – whenever that occurred.  Sales made contingent upon the resale of the product 
+to an end-user clearly do not support recognition of revenue under GAAP.  See SFAS 48; CON 
+5. In addition, SAB 101 requires reasonable assura nce of collectibility before revenue can be 
+recognized from a sale.  By recognizing reve nue from orders that included extended and 
+“flexible” payment terms, where the ultimate pa yment for the product was uncertain, Microtune 
+did not comply with GAAP.  
+Two of Microtune’s distributor agreements provided for limited rights of return, called “stock rotation rights.” 
+Under this provision, Microtune’s distributors could return up to 15% of the Microtune products they purchased over the 
+prior six-month period, so long as th ey submitted a PO for an amount of re placement product exactly offsetting the 
+returned amount.  Housley, however, routinely made exceptions to this express contractual requirement, granting stock 
+rotation rights with terms more liberal than those specified in the distributor agreements.   
+5 
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+ 
+b. Overshipments of Product 
+To meet Microtune’s rising revenue projections, Housley authorized “channel-stuffing”; 
+that is, he directed that Microtune product be shipped to customers and distributors in amounts 
+greater than the amounts specified in their POs.  Upon receipt of the overshipment, the customers 
+typically insisted upon returning the excess produc t.  However, after Housley granted them 
+various sales concessions, which in most cases  would have precluded revenue recognition under 
+GAAP, the recipients typically agreed to retain  the excess product.  In some instances, at 
+Housley’s request, they agreed to submit re vised POs matching the overshipped quantities. 
+Microtune improperly recorded the revenue from the overshipments. 
+c. Inadequate Internal Controls 
+Microtune’s fraudulent revenue-inflation scheme went undetected because Microtune had 
+inadequate internal controls over its revenue recognition. 6  This was due, in large part, to 
+Microtune’s order entry process, which was flawed.  Customers and distributors typically submitted 
+POs by facsimile to Microtune’s customer service department – an arm of its sales department 
+reporting to Housley and Davis. Customer serv ice personnel then reviewed the PO and entered 
+information from the PO into Microtune’s computerized order system.  After the PO information 
+was entered, the shipping department prepared th e product for shipment.  Upon shipment of the 
+product, the accounting department created an invoice and recorded the revenue.   
+Unfortunately, the customer service personnel, lacking proper training and supervision, 
+failed to identify sales concessions, such as price protection, rights of return, and extended payment 
+terms, in those instances where the concessions were actually set forth in writing on POs they 
+processed. (In other instances, the concessions were strictly oral, and did not appear on the POs.) As 
+a consequence, they routinely entered POs in to the order system without recording the 
+accompanying sales concessions.  Because the concessions were not entered into the order system, 
+they did not come to the attention of the accounting department, which processed the invoices. 
+Compounding the problem, when Microtune’s accounting department performed occasional reviews 
+of invoices, the relevant POs, which may have s hown the concessions, were not attached to the 
+invoices. Consequently, the accounting department, unaware of the existence of many of the sales 
+concessions, remained unaware of the existence of revenue recognition issues.   
+Rogers, as CFO, was chiefly responsible for Mi crotune’s inadequate internal controls and 
+procedures. He established or approved the flawed  order entry system, in which customer service 
+personnel, untrained in accounting, were responsible for identifying and entering the relevant sales 
+terms into Microtune’s accounting system.  Rogers also ignored the concerns of Microtune’s outside 
+auditors about the process. For example, the auditors alerted Microtune’s management in January 
+2002 that, in response to Microtune’s increasing reliance on sales to distributors, the company 
+Following the January 2000 Temic ac quisition, Microtune struggled to integrate Temic’s Germany and Far 
+East-based accounting and customer service functions with the company’s Plano-based accounting and customer service 
+departments. A substantial number of POs from foreign customers and distributors were processed overseas – until the 
+accounting and customer service departments were centralized in Plano in July 2002.   
+6 
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+needed to strengthen its revenue recognition cont rols.  The auditors suggested that Microtune 
+employ a revenue recognition checklist, which included obtaining all signed POs from the 
+customer, documentation of title transfer, and documentation of rights of return.  Rogers, 
+however, took no steps to implement the auditors ’ suggestions, leaving the order entry process 
+uncorrected. 
+Rogers’s lapses can be attributed, in part, to the fact that he is not a CPA, and that he devoted 
+substantially all of his time to investor relati ons, relying heavily on his controller to manage 
+Microtune’s accounting functions. Unfortunately, the controller, who was a CPA, resigned from 
+Microtune in March 2002. This left a void in  the accounting department until a new CFO was 
+retained in July 2002. Eventually, Microtune’s new CFO and new controller improved Microtune’s 
+internal controls in the fourth quarter of 2002, largely through the implementation of an improved 
+order processing system – but not until after the revenue-inflation scheme had run its course.  
+4. Microtune’s Revenue Inflation Scheme 
+Microtune granted very favorable sales concessions to at least five distributors and 
+overshipped product to at least two of them.  In each case, Microtune improperly recorded the 
+revenue from those alleged sales.  In additi on, Microtune improperly recorded revenue when it 
+shipped product to a customer prior to the customer’s requested ship date and the customer refused 
+to accept the shipment.  The scheme resulted in  total overstated revenue of approximately $19.2 
+million from the third quarter of 2001 through the third quarter of 2002; the revenue overstatements 
+ranged from 5 percent to 77 percent quarterly.   
+a. Overseas Customer No. 1 
+In May 2001, Housley offered sales concessions for the first time.  Overseas Customer No. 1 
+(“OC1”), a Hong Kong-based company, told Housley that it intended to cancel its second quarter 
+2001 order (approximately $600,000) because of the weakening economy.  Housley convinced OC1 
+not to cancel by agreeing to OC1’s demands for price protection.  Consequently, Microtune recorded 
+$600,000 of revenue in the second quarter of 2001. Housley did not tell company personnel about 
+the OC1 price protection agreement, which was reduced to writing in a September 7, 2001 e-mail. 
+Following Housley’s execution of the price protection agreement, he failed to provide a copy of it to 
+the customer service department, the accounting department or the outside auditors.   
+In late 2001, OC1 requested several price protection credits, totaling approximately 
+$38,000.
+7  Because price protection is not per se improper, and because the amount of each 
+credit request was immaterial and approved by Housley, no one in the accounting department 
+questioned the credits. In the first quarter of  2002, OC1 requested credits for price protection 
+totaling approximately $280,000.  This amount was material.  Eventually, Housley conceded that 
+“Credits” denote a reduction in the purchase price to be paid by a distri butor for goods (i.e., accounts 
+receivable). Microtune did not issue credits in the form of cash refunds, but rather as offsets against amounts owed. 
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+he offered OC1 price protection and produced to the controller the September 7, 2001 
+agreement. 
+Microtune recorded the $280,000 credit as a reduction in its first quarter 2002 revenue. As part 
+of its restatement, however, Microtune determin ed that the total amount of the OC1 credits 
+($318,000) should have been recorded as a reduc tion of revenue in the third quarter 2001, the 
+period in which the price protection agreement was entered into. 
+b. Overseas Customer No. 2 
+Following $1 million in order cancellations in September 2001, Housley scrambled to 
+replace lost third quarter sales. Housley appr oached Overseas Customer No. 2 (“OC2”), a 
+Taiwanese company that had been acting as Microtune’s sales representative in the Far East, and 
+convinced it to become a Microtune distributor.  In a September 26, 2001 e-mail to OC2’s CEO, 
+Housley agreed to provide price protection in exchange for OC2’s placing a large order; the next day 
+OC2 placed a $300,000 order and demanded price protection.
+8  Housley failed to provide to 
+Microtune’s accounting department the September 26 e-mail or otherwise inform them about the 
+price protection agreement.  Realizing that quarterly sales, even including the $300,000 order, were 
+insufficient to meet revenue projections, Housley authorized the total shipment of $700,000 of goods 
+to OC2; in effect, Microtune overshipped them $400,000 of goods.  On the eve of shipment, Housley 
+called OC2’s CEO and convinced him to accept the total $700,000 shipment by granting OC2 100 
+percent stock rotation rights for the entire order. 
+At the end of the same quarter, OC2 place d another $300,000 order.  Because Microtune 
+lacked sufficient completed product to fulfill the order, Housley discussed with the head of 
+manufacturing the shipment of unfinished product and the fact that such product would require 
+additional processing by Microtune. After this discussion, Housley authorized the shipment of 
+unfinished product, even though he knew OC2 w ould return it for additional processing. 
+Microtune’s accounting department was unaware of the shipment of unfinished product and the 
+stock rotation rights. Although OC2 returned the unfinished product to Microtune in the following 
+quarter for additional processing, Microtune did not reverse the corresponding revenue entries. In 
+violation of GAAP, Microtune recorded the sales to OC2 (including the sale of unfinished product) 
+as third quarter 2001 revenue. 
+In this time frame, there was intense pressu re to make numbers because of the pending 
+Transilica acquisition and registered offering. During the fourth quarter of 2001, Housley 
+negotiated, by e-mail, a $1.4 million order with OC 2 that included price protection, “flexible” 
+payment terms, and 100 percent stock rotation.  Even though Housley did not disclose the OC2 e-
+mail to the accounting department, and therefore did not alert them to the existence of the sales 
+concessions, OC2 submitted a PO to Microtune that contained price protection and “flexible” 
+payment term notations.  In addition, Housley authorized the overshipment of $100,000 of product 
+to OC2 with the same concessions, which OC2 ultimately accepted.   
+OC2’s September 27, 2001 PO for $300,000 did not include any reference to price protection. 
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+Later that quarter, Microtune’s controller lear ned that the OC2 sale included “flexible” 
+payment terms.  The controller insisted upon the cancellation of the special concessions and directed 
+that a revised OC2 PO be submitted.9  Soon thereafter, OC2 produced a revised PO that contained 
+acceptable 90-day payment terms instead of “flexible” payment terms, and omitted any reference to 
+price protection or 100 percent stock rotation.10 Nonetheless, Housley agreed to additional terms 
+that were not reflected in the revised PO.  Housley did not inform Microtune’s accounting 
+department of the discrepancy between the revised PO and the actual agreement.  In violation of 
+GAAP, Microtune recorded the entire $1.5 million shipment to OC2 as fourth quarter 2001 revenue; 
+Microtune should have reduced the revenue by the amount of the concessions.   
+During 2002, Housley and Davis struggled to ensu re that OC2 placed sufficient orders to 
+meet Microtune’s quarterly revenue targets.  They convinced OC2 to place multiple orders for 
+Microtune product totaling nearly $5 million, by granting OC2 sales concessions including price 
+protection, rights of return, and “flexible” payment terms.  Microtune recorded all the OC2 sales as 
+revenue at the time of shipment, in violation of GAAP.  Approximately half of OC2’s POs submitted 
+to Microtune in 2002 contained references to sales concessions; none of the concessions were 
+detected or properly recorded by Microtune’s accounting department.  In the other sales, the POs 
+contained no reference to the concessions granted by Housley and Davis, resulting in Microtune’s 
+improperly recognizing revenue upon shipment to OC2. 
+c. Overseas Customer No. 3 
+In the third quarter of 2001, Housley convinced Overseas Customer No. 3 (“OC3”), a 
+Taiwanese company, to become a Microtune distributor and to place large orders for Microtune’s 
+products. OC3 agreed to become a Microtune distri butor in return for Housley’s consent to price 
+protection and expanded rights of return. OC 3 placed a third quarter 2001 order for $650,000; to 
+meet revenue goals, Housley authorized, instead, the shipment of $950,000 of Microtune products. 
+Housley orally authorized the shipment of unfinished product to OC3 as part of the overshipment, 
+knowing that the unfinished product had not undergone a required heat process and would likely be 
+returned. Housley did not disclose to the accounting department the likelihood of returned product; 
+consequently, when the unfinished product was returned to Microtune the following quarter for heat 
+treatment and testing, Microtune did not reverse the corresponding revenues.  Instead, Microtune 
+recorded, in violation of GAAP, approximately $950,000 as third quarter 2001 revenue. 
+During the fourth quarter of 2001, Housley approved by e-mail an $800,000 order from OC3 
+that included price protection, rights of return, and “flexible” payment terms.  Even though Housley 
+failed to provide the e-mail, or otherwise disc lose the sales concessions to the accounting 
+9 The controller had advised Housley and Davis in a December 2001 e-mail that “flexible” payment terms nullify 
+revenue recognition under GAAP. 
+10 Despite the controller’s earlier advice, Davis confirmed to OC2 in an April 16, 2002 e-mail, which Housley also 
+received, that “flexible” payment terms applied to the $1.5 million fourth quarter 2001 order.  Neither Davis nor Housley 
+forwarded this e-mail to Microtune’s accounting department or otherwise disclosed the existence of the “flexible” 
+payment terms.   
+9
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+department, OC3’s PO reflected the concessions.  The concessions, nonetheless, were not detected 
+by Microtune’s accounting department, because its customer service department, which did not 
+realize the accounting importance of the concessions, failed to enter them into the order system.  In 
+addition, Housley authorized the overshipment of approximately $300,000 of product to OC3, which 
+OC3 ultimately accepted after negotiations with Housley.  In violation of GAAP, Microtune 
+recorded in the fourth quarter 2001 the entire $1.1 million as revenue from sales.  
+During 2002, Housley and Davis convinced OC 3 to submit POs to Microtune totaling 
+approximately $3.5 million in exchange for pr ice protection, 100 percent stock rotation, and 
+extended payment terms.  Microtune recorded all OC3 sales as revenue at the time of shipment 
+despite the sales concessions. With only one exception, the POs OC3 submitted to Microtune in 
+2002 made no reference to sales concessions.  In addition, Housley and Davis did not disclose to 
+Microtune’s accounting department the existence of the sales concessions.  Microtune improperly 
+recognized approximately $3.5 million as revenue from shipments to OC3 in 2002. 
+d. Overseas Customer No. 4 
+During the fourth quarter of 2001, Housley and Davis secured a $1.2 million sales order 
+from Overseas Customer No. 4 (“OC4”), a U.K. distributor, by agreeing to “flexible” payment terms 
+and price protection. Davis approved the “flexible” payment terms and price protection concessions 
+by e-mail and copied Housley, but neither Davis nor Housley forwarded the e-mail or otherwise 
+disclosed the concessions to Microtune’s accounting department.  OC4 submitted a $1.2 million PO 
+on December 11, 2001 to Microtune, which omitted any reference to “flexible” payment terms and 
+price protection. In violation of GAAP, Microtune recorded $1.2 million in sales.   
+e. Overseas Customer No. 5 
+During fourth quarter of 2001 negotiations w ith Overseas Customer No. 5 (“OC5”), a 
+Taiwanese manufacturer, Housley granted “fle xible” payment terms to secure a $1.2 million 
+sale. Following OC5’s submission of a PO containing “flexible” payment terms, Microtune’s 
+controller insisted that Housley cancel the con cessions and obtain a revised PO reflecting their 
+cancellation. The controller was unequivocal in his instruction to Housley: “flexible” payment 
+terms were unacceptable and would preclude Microtune’s recognizing revenue from the sale.  In 
+response, Housley convinced OC5 to submit a PO  with 90-day payment terms, but executed and 
+faxed from his home a side letter to OC5 on D ecember 31, 2001 in which he granted “flexible” 
+payment terms, price protection and rights of re turn to OC5.  At quarter end, Housley also 
+authorized overshipment of $200,000 of product to  OC5.  Housley concealed the OC5 side 
+agreement from everyone at Microtune and from  Microtune’s outside auditors.  Even after 
+Microtune’s accounting department asked Hous ley for assistance collecting OC5’s overdue 
+accounts receivable balance in 2002, Housley conceal ed the OC5 side agreement.  Microtune 
+improperly recognized the entire $1.4 million shipment  as revenue in the fourth quarter of 2001. 
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+f. Overseas Customer No. 6 
+In September 2002, Davis convinced Overseas  Customer No. 6 (“OC6”), a Korean 
+distributor, to place a large third quarter order for Microtune’s wireless products.  On September 
+28, 2002, OC6 submitted an incomplete PO to Microtune for $1.4 million, which included a 
+notation by OC6 that its shipping and billing addre sses and ship date would be confirmed by the 
+following week. According to Microtune’s cu stomer service department personnel, both 
+Housley and Davis demanded that the OC6 order ship by September 30 in order to meet 
+quarterly revenue projections. Microtune’s cust omer service department shipped the product on 
+September 29, 2002.  Microtune recorded the $1.4 million OC6 sale as revenue upon shipment. 
+On September 30, 2002, OC6 provided to Microtune a final and complete PO containing a 
+Singapore delivery address, an October 7 ship date and additional terms and conditions.  As 
+mentioned, Microtune had already shipped the product and it was en route to Singapore.   
+OC6 refused to accept the shipment because it was shipped a week earlier than stipulated 
+on the final PO and immediately apprised Microt une of its refusal.  Both Housley and Davis 
+knew by early October 2002 that OC6 had refused to accept the shipment; nonetheless, they did 
+not notify the accounting department.  The shipme nt, which had been waylaid in a warehouse in 
+Singapore because OC6 would not accept it, was subsequently returned to Microtune. 
+Microtune’s recognition of revenue from the $1.4 million sale in the third quarter of 2002 was 
+improper due to OC6’s refusal to accept the shipment.   
+5. Discovery of Accounting Irregularities and Restatement of Revenue 
+On December 17, 2002, an $80,000 reduction of f ourth quarter 2002 revenue titled “price 
+protection adjustment” appeared for the first time on an internal Microtune report generated by the 
+customer service department to track quarterly sales.  The $80,000 line item was based on a credit 
+requested by OC2 for price protection. When Microtune’s new CFO learned about the price 
+protection adjustment, she immediately asked the accounting and customer service departments to 
+determine Microtune’s total price protection exposure.  She also immediately raised the issue with 
+the CEO, Housley, and Davis. Housley and Davi s reviewed the price protection analysis and 
+determined that the exposure on OC2 and OC3 was $517,000.  The new CFO drafted two settlement 
+agreements in which Microtune agreed to issue a $195,000 credit to OC2 and a $322,000 credit to 
+OC3 to resolve all price protection issues. The settlement agreements were executed on December 
+31, 2002. 
+During a January 2003 meeting with the audito rs to discuss the upcoming 2002 audit, the 
+new CFO asked the auditors for guidance on the recording of the price protection credits issued to 
+OC2 and OC3 pursuant to the settlement agreements. The auditors told the new CFO that because 
+the settlements resolved price protection issues, the settlement amounts should be recorded as a 
+reduction of revenue. The auditors also told the new CFO that because the price protection amounts 
+were material, Microtune faced the possibility of restating its 2002 quarterly financial statements for 
+the quarters which included revenues from sales with price protection.  Shortly after learning about 
+the restatement possibility, the CEO, Housley, the new CFO, and the new controller, met with the 
+auditors to discuss price protection and possible restatement. 
+11
+ 
+ 
+ 
+ 
+  
+  
+  
+ 
+ 
+   
+ 
+    
+ 
+  
+ 
+    
+ 
+                                                                                                                                                             
+  
+ 
+  
+     
+ 
+  
+ 
+The auditors ultimately concluded that the settlement amounts should be recorded as a 
+reduction of revenue and that a revenue restatemen t was necessary.  Soon thereafter, the auditors 
+reported their findings to Microtune’s audit co mmittee, which hired independent counsel to 
+investigate the events that led to the reduction of revenue.  Eventually, through the independent 
+counsel’s investigation, the full scope of the scheme was revealed. 
+6. The Fraud Materially Impacted Microtune’s Financial Results 
+a. Revenue Misstatements 
+Securities analysts covering Microtune in 2001 and 2002 considered revenue, rather than net 
+income, the key indicator for gauging Microtune’s performance.  This is because Microtune, as a 
+fledgling public company, was sustaining considerable losses.11  As a result of the concealed sales 
+concessions, Microtune overstated its revenue from between 5 percent to 77 percent per quarter, 
+beginning in the third quarter of 2001. The following table shows the impact of the misstatements 
+on Microtune’s revenues as originally reported in Microtune’s financial statements for the second, 
+third and fourth quarters of 2001, audited financial statements for the year ended 2001, and financial 
+statements for the first, second and third quarters of 2002.
+12 
+Revenue (thousands) 
+Reporting 
+Period 
+Microtune’s 
+Forecasts 
+Originally 
+Reported Restated 
+Amount 
+Misstated 
+% 
+Misstated 
+3Q 2001 15,225 15,015 12,148  2,867 23.6 % 
+4Q 2001 15,750 15,976 11,266 4,710 41.8 % 
+YE 2001 63,00013 63,105 55,528 7,577 13.6% 
+1Q 2002 17,600 18,243 18,264 (21) (0.1)% 
+2Q 2002 22,500 – 23,000 23,179 22,034 1,145 5.2% 
+3Q 2002 27,000 – 30,000  24,003 13,543 10,460 77.2% 
+b. Share Price 
+11 For example, Microtune’s 2001 net loss was restated from ($64.2 million) to ($67.4 million).  For the first three 
+quarters of 2002, Microtune’s total net loss was restated from an aggregate of ($44.3 million) to an aggregate of ($48.6 
+million).  Microtune’s total 2002 net loss was ($182.8 million). 
+12 Microtune did not report fourth quarter 2002 revenue results other than preliminary results, which were later 
+revised, in a February 20, 2003 press release and a related Form 8-K.  At the time of the February 2003 press release, the 
+internal investigative team had not yet uncovered the full scope of the scheme. In the financial statement filed with the 
+Commission for the second quarter of 2004, Microtune reported quarterly revenue of $13.5 million. 
+13 For purposes of this chart, the staff calculated Microtune’s 2001 annual forecasted revenue by totaling the 2001 
+quarterly revenue forecasts. 
+12
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+                                                                                                                                                             
+  
+    
+ 
+ 
+ 
+  
+In mid-2001, before the commencement of the revenue-inflation scheme, Microtune’s stock 
+generally traded in the $10-15 per share range. The share price spiked to over $18 on the day 
+Microtune announced its third quarter 2001 results – the first of the periods Microtune ultimately 
+restated. Microtune’s stock price peaked at $29.28 per share on January 3, 2002, in the midst of the 
+scheme.  After that, however, the price of Microtune’s stock began to decline.  The combination of 
+the weakening economy, particularly in the high-tech sector, and Microtune’s inability to meet its 
+projections in the second half of 2002 – despite  the scheme – deflated its stock price to 
+approximately $3 per share by year-end.  Finall y, on February 21, 2003, the day after Microtune 
+announced “material negative charges” for the f ourth quarter of 2002 and the beginning of the 
+independent counsel’s inquiry, its stock dropped 36 percent to a low of $1.19 per share.   
+C. LEGAL ANALYSIS
+ 1. Antifraud Violations 
+Section 17(a) of the Securities Act prohib its employing a fraudulent scheme or making 
+material misrepresentations and omissions in the offer or sale of a security.
+14  Section 10(b) of the 
+Exchange Act and Rule 10b-5 thereunder prohibit the same conduct, if committed in connection 
+with the purchase or sale of securities.  To violate these provisions, the alleged misrepresentations or 
+omitted facts must be material.  Information is material if it would have assumed significance in the 
+investment deliberations of a reasonable investor.  Basic, Inc. v. Levinson, 485 U.S. 224 (1988). 
+Microtune filed materially false financial statements in its 2001 Form 10-K and its Forms 
+10-Q for the third quarter of 2001 and the second and third quarters of 2002.
+15  The misstatements 
+were material because they falsely inflated Microtune’s quarterly revenue by at least 5 percent and 
+as much as 77 percent in one quarter as a result of improper revenue recognition.  
+Establishing violations of Section 17(a)(1) of the Securities Act and Section 10(b) of the 
+Exchange Act and Rule 10b-5 requires a showing of scienter. Aaron v. SEC, 446 U.S. 680 (1980). 
+However, actions under Sections 17(a)(2) and 17( a)(3) of the Securities Act require no such 
+showing. Id. Scienter is the “mental state embracing intent to deceive, manipulate or defraud.” 
+Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976). Scienter is established by showing that the 
+defendants acted intentionally or with severe recklessness. See Broad v. Rockwell International 
+Corp., 642 F.2d 929 (5th Cir.) (en banc), cert. denied, 454 U.S. 965 (1981). The scienter of high-
+level corporate officers may be imputed to the company.  SEC v. Manor Nursing Centers, 458 F.2d 
+1082, 1094 (2d Cir. 1971). 
+14 Because Microtune offered and sold quantities of its securities in a registered offering during December 2001, 
+Microtune’s misrepresentations were committed in the offer and sale of securities in violation of Section 17(a). 
+Specifically, Microtune conducted a $109 million stock offering pursuant to Form S-3, commencing in the fourth quarter 
+of 2001, incorporating by reference Microtune’s Form 10-Q for the period ended September 30, 2001, which contained 
+materially overstated revenue. 
+15 Microtune restated its first quarter 2002 revenue; however, the company’s restated revenue of $18,264,000 was 
+not materially different from its originally reported revenue of $18,243,000. 
+13
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+Housley acted with scienter as evidenced by his direct involvement in numerous revenue-
+inflating transactions, and his intentional concealment of sales concessions from Microtune’s 
+customer service and accounting departments and auditors.  In many cases, Housley personally 
+granted sales concessions to customers and distributors even after the Microtune controller notified 
+him that concessions could preclude revenue recognition.  The transaction most clearly evidencing 
+Housley’s scienter is the side agreement he struck with OC5, which paved the way for a $1.4 million 
+sale. Housley concealed the existence of th e OC5 side agreement by executing and faxing the 
+agreement from his home, and he failed to produce it when Microtune’s accounting department 
+sought Housley’s aid in collecting past due accounts receivable from OC5.  The scienter of Housley 
+is imputed to Microtune.  Therefore, Microtune and Housley violated the antifraud provisions of the 
+Securities Act and Exchange Act. 
+Davis caused Microtune’s fraud. He granted sales concessions to Microtune’s customers 
+and distributors, and then failed to inform Micr otune’s accounting department and auditors about 
+these sales concessions. As a result, Microtune materially inflated its published revenue.   
+2. Reporting Violations 
+Section 13(a) of the Exchange Act requires issuers such as Microtune to file periodic reports 
+with the Commission containing such information as the Commission prescribes by rule.  Exchange 
+Act Rule 13a-1 requires issuers to file annual reports, and Exchange Act Rule 13a-13 requires 
+issuers to file quarterly reports. Under Excha nge Act Rule 12b-20, the reports must contain, in 
+addition to disclosures expressly required by statute and rules, such other information as is necessary 
+to ensure that the statements made are not, unde r the circumstances, materially misleading.  The 
+obligation to file reports includes the requirement that the reports be true and correct.  United States 
+v. Bilzerian, 926 F.2d 1285, 1298 (2d. Cir.), cert. denied, 502 U.S. 813 (1991). The reporting 
+provisions are violated if false and misleading reports are filed.  SEC v. Falstaff Brewing Corp., 629 
+F.2d 62, 67 (D.C. Cir. 1980). No showing of scienter is necessary to establish a violation of Section 
+13(a) or of Rules 13a-1, 13a-13, a nd 12b-20 promulgated thereunder.  SEC v. McNulty, 137 F.3d 
+732, 740-41 (2d Cir. 1998); SEC v. Wills, 472 F. Supp. 1250, 1268 (D.D.C. 1978); see also In re 
+Signal Technology Corp., Exchange Act Release N o. 45655, 2002 WL 461340, at *6 (Mar. 27, 
+2002); In re Curtis L. Dally, Exchange Act Release No. 39144, 1997 WL 598007, at *4 (Sept. 29, 
+1997); In re TCF Fin. Corp., Exchange Act Release No. 36084, 1994 WL 838074, at *5 n.9 (Aug. 
+10, 1994). 
+As a result of the fraud, facilitated by Microtune’s internal controls deficiencies, Microtune 
+filed materially false and misleading periodic reports with the Commission.  Microtune’s 2001 Form 
+10-K and its Forms 10-Q for the third quarter of 2001 and the second and third quarters of 2002 
+materially overstated Microtune’s revenue for those periods.  Microtune therefore violated Section 
+13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 thereunder. 
+Rogers prepared and signed Microtune’s Form 10-Q for the third quarter of 2001 and the 
+2001 Form 10-K.  By failing to establish controls necessary for Microtune to ensure the accurate 
+reporting of its financial results, Rogers caused Microtune’s reporting violations.  Housley caused 
+Microtune’s reporting violations by granting sale s concessions to customers and distributors, 
+14
+ 
+ 
+ 
+ 
+  
+ 
+ 
+  
+ 
+ 
+ 
+including through an undisclosed side agreement,  that he knew or should have known could 
+preclude revenue recognition and by failing to disclose certain concessions to Microtune’s customer 
+service and accounting departments and to its outside auditors.  Davis caused Microtune’s reporting 
+violations by granting sales concessions to cust omers and distributors and by failing to inform 
+Microtune’s accounting department and auditors about these sales concessions. 
+3. Books and Records and Internal Controls Violations 
+Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, 
+and accounts that, in reasonable detail, accurately  and fairly reflect transactions and asset 
+dispositions. 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 prepara tion of financial statements in accordance with 
+GAAP. Scienter and materiality are not elements of a violation of either provision.  United States v. 
+Crop Growers Corp., 954 F. Supp. 335 (D.D.C. 1997); SEC v. World-Wide Coin Inv., Ltd., 567 F. 
+Supp. 724, 749-50 (N.D. Ga. 1983). In addition, Section 13(b)(5) of the Exchange Act provides that 
+no person shall knowingly circumvent or knowingl y fail to implement a system of internal 
+accounting controls or knowingly falsify certa in books, records and accounts.  Rule 13b2-1 
+thereunder provides that no person shall falsify or cause to be falsified any book, record or account. 
+Microtune violated Section 13(b)(2)(A) by failing to keep books, records and accounts that 
+accurately and fairly reflected its financial results.  Microtune violated Section 13(b)(2)(B) by failing 
+to devise and maintain a system of internal controls sufficient to provide reasonable assurances that 
+revenues were recorded as necessary to permit prep aration of financial statements in conformity 
+with GAAP. Microtune violated Section 13(b)(2)(B) for the additional reason that it lacked controls 
+that would reasonably have prevented or at least detected the improper sales concessions and side 
+agreements giving rise to Microtune’s violations.   
+Housley, Rogers and Davis caused Microtune’s violations of Sections 13(b)(2)(A) and 
+13(b)(2)(B). Rogers, as Microtune’s CFO and therefore, the individual chiefly responsible for 
+establishing the company’s internal controls, failed to develop and implement the controls necessary 
+to record accurately the revenue from sales.  Housley and Davis were responsible for Microtune’s 
+improperly allowing the recording of sales revenue.  In addition, Housley and Davis, through their 
+supervision of the customer service department, failed to ensure that the department provided 
+evidence of sales concessions to Microtune’s accounting department. 
+Housley also violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1. By causing 
+Microtune to record revenue improperly base d upon undisclosed sales concessions and side 
+agreements, Housley knowingly circumvented Microtune’s internal controls and caused, directly or 
+indirectly, Microtune to falsify its books, records or accounts. 
+15
+ 
+ 
+  
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+4. 	 Housley’s False Statements and Failure to Disclose 
+Material Information to the Company’s Accountants and Auditors 
+Rule 13b2-2 under Section 13(b)(2) of the Exchange Act prohibits any director or officer of 
+an issuer from making a false or misleading statement to an accountant, or omitting to state a 
+material fact necessary in order to make the statements made, in the light of the circumstances under 
+which they were made, not misleading, in connection with any audit required under the Exchange 
+Act or the preparation of any document required to be filed with the Commission.  The test for 
+materiality under Rule 13b2-2 is whether the misstatement had the potential of keeping the auditors 
+from discovering a false book or record.  Exchange Act Rel. No. 15570 (Feb. 15, 1979). Scienter is 
+not an element of this offense.  World-Wide Coin, 567 F. Supp. at 749-50. 
+In October 2002, Housley signed a management representation letter to Microtune’s outside 
+auditors falsely stating that: 1) collectibility of accounts receivable from distributors is not dependent 
+on the ultimate sale to end customers; 2) all sales terms, including all rights of return, have been 
+disclosed; and 3) there were no side agreements.  In fact, Housley granted “flexible” payment terms 
+and rights of return to customers and distributors and entered into a secret side agreement with OC5. 
+Thus, Housley knew the management representation letter to the auditors was false and misleading. 
+Therefore, Housley violated Rule 13b2-2. 
+IV. 
+VIOLATIONS
+ 
+The Commission finds that: 
+A. Microtune violated Section 17(a) of th e Securities Act, and Sections 10(b), 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1 and 13a-13 
+thereunder; 
+B. Housley violated Section 17(a) of the Securities Act, and Sections 10(b) and 13(b)(5) 
+of the Exchange Act and Rules 10b-5, 13b2-1 a nd 13b2-2 thereunder, and caused Microtune’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; further, Housle y has submitted a sworn Statement of Financial 
+Condition dated March 14, 2005 and other eviden ce and has asserted his inability to pay 
+disgorgement plus prejudgment interest. 
+C. Davis caused Microtune’s violations of Section 17(a) of the Securities Act, and 
+Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20, 
+13a-1 and 13a-13 thereunder; and 
+D. Rogers caused Microtune’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. 
+16
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+V. 
+In view of the foregoing, the Commission d eems it appropriate to impose the sanctions 
+agreed to in the 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 Microtune cease and desist from committing or causing any violation 
+and any future violation of Section 17(a) of the Securities Act, and Sections 10(b), 13(a), 
+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; 
+B. 	 Respondent Housley 
+1. 	 cease and desist from committing or causing any violation and any future 
+violation of Section 17(a) of the S ecurities 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 causing any viol ation and any future violation of 
+Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 
+12b-20, 13a-1 and 13a-13 thereunder; 
+2.	 pay disgorgement of $288,000 plus prejudgment interest, but that payment 
+of all but $50,000 is waived, based upon Housley’s sworn representations 
+in his Statement of Financial C ondition dated March 14, 2005 and other 
+documents submitted to the Commission;  provided, that the Division of 
+Enforcement (“Division”) may, at a ny time following the entry of this 
+Order, petition the Commission to: (1) reopen this matter to consider 
+whether Housley provided accurate and complete financial information at 
+the time such representations were made; and (2) seek an order directing 
+payment of disgorgement and pre-judgm ent interest.  No other issue shall 
+be considered in connection with this petition other than whether the 
+financial information provided by H ousley was fraudulent, misleading, 
+inaccurate, or incomplete in any ma terial respect. Housley may not, by 
+way of defense to any such petition: (1 ) contest the findings in this Order; 
+(2) assert that payment of disgor gement and interest should not be 
+ordered; (3) contest the amount of disgorgement and interest to be 
+ordered; and (4) assert any defense to liability or remedy, including, but 
+not limited to, any statute of limitations defense;  
+3. 	 pay the total amount of $50,000 to the United States Treasury as follows: 
+(1) a $5,000 initial payment to be paid pr ior to or within ten days of the 
+entry of the Order; (2) the remaining $45,000 to be paid in installments of 
+$7,500 every six months, beginning no la ter than six months from the 
+entry of the Order, over a 36-month period or until paid in full; and (3) the 
+17
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+   
+final payment must be made no late r than 36 months following the entry 
+of the Order. Such payment shall be: (A) made by United States postal 
+money order, certified check, bank cashi er’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 Housley as a Respondent in  these proceedings, the file number 
+of these proceedings, a copy of whic h cover letter and money order or 
+check shall be sent to Harold F. Dege nhardt, District Administrator, Fort 
+Worth District Office, Securities and Exchange Commission, 801 Cherry 
+Street, Fort Worth, Texas 76102; and 
+4. 	 is prohibited from acting as an officer or director of any issuer that has a 
+class of securities registered pursuant to Section 12 of the Exchange Act 
+or that is required to file reports pursuant to Section 15(d) of the Exchange 
+Act. 
+C. Respondent Davis cease and desist fr om committing or causing any violation and 
+any future violation of Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act 
+and Rule 10b-5 thereunder, and from causing any violation and any future violation of Sections 
+13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exch ange Act and Rules 12b-20, 13a-1 and 13a-13 
+thereunder; and 
+D. Respondent Rogers cease and desist fr om causing any violation and any future 
+violation of Sections 13(a), 13(b)(2)(A) and 13( b)(2)(B) of the Exchange Act and Rules 12b-20, 
+13a-1 and 13a-13 thereunder. 
+By the Commission. 
+       J o n a t h a n G . K a t z
+       S e c r e t a r y 
+18
+ 
\ 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.  52185 / August 1, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2286 / August 1, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12000 
+: 
+In the Matter of : 
+: 
+ROBERT KORKUC, CPA : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+: 102(e) OF THE COMMISSION’S RULES OF 
+: PRACTICE, MAKING FINDINGS, AND 
+Respondent. : IMPOSING REMEDIAL SANCTIONS 
+: 
+: 
+____________________________________ : 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Robert 
+Korkuc (“Korkuc” 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 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. 
+ 
+ 
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+ 
+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. paragraph 3 below, which are admitted, 
+Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+1. Korkuc, age 42, is a certified public accountant and has been licensed by the 
+State of New York since 1988.  He was a Vice President and Chief Accounting Officer of Symbol 
+Technologies, Inc. (“Symbol”) from July 2000 until his resignation in March 2003.  Before 
+becoming Chief Accounting Officer, Korkuc was Symbol’s Director of Corporate Accounting, a 
+position he obtained in 1997. 
+2. Symbol, a Delaware corporation with headquarters in Holtsville, New York, 
+is engaged in the design, manufacture, marketing and servicing of integrated mobile and wireless 
+information management systems utilizing bar code scanners and similar devices.  Symbol’s 
+common stock is, and was at all times relevant to this proceeding, 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 June 19, 2003, the Commission filed a complaint against Korkuc in SEC 
+v. Robert Korkuc, 03 Civ. 3017 (LDW) (E.D.N.Y.).  On May 11, 2005, the court entered a partial 
+final judgment enjoining Korkuc, 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 aiding and abetting violations of Sections 13(a) and 13(b)(2) of 
+the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  The court also barred Korkuc 
+from acting as an officer or director of a public company. 
+4. The Commission’s complaint alleges, among other things, that Korkuc and 
+others engaged in a fraudulent scheme to manipulate Symbol’s reported financial results to create 
+the false appearance that Symbol had met or exceeded its financial projections.  As part of the 
+fraudulent scheme, Korkuc and others employed a number of improper accounting practices that 
+violated generally accepted accounting principles and resulted in, among other things, material 
+overstatements of the revenue and net income that Symbol reported for annual and quarterly periods 
+from 1998 through 2002.  Among other fraudulent practices, Korkuc and others manipulated 
+various “cookie jar” reserves and made other fraudulent “top side” adjustments to Symbol’s 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+   
+ 
+ 
+ 
+ 
+ 
+   
+ 
+consolidated financials to conform the reported results to forecasts and market expectations.  As a 
+result of this scheme, Symbol filed materially false and misleading periodic reports, including its 
+annual reports on Form 10-K for the fiscal years ended December 31, 2000 and 2001.  Korkuc 
+signed those two annual reports even though he knew that they were false and misleading, and he 
+made material misstatements to accountants in connection with audits of the financial statements 
+included in those reports. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent Korkuc’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that Korkuc 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. 19322 / August 2, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2288 / August 2, 2005 
+
+  Securities and Exchange Commission v. Kenneth K. Livesay, et al.,  United States District Court for the Northern District of Alabama, Civil Action No. CV-03-HS-0758-S 
+
+ On July 25, 2005, the Honorable Virginia Emerson Hopkins, U. S. District Judge for the Northern District of Alabama, entered a Final Judgment as to defendant Cathy C. Edwards (Edwards).  Edwards was a vice president of HealthSouth Corporation.  The Final Judgment enjoined Edwards from further violations of Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from aiding and abetting violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.  Edwards was not ordered to pay a civil penalty based on her sworn representations in her Statement of Financial Condition.  Edwards was also permanently barred from serving as an officer or director of a public company.  Edwards consented to the entry of the judgment without admitting or denying any of the allegations of the Commission's Complaint.       
+ The Commission's Complaint alleged that Edwards made false accounting entries to inflate reported operating results to enable HealthSouth to meet or exceed Wall Street earnings expectations.    
+ See also:  L.R. 18044/March 20, 2003; AAER No. 1744/March 20, 2003; L. R. 18059/April 1, 2003; AAER No. 1750/April 1, 2003; L. R. 18060/April 1, 2003; AAER No. 1749/April 1, 2003;  L. R. 18070/April 4, 2003; AAER No. 1752/April 4, 2003; L. R. 18339/September 10, 2003; AAER No. 1853/September 10, 2003; L.R. 18700/May 10, 2004; AAER No. 2004/May 10, 2004; L.R. 18843/August 23, 2004; AAER No. 2083/August 23, 2004; L.R. 18904/September 28, 2004; AAER No.  2111/September 28, 2004; L.R. 18941/October 25, 2004; AAER No. 2128/October 25, 2004; L.R. 19123/March 7, 2005; and AAER No. 2206/March 7, 2005.      
+
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diff --git a/raw/aaer/2005/AAER-2289.txt b/raw/aaer/2005/AAER-2289.txt
new file mode 100644
index 0000000000000000000000000000000000000000..579bdf3321434f8664e2ff99f27df40cbd6af1b7
--- /dev/null
+++ b/raw/aaer/2005/AAER-2289.txt
@@ -0,0 +1,1371 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19323 /  August 3, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2289 / August 3, 2005 
+
+  UNITED STATES V. PATRICK D. QUINLAN, SR. ET AL.,  Case No. 01-80514 (E.D. Mich.) 
+
+  SECURITIES AND EXCHANGE COMMISSION V. PATRICK D. QUINLAN ET AL.,  Case No. 02-60082 (E.D. Mich.) 
+
+ FORMER MCA CEO, PREVIOUSLY SUED BY SEC FOR INVOLVEMENT IN MCA FINANCIAL AND OFFERING FRAUD, SENTENCED TO PRISON TERM AND RESTITUTION  
+
+ The Securities and Exchange Commission (Commission) announced that on July 21, 2005, the Honorable Judge Nancy G. Edmunds of the United States District Court for the Eastern District of Michigan sentenced Patrick D. Quinlan, Sr., former CEO of MCA Financial Corporation (MCA), to ten years in prison for his involvement in a fraudulent scheme perpetrated by MCA.  Judge Edmunds also ordered Quinlan to pay $256.6 million in restitution.  Previously, in February 2004,  Quinlan pled guilty to one count of conspiracy to commit mail, wire and bank fraud and to make false statements in a matter within the jurisdiction of a federal agency and one count of making false statements to the Commission. 
+ Quinlan, Lee Wells, Keith Pietila, Alexander Ajemian, John O'Leary, Cheryl Swain and Kevin Lasky are the defendants in a pending civil injunctive action filed by the Commission on April 23, 2002 in the United States District Court for the Eastern District of Michigan.  The Complaint in that case alleges that Quinlan and the other six defendants violated, or aided and abetted violations of, the antifraud provisions of the federal securities laws, among other things, as a result of their involvement in a financial and offering fraud by MCA.  The Complaint further alleges that MCA sold $71 million of securitized interests in pools of mortgage loans from 1994 through 1999 while knowingly misrepresenting the risk, rate of return and historical performance of the interests in the offering materials and that as a result, investors lost at least $49 million.  The Complaint also alleges that MCA engaged in the fraudulent sale of $19 million in debentures between 1994 and 1999 by including financial statements that materially inflated its assets, income and equity in registration statements and annual and quarterly reports filed with the Commission and that as a result, investors in the debentures lost all $19 million invested.   
+ All seven defendants have pled guilty to federal criminal charges arising out of MCA's fraudulent scheme.  Ajemian, Pietila and Lasky have been sentenced to 37 months, 48 months and 24 months in prison respectively and were ordered to pay $256.6 million, $256.6 million and $128 million respectively in restitution.  Wells, Swain and O'Leary have not been sentenced yet. In addition, the Michigan Attorney General's Office has filed state felony securities fraud charges against Quinlan, Wells, Pietila and Ajemian. 
+ The Commission wishes to thank the Office of the United States Attorney for the Eastern District of Michigan for its assistance and cooperation in this matter. 
+ For additional information, see Litigation Release Nos. 17484 (April 23, 2002), 18131 (May 12, 2003), 18195 (June 19, 2003) and 18512 (December 18, 2003). 
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diff --git a/raw/aaer/2005/AAER-2290.txt b/raw/aaer/2005/AAER-2290.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. 52257 / August 15, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2290 / August 15, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12012 
+In the Matter of 
+MARGARET M. EARDLEY, 
+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 Margaret M. Eardley (“Eardley” or 
+“Respondent”).   
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over her and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Order”), as set forth below. 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+                                                 
+  
+ 
+III. 
+The Commission makes the following findings:1 
+A. RESPONDENT 
+Margaret M. Eardley (“Eardley”), 36, was Vice President of Finance and Chief Financial 
+Officer of First American Health Concepts, Inc. (“FAHC” or the “Company”) from October 1998 
+to March 2000. 
+B. RELEVANT ENTITY 
+First American Health Concepts, Inc. was an incorporated company headquartered in 
+Phoenix, Arizona.  Its common stock was registered with the Commission pursuant to Section 
+12(b) of the Exchange Act and was traded on the American Stock Exchange.  As of January 31, 
+2001, FAHC had 2,635,691 shares of common stock outstanding.  In 2001, Luxottica Group, 
+S.p.A., an Italian company, acquired FAHC.  Eardley never owned stock in the Company. 
+C. FACTS 
+1. FAHC’s False Filing 
+In its Annual Report on Form 10-KSB for the fiscal year ending on July 31, 1999, filed 
+October 29, 1999, FAHC reported accounts receivable of $2.4 million and pretax income of 
+$693,000. On July 24, 2000, approximately four months after Eardley’s voluntary resignation, 
+KPMG LLP (“KPMG”) resigned as FAHC’s independent auditors and was replaced by Pannell 
+Kerr Forster PC (“PKF”) for the fiscal 2000 audit.  During that audit, PKF discovered that FAHC’s 
+accounts receivable had not been reconciled for years.2  PKF’s audit of the receivables showed 
+that, as of July 31, 1999, FAHC’s reported accounts receivable were overstated by $892,000 and 
+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   During 1998 or earlier (prior to Eardley’s employment), FAHC installed a data processing 
+system for its accounts receivable and revenue reporting.  The data processing system was not 
+integrated to its general ledger and required manual intervention for certain transactions.  Due to 
+problems with the system, errors occurred which prevented certain transactions affecting 
+individual accounts receivable from flowing through to the general ledger.  As a result, the 
+general ledger receivable balances, which were the basis for the preparation of FAHC’s financial 
+statements, were not in agreement with the detail accounts receivable records.  In addition, due to 
+a computer malfunction before Eardley’s employment with FAHC, the sub-ledger data for the 
+calendar year ended December 31, 1997 was completely lost.  There were no hard copies and no 
+back-up of the data. Instead of the year-e nd 1997 balances rolling forward to January 1998, 
+those balances reverted back to 1996. 
+2
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+ 
+ 
+ 
+that FAHC’s 1999 reported $693,000 pre-tax income should have been a reported loss of 
+$199,000. PKF’s audit triggered a restatement (filed with the Commission December 20, 2000) 
+that revised FAHC’s fiscal 1999 pre-tax income accordingly. 
+2. Eardley Signed the False and Misleading 1999 10-KSB  
+Within a week of being hired in October 1998, as FAHC’s Chief Financial Officer, Eardley 
+discovered the company’s accounts receivable problem, alerted the Chairman of the Board to the 
+problem and requested the resources and support necessary to address the problem.  But Behrmann 
+directed Eardley to focus on other projects unrelated to the accounts receivable problem and 
+Eardley complied.3  She took some steps to determine the magnitude of the overstatement but she 
+never compared the general ledger accounts receivable balance to the total of the subsidiary ledger 
+accounts – a simple procedure that would have revealed the magnitude of the unreconciled 
+difference.  Eardley took no further steps to rectify what she knew to be a serious accounting 
+problem.  One year later, having taken no further action with respect to the receivables issue, 
+Eardley signed the 1999 Form10-KSB disregarding that the financial statements included were 
+false and misleading.4 
+Eardley cooperated during the investigation.  There is no evidence that she benefited 
+financially from signing FAHC’s false 1999 10-KSB, although if she had refused to do so she may 
+have endangered her employment with FAHC. 
+D. LEGAL ANALYSIS 
+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.  
+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.  Eardley violated Exchange Act Section 13(b)(5) and caused FAHC to violate Exchange Act 
+3  Simultaneously with the issuance of this Order, the Commission filed a settled civil action in 
+the United States District Court for the District of Columbia against FAHC’s Chairman of the 
+Board, John Behrmann, for his role in these events.  Pursuant to that settlement, Behrmann has 
+agreed to pay a civil penalty in the amount of $75,000 and to the entry of an order permanently 
+enjoining him from violations of certain securities laws and permanently barring him from 
+serving as an officer or director. 
+4  Simultaneously with the issuance of this Order, the Commission filed a settled civil complaint 
+against Eardley in the United States District Court for the District of Columbia.  Pursuant to that 
+settlement, Eardley has agreed to pay a civil penalty in the amount of $25,000. 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+Sections 13(b)(2)(A) and 13(b)(2)(B) in 1999 by failing to maintain sufficient internal accounting 
+controls and by failing to reconcile FAHC’s accounts receivable in 1999. 
+Section 13(a) of the Exchange Act and Rule 13a-1 thereunder requires all issuers with 
+securities registered under Section 12 of the Exchange Act to file annual reports on Form 10-K.  
+Exchange Act Rule 12b-20 further requires that, in addition to the information expressly required 
+to be included in such reports, an 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.  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. Eardley caused FAHC’s violation of Section 13(a) of the Exchange Act and Rules 
+12b-20 and 13a-1 thereunder by signing FAHC’s 1999 Form 10-K which incorporated materially 
+false and misleading financial statements. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Eardley’s Offer. 
+Accordingly, it is hereby ORDERED that: 
+Pursuant to Section 21C of the Exchange Act, Respondent Eardley shall cease and desist 
+from committing or causing any violation and any future violation of Section 13(b)(5) of the 
+Exchange Act; and from causing any violation and any future violation of Sections 13(a), 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 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 
+4
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2291.pdf b/raw/aaer/2005/AAER-2291.pdf
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diff --git a/raw/aaer/2005/AAER-2292.txt b/raw/aaer/2005/AAER-2292.txt
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@@ -0,0 +1,1398 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | John R. Behrmann and Margaret M. Eardley 
+     
+     
+     
+     
+     
+     
+     
+         !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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+              John R. Behrmann and Margaret M. Eardley
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+        John R. Behrmann and Margaret M. Eardley
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19336 / August 15, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2292 / August 15, 2005 
+
+ FORMER CHAIRMAN OF FIRST AMERICAN HEALTH CONCEPTS, INC. SETTLES FRAUD CHARGES AND CONSENTS TO AN INJUNCTION 
+ FORMER FIRST AMERICAN CHIEF FINANCIAL OFFICER CONSENTS TO A CEASE-AND-DESIST ORDER FOR ACCOUNTING VIOLATIONS 
+ FORMER FIRST AMERICAN AUDIT ENGAGEMENT PARTNER CONSENTS TO A PERMANENT BAR FROM PRACTICING BEFORE THE COMMISSION 
+
+  SECURITIES AND EXCHANGE COMMISSION v. JOHN R. BEHRMANN AND MARGARET M. EARDLEY,  Civil Action No. 1:05CV01640 (JDB) (D.D.C. 2005) (filed August 15, 2005) 
+
+ IN THE MATTER OF MARGARET M. EARDLEY, Securities Exchange Act of 1934 Release No. 52257 / August 15, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2290 / August 15, 2005 
+
+ IN THE MATTER OF JOHN V. BACK, JR., CPA, Securities Exchange Act of 1934 Release No. 52258 / August 15, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2291 / August 15, 2005 
+
+ The Securities and Exchange Commission today announced that it filed a settled civil action in federal district court against John Behrmann, the former Chairman of First American Health Concepts Inc., and Margaret Eardley, the company's former Chief Financial Officer.  First American, an Arizona vision care company, overstated its assets and net income in reports filed with the Commission for its 1999 fiscal year and the second quarter of its 2000 fiscal year by, primarily, overstating its accounts receivable.   The Commission also has issued orders in two related administrative proceedings against Eardley and John V. Back, Jr. (formerly of KPMG LLP), who was the audit engagement partner responsible for First American's fiscal year 1999 audit.   
+ SEC COMPLAINT 
+ The Commission's complaint alleges that in October 1998, Behrmann learned from KPMG, First American's independent auditors, that the company's accounts receivable had not been reconciled for at least a year and were out of balance with the general ledger.  At about the same time, Eardley, the company's recently hired CFO, became aware of the accounting irregularity and also brought it to Behrmann's attention.  Rather than address the problem, Behrmann directed Eardley to focus on other unrelated projects and Eardley complied.  On October 19, 1999, Behrmann and Eardley signed First American's 1999 Form 10-KSB filed with the Commission knowing that the accounts receivable ledgers and the general ledger had not been reconciled and without regard for whether this significant accounting issue would have a material impact on the company's financial statements.  The statements included with the filing, as signed by Behrmann and Eardley and filed with the Commission, overstated the company's reported receivables by $892,000 or 59 percent.  But for the overstatement, the company's $693,000 reported pre-tax income for 1999 would have been a $199,000 loss.  
+ The Commission's complaint further alleges that in early March 2000, KPMG was preparing a restatement of the company's 1999 Form 10-KSB and the first quarter 2000 Form 10-QSB and recommended that the company obtain a five-day extension to file its second quarter 2000 Form 10-QSB because the financials for the second quarter would be affected by the restatement.  At a March 13, 2000 Board of Directors meeting, Behrmann recommended that the Board ignore the KPMG recommendation and file the second quarter 10-QSB "as-is."  As a result, First American's second quarter 2000 Form10-QSB filed with the Commission overstated income by 46 percent. 
+ SEC SETTLEMENT 
+	  Behrmann, without admitting or denying the allegations in the complaint, consented to entry of a final judgment:  (1) permanently enjoining him from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; (2) permanently barring him from serving as an officer or director of a public company; and (3) ordering him to pay a civil money penalty of $75,000.  Behrmann also consented, without admitting or denying the Commission's findings, to a permanent suspension from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice in a related settled administrative proceeding to be instituted once the injunction against Behrmann is entered.  
+	  Eardley, without admitting or denying the allegations in the complaint, consented to entry of a final judgment finding that she violated Section 13(b)(5) of the Exchange Act and ordering her to pay a civil money penalty of $25,000.  In a related settled administrative proceeding, Eardley consented, without admitting or denying the Commission's findings, to entry of a Commission order to cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act, and from causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.
+	   In a related settled administrative proceeding, John Back, the KPMG audit engagement partner responsible for the 1999 audit of First American, consented, without admitting or denying the Commission's findings, to entry of a Commission order permanently denying him the privilege of practicing or appearing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice.  The Commission's Order finds that Back knew, or should have known, that First American's accounts receivable balances had not been reconciled and that neither Back, nor anyone he supervised, performed the work necessary to reconcile the balances in accordance with generally accepted auditing standards ("GAAS").  The Order finds that Back falsely represented that KPMG's audit had been performed in accordance with GAAS and that First American's financials complied with generally accepted accounting principles.  As a result, the Commission found that Back engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice. 
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diff --git a/raw/aaer/2005/AAER-2294.txt b/raw/aaer/2005/AAER-2294.txt
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+              Frederick S. Schiff and Richard J. Lane
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+        Frederick S. Schiff and Richard J. Lane
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19343 / August 22, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2294 / August 22, 2005 
+
+  Securities and Exchange Commission v. Frederick S. Schiff and Richard J. Lane,  Civil Action No. 05-4132 (FSH) (D.N.J.) (Filed Aug. 22, 2005) (Hochberg, J.)    
+
+ The Securities and Exchange Commission today announced the filing of a civil fraud action in the United States District Court for the District of New Jersey against Frederick S. Schiff ("Schiff") and Richard J. Lane ("Lane").  
+ The Commission's Complaint alleges that Schiff and Lane participated in a fraudulent earnings management scheme by Bristol-Myers Squibb Company to deceive the investing public about the true performance, profitability and growth trends of the Company and its U.S. medicines business.  The Complaint alleges that from the first quarter of 2000 through the fourth quarter of 2001, at Schiff and Lane's direction, Bristol-Myers stuffed its distribution channels with excessive amounts of its pharmaceutical products ahead of demand to meet the Company's internal earnings targets and the consensus estimate of Wall Street securities analysts, and improperly recognized revenue from $1.5 billion of such sales to its two largest wholesalers.  According to the Commission's Complaint, when Bristol-Myers' results still fell short of its targets and the consensus estimate, at Schiff's direction, the Company used "cookie jar" reserves to further inflate its earnings.  The Complaint also alleges that at Schiff's direction, and as a result of the channel-stuffing, Bristol-Myers also underaccrued for Medicaid and prime vendor rebate liabilities.  As a result of its channel-stuffing and improper accounting measures, Bristol-Myers reported results that met or exceeded the consensus estimate every quarter during the scheme.  The Complaint alleges that Schiff signed numerous periodic reports and registration statements in connection with a $5 billion securities offering in September 2001 that failed to disclose the scheme.  Schiff and Lane also made misstatements in conference calls with securities analysts that concealed Bristol-Myers' channel-stuffing activities and the extraordinary buildup in excess wholesaler inventory.    
+ The Commission's Complaint charges Schiff with violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.  The Complaint charges Lane with violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-13 thereunder.  The Commission's Complaint also seeks the entry of orders of permanent injunction, disgorgement, civil penalties and officer and director bars against Schiff and Lane.   
+ On August 4, 2004, Bristol-Myers settled the Commission's action against it by agreeing to pay $150 million dollars and perform numerous remedial undertakings, including the appointment of an independent adviser to review and monitor its accounting practices, financial reporting and internal controls.   
+
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diff --git a/raw/aaer/2005/AAER-2297.txt b/raw/aaer/2005/AAER-2297.txt
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@@ -0,0 +1,1379 @@
+
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+              Leonard M. Snyder, H. Dane Reynolds, C. Burt Duren, and R. Carey Johnson
+           
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+        Leonard M. Snyder, H. Dane Reynolds, C. Burt Duren, and R. Carey Johnson
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19349 / August 26, 2005 
+
+ Accounting and Auditing Enforcement Release No. 2297 / August 26, 2005 
+
+  SEC V. LEONARD M. SNYDER, H. DANE REYNOLDS, C. BURT DUREN, AND R. CAREY JOHNSON,  Civil Action No. 7-05-2471-RBH (D.S.C.) 
+
+ The Securities and Exchange Commission announced that on August 25, 2005, it filed a complaint in the United States District Court for the District of South Carolina against four former officers and employees of One Price Clothing Stores, Inc. ("One Price"), a national clothing retailer that is currently in bankruptcy.  The individuals named in the Commission's complaint include One Price's former Chief Executive Officer, Leonard M. Snyder ("Snyder"), Chief Financial Officer, H. Dane Reynolds ("Reynolds"), Treasurer (and successor Chief Financial Officer), C. Burt Duren ("Duren"), and Controller, R. Carey Johnson ("Johnson"). 
+ The Commission's complaint alleges that, during the period from late 2002 through December 2003, Snyder, Reynolds, Duren, and Johnson caused One Price to misrepresent in its Commission filings that it was in compliance with its credit facility, on which the company relied to provide cash for its operations.  The complaint further alleges that One Price was actually in default because the defendants caused the company to artificially inflate its inventory levels, which collateralized its debt, in weekly reports to its lender.  The complaint also alleges that One Price filed false and misleading periodic reports with the Commission because the inflated inventory levels were included in the financial statements that were filed with those reports. 
+ The Commission's complaint charges Snyder, Reynolds, and Duren with violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities and Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and with aiding and abetting One Price'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. 
+ The Commission's complaint also charges Johnson with violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and with aiding and abetting One Price'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.  Johnson, without admitting or denying the allegations in the Commission's complaint, consented to a entry of a final judgment: (1) permanently enjoining him from violating and aiding and abetting violations of these provisions of the federal securities laws; (2) permanently barring him from serving as an officer or director of a public company; and (3) ordering him to pay a civil monetary penalty of $25,000. 
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diff --git a/raw/aaer/2005/AAER-2298.txt b/raw/aaer/2005/AAER-2298.txt
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@@ -0,0 +1,1386 @@
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+              Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen
+           
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+        Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19351 / August 29, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2298 / August 29, 2005 
+
+  Securities and Exchange Commission v. Dean L. Buntrock, Phillip B. Rooney, James E. Koenig, Thomas C. Hau, Herbert A. Getz, and Bruce D. Tobecksen,  Civil Action No. 02 C 2180 (N.D. Ill.) (Judge Andersen). 
+
+ WASTE MANAGEMENT, INC. FOUNDER AND THREE OTHER FORMER TOP OFFICERS SETTLE SEC FRAUD ACTION FOR $30.8 MILLION 
+
+ The Securities and Exchange Commission announced today that, on August 26, 2005, the United States District Court for the Northern District of Illinois entered final judgments as to defendants Dean L. Buntrock, Phillip B. Rooney, Thomas C. Hau, and Herbert A. Getz.  The settling defendants, who consented to the Judgments without admitting or denying the allegations in the Commission's complaint, were senior officers of Waste Management, Inc.:  Dean L. Buntrock was Waste Management's founder, chairman of the Board of Directors, and chief executive officer during most of the relevant period; Phillip B. Rooney was president and chief operating officer, director, and CEO for a portion of the relevant period; Thomas C. Hau was vice president, corporate controller, and chief accounting officer; and Herbert Getz was senior vice president, general counsel, and secretary.  The Judgments permanently bar Buntrock, Rooney, Hau, and Getz from acting as an officer or director of a public company, enjoin them from future violations of the antifraud and other provisions of the federal securities laws, and require payment of $30,869,054 in disgorgement, prejudgment interest, and civil penalties.   
+ The complaint in this action charged Buntrock, Rooney, Hau, Getz, and two other former top officers of Waste Management with perpetrating a massive financial fraud lasting more than five years.  The Commission alleged that, beginning in 1992 and continuing into 1997, defendants engaged in a systematic scheme to falsify and misrepresent Waste Management's financial results with profits being overstated by $1.7 billion.  The fraud resulted in a restatement in February 1998, which at the time was the largest restatement in history. 
+ According to the complaint, the scheme was accomplished through false and misleading disclosures and a variety of non-GAAP accounting practices designed to defer current period expenses whenever possible.  For example, the Company manipulated its calculation of depreciation expense by repeatedly extending the useful lives and overstating the salvage value of its trucks and containers, thus reducing periodic depreciation expenses.  The Company also failed to write off impaired assets carried on its balance sheet, improperly capitalized interest and other current period expenses, understated its income tax expenses, under-accrued reserves, misapplied acquisition accounting principles, and improperly reversed reserves into income.  All of these practices boosted current period earnings by reducing current period expenses.   
+ The Judgments permanently bar Buntrock, Rooney, Hau, and Getz from acting as an officer or director of a public company and enjoin them from violating, or aiding and abetting violations of, Sections 10(b) and 13(a) of the Securities Exchange Act of 1934, Rules 10b-5, 12b-20, 13a-1, and 13a-13 promulgated thereunder, and Section 17(a) of the Securities Act of 1933.  The Judgment as to Hau additionally enjoins him from aiding and abetting violations of Section 13(b)(2)(A) of Exchange Act, and from violating Exchange Act Rules 13b2-1 and 13b2-2. 
+ The Judgments also require payment of over $30 million in total, comprised of $16.4 million in disgorgement, $10.4 million prejudgment interest, and $4 million in civil penalties.  The disgorgement includes approximately $6.3 million in earnings-based performance bonuses from all settling defendants, $5.9 million in Buntrock and Hau's retirement benefits based upon the earnings-based bonuses, $3.5 million in losses avoided by Buntrock and Rooney from selling stock during the fraud, and $700,000 in tax benefits realized by Buntrock from gifting stock that was inflated by the fraud.  The breakdown of the monetary relief is as follows: 
+	  Buntrock - $19,447,670 total, comprised of $10,708,032 in disgorgement, $6,439,638 of prejudgment interest, and a $2,300,000 civil penalty;   
+	 Rooney - $8,692,738 total, comprised of $4,593,764 in disgorgement, $2,998,974 of prejudgment interest, and a $1,100,000 civil penalty;   
+	 Hau -$1,578,890 total, comprised of $641,866 in disgorgement, $507,024 of prejudgment interest, and a $430,000 civil penalty; and   
+	 Getz - $1,149,756 total, comprised of $472,500 in disgorgement, $477,256 of prejudgment interest, and a $200,000 civil penalty.   
+ 	  Additionally, Getz agreed to settle a related Rule 102(e) administrative proceeding to be instituted by the Commission by consenting to the entry of an order suspending him from appearing or practicing before the Commission as an attorney for five years.   
+ The Commission's litigation is continuing as to James E. Koenig Waste Management's former chief financial officer and executive vice president.  The other senior officer named in the complaint, Bruce D. Tobecksen, settled in September 2004. [Release No. LR-18913] (September 30, 2004). 
+
+ Additional information concerning this action and Commission actions related to this matter can be found at: 
+ SEC v. Buntrock, et al., Civil Action No. 02-C-2180 (N.D. Ill. March 26, 2002) (Andersen, J.) [Release No. LR-17435] (March 26, 2002) 
+ SEC v. Arthur Andersen LLP, et al., No. 1:01CV01348 (JR) (D.D.C.) [Release No. LR-17039] (June 19, 2001); 
+ In the Matter of Arthur Andersen, LLP, [Release No. 34-44444] (June 19, 2001); 
+ In the Matter of Robert E. Allgyer, CPA, [Release Nos. 33-7986, 34-44445] (June 19, 2001); 
+ In the Matter of Edward G. Maier, CPA, [Release Nos. 33-7987, 34-44446] (June 19, 2001); 
+ In the Matter of Walter Cercavschi, CPA, [Release Nos. 33-7988, 34-44447] (June 19, 2001); 
+ In the Matter of Robert G. Kutsenda, CPA, [Release No. 34-44448] (June 19, 2001); 
+ SEC v. Buntrock, et al., Civil Action No. 02-C-2180 (N.D. Ill.) (Andersen, J.) [Release No. LR-18913] (September 30, 2004). 
+
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diff --git a/raw/aaer/2005/AAER-2299.txt b/raw/aaer/2005/AAER-2299.txt
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index 0000000000000000000000000000000000000000..49feb3480bea4f23e969de0483765ad3ab42eb53
--- /dev/null
+++ b/raw/aaer/2005/AAER-2299.txt
@@ -0,0 +1,196 @@
+ 
+ 
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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52356 / August 30, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2299 / August 30, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12020 
+In the Matter of 
+Michael W. Spake, 
+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 Michael W. Spake (“Spake” or “Respondent”).  
+II. 
+In anticipation of the institution of these proceedings, Spake 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, Spake 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.   
+ 
+ 
+ 
+ 
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+ 
+ 
+ 
+ 
+ 
+     
+  
+ 
+ 
+ 
+ 
+ 
+  
+                                                 
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+ 
+III. 
+On the basis of this Order and Spake’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 
+Michael W. Spake (“Spake”) was a Buyer in Kmart’s home storage division from 1998 
+until June 200l. 
+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. Spake Executed Three Misstated VATS Forms 
+Towards the end of Kmart’s fiscal year 2000, Spake asked Newell Rubbermaid for help in 
+overcoming a shortfall in allowances in the home storage division.  With Spake’s knowledge and 
+assistance, Newell Rubbermaid agreed to advance allowances against future shipments of goods.  
+Spake 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, Spake executed VATS 
+form Nos. 227901 and 227902 covering a $2.2 million portion of the advance.  On or about 
+January 31, 2001, Spake executed VATS form No. 227910 covering a $600,000 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, Spake received a letter in 
+which Newell Rubbermaid admitted 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. Spake’s accounting irregularities caused net income for the quarter to be overstated by 
+slightly more than 1 percent. 
+D. CONCLUSION 
+As a result of the foregoing, Spake 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 Spake’s Offer. 
+Accordingly, it is hereby ordered that Respondent Spake 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 
+4
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2300.txt b/raw/aaer/2005/AAER-2300.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a59aebe4c8e349bd9355a2d01d006149f9154e5b
--- /dev/null
+++ b/raw/aaer/2005/AAER-2300.txt
@@ -0,0 +1,253 @@
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+   
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+  
+ 
+   
+ 
+ 
+ 
+ 
+ 
+      
+    
+   
+ 
+ 
+ 
+ 
+ 
+UNITED STATES OF AMERICA
+ Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52357 / August 30, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2300 / August 30, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12021 
+In the Matter of 
+David P. Levine, 
+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 David P. Levine (“Levine” or “Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Levine 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, Levine 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.  
+ 
+ 
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+ 
+III. 
+On the basis of this Order and Levine’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 EZ Paintr which manufactures and distributes paint applicator tools and related products. 
+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 
+David P. Levine (“Levine”) was Kmart’s Divisional Vice President for the Do-It-Yourself 
+(“D.I.Y.”) Division from April 1997 until July 2002. 
+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 incorrect information provided to Kmart’s accounting department, 
+while the correct terms of the payments were undisclosed. As a result of these accounting 
+irregularities, Kmart’s cost of goods sold was understated, and earnings were materially 
+overstated, for the fourth quarter of fiscal year ended January 31, 2001 (“fiscal year 2000”). 
+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 
+Formatted: Left 
+ 
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+ 
+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 correct effective dates for the payment. To pull forward an allowance, 
+this information was incorrectly reported on the VATS form to make it look like the payment was 
+for past performance, when it actually related to future obligations.  
+3. Levine Signed A Misstated VATS Form 
+In late calendar year 1997, Levine negotiated a contract with EZ Paintr, a Newell 
+Rubbermaid subdivision, whereby Kmart agreed to purchase goods from EZ Paintr pursuant to 
+various terms and conditions.  The contract was executed on January 22, 1998 and expired at the 
+earlier of:  (1) Kmart’s purchase of $45 million of goods from EZ Paintr; or (2) December 31, 
+2001.  The contract further allowed for various volume-based allowances from EZ Paintr to Kmart. 
+In late calendar year 2000, Levine began negotiating with EZ Paintr an addendum to the 
+January 22, 1998 contract in order to extend the existing contract. On January 22, 2001, Levine 
+and EZ Paintr’s president executed a contract addendum pursuant to which EZ Paintr agreed to 
+issue Kmart a credit memo in the amount of $2 million titled a “2000 Promotional Fund” in 
+exchange for Kmart’s agreement to purchase an additional $15 million in goods. Levine and EZ 
+Paintr further agreed that if “during the life” of the addendum, Kmart exited the paint applicator 
+business, the $2 million would be refunded to EZ Paintr on a pro-rata basis. 
+In conjunction with the contract addendum, on or about January 29, 2001, Levine also 
+signed VATS form No. 219052 which purported to account for the $2 million allowance issued by 
+EZ Paintr.  However, the VATS form incorrectly reported the effective date of the $2 million 
+allowance as 2/1/00 to 1/30/01.  Kmart’s accounting personnel entered this incorrect 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 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. VATS form No. 219052 submitted by Levine caused net income for the quarter to be 
+overstated by slightly less than 1 percent. 
+3 
+ 
+ 
+ 
+         
+  
+  
+ 
+  
+ 
+      
+    
+   
+    
+ 
+ 
+ 
+ 
+ 
+         
+      
+                                                
+ 
+  
+D. CONCLUSION 
+As a result of the foregoing, Levine committed a violation of Rule 13b2-1 of the Exchange 
+Act and caused Kmart’s violation 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 Levine’s Offer.2 
+Accordingly, it is hereby ordered that Respondent Levine cease and desist from committing 
+or causing any violations and any future violations of 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
+ Secretary 
+2  Levine has agreed to pay a $35,000 civil penalty in connection with a parallel civil action. 
+4 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2303.txt b/raw/aaer/2005/AAER-2303.txt
new file mode 100644
index 0000000000000000000000000000000000000000..eef18dbb0376162ea2d023da46e69ffa42a46b63
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+
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+           
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+        David P. Levine, Michael W. Spake, Barry S. Berlin, and Douglas J. Ely
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19353 / August 30, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2303 / August 30, 2005 
+
+  Securities and Exchange Commission v. David P. Levine, Michael W. Spake, Barry S. Berlin, and Douglas J. Ely,  2:05 CV 73328 (N. Edwards, J.) (E.D. Michigan, filed August 29, 2005) 
+
+ SEC Charges Two Former Kmart Executives and Representatives Of A Major Vendor With Accounting Irregularities 
+
+ The Securities and Exchange Commission filed settled civil charges against David P. Levine, Michael W. Spake, Barry S. Berlin, and Douglas J. Ely in the United States District Court for the Eastern District of Michigan seeking civil money penalties and instituted related settled administrative cease-and-desist proceedings.  The Commission alleges that these individuals caused Kmart to issue materially false financial statements by improperly accounting for millions of dollars worth of vendor "allowances."  Kmart obtained allowances from its vendors for various promotional and marketing activities.  According to the Commission, defendants caused Kmart to recognize allowances prematurely on the basis of false information provided to the company's accounting department.  Vendor representatives participated in the violations by co-signing false and misleading accounting documents.  As a result, Kmart's net income for the fourth quarter and fiscal year ended January 31, 2001, was overstated by approximately $4.8 million as originally reported.  The company restated its financial statements after filing for bankruptcy to correct these and other accounting errors.   
+ Levine is a former Divisional Vice President of Kmart's do-it-yourself division; Spake is a former Kmart buyer in Kmart's home storage division; Berlin is a former Director of Sales at Newell Rubbermaid for the Kmart account; and Ely is a former National Account Manager at Newell Rubbermaid for the Kmart account.  Without admitting or denying the findings, Levine, Spake, Berlin, and Ely consented to administrative orders to cease and desist from committing or causing any violations and any future violations of Rule 13b2-1 of the Securities Exchange Act of 1934 and from causing any violations and any future violations of Sections 13(a) of the Exchange Act and Rules 13a-1 and 12b-20 thereunder.  Without admitting or denying the allegations in the Complaint, Levine, Berlin, and Ely also consented to final judgments directing them to pay civil penalties of $35,000, $30,000, and $25,000, respectively.  The proposed settlement with Spake does not impose a civil penalty based upon based upon his sworn financial statements and other documents submitted to the SEC.   
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diff --git a/raw/aaer/2005/AAER-2305.txt b/raw/aaer/2005/AAER-2305.txt
new file mode 100644
index 0000000000000000000000000000000000000000..e0bae1269d678a13eb922c427f24bd8a27cd2e49
--- /dev/null
+++ b/raw/aaer/2005/AAER-2305.txt
@@ -0,0 +1,130 @@
+ 
+ 
+ UNITED STATES  OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  52369 / August 31, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  2305 / August 31, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.   3-12026 
+ 
+      
+ 
+      :  
+ :  
+ :  
+In the Matter of : ORDER INSTITUTING PUBLIC 
+ : ADMINISTRATI VE PROCEEDINGS 
+      : PURSUANT TO RU LE 102(e) OF THE    
+John R. Behrmann, CPA,   : CO MMISSION’S RULES OF PRACTICE, 
+     :  M A K I N G  F I NDINGS, AND IMPOSING 
+        : REMEDIAL SANCTIONS 
+    Respondent.    :  
+      :  
+____________________________________ :  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest  that public administrative proceedings be, and hereby are, instituted against John 
+Behrmann (“Respondent” or “Behrmann”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.
+1   
+                                                 
+1  Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public  interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 
+102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Responde nt’s Offer, the Commission finds that:  
+ 
+  1. John Behrmann, 69, join ed First American Health Concepts, Inc. (“FAHC”) 
+in 1994 and was elected Chairman of the Board in 1996.  Behrmann resigned as director and 
+chairman of FAHC in 2001.  Behrmann is a Certified Public Accountant (“CPA”) licensed in 
+Pennsylvania, but at all times relevant hereto his CPA license was inactive.  
+ 
+  2. FAHC was an Arizona corporati on headquartered in Phoenix with common 
+stock registered with the Commission pursuant to Section 12(b) of the Exchange Act 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. On August 17, 2005, a final judgment was entered against John Behrmann, 
+permanently enjoining him from future violations of Sections 10(b) and 13(b)(5) of the Securities 
+Exchange Act of 1934 (“the Exchange Act”) and Rules 10b-5 and 13b2-1 thereunder, 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. John R. Behrmann and Margaret M. Eardley, Civil Action Number 05-CV-01640, 
+in the United States District Court for the District of Columbia.  Behrmann was also ordered to pay 
+a $75,000 civil money penalty. 
+ 
+ 4. The Commission’s Co mplaint alleged, among other things, that FAHC 
+materially overstated its assets and net income in reports filed with the Commission for its 1999 
+fiscal year and the second quarter of its 2000 fiscal year by significantly overstating its accounts 
+receivable and by engaging in other accounting irregularities, and violated reporting, internal 
+controls and books and records provisions of the federal securities laws.  The Complaint alleged 
+that Behrmann was advised in October 1998 by FAHC’s independent auditor that the receivables 
+were not reconciled for at least a year and that the auditor considered that to be the most significant 
+audit problem.  The Complaint also alleged that in November 1998, FAHC’s Chief Financial 
+ 3
+Officer also brought the accounts receivable problem to Behrmann’s attention and that Behrmann 
+directed the CFO to focus on other matters.  The Complaint also alleged that Behrmann signed 
+FAHC’s 1999 10-KSB, filed October 29, 1999, knowing of the receivables problem and without 
+regard for whether it would have a material impact on the Company’s financial statements.  In that 
+Form 10-KSB, FAHC reported accounts receivable of $2.4 million and pretax income of 
+$693,000.2  According to a restatement FAHC filed on December 20, 2000, the receivables were 
+overstated in that Form 10-KSB by approximately $892,000 and, but for the overstatement, 
+FAHC’s fiscal 1999 pre-tax income would have been a loss of $199,000.  The Complaint also 
+alleged that Behrmann was advised in early March 2000 that FAHC’s independent auditor was 
+working on a restatement of FAHC’s 1999 10-KSB and first quarter 2000 10-QSB and therefore 
+recommended that FAHC obtain a five-day extension for filing its second quarter 10-QSB, which 
+would be affected by the restatement.  The Complaint alleged that, at the March 13, 2000 Board of 
+Directors meeting, Behrmann recommended that the Board ignore the concerns of the independent 
+auditors and have FAHC file its second quarter 10-QSB “as is.”  That filing was made on March 
+15, 2000.  A subsequent amended filing revealed that FAHC overstated its reported income for the 
+second quarter of 2000 by 46 percent. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Behrmann’s Offer. 
+  
+ Accordingly, it is hereby ORDERED, effective immediately, that John Behrmann 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  
+                                                
+ 
+2  FAHC operates with a July 31 fiscal year end. 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2307.txt b/raw/aaer/2005/AAER-2307.txt
new file mode 100644
index 0000000000000000000000000000000000000000..c829ab3e48381edda228b01d41cd16aab5a23d7d
--- /dev/null
+++ b/raw/aaer/2005/AAER-2307.txt
@@ -0,0 +1,1369 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19360 / September 6, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2307 / September 6, 2005 
+
+  Securities and Exchange Commission v. Del Global Technologies Corp., Inc.,et al.,  04 CV 4092 (S.D.N.Y.) 
+
+ Former Del Global CEO Leonard A. Trugman Agrees to $1.25 Million Settlement with SEC 
+
+ The Securities and Exchange Commission announced today that it has reached a settlement of its pending financial fraud case against Leonard A. Trugman, the former chairman and chief executive officer of Del Global Technologies Corp., Inc. ("Del"), a company based in Valhalla, New York.   The Commission's complaint, filed June 1, 2004 in the U.S. District Court for the Southern District of New York, alleged that Trugman (along with five former officers and/or directors of Del) participated in a multi-year financial fraud at Del between 1997 and 2000.  Trugman consented to the entry of a final judgment against him without admitting or denying the allegations in the Commission's complaint. 
+ On August 23, 2005, the Honorable Colleen McMahon, U.S. District Judge for the Southern District of New York, entered a final judgment that requires Trugman to pay $885,000 in disgorgement of ill-gotten gains, $255,000 in prejudgment interest thereon, and a $110,000 civil penalty, for a total of $1.25 million.  The final judgment also enjoins Trugman from (i) violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 13b2-1 and 13b2-2, (ii) aiding and abetting  violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and (iii) controlling any person (pursuant to Exchange Act 20(a)) that violates these provisions.  Additionally, the final judgment permanently bars Trugman from acting as an officer or director of a public company. 
+ The Commission's complaint alleged, among other things, that Trugman orchestrated a financial fraud at Del that resulted in Del materially overstating its reported revenues and caused Del to make numerous material misrepresentations in Commission filings and in press releases.  According to the complaint, Del routinely engaged in improper revenue recognition when it held open quarters, prematurely shipped products to third-party warehouses, and recorded sales on products that Del had not yet manufactured. The complaint also alleged that Del improperly accounted for inventory by recording obsolete inventory at full value and overstating certain engineering work in process values. In addition, the complaint alleged that Del improperly characterized certain ordinary expenses as capital expenditures. As alleged in the complaint, these actions contravened Generally Accepted Accounting Principles and resulted in the overstatement of Del's reported pre-tax income by at least $3.7 million (110%) in fiscal year 1997, $5.2 million (161%) in fiscal year 1998, and $7.9 million (466%) in fiscal year 1999 - and allowed Del to represent that its performance was on par with internal and external expectations in the first three quarters of fiscal year 2000, when in fact those expectations outpaced the company's actual performance by a wide margin. 
+ The complaint further alleged that Trugman and others engaged in a cover-up to prevent Del's outside auditors from discovering the fraud.  Del kept two sets of books (one set for its auditors and one correct set) and falsified documents such as shipping logs, quality control records, and accounts receivable documents to hide its fraudulent accounting practices from its outside auditors.  
+ For additional information, see Litigation Release No.  18732  (June 1, 2004) 
+
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diff --git a/raw/aaer/2005/AAER-2308.pdf b/raw/aaer/2005/AAER-2308.pdf
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@@ -0,0 +1,304 @@
+UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52409 / September 13, 2005 
+ 
+ACCOUNTING & AUDITING ENFORCEMENT 
+Release No. 2309 / September 13, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12036 
+  
+ 
+In the Matter of 
+ 
+NCO GROUP, 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 Commissi on (“Commission”) deems it appropriate 
+that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of 
+the Securities Exchange Act of 1934 (“Exchange Act”), against NCO Group, Inc. (“NCO” 
+or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of thes e 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. 
+Findings 
+  
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+  
+A. 
+ 
+Respondent 
+  
+NCO is a Pennsylvania corporation headquartered in Horsham, Pennsylvania and is 
+the world’s largest provider of debt collection, accounts receivable management services, 
+and other outsourced revenue cycle management services to a broad range of clients in the 
+United States and overseas.  Most of NCO’s services to date have focused on the recovery 
+of traditional delinquent accounts, that is, accounts more than 90 days past due.  NCO 
+generates approximately 70 percent of its revenue on a contingency fee basis.  Founded in 
+1926, the company went public in 1996.  NCO’s common stock is registered with the 
+Commission pursuant to Section 12(g) of the Exchange Act and is quoted on the Nasdaq 
+national market system.  NCO’s fiscal year ends December 31. 
+ 
+B. 
+ 
+These proceedings arise from NCO’s use of two accounting practices that 
+contravened generally accepted accounting principles (GAAP):  a “one-day-after” policy 
+for recording incoming checks from collections on delinquent accounts, and a methodology 
+for recording anticipated fee revenue under a long-term services contract.   
+ 
+NCO’s One-day-after Policy 
+ 
+ In each of its periodic filings with the Commission NCO has represented that its 
+“contingency fee revenue is recognized upon collection of funds on behalf of clients.”2  
+Despite its stated revenue recognition policy, NCO has consistently, since a time prior to 
+going public, been applying an undisclosed “one-day-after” policy to its contingency fee 
+revenues, by recognizing revenues from collections postmarked prior to the end of the 
+reporting period and received in the mail from consumers on the first business day of a 
+subsequent reporting period as though they had been received and earned in the prior 
+reporting period.   
+ 
+NCO’s rationale for this policy was twofold: first, that NCO was in “constructive” 
+receipt of the payments when they were delivered to NCO’s “agent,” the U.S. Postal 
+Service, by being placed in the mail; and second, that any payments received on the first 
+                                                 
+1 The findings herein are made pursuant to Respondent's Offer and are not 
+binding on any other person or entity in this or any other proceeding. 
+ 2 See “Notes to Financial Statements” sections of each of NCO’s Forms 10-K and 
+10-Q, under the “Revenue Recognition” heading [emphasis added]. 
+ 2
+day of a new quarter must necessarily have been mailed, and therefore earned by NCO, 
+during the prior quarter.   
+ 
+NCO’s “one-day-after” policy contravenes GAAP because it accounts for 
+contingent fees as revenue before the earnings process is complete.  The majority of NCO’s 
+business has been collecting payments from debtors who have already defaulted on 
+outstanding payment obligations owed to NCO’s clients.  NCO earns as fees a percentage 
+of the amount it collects.  Because NCO’s fee is contingent, NCO’s earnings process is not 
+complete until NCO in fact receives the collections.  Financial Accounting Standards Board 
+Statement of Financial Accounting Concepts No. 5, Recognition and Measurement in 
+Financial Statements of Business Enterprises (“CON 5”) (issued in December 1984), 
+provides that “[i]f collectibility of assets received for product, services, or other assets is 
+doubtful, revenues and gains may be recognized on the basis of cash received.”  Staff 
+Accounting Bulletin (SAB) 101 Revenue Recognition in Financial Statements (released in 
+December 1999) counsels against and CON 5 precludes accounting for contingent fee 
+payments from a subsequent reporting period as revenue in the prior period.  CON 5 
+requires that revenue is generally realized or realizable and earned when the seller’s price 
+to the buyer is fixed or determinable, services have been rendered, and collectibility is 
+reasonably assured.  In cases in which revenue is contingent upon some specified future 
+event, SAB 101 provides that such contingent revenue “should be recorded in the period in 
+which the contingency is resolved.”  NCO’s position that the company has earned fee 
+revenue because it is in constructive receipt of payments once the check is in the mail does 
+not meet the provisions of CON 5 and SAB 101.   
+ 
+NCO’s policy of recording in a prior reporting period contingent fee revenue 
+derived from a subsequent reporting period also amounts to recognizing a gain 
+contingency, which is specifically prohibited under paragraph 17(a) of Statement of 
+Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies (issued in 
+March 1975).  In particular, the contingencies attending NCO’s collections are not resolved 
+until NCO actually receives the payment.  Accordingly, NCO’s “one-day-after” policy 
+prematurely recognizes contingent fee revenue one business day before it is actually 
+earned. 
+ 
+NCO has consistently applied the “one-day-after” policy over time.  Therefore, 
+NCO’s quarter-to-quarter and year-to-year financial statements reflected trends in revenues 
+and earnings with some consistency.3  In order to comply with GAAP, as well as to comply 
+with NCO’s own publicly disclosed revenue recognition policy, retroactive correction of 
+the policy would entail reversing out the “one-day-after” fee income from the end of a 
+period but adding in fee income improperly recorded in the prior period.  In other words, 
+the impact of correcting the back end of the period would be offset, in whole or in part, by 
+correcting the front end of the period.  As a result, retroactive correction of this practice 
+                                                 
+ 3 Note, however, that because NCO’s policy included one additional business day, 
+periodically, if its quarter ended on a Friday, NCO received the benefit of weekend mail 
+deliveries as well as the following Monday’s deliveries.  This occasional increase in 
+revenue sporadically increased the amount of revenue recorded in certain quarters. 
+ 3
+would not materially differ from NCO’s previously reported financial statements as NCO 
+would report 90 days of revenues and expenses on a quarter-to-quarter basis and 365 days 
+of revenues and expenses on an annual basis.  However, by eliminating the “one-day-after” 
+policy altogether NCO has reported a material one-time reduction in pre-tax income.  That 
+is, by ceasing the “one-day-after” policy, NCO has reported 89 days of contingent fee 
+revenues but 90 days of expenses for the quarter in which the correction was made.  For the 
+fourth quarter of 2004, the correction resulted in a one-time reduction of pre-tax income of 
+7.5 percent.  Additionally, ceasing the one-day-after policy resulted in NCO reporting 
+earnings per share of approximately 35 cents, thereby not meeting its earnings per share 
+guidance of 38 cents to 42 cents.   
+ 
+NCO’s Long Term Guarantee Contract
+ 
+ On September 27, 1999, NCO entered into a long-term collection contract with a 
+large customer (the “Contract”).  The Contract went into effect on January 1, 2000 and 
+continued until December 31, 2002.  Pursuant to the Contract, NCO guaranteed that it 
+would collect set minimum amounts of money, with the contract minimums based on 
+historical benchmarks.  In return for making the required collections, NCO’s customer 
+agreed to pay NCO a base fee of 16.9 percent for each dollar NCO collected plus a bonus 
+equal to 25 percent of each dollar NCO collected in excess of the minimum thresholds.  For 
+each dollar by which NCO fell below the minimums, NCO agreed to pay a penalty of 75 to 
+100 percent of the shortfall.  At the time, the Contract required NCO to compare the 
+projected minimum threshold amount to the actual collection amount and to collect any 
+aggregate net bonus or pay any aggregate net penalty 45 days after the end of the first year 
+of the contract and 45 days after each six-month period thereafter.  These interim payments 
+were to be applied to the final cash reconciliation of penalty and bonus payments between 
+NCO and its customer, which was originally set to occur 150 days after December 31, 
+2002.  After the final reconciliation NCO would not be required to pay any additional funds 
+to the customer, but through its continued collection efforts, NCO was entitled to recoup 90 
+to 100 percent of any penalties paid.  Additionally, where NCO was in a bonus position at 
+the final reconciliation, NCO was entitled to incremental bonuses from collections received 
+after the date of the final reconciliation. 
+ 
+ NCO recognized the base collection fee it received from current period collections 
+as current period revenue.  NCO also recorded the ratable portion of bonuses net of 
+penalties in the current period based on a collection curve derived from historical 
+experience with this client.  To justify its accounting for the bonus provisions of the 
+Contract, NCO analogized to the percentage of completion accounting methodology 
+outlined in Statement of Position (“SOP”) 81-1 Accounting for Performance of 
+Construction and Certain Production Type Contracts (issued in July 1981).   However, 
+SOP 81-1 specifically applies to “construction-type” contracts and does not, by its terms, 
+ordinarily apply to “service transactions,” particularly debt collection services.  NCO also 
+based its analogy to SOP 81-1 on the long-term nature of the Contract, and took the 
+position that the production of  “cash” served as this accounting treatment’s requisite 
+“tangible property.”        
+ 
+ 4
+NCO’s method of accounting for the Contract contravened GAAP.   As described 
+above, CON 5 and SAB 101 provide that contingent revenue may be recognized only upon 
+elimination of the underlying contingencies.  The base fees and bonuses provided for in the 
+Contract represent contingent revenue.  NCO was not entitled to record contingent fees and 
+bonuses as income until it had collected sufficient contingent payments to meet pre-
+determined thresholds and the collection results were reconciled with the client.  
+Collectibility of the bonuses was not reasonably assured until the pre-determined thresholds 
+were met and the collection results were reconciled with the client.  In October 2000, just 
+after the close of NCO’s third quarter, SEC staff released SAB 101 Frequently Asked 
+Question (“FAQ”) No. 28, Fixed or Determinable Fees, which specifically addressed 
+service contracts like the Contract.  FAQ 28 directly addressed this type of service contract 
+and fee arrangement.  FAQ 28 provides that companies who earn fees based on such 
+collection contracts “must wait until collections occur before recognizing revenue.”  
+Therefore, once the minimum collection thresholds were met NCO was only allowed to 
+record base fees and bonus revenue to the extent that collections occurred.  NCO did not 
+make any change in its method of accounting for the Contract when the staff released FAQ 
+28. 
+ 
+Contrary to NCO’s analogy, SOP 81-1 does not apply to service contracts except 
+for “services essential to the construction or production of tangible property, such as 
+design, engineering, procurement and construction management.” 4  In fact, the Notes to 
+SOP 81-1 expressly explain that the statement does not apply to service contracts except 
+for contracts “essential to the construction or production of tangible property . . . .”   
+ 
+ On February 11, 2003, NCO announced that it would revise its policy concerning 
+the timing of revenue recognition under the Contract and would restate its financial 
+statements for its 2000 and 2001 fiscal years and for each of its quarters during those years 
+and in 2002 to correct the accounting for the bonus and penalty provisions of the Contract.  
+NCO further announced that the restatement would employ the correct accounting 
+methodology that would defer the recognition of all revenues until all contingencies related 
+to that revenue had been eliminated.   
+ 
+ NCO’s method of accounting for the Contract had a material impact on NCO’s 
+revenues, net income, and diluted earnings per share.  The restatement reduced NCO’s 
+2001 revenue by approximately $17.6 million or 2.5 percent and 2001 diluted earnings per 
+share by $0.41 or approximately 41.4 percent; it reduced NCO’s 2000 revenue by 
+approximately $18.4 million, or 3.0 percent and 2000 diluted earnings per share by $0.42 
+or 49.4 percent.  NCO estimated that the restatement increased its 2002 revenue by 
+approximately $2.1 million or 0.3 percent and increased 2002 diluted earnings per share by 
+$0.05 to $1.54.   
+ 
+                                                 
+ 4 SOP 81-1, paragraph 11, fn. 1 [emphasis added]. 
+ 5
+Respondent’s Conduct 
+ 
+ Respondent NCO’s “one-day-after” policy contravened GAAP because it 
+accounted for contingent fee revenue before the earnings process was complete.  NCO’s 
+earnings process was not complete until collections were received by NCO.  Accordingly, 
+the policy did not meet CON 5’s requirement that if collectibility of assets received for 
+services is doubtful, revenues and gains may be recognized on the basis of cash received.  
+SAB 101 counsels and CON 5 requires that contingent fees are earned only upon receipt, 
+and the policy also violated paragraph 17(a) of SFAS No. 5 that prohibits the recognition of 
+gain contingencies.  
+ 
+ Respondent NCO failed to properly account for the Contract and instead 
+improperly analogized to SOP 81-1.  SOP 81-1 was not applicable to this contract since the 
+services provided did not involve the production or construction of tangible property, such 
+as design, engineering, procurement and construction management.  Moreover, NCO also 
+failed to apply the appropriate accounting pronouncements for this type of contract (CON 
+5, SAB 101, and FAQ 28) that provide that contingent revenue be recognized as revenue in 
+the period in which the underlying contingencies related to the bonuses are resolved. 
+ 
+ Respondent’s independent auditors were aware of, consulted with NCO concerning, 
+and did not object to both the “one-day-after” policy and the method of accounting for the 
+Contract and issued audit reports containing unqualified opinions on Respondent’s 
+consolidated financial statements. 
+ 
+C. 
+ 
+ Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require 
+issuers with securities registered under Section 12 of the Exchange Act to file annual and 
+quarterly reports with the Commission.  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).  Section 13(b)(2) of the 
+Exchange Act requires issuers to make and keep books, and records, and accounts, which, 
+in reasonable detail, accurately and fairly reflect the transactions and dispositions of the 
+assets of the issuer.  Additionally, this provision requires issuers to devise and maintain a 
+system of internal accounting controls sufficient to provide reasonable assurances that, 
+among other things, transactions are recorded as necessary to permit preparation of 
+financial statements in accordance with GAAP or any other criteria applicable to such 
+statements.   
+ 
+As a result of the conduct described above, Respondent NCO committed 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. 
+ 6
+IV. 
+Undertakings
+ 
+ Respondent NCO has undertaken to maintain its elimination of its former “one-day-
+after” policy.  
+  
+V. 
+Order 
+ 
+ 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 NCO 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, and13a-13 thereunder.  
+ 
+  IT IS FURTHERED ORDERED that Respondent NCO s hall comply with 
+the undertakings enumerated in Section IV above. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       J onathan G. Katz 
+       S ecretary 
+ 7
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2310.txt b/raw/aaer/2005/AAER-2310.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fef5bcb4fb2bbd85d70932a23b0390fac33227c9
--- /dev/null
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@@ -0,0 +1,1381 @@
+
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19373 / September 13, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2310 / September 13, 2005 
+
+  Securities and Exchange Commission v. Martin E. Kenney, Jr.,  Civil Action No. 05-CV-7944 (S.D.N.Y. Sept. 13, 2005) 
+
+ SEC FILES ACCOUNTING FRAUD CHARGES AGAINST MARTIN E. KENNEY, JR., CEO OF WRC MEDIA, INC. 
+
+ The Securities and Exchange Commission announced today the filing of a civil action against Martin E. Kenney, Jr., the Chief Executive Officer and a former Director of WRC Media, Inc. ("WRC"), in the United States District Court for the Southern District of New York.  WRC sells educational materials for the kindergarten through high school market and had $152 million of publicly traded debt securities registered with the Commission until July 2005 when WRC repurchased its debt securities.  
+ The Commission's complaint alleges that Kenney orchestrated WRC's fraudulent recognition of $1.2 million in revenue from a purported fourth quarter 2002 sale of educational software to the Monroe City, Louisiana School District.  At the time, WRC was millions of dollars behind its fourth quarter 2002 revenue expectations and was in danger of defaulting on its public debt covenants.  The complaint alleges that to facilitate the fraud, Kenney procured an unauthorized sales contract from the superintendent of the Monroe City School District that was contingent upon approval by the entire school board.  According to the complaint, the contract failed to reflect the school board contingency and omitted the standard representation by the superintendent that he was authorized to bind the school district and that all requirements necessary for authorization had been satisfied.  The complaint further alleges that Kenney concealed the contingency from WRC's internal accountants and independent auditors so they would not reject fourth quarter 2002 revenue recognition.  As a result, the complaint alleges that WRC filed financial reports with the Commission, certified by Kenney, that materially misstated its fourth quarter results.  After learning that the school district would not proceed with the transaction, Kenney permitted WRC to record a bad debt reserve for the purported Monroe receivable in the first quarter of 2003, when it should have restated fourth quarter 2002 results.  In March 2004, WRC restated its fiscal 2002 results to correct for the improper accounting related to the Monroe transaction. 
+ Due to Kenney's actions, the complaint alleges that WRC Media filed materially false and misleading periodic and current reports with the Commission.  As a result, the complaint alleges that Kenney violated or aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The Commission is seeking a permanent injunction, civil penalty and an officer and director bar.   
+
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diff --git a/raw/aaer/2005/AAER-2313.txt b/raw/aaer/2005/AAER-2313.txt
new file mode 100644
index 0000000000000000000000000000000000000000..045258d28a0540be7f3ab60ab95985082e87d13c
--- /dev/null
+++ b/raw/aaer/2005/AAER-2313.txt
@@ -0,0 +1,113 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52452 / September 15, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2313 / September 15, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12042  
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  HERBERT A. GETZ,   : 102(e) OF THE COMMISSION’S RULES OF 
+  ESQ.,    : PRACTICE , MAKING FINDINGS, AND 
+      : IMPOSING REMEDIAL SANCTIONS 
+  Respondent.   :  
+      :  
+____________________________________ :   
+  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Herbert 
+A. Getz (“Respondent” or “Getz”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1  
+ 
+ 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without  preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any attorney . . . who has been 
+by name . . . 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, Getz 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, Getz 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 Ge tz’s Offer, the Commission finds that: 
+ 
+ 1. Getz, age 50, is a resi dent of Naperville, Illinois.  Getz was employed at 
+Waste Management, Inc. (“Waste Management”) from 1983 through 1998.  For much of the 
+relevant period, Getz was general counsel, secretary, and senior vice president of Waste 
+Management. 
+ 
+ 2. Waste Management was, at all relevant times, a Delaware corporation with 
+its principal place of business in Oak Brook, Illinois.  At all relevant times, Waste Management’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 26, 2005 , a final judgment was entered against Getz, 
+permanently enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 
+10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and aiding and abetting violations of 
+Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder, in the civil 
+action entitled Securities and Exchange Commission v. Buntrock, et al., No. 02 C 2180, in the 
+United States District Court for the Northern District of Illinois.  Getz was also ordered to pay 
+$472,500 in disgorgement, $477,256 in prejudgment interest, and a $200,000 civil money penalty. 
+ 
+   4. The Commission’s Co mplaint alleged, among other things, that from 1992 
+through part of 1997, certain high-ranking officers of Waste Management falsified earnings and 
+other measures of financial performance in Waste Management’s financial statements and 
+reports by improperly eliminating or deferring expenses to meet earnings targets.  In February, 
+1998, Waste Management restated over five years worth of previously issued financial 
+statements, reducing its pre-tax earnings by a total of approximately $1.7 billion.  The Complaint 
+alleged that Getz, among other things, knew or recklessly disregarded facts indicating that, from 
+1993 through the first quarter of 1997, the company’s financial statements in its Form 10-K 
+annual reports and its Form 10-Q quarterly reports filed with the Commission were materially 
+false and misleading. 
+ 
+ 3
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Getz’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that Getz is suspended from 
+appearing or practicing before the Commission as an attorney for five years.  Furthermore, before 
+appearing and resuming practice before the Commission, Getz must submit an affidavit to the 
+Commission’s Office of General Counsel truthfully stating, under penalty of perjury, that he has 
+complied with this Order, that he is not subject to any suspension or disbarment as an attorney by a 
+court of the United States or of any state, territory, district, commonwealth, or possession, and that 
+he has not been convicted of a felony or misdemeanor involving moral turpitude as set forth in 
+Rule 102(e)(2) of the Commission’s Rules  of Practice.  
+ 
+ By the Commission. 
+ 
+ 
+ 
+       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-2317.pdf b/raw/aaer/2005/AAER-2317.pdf
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index 0000000000000000000000000000000000000000..9028fee19093e7ed17430ddd793298eaa92e79f3
--- /dev/null
+++ b/raw/aaer/2005/AAER-2317.txt
@@ -0,0 +1,209 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+   
+   
+ 
+ 
+ 
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 8616 / September 22, 2005 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52490 / September 22, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2317 / September 22, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12054 
+------------------------------------------------------: ORDER INSTITUTING PROCEEDINGS, 
+: MAKING FINDINGS, IMPOSING A 
+In the Matter of : CEASE-AND-DESIST ORDER PURSUANT 
+: TO SECTION 8A OF THE SECURITIES 
+BIO ONE CORPORATION, : ACT OF 1933 AND SECTION 21C OF 
+: THE SECURITIES EXCHANGE ACT OF 
+Respondent. : 1934, AND REVOKING REGISTRATION 
+: PURSUANT TO SECTION 12(j) OF 
+------------------------------------------------------: THE EXCHANGE ACT 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate and for 
+the protection of investors that administrative and cease-and-desist proceedings be, and hereby 
+are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and 
+Sections 12(j) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) against Bio 
+One Corporation (“Bio One” 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, Respondent consents to the entry of this Order Instituting Proceedings, Making 
+Findings, 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, and Revoking Registration 
+Pursuant to Section 12(j) of the Exchange Act (“Order”), as set forth below.   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+      
+  
+ 
+ 
+III. 
+On the basis of this Order and the Offer submitted by Bio One, the Commission finds1 
+that: 
+1. Bio One, a Nevada corporation based in Winter Springs, Florida, is a holding 
+company operating through subsidiaries that it acquired starting in September 2003.  The 
+company’s subsidiaries are involved in the nutritional supplement industry.  The common stock 
+of Bio One is registered pursuant to Section 12(g) of the Exchange Act and its shares traded on 
+the Over the Counter Bulletin Board. 
+2. On March 31, 2004, Bio One entered into an agreement to acquire 100% of the 
+common stock of Interactive Nutrition International, Inc. (“INI”) for $30 million (Canadian).  
+Under the terms of the agreement, Bio One paid $15 million in cash and agreed to pay the 
+remaining $15 million pursuant to a promissory note in 57 monthly installments of $263,158 
+commencing July 1, 2004. The holder of the note held a security interest in the assets of INI that 
+it could seize in the case of default. 
+3. INI was a significant part of Bio One’s business plan to “vertically integrate” the 
+nutritional supplement business.  INI manufactures nutrition and health bars, capsules and 
+powders, and Bio One’s operations in the United States existed, in part, to sell those products.  
+During 2004, INI represented approximately one third of Bio One’s total revenues. 
+4. Bio One never made monthly payments on the $15 million promissory note.   
+5. On or about August 13, 2004, Bio One’s CEO Armand Dauplaise signed a 
+forbearance agreement in which Bio One acknowledged that it was in default of the note.  Bio 
+One’s CFO Bernard Shinder signed the same agreement in his role as a director of INI.  In 
+accordance with the agreement, the note holder agreed to forbear from exercising its security 
+interest in INI’s assets, provided that Bio One agreed to certain terms and conditions. Among the 
+terms and conditions, Bio One agreed to restrict certain business operations of INI and to bring 
+the payments current by October 20, 2004. 
+6. On August 18, 2004, Bio One filed its quarterly financial results for the quarter 
+ended June 30, 2004, on Form 10-QSB.  The report described the $15 million note and the 57 
+monthly payments of $263,158 commencing July 1, 2004.  However, Bio One did not disclose 
+that it had failed to make any of its payments under the note or that the company had signed the 
+August 13, 2004 forbearance agreement. 
+1 The findings herein are made pursuant to Bio One's Offer of Settlement and are not binding on 
+any other person or entity in this or any other proceeding. 
+2
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+7. On November 1, 2004, Bio One failed to meet the terms and conditions of the 
+August 13, 2004 forbearance agreement, and Mr. Dauplaise and Mr. Shinder negotiated a second 
+forbearance agreement.  In signing the second forbearance agreement for Bio One, Mr. 
+Dauplaise conceded that the company had been in default of the note since July 2004 and waived 
+its right to further notice before the note holder could seize the assets of INI.   
+8. On November 5, 2004, Bio One filed a Form 8-K that included audited financial 
+statements for INI for the year ended December 31, 2003.  The audit opinion did not meet the 
+requirements of Form 8-K which requires audited financial statements for two fiscal years.  
+Further, the audit opinion contained a scope limitation on the one year of audit information 
+provided. Bio One consented to a stop order of its May 6, 2004 registration statement, partially 
+based on the lack of audited financial information on INI in the November 5, 2004 Form 8-K.   
+9. Bio One amended the Form 8-K on December 23, 2004 to include two full years 
+of audit information and an unqualified audit opinion.  Bio One did not disclose the defaults on 
+the INI promissory note or the two forbearance agreements in either the November 5, 2004 or the 
+December 23, 2004 Form 8-Ks.   
+10. On November 16, 2004, Bio One filed quarterly financial results for the quarter 
+ended September 30, 2004 on Form 10-QSB.  Again, the report described the $15 million note 
+and the July 1, 2004 date for the commencement of monthly payments.  However, it did not 
+disclose the default or the two forbearance agreements. 
+11.  On December 13, 2004, the note holder appointed a receiver for INI and provided 
+notice to Bio One that it intended to exercise its security rights under the agreement.  Bio One 
+did not file a Form 8-K reporting this event until February 15, 2005. 
+12. Millions of shares of Bio One’s common stock were publicly traded pursuant to 
+the May 6, 2004 registration statement during the period July 1, 2004 through December 2004.  
+Bio One never filed a post effective registration statement or an amended prospectus with the 
+Commission disclosing the defaults, the forbearance agreements or the appointment of a 
+receiver. 
+13. Bio One was required to file its annual report on Form 10-KSB for the year ended 
+December 31, 2004 by March 31, 2005.  Bio One has not filed that report and has informed the 
+Commission that it has been unable to retain an accountant to file 2004 audited financial 
+statements. 
+14.  Bio One has violated and failed to comply with Section 13(a) of the Exchange 
+Act and Rules 13a-1, 13a-11 and 13a-13 thereunder, while its common stock was registered with 
+the Commission in that it a) has not filed an Annual Report on Form 10-KSB since March 26, 
+2004, b) failed to disclose the creation of a direct financial obligation or its entry into material 
+definitive agreements in the matter required by Form 8-K, and c) has not filed quarterly reports 
+that include all material information on Form 10-QSB for any fiscal period subsequent to its 
+fiscal quarter ending March 31, 2004. 
+15.  Bio One has violated and failed to comply with Section 10(b) of the Exchange 
+Act and Rules 10b-5 and 12b-20 thereunder, by including materially false and misleading 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+  
+  
+ 
+ 
+   
+ 
+ 
+   
+  
+information in filings, including financial statements that failed to conform with Generally 
+Accepted Accounting Principles, as required by Commission Regulation S-X, in its Quarterly 
+Reports on Form 10- QSB for the quarters ended June 30 and September 30, 2004, and in its 
+Form 8-K filed on December 23, 2004.  Bio One also failed to file a post effective amendment to 
+its registration statement or an amended prospectus to disclose the “fundamental change” and/or 
+“substantial change” caused by the default, forbearance agreements and receivership.  
+16.  Bio One has violated and failed to comply with Sections 13(b)(2)(A) and 
+13(b)(2)(B) of the Exchange Act by failing to make and keep books, records, and accounts, 
+which, in reasonable detail, accurately and fairly reflected the transactions and disposition of its 
+assets, and by failing to maintain a system of internal accounting controls sufficient to provide 
+reasonable assurances that transactions are recorded as necessary to permit preparation of 
+financial statements in conformity with Generally Accepted Accounting Principles. 
+V. 
+Section 12(j) of the Exchange Act provides as follows: 
+The Commission is authorized, by order, as it deems necessary or appropriate for the 
+protection of investors to deny, to suspend the effective date of, to suspend for a period not 
+exceeding twelve months, or to revoke the registration of a security, if the Commission finds, on 
+the record after notice and opportunity for hearing, that the issuer of such security has failed to 
+comply with any provision of this title or the rules and regulations thereunder.  No member of a 
+national securities exchange, broker, or dealer shall make use of the mails or any means or 
+instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or 
+sale of, any security the registration of which has been and is suspended or revoked pursuant to 
+the preceding sentence. 
+In view of the foregoing, the Commission finds that it is necessary and appropriate for the 
+protection of investors to impose the sanction specified in Respondent’s Offer.  
+ACCORDINGLY, IT IS ORDERED that: 
+A) Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 
+Bio One shall cease and desist from committing or causing any violations and any future violations 
+of Section 17(a) of the Securities Act and Sections 10(b), 13(a) and 13(b)(2)(A) and (B) of the 
+Exchange Act and Rules 10b-5, 13a-1, 13a-11 and 13a-13 promulgated thereunder; and 
+B) Pursuant to Section 12(j) of the Exchange Act, the registration of each class of 
+Bio One’s securities registered pursuant to Section 12 of the Exchange Act be, and hereby is, 
+revoked. 
+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-2318.txt b/raw/aaer/2005/AAER-2318.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4ee2186778757f7b49b60a74f252e05192db9b79
--- /dev/null
+++ b/raw/aaer/2005/AAER-2318.txt
@@ -0,0 +1,1372 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Armand Dauplaise and Bernard Shinder 
+     
+     
+     
+     
+     
+     
+     
+         !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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+              Armand Dauplaise and Bernard Shinder
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+        Armand Dauplaise and Bernard Shinder
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19387 / September 22, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2318 / September 22, 2005 
+
+  Securities and Exchange Commission v. Armand Dauplaise and Bernard Shinder,  Civil Action No. 6:05CV1391-ORL-31-KRS (M.D. Fla.) 
+
+ SEC CHARGES BIO ONE CORPORATION AND TWO SENIOR OFFICERS WITH FRAUD  
+
+ The Securities and Exchange Commission today announced that it filed a civil action in the United States District Court for the Middle District of Florida charging former Bio One Corporation executives Armand Dauplaise and Bernard Shinder with fraud and other securities law violations. Bio One is a nutritional supplement company located in Winter Springs, Florida.  Its stock was traded on the OTC BB, but now trades in the pink sheets.   
+ In the Complaint filed today, the Commission alleges that former CEO Dauplaise, of Winter Park, Florida, and former CFO Shinder, of Boca Raton, violated the antifraud provisions of the federal securities laws when they failed to disclose the company's default on a $15 million (Canadian) promissory note and related subsequent events.  According to the complaint, Bio One purchased a private company, Interactive Nutrition International Inc. (INI), on March 31, 2004, in part, by issuing the promissory note.  The Complaint alleges that Bio One never made any of the payments on the note, and the company's former executives signed forbearance agreements in August and November 2004 acknowledging that the company was in default of the note.  According to the Complaint, in December 2004, the note holder appointed a receiver for INI and provided notice to Bio One that it intended to exercise its security rights under the agreement. 
+ The Complaint further alleges that Dauplaise and Shinder failed to disclose the default, the forbearance agreements and the appointment of a receiver in its quarterly reports filed in August and November 2004 or in its Form 8-Ks filed in November and December 2004.  The Commission also alleges that the defendants violated the record-keeping and reporting provisions of the federal securities laws.  
+ The Commission's Complaint charges Dauplaise and Shinder with violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and with aiding and abetting Bio One's violations of Sections 13(a), 13a-11, 13a-13, 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  In addition, the Commission's Complaint charges Dauplaise with violations of Rule 13a-14 and aiding and abetting Bio One's violations of Rule 13b2-2 and charges Shinder with aiding and abetting violations of Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-2 thereunder. 
+ In the action, the Commission seeks permanent injunctions, civil penalties, and officer and director bars. 
+ At the same time that the Commission filed its Complaint, the Commission also instituted and simultaneously settled an administrative proceeding against Bio One in which the company consented to the entry of an Order imposing a cease-and-desist order and revoking the registration of the company's securities pursuant to Section 12(j) of the Exchange Act. 
+ In the Order, the Commission found that Bio One violated and failed to comply with the antifraud provisions of the federal securities laws when it failed to disclose its default on a $15 million (Canadian) promissory note and related subsequent events. 
+
+
+    
+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2321.txt b/raw/aaer/2005/AAER-2321.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0266406082632e2c9150c03d50ef7067379a5e01
--- /dev/null
+++ b/raw/aaer/2005/AAER-2321.txt
@@ -0,0 +1,1370 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19401 / September 29, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2321 / September 29, 2005 
+
+  Securities and Exchange Commission v. Michael J. Lawler,  05 Civ. 1233 (N.D.N.Y.) (DRH) 
+
+ SEC Charges Former Executive with Accounting Fraud at The Penn Traffic Company 
+
+ The Securities and Exchange Commission ("Commission") today filed a complaint in the Northern District of New York, charging Michael J. Lawler ("Lawler"), the former Director of Manufacturing at Penny Curtiss, the bakery manufacturing subsidiary of The Penn Traffic Company ("Penn Traffic"), with orchestrating and carrying out a scheme to fraudulently manipulate Penn Traffic's books and records.    
+ The Complaint alleges that Lawler, as the highest-ranking Penny Curtiss employee, made, and directed Penny Curtiss' employees to make, improper accounting adjustments to Penny Curtiss' books and records so that Penny Curtiss would meet or come close to meeting internal sales targets set forth by management.  In the most significant of the falsified adjustments, Lawler made and directed his subordinates to make fraudulent entries on Penny Curtiss' general ledger that overstated inventory.  Penny Curtiss' general ledger was incorporated in Penn Traffic's books and records and, as a result, its public financial statements.  By reducing the costs of goods sold, these false entries had the effect of overstating Penn Traffic's Earnings Before Income, Taxes, Depreciation, and Amortization (EBITDA), as well as its net income.  As a result of Lawler's willful misconduct, Penn Traffic overstated more than $11 million of income and issued restated financial results for a three year period.    
+ The Commission alleges that, as a result of the foregoing, Lawler violated Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and aided and abetted Penn Traffic'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. 
+ Lawler has agreed to a resolution of this matter, subject to the Court's approval.  Without admitting or denying the allegations in the Commission's complaint, Lawler has consented to the entry of a permanent injunction against future violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder.    
+ The Commission acknowledges the assistance and cooperation of the United State's Attorney's Office for the Northern District of New York and the Federal Bureau of Investigation in this matter.  
+ The Commission's investigation is continuing.  
+
+
+    
+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2323.txt b/raw/aaer/2005/AAER-2323.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7280ba4bbd71407fc15e01f12a52832eb34eba47
--- /dev/null
+++ b/raw/aaer/2005/AAER-2323.txt
@@ -0,0 +1,1369 @@
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19403 / September 29, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2323 / September 29, 2005 
+
+  Securities and Exchange Commission v. Del Global Technologies Corp., Inc.,et al.,  04 CV 4092 (S.D.N.Y.) 
+
+ Former Del Global Board Member David Michael Agrees to Settlement with SEC 
+
+ The Securities and Exchange Commission announced today that it has reached a settlement of its pending case against David Michael, former director and chair of the audit committee of Del Global Technologies Corp., Inc. ("Del"), a company based in Valhalla, New York.   The Commission's complaint, filed June 1, 2004 in the U.S. District Court for the Southern District of New York, alleged as to Michael that he signed a false confirmation letter in connection with the 2000 year-end audit of Del Global's financial statements.  The Commission's complaint also alleged that certain former senior officers and/or directors of Del participated in a multi-year financial fraud at Del between 1997 and 2000.  Michael consented to the entry of a final judgment against him without admitting or denying the allegations in the Commission's complaint. 
+ On September 19, 2005, the Honorable Colleen McMahon, U.S. District Judge for the Southern District of New York, entered a final judgment permanently enjoining Michael from violating the books and records, internal controls, and lying-to-auditors provisions of the federal securities laws (Securities Exchange Act of 1934 ("Exchange Act") Section 13(b)(5) and Exchange Act Rules 13b2-1 and 13b2-2).  The final judgment also permanently bars Michael, pursuant to Exchange Act Section 21(d)(5), from serving as an officer or director of a public company, and requires him to pay a $20,000 civil money penalty.   
+ The Commission's complaint alleged, as to Michael, that near the end of Del's 2000 fiscal year, Del's CFO attempted to improperly capitalize certain general expenses to an unrelated Del acquisition of a subsidiary.  According to the Commission's complaint, when Del's auditors requested back-up documentation concerning these expenses as part of its final audit fieldwork, Del's CFO, with Michael's assistance, generated a confirmation letter falsely stating that Michael, a CPA, had performed accounting work directly related to the acquisition.  The complaint further alleged that Michael, who knew that the confirmation letter was false and suspected that Del's CFO might be engaged in wrongdoing, signed and returned the false confirmation letter.  Within days of Michael submitting the confirmation letter, according to the Commission's complaint, Del's outside auditors discovered the fraudulent accounting scheme and an internal investigation was initiated. 
+ In a prior action unrelated to Michael's conduct at Del Global, on April 14, 1999, the Commission permanently suspended Michael (and his accounting firm) from appearing or practicing before the Commission as an accountant.  See Securities Exchange Act of 1934 Release No. 41284; Accounting and Auditing Enforcement Release No. 1125. 
+ Michael was the last defendant in the Commission's litigation arising out of the Del financial fraud.  The Commission originally sued, in addition to Michael, Del, Leonard Trugman (the former CEO), Michael H. Taber (the former CFO), David Engel (the former Executive Vice President and CFO), and Seymour Rubin (a former director and senior executive) for their participation in the fraud.  Del, Taber, Engel and Rubin settled with the Commission in June 2004 when the case was filed.  Trugman settled with the Commission in August 2005.  For additional information, see Litigation Release No. 18732 (June 1, 2004) and Litigation Release No. 19360 (September 6, 2005). 
+
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diff --git a/raw/aaer/2005/AAER-2325.pdf b/raw/aaer/2005/AAER-2325.pdf
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diff --git a/raw/aaer/2005/AAER-2326.txt b/raw/aaer/2005/AAER-2326.txt
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@@ -0,0 +1,670 @@
+ 
+ 
+ 
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+ 
+ 
+______________________________ 
+   
+  
+   
+   
+  
+  
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                
+ 
+  
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52538 / September 30, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2326 / September 30, 2005 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12065 
+: ORDER INSTITUTING PUBLIC 
+In the Matter of  : ADMINISTRATIVE PROCEEDINGS 
+: PURSUANT TO RULE 102(e) OF 
+WILLIAM E. CASWELL, : THE COMMISSION’S RULES OF
+ CPA, : PRACTICE, MAKING FINDINGS, 
+: AND IMPOSING REMEDIAL 
+Respondent. : SANCTIONS 
+: 
+______________________________ : 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate 
+that public administrative proceedings be, and hereby are, instituted against William E. 
+Caswell, CPA (“Caswell” or “Respondent”) pursuant to Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice.1 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an 
+Offer of Settlement (the “Offer”), which the Commission has determined to accept.  Solely 
+for the purpose of these proceedings and any other proceedings brought by or on behalf of 
+the Commission, or to which the Commission is a party, and without admitting or denying 
+the findings herein, except as to the Commission’s jurisdiction over him and the subject 
+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 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+ 
+matter of these proceedings, which are admitted, Respondent consents to the entry of this 
+Order Instituting Public Administrative Proceedings Pursuant to Rule 102(e) of the 
+Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below. 
+III. 
+On the basis of this Order and the Respondent’s Offer, 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 Respondent in connection 
+with the audit of the financial statements of Adelphia Communications Corporation 
+(“Adelphia”) for the year ended December 31, 2000 (the “2000 Financial Statements”).   
+2. Adelphia’s 2000 Financial Statements were materially false and misleading 
+and failed to comply with Generally Accepted Accounting Principles (“GAAP”).  In its 
+Form 10-K for the year-ended December 31, 2000 (the “2000 Form 10-K”), Adelphia 
+understated its co-borrowing debt by $1.6 billion, and improperly netted related party 
+receivables and payables between Adelphia and the entities owned or controlled by 
+Adelphia’s controlling shareholders, the Rigases (as defined below).  Adelphia also failed 
+to disclose the nature and extent of thousands of related party transactions between 
+Adelphia and the Rigases.   
+3. Respondent reasonably should have known that Adelphia’s 2000 Financial 
+Statements had not been prepared in conformity with GAAP.  Respondent nonetheless 
+failed to object to the issuance by Deloitte & Touche LLP (“Deloitte”) of its audit report 
+containing an unqualified opinion on Adelphia’s 2000 Financial Statements. 
+4. Respondent did not adhere to Generally Accepted Auditing Standards 
+(“GAAS”) when he participated in the audit of the 2000 Financial Statements (“2000 
+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. 
+B. RESPONDENT AND OTHE R RELEVANT ENTITIES 
+5. William E. Caswell, 48, of Pittsburgh, Pennsylvania, is licensed as a 
+certified public accountant in Pennsylvania and joined Deloitte’s engagement team at 
+Adelphia in 1994 as a Senior Manager.  Caswell was promoted the next year to Director— 
+the most senior, non-partner position on Deloitte’s Adelphia engagement—and held that 
+The findings herein are made pursuant to Respondent's Offer of Settlement and are 
+not binding on any other person or entity in this or any other proceeding. 
+2
+ 
+2 
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+position through Deloitte’s dismissal by Adelphia in June 2002.  Caswell did not serve as 
+the audit partner on the Adelphia engagement. 
+6. Deloitte & Touche LLP is a Delaware limited liability partnership that is 
+headquartered in New York City.  Deloitte served as the independent auditor for Adelphia 
+from at least 1986, the year when Adelphia’s securities became publicly traded, until May 
+14, 2002, when Deloitte suspended its work on the audit for the year–ended December 31, 
+2001, citing, among other concerns, that Adelphia’s books and records had been falsified. 
+On April 26, 2005, the Commission issued its Order Instituting Public Administrative 
+Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making 
+Findings, and Imposing Remedial Sanctions against Deloitte, and the staff filed a settled 
+action, entitled SEC v. Deloitte & Touche LLP, 05 Civ. 4119 (S.D.N.Y.).  In these actions, 
+the Commission alleged that Deloitte failed to conduct its audit of Adelphia in accordance 
+with GAAS. Without admitting or denying the Commission’s allegations, Deloitte agreed 
+to pay a total of $50 million and undertake certain remedial actions designed to strengthen 
+its fraud detection program when auditing public companies.  
+7. The “Audit Partner” had been a partner of Deloitte since June 1996.  He was 
+assigned to the Adelphia engagement in the summer of 1999 and served as the audit partner 
+responsible for Deloitte’s planning and performance of its audit of the 2000 Financial 
+Statements.  In late March 2001, the Audit Partner approved the 2000 Audit and signed 
+Deloitte’s audit report containing an unqualified opinion.  Thereafter, in September 2001, 
+the Audit Partner resigned from Deloitte and, since that time, has served as the Chief 
+Financial Officer and Vice President of Finance of a public company.  The Audit Partner is 
+a certified public accountant, licensed in New York. 
+8. Adelphia Communications Corporation, a Delaware corporation that was 
+headquartered in Coudersport, Pennsylvania, is the sixth largest cable television operator in 
+the United States. Prior to June 3, 2002, Adelphia’s Class A shares were listed on the 
+NASDAQ’s National Market, while the Company’s Class B shares were never publicly 
+traded. Citing public interest concerns and Adelphia’s failure to comply with NASDAQ 
+Rule 431(c)(14), which requires an issuer, among other things, to timely file its Form 10-K, 
+a NASDAQ Listing Qualifications Panel de-listed Adelphia stock, effective June 3, 2002.  
+Adelphia shares are now quoted by Pink Sheets, LLC.  Since June 25, 2002, Adelphia and 
+its subsidiaries have operated under the protection of Chapter 11 of the U.S. Bankruptcy 
+Code.  In April 2005, the Commission and the United States Attorney’s Office for the 
+Southern District of New York (“USAO”) reached an agreement to settle the civil 
+enforcement action and resolve criminal charges against Adelphia and Adelphia’s founder, 
+John Rigas (“J. Rigas”), and his three sons, Timothy J. Rigas (“T. Rigas”), Michael J. 
+Rigas (“M. Rigas”) and James P. Rigas (“J.P. Rigas”) (the “Rigas Defendants”).  The 
+settlement agreements with the Rigas Defendants, each dated April 24, 2005, were 
+approved by the District Court for the Southern District of New York on May 31, 2005, 
+and the settlement agreement with Adelphia, dated April 25, 2005, was approved by the 
+Bankruptcy Court on May 20, 2005.  Pursuant to the settlement agreements, Adelphia will 
+obtain title to certain cable properties forfeited by the Rigas family members, and will 
+deposit $715 million into a victims’ fund to be established in the District Court in 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+accordance with the Non-Prosecution Agreement.  Adelphia will make such payment at or 
+about the time of its emergence from Chapter 11.  
+9. The Rigases include J. Rigas, his sons, T. Rigas, M. Rigas and J.P. Rigas, his 
+daughter, Ellen Rigas Venetis (“E. Rigas”) and his spouse, Doris Nielsen Rigas (“D. 
+Rigas”). At all relevant times, J. Rigas and members of his immediate family held five of 
+Adelphia’s nine Board of Directors positions, and exercised voting control of Adelphia 
+stock. Specifically, J. Rigas was Adelphia’s Chief Executive Officer and Chairman of its 
+Board of Directors.  T. Rigas, M. Rigas, and J.P. Rigas each were directors of Adelphia and 
+held the positions, respectively, of Chief Financial and Accounting Officer, Executive Vice 
+President for Operations, and Executive Vice President for Strategic Planning.  J. Rigas and 
+T. Rigas were found guilty, in US v. John J. Rigas, et al., 02 Crim. 1236 (S.D.N.Y.)(LBS), 
+of a total of eighteen counts of securities fraud, bank fraud and conspiracy to commit 
+securities fraud, bank fraud, and making or causing to be made false statements in 
+Commission filings.  Pursuant to the settlement agreements resolving the Adelphia and 
+Rigas civil enforcement action and the criminal charges, the Rigas Defendants will forfeit 
+in excess of $1.5 billion in assets that they derived from the fraud.  The Rigas Defendants 
+have also agreed to entry of permanent injunctions enjoining them from the antifraud, 
+periodic reporting, and record keeping and internal control provisions of the securities laws.  
+The Rigas Defendants further agreed to entry of an order barring them from acting as 
+officers or directors of any public company. 
+10. Rigas Entities consist of approximately 63 various partnerships, 
+corporations, or limited liability companies exclusively owned or controlled by members of 
+the Rigas family. While approximately fourteen of the Rigas Entities were engaged in the 
+ownership and operation of cable television systems and other related ventures (the “Rigas 
+Cable Entities”), the balance, or approximately forty-nine of the Rigas Entities, were 
+involved in businesses completely unrelated to cable television (the “Rigas Non-Cable 
+Entities”). Adelphia managed and maintained virtually every aspect of the Rigas Cable 
+Entities, including maintaining their books and records on a general ledger system (the 
+“Millennium general ledger”) shared with Adelphia and its subsidiaries.  Adelphia and the 
+Rigas Entities participated jointly in a cash management system (“CMS”) operated by 
+Adelphia. This resulted in the commingling of funds among the Adelphia CMS 
+participants, including Adelphia subsidiaries and the Rigas Entities.  As detailed below, the 
+sharing by Adelphia and the Rigas Entities of the same management, general ledger 
+system, and cash management system greatly facilitated the fraud at Adelphia.  
+C. FACTS 
+Background 
+11. Adelphia had a long-standing, complex, and intertwined relationship with 
+the Rigases and the entities owned or controlled by the Rigases.  Specifically, since at least 
+1994, pursuant to written agreements, Adelphia managed virtually every aspect of the 
+Rigas Cable Entities, including, but not limited to, conducting their cable operations and 
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+maintaining their books and records on the Millennium general ledger accounting system 
+overseen by Adelphia personnel.   
+12. As part of Deloitte’s annual audit planning process, Caswell and others on 
+the engagement team assessed the level of “audit risk” presented by Adelphia.  According 
+to Deloitte’s Accounting and Audit Procedures Manual (the “AAPMS”),  a client’s level of 
+audit risk represents a measure of the possibility that the financial statements as a whole 
+may be subject to material misstatements due to errors or fraud during the period being 
+audited. From at least 1998, Caswell and Deloitte concluded that Adelphia presented 
+“much greater than normal” audit risk, which was the highest level of risk that Deloitte 
+could assign to any client under guidelines set forth in the AAPMS.  The specific risks 
+were communicated to Deloitte’s National Office. 
+13. Since at least 1996, Adelphia negotiated and established various commercial 
+loans, credit facilities, and other credit arrangements for its benefit and the benefit of the 
+Rigas Entities. Among these credit facilities were four facilities, dated respectively, March 
+29, 1996, May 6, 1999, April 14, 2000, and September 28, 2001, in which certain 
+subsidiaries of Adelphia became co-borrowers with certain Rigas Cable Entities (hereafter, 
+the “Rigas Co-Borrowers”).  As of December 31, 2000, the total borrowing capacity under 
+the three Co-Borrowing Credit Facilities then in existence was $3.751 billion. 
+14. Under the terms of the Co-Borrowing Credit Facilities, each co-borrower had 
+the ability to borrow up to the entire amount of the available credit under the applicable 
+Facility. A key feature of the Co-Borrowing Credit Facilities was that each co-borrower 
+was jointly and severally liable for the outstanding balance under that Facility.   
+15. As of December 31, 2000, the Co-Borrowing Credit Facilities were 
+completely drawn-down, making each co-borrower, including Adelphia, jointly and 
+severally liable for the full $3.7 billion outstanding.  However, approximately $1.6 billion 
+of co-borrowing debt was improperly excluded from Adelphia’s balance sheet for the year-
+ended 2000 as an Adelphia liability. Moreover, Adelphia’s 2000 Form 10-K included a 
+footnote disclosure that was misleading in that it suggested that all of the debt for which 
+Adelphia was liable, including the $1.6 billion owed by the Rigas Co-Borrowers, was 
+properly reflected on Adelphia’s balance sheet when it was not.  This amount represented 
+over 28% of Adelphia’s reported bank debt and nearly 10% of Adelphia’s reported total 
+liabilities. 
+Caswell Failed to Ensure that Adelphia’s Disclosure of Its Liabilities Was Sufficient 
+16. Caswell reviewed copies of provisions of the loan agreements underlying the 
+1996 Co-Borrowing Credit Facility, the 1999 Co-Borrowing Credit Facility, and the 2000 
+Co-Borrowing Credit Facility, and knew that Adelphia’s liability under each Facility was 
+described as “joint and several” with the Rigas Co-Borrowers.  Deloitte’s engagement team 
+failed to take steps to understand the impact of joint and several liability.  In addition, 
+Caswell and others on the engagement team knew that there was $1.6 billion of co-
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+borrowing debt, which was not presented or adequately disclosed in the 2000 Financial 
+Statements, and failed to ensure adequate disclosure of Adelphia’s liability.   
+17. Caswell accepted Adelphia’s rationale for omitting Adelphia’s true debt 
+obligations without ensuring that Adelphia’s rationale conformed to GAAP.  Adelphia 
+justified excluding the Co-borrowing debt on the grounds that it was a mere “guarantor” of 
+the Rigas Co-Borrowers, and therefore did not have to reflect such debt as a liability on its 
+balance sheet. Even under Adelphia’s characterization of the debt as a “guarantee,” 
+Caswell knew or should have known that Adelphia did not perform the assessments 
+required under Statement of Financial Accounting Standards (“FAS”) No. 5 to determine if 
+its potential contingency for the amount of co-borrowing debt that it excluded from its 
+balance sheet was “probable” or even “reasonably possible” under FAS 5 and would have 
+had to be disclosed.3 Other than a cursory calculation, not documented in the work papers, 
+and discussions with others at Deloitte, Caswell did nothing to determine whether the Rigas 
+Entities had the financial wherewithal to repay the debt.   
+18. During the 2000 Audit, Caswell and others on the engagement team 
+repeatedly proposed to Adelphia that it disclose the full amount of the co-borrowing debt.  
+Caswell and others on the engagement team inserted more explicit disclosure, including the 
+amount of Rigas Co-Borrowing debt, in at least six drafts of Adelphia’s 2000 Form 10-K.  
+But when Adelphia’s management resisted, and the Audit Partner accepted Adelphia’s 
+explanation, Caswell abandoned his attempts to make the disclosure more accurate. 
+Caswell Knew or Should Have Known That the $1.6 Billion Was Adelphia’s Liability 
+and Should Have Been Reflected in its Financial Statements 
+19. Adelphia’s exclusion of co-borrowing debt from its balance sheet was also 
+improper because virtually all of the co-borrowing debt excluded was in fact Adelphia’s 
+liability that had been improperly shifted from Adelphia’s books to the books of the Rigas 
+Co-Borrowers.  Adelphia excluded co-borrowing debt from its balance sheet in a number 
+of ways.  It (i) “reclassified” some debt to the books of the Rigas Co-Borrowers through the 
+use of sham journal entries; (ii) improperly transferred debt in connection with direct 
+FAS 5, Accounting for Contingencies, requires a company to include a contingent 
+amount in its financial statements when that contingency is “probable.”  Paragraphs 10 and 
+11 of FAS 5 provide guidance on when a contingency needs only to be disclosed by a 
+company in footnotes to its financial statements.  Paragraph 10 provides, in pertinent part, 
+that: “[d]isclosure of the contingency shall be made when there is at least a reasonable 
+possibility that a loss or an additional loss may have been incurred.”  [Emphasis added].  
+Under these principles, even if a loss contingency does not meet the threshold for inclusion 
+in a company’s financial statements, disclosure of the contingency is still required where 
+there is a reasonable possibility of having to incur a liability under the contingency.  
+Paragraph 12 of FAS 5 goes further and states that when a contingency is a guarantee of 
+indebtedness of others—which Adelphia cl aimed the Rigas Co-Borrowing debt was—a 
+company should disclose the nature and amount of the guarantee even if the guarantee is 
+assessed as “remote.”   
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+placements of Adelphia securities to the Rigases (approximately $513 million in 2000); and 
+(iii) recorded debt on the books of the Rigas Co-Borrowers without appropriate 
+extinguishment of Adelphia’s liability, even though Adelphia remained ultimately liable for 
+such debt. 
+20. Adelphia’s practice of drawing down co-borrowing funds into CMS bank 
+accounts used by Adelphia and the Rigas Co-Borrowers, but recording debt on the books of 
+the Rigas Co-Borrowers, was improper, and did not conform to GAAP, which requires that 
+certain requirements be met before a liability can be extinguished. 4  Caswell knew or 
+should have known that Adelphia’s 2000 Financial Statements did not accurately reflect the 
+obligations of each co-borrower in conformity with GAAP. 
+Caswell Improperly Failed to Object to Adelphia’s Netting of Related Party Payables 
+and Receivables 
+21. Adelphia was required by Regulation S-X, promulgated under Sections 13 
+and 15(d) of the Exchange Act, to report related party receivables and payables as gross 
+numbers on its balance sheet.  Generally, and except for limited circumstances and in the 
+absence of an explicit and legal right of offset, Regulation S-X (Rule 5-02 of Regulation S-
+X) requires (1) related party receivables and related party payables be separately stated line 
+items; and (2) indebtedness not current be separately disclosed.  GAAP (Accounting 
+Research Bulletin 43, Ch. 1, Para. 5) requires that notes or accounts receivable due from 
+officers, employees, or affiliated companies must be shown separately. Accordingly, 
+Adelphia was required both by GAAP and by Commission regulations to report related 
+party transactions with the Rigas Entities in a gross presentation. 
+22. Since at least 1986, Adelphia improperly netted, or offset, related party 
+payables and related party receivables as of year-end, and presented only that net balance 
+on its balance sheet in a line item called “Related-party Receivables—Net.”  This practice 
+conformed to neither Regulation S-X nor GAAP.  It also obscured the extent and 
+magnitude of self-dealing and assisted Adelphia in creating the appearance of de-
+leveraging. Paragraph 7 of Accounting Principles Board Opinion No. 10 (“APB 10”) states 
+that “it is a general principle of accounting that the offsetting of assets and liabilities in the 
+balance sheet is improper except where a right of setoff exists.”  Financial Accounting 
+Standards Board Interpretation No. 39 (“FIN 39”), paragraph 5, in turn, defines a right of 
+setoff as “a debtor’s legal right, by contract or otherwise, to discharge all or a portion of the 
+debt owed to another party by applying against the debt an amount that the other party 
+FAS 125, Accounting for Transfers and Servicing of Financial Assets and 
+Extinguishments of Liabilities, required that once Adelphia drew down on the Co-
+Borrowing Credit Facilities, it had to either pay off the debt by the transfer of assets to the 
+creditor or be legally released as primary obligor by the creditor, neither of which occurred.  
+Attempting to “extinguish” debt by “assigning” it to a related party is not sufficient—the 
+creditor must be paid or must legally release the borrower. (Although FAS 125 was 
+superseded by FAS 140, effective March 31, 2001, the provisions discussed herein were 
+carried over into FAS 140.) 
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+owes to the debtor.”  FIN 39 sets forth four conditions that must be met for the right of set 
+off to be proper: 
+(a) Each of two parties owes the other determinable 
+amounts;  
+(b) 	The reporting party has the right to set off the amount 
+owed with the amount owed by the other party;  
+(c) 	The reporting party intends to set off; and 
+(d) 	The right to set off is enforceable at law.   
+(Emphasis in original.) 
+23. Adelphia’s practice of set off (netting) was a fraudulent device used to 
+conceal its liabilities. No agreements, written or otherwise, existed that established any 
+legal right by Adelphia to setoff amounts owed to it by the Rigas Entities or individual 
+Rigases. Adelphia netted non-mutual balances without any attempt to match affiliate 
+receivables with affiliate payables to the appropriate entities.   
+24. The acceptance by Caswell and others on the engagement team of 
+Adelphia’s practice of netting permitted Adelphia to reflect a mere $3 million net 
+receivable in its 2000 Form 10-K.  If Caswell and others on the engagement team had taken 
+the appropriate action to require correction by Adelphia of its disclosure, however, 
+Adelphia would have had to report that, as of the year-ended December 31, 2000, Adelphia 
+had gross related party receivables of $1.351 billion and gross related party payables of 
+$1.348 billion, much more relevant numbers. 
+Caswell Failed to Ensure Adequate Disclosure of Adelphia’s CMS  
+25. Apart from whether the related party transactions should have been netted 
+against each other, Caswell and the Audit Partner should have ensured that the specifics of 
+individual material related party transactions were disclosed.  Caswell knew that Adelphia 
+and the Rigases used the CMS as a central “treasury function” for Adelphia, its 
+subsidiaries, and the affiliated Rigas Entities.  Caswell knew that thousands of related party 
+transactions went through the CMS.  The Millennium general ledger (which the auditors 
+were aware of during their audit, but did not adequately review) was structured into cost 
+centers that flowed into the CMS.  The general ledger recorded the thousands of 
+intercompany transactions among and between Adelphia subsidiaries and Rigas Entities.  A 
+review of bank statements would have shown that cash receipts for both public and private 
+entities were deposited into Adelphia’s First Union CMS account and that disbursements 
+on behalf of public and private entities were paid from that same account.   
+26. Caswell did not ensure adequate disclosure of Adelphia’s related party 
+transactions under FAS 57, Related Party Disclosures.  FAS 57 states, among other things, 
+that “[f]inancial statements shall include disclosures of material related party transactions” 
+and specifies that such “disclosures shall include:  (a) the nature of the relationship(s) 
+involved; (b) a description of the transactions, including transactions to which no amounts 
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+or nominal amounts were ascribed . . . and such other information deemed necessary to an 
+understanding of the effects of the transactions on the financial statements; (c) the dollar 
+amounts of transactions . . . and the effects of any change in the method of establishing the 
+terms from that used in the preceding period; and (d) amounts due from or to related parties 
+as of the date of each balance sheet presented and, if not otherwise apparent, the terms and 
+manner of settlement.”  While Adelphia disclosed that it “provide[d] management and 
+consulting services to” Rigas Cable Entities, this disclosure was inadequate. 
+D.	 CASWELL ENGAGED IN IMPROPER PROFESSIONAL CONDUCT 
+WITHIN THE MEANING OF RULE 102(e)(1)(ii) OF THE COMMISSION’S 
+RULES OF PRACTICE 
+27. 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. 
+28. As applicable here, improper professional conduct means “negligent 
+conduct” consisting of “[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 stated below, Caswell acted 
+unreasonably in failing to require Adelphia to comply with GAAP and in failing to comply 
+with GAAS during the audit of Adelphia’s 2000 Financial Statements. 
+29. GAAS requires that auditors exercise due professional care in performing an 
+audit and in preparing the audit report.  AU § 230.01.  Due professional care requires that 
+the auditor exercise professional skepticism in performing audit procedures and gathering 
+and analyzing audit evidence. AU § 230.07-.08. “In exercising professional skepticism, 
+the auditor should not be satisfied with less than persuasive evidence because of a belief 
+that management is honest.” AU § 230.09.  Moreover, GAAS requires that an auditor must 
+obtain “sufficient competent evidential matter” to provide “a reasonable basis for forming 
+an opinion.”  AU § 326.22. 
+30. GAAS further requires that “representations from management are part of 
+the evidential matter the independent auditor obtains, but they are not a substitute for the 
+application of the auditing procedures necessary to afford a reasonable basis for an opinion 
+regarding the financial statements under audit.”  AU § 333.02. Heightened skepticism is 
+especially warranted when a client has high audit risk, such as Adelphia.  In fact, GAAS 
+requires that both due professional care and professional skepticism increase with the risk 
+assessment.  See AU § 312.17.5 
+For instance, AU § 312.17, “Audit Risk and Materiality in Conducting an Audit,” 
+makes clear that, “[w]henever the auditor has concluded that there is significant risk of 
+material misstatement of the financial statements, the auditor should consider this 
+conclusion in determining the nature, timing or extent of procedures . . . .  Ordinarily, 
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+31. Caswell departed from these GAAS standards in each of the areas set forth 
+above in the 2000 Audit of Adelphia as he knew or should have known that Adelphia: (a) 
+failed to record all co-borrowing debt on its balance sheet or otherwise adequately disclose 
+that a portion had been excluded; and (b) failed to adequately disclose the nature and extent 
+of related party transactions by improperly netting related party payables and receivables. 
+32. GAAS dictates that after an auditor identifies related party transactions, he 
+“should apply the procedures he considers necessary to obtain satisfaction concerning the 
+purpose, nature, and extent of these transactions and their effect on the financial 
+statements.”  AU § 334.09. “The procedures should be directed toward obtaining and 
+evaluating sufficient competent evidential matter and should extend beyond inquiry of 
+management.” Id.  The audit risk factors (which included both debt and related party 
+transactions) that the engagement team identified, mandated that the auditors exercise 
+heightened professional skepticism.  Instead, the audit testing that Caswell supervised with 
+respect to Adelphia’s related party transactions was insufficient and did not fulfill the 
+requirements of GAAS.   
+E. CONCLUSION AND UNDERTAKING 
+Based on the foregoing, the Commission finds that Caswell engaged in improper 
+professional conduct within the meaning of Rule 102(e)(1)(ii) of the Commission’s Rules 
+of Practice. 
+Caswell undertakes to continue to provide cooperation to the Commission and its 
+staff in its investigation and litigation related to the Adelphia matters described herein. 
+Specifically, Caswell undertakes to:  upon reasonable request by the Commission or its 
+staff, and on reasonable notice, and without service of a subpoena, he will provide 
+higher risk requires . . . more extensive supervision by the auditor with final responsibility 
+for the engagement during both the planning and the conduct of the engagement.  Higher 
+risk may cause the auditor to expand the extent of procedures applied, apply procedures 
+closer to or as of year end, particularly in critical audit areas, or modify the nature of 
+procedures to obtain more persuasive evidence.”  GAAS also requires that professional 
+skepticism increase with the risk assessment.  As set forth in AU § 316, Fraud in a 
+Financial Statement Audit, at paragraph 27 (AU § 316.27), "examples demonstrating the 
+application of professional skepticism in response to the auditor's assessment of the risk of 
+material misstatement due to fraud include (a) increased sensitivity in the selection of the 
+nature and extent of documentation to be examined in support of material transactions, and 
+(b) increased recognition of the need to corroborate management explanations or 
+representations concerning material matters — such as further analytical procedures, 
+examination of documentation, or discussion with others within or outside the entity."  (AU 
+§ 316.27 has been superceded by AU § 316.46 which became effective for audits of 
+financial statements for periods beginning on or after December 15, 2002, and requires 
+more extensive fraud audit procedures than did AU § 316.27.) 
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+documents or other information, and accept service and take all reasonable actions to make 
+himself available to testify truthfully at any interview, investigative testimony, deposition, 
+at any judicial proceeding related to this Order, and at any administrative proceeding 
+arising as a result of the Commission’s investigation relating to Adelphia and the matters 
+described herein. This provision shall not be construed to waive Caswell’s applicable 
+attorney-client, work product or other privileges recognized under federal law, if asserted 
+timely and in good faith. In determining whether to accept Caswell’s Offer, the 
+Commission has considered Caswell’s undertaking. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent Caswell’s Offer. 
+Accordingly, it is hereby Ordered, effective immediately, that: 
+A. Respondent is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+B. After two years from the date of this order, Respondent may request 
+that the Commission consider his reinstatement by submitting an application 
+(attention: Office of the Chief Accountant) to resume appearing or practicing before 
+the Commission as: 
+1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  
+Such an application must satisfy the Commission that Respondent’s work in his practice 
+before the Commission will be reviewed either by the independent audit committee of the 
+public company for which he works or in some other acceptable manner, as long as he 
+practices before the Commission in this capacity; and/or 
+2. an independent accountant.  Such an application must satisfy 
+the Commission that: 
+(a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) 
+in accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be 
+effective; 
+(b) Respondent, or the registered public accounting firm with 
+which he is associated, has been inspected by the Board and that inspection did not identify 
+any criticisms of or potential defects in the respondent’s or the firm’s quality control 
+system that would indicate that the respondent will not receive appropriate supervision; 
+(c) Respondent has resolved all disciplinary issues with the 
+Board, and has complied with all terms and conditions of any sanctions imposed by the 
+Board (other than reinstatement by the Commission); and 
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+ (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited 
+to, all requirements relating to registration, inspections, concurring partner reviews, and 
+quality control standards. 
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his state CPA license is 
+current and he has resolved all other disciplinary issues with the applicable state boards of 
+accountancy.  However, if state licensure is dependent on reinstatement by the 
+Commission, the Commission will consider an application on its other merits.  The 
+Commission’s review may include consideration of, in addition to the matters referenced 
+above, any other matters relating to Respondent’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ By the Commission. 
+      J o n a t h a n G . K a t z
+ Secretary 
+12
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+     SEC.gov | Benjamin Rogatinsky and Reuven Rogatinsky 
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+              Benjamin Rogatinsky and Reuven Rogatinsky
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+        Benjamin Rogatinsky and Reuven Rogatinsky
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19413 / October 5, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2330 / October 5, 2005 
+
+  Securities and Exchange Commission v. Benjamin Rogatinsky and Reuven Rogatinsky,  Case No. 03-60648-CIV-MARTINEZ.  
+
+ FINAL JUDGMENT OF PERMANENT INJUNCTION ENTERED AGAINST DEFENDANT BENJAMIN ROGATINSKY 
+
+ The Securities and Exchange Commission ("SEC") announced that on August 24, 2005, the United States District Court for the Southern District of Florida entered a Final Judgment of Permanent Injunction ("Final Judgment") against Defendant Benjamin Rogatinsky ("Rogatinsky").  The Final Judgment, entered with Rogatinsky's consent, without admitting or denying the allegations of the SEC's complaint, enjoins him from violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1 thereunder.  Additionally, the Final Judgment imposes a civil penalty in the amount of $50,000.00.  On August 1, 2005, the SEC filed a voluntary dismissal with prejudice as to Relief Defendant Reuven Rogatinsky. 
+ The SEC commenced this action by filing its complaint on April 3, 2003, alleging securities fraud against Hollywood, Florida resident Benjamin Rogatinsky, the former CEO of PrintontheNet.com ("PrintontheNet").  The Complaint charged Rogatinsky with orchestrating a fraudulent offering of PrintontheNet securities and engaging in various improper accounting practices.  The complaint also named Rogatinsky's father, Reuven Rogatinsky of Hollywood, Florida, as a relief defendant for allegedly receiving proceeds from PrintontheNet's securities offering into his foreign bank accounts.  On April 4, 2003, the Commission obtained an emergency order from the District Court temporarily freezing the assets of Rogatinsky and his father. 
+
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diff --git a/raw/aaer/2005/AAER-2331.txt b/raw/aaer/2005/AAER-2331.txt
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+
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+     SEC.gov | Duane Kimble and Carene Kunkler and In the Matter of Duane Kimble, CPA, and Carene Kunkler 
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+              Duane Kimble and Carene Kunkler and In the Matter of Duane Kimble, CPA, and Carene Kunkler
+           
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+ 
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+        Duane Kimble and Carene Kunkler and In the Matter of Duane Kimble, CPA, and Carene Kunkler
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19416 / October  5, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2331 / October 5, 2005 
+
+  Securities and Exchange Commission v. Duane Kimble and Carene Kunkler,  Case No. 1:05CV642 (S.D. Ohio) and  In the Matter of Duane Kimble, CPA, and Carene Kunkler,  Administrative Proceeding File No. 3-12069 
+
+ SEC CHARGES FORMER CFO AND CEO OF SIGHT RESOURCE CORPORATION WITH SECURITIES LAW VIOLATIONS 
+
+ The Securities and Exchange Commission announced that on October 3, it filed a settled civil action in federal court in the Southern District of Ohio, seeking civil money penalties against the former CFO, Duane Kimble (Kimble), and former CEO, Carene Kunkler (Kunkler), of Sight Resource Corporation (Sight Resource), a Cincinnati-based distributor and retailer of eyewear.  Without admitting or denying the allegations in the SEC's complaint, Kimble and Kunkler consented to pay civil money penalties in the amounts of $35,000 and $25,000, respectively.  In a related action, the Commission instituted settled cease-and-desist proceedings, in which Kimble and Kunkler agreed to cease and desist from committing or causing violations of Section 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 13a-14 thereunder, and from causing violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 12b-25, 13a-11 and 13a-13 thereunder.  In addition, Kimble: (1) agreed to cease and desist from committing or causing violations of Section 10(b) of the Exchange Act and Rules 10b-5, 13b2-1, and 13b2-2 thereunder; and (2) consented to the institution of settled proceedings, under Rule 102(e)(1)(iii) of the Commission's Rules of Practice, based on his willful violations of the federal securities laws and the rules thereunder, pursuant to which Kimble is denied the privilege of appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement in three years. 
+
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+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2332.txt b/raw/aaer/2005/AAER-2332.txt
new file mode 100644
index 0000000000000000000000000000000000000000..8a3897eacd952a3c3675592c8438e5db3e43ee1e
--- /dev/null
+++ b/raw/aaer/2005/AAER-2332.txt
@@ -0,0 +1,1390 @@
+
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+              Fred Gold, John D. Parson and Brendon P. McDonald
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+        Fred Gold, John D. Parson and Brendon P. McDonald
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19417 / October 6, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No.  2332 / October 6, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. FRED GOLD, JOHN D. PARSON AND BRENDON P. MCDONALD,  Civil Action No. 05 CV 4713 (JS) (E.D.N.Y. 2005) (filed October 6, 2005) 
+
+ SEC SUES THREE FORMER ARTHUR ANDERSEN AUDITORS FOR FRAUD IN CONNECTION WITH THE AUDIT OF AMERICAN TISSUE, INC. 
+
+ The Securities and Exchange Commission today announced that it filed a civil action in federal district court against Fred Gold, a former partner at Arthur Andersen, LLP ("Andersen"), John D. Parson, a former Andersen audit manager, and Brendon P. McDonald, a former Andersen experienced senior accountant, for fraud in connection with Andersen's fiscal year 2000 audit of American Tissue, Inc., a manufacturer of tissue and paper products that filed for bankruptcy in 2001.  The Commission previously filed a separate federal civil action against American Tissue and three of its principal officers for fraud.   SEC v. American Tissue, Inc., et al. , Civil Action No. 03-1162 (E.D.N.Y., filed March 10, 2003), Litigation Release No. 18022, Accounting and Auditing Enforcement Release No. 1735.  That action has been stayed pending sentencing of the three officers in a related criminal proceeding.   
+ Without admitting or denying the allegations in the complaint, Parson and McDonald have agreed to settlements with the Commission that impose injunctions, civil penalties, and suspensions from appearing or practicing before the Commission as accountants.  Gold has not reached a settlement with the Commission. 
+ SEC COMPLAINT 
+ The Commission's complaint alleges: 
+ During its fiscal year 2000, American Tissue fraudulently inflated reported assets and earnings by improperly capitalizing $15.6 million of previously expensed supplies and overvaluing its finished goods inventory by at least $12.5 million.  Gold and Parson supervised, reviewed and approved Andersen's audit of American Tissue's fiscal year 2000 financial statements.  McDonald supervised and participated in the audit.  The defendants failed to request sufficient accounting documentation to verify the financial information provided by the company or to conduct required testing of American Tissue's finished goods inventory figures.  Consequently, they knew or were reckless in not knowing that American Tissue's finished goods inventory was overstated.  Nevertheless, they issued an unqualified audit report on the company's fiscal 2000 financial statements, failing to exercise the due professional care and skepticism required by generally accepted auditing standards.  All three defendants also knew, or were reckless in not knowing, that supplies that American Tissue used in its manufacturing processes had been improperly classified as inventory instead of as expenses. 
+ The Commission's complaint further alleges that, in July 2001, when the defendants learned their fiscal 2000 American Tissue audit had been selected for a peer review by another accounting firm, they intentionally altered audit work papers in an attempt to conceal the failures of their audit work.  In September 2001, when the defendants learned that another accounting firm had discovered that the company had overvalued inventory and would have to restate financial results for fiscal 2000, they destroyed documents and e-mails in a further attempt to conceal their audit failures. 
+ For all three defendants, the Commission's complaint seeks (1) permanent injunctions against violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and against aiding and abetting violations of Section 15(d) of that Act and Rules 12b-20 and 15d-1 thereunder and (2) civil money penalties. 
+ SEC SETTLEMENT 
+	  Parson consented to entry of a final judgment that imposes the injunction sought by the Commission and a civil money penalty of $50,000.  Parson also consented, without admitting or denying the Commission's findings, to a suspension from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice, in a related administrative proceeding to be instituted once the injunction against him is entered.     
+	 McDonald consented to entry of a final judgment that imposes the injunction sought by the Commission and a civil money penalty of $30,000.  McDonald also consented, without admitting or denying the Commission's findings, to a suspension from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice with a right to apply for reinstatement after five years, in a related administrative proceeding to be instituted once the injunction against him is entered.   
+	  The Commission acknowledges the assistance of the Office of the United States Attorney for the Eastern District of New York in this matter. 
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19418 / October 6, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2333 / October 6, 2005 
+
+  SEC v. KPMG LLP, et al.,  Civil Action No. 03 CV 0671 (DLC) (S.D.N.Y.) 
+
+ FORMER KPMG PARTNER PAYS $100,000 TO SETTLE SEC LITIGATION RELATING TO XEROX AUDITS 
+
+ On October 6, 2005, the Securities and Exchange Commission announced that Joseph T. Boyle, a former partner with KPMG LLP, agreed to settle the SEC's charges against him in connection with his role as the relationship partner on the audits of Xerox Corp. from 1999 through 2000.  Boyle consented to the entry of a final judgment in the SEC's civil litigation against him pending in the U.S. District Court for the Southern District of New York.  The final judgment, which is subject to approval by the Honorable Denise L. Cote, orders Boyle to pay a civil penalty in the amount of $100,000 and also orders that Boyle be permanently enjoined from violating the provision of the federal securities laws that requires reporting of likely illegal acts to a company's audit committee, its board of directors and ultimately to the Commission (Section 10A of the Securities Exchange Act of 1934).  
+ Boyle also consented to the issuance of an SEC Order based on the entry of the injunction in the federal court action that will suspend him from appearing or practicing before the SEC as an accountant for a period of one year.  Boyle consented to the entry of the injunction, penalty and SEC Order without admitting or denying the SEC's findings.  
+ As alleged in the SEC's federal court complaint, in the course of serving as the relationship partner for Xerox during 1999 and 2000, Boyle was told by the audit engagement partner that Xerox was engaged in improper accounting and that KPMG had a "professional obligation" to communicate these concerns to the Xerox Audit Committee.  Despite these warnings, Boyle did not report these likely violations to the Xerox Audit Committee or take other steps required by Section 10A of the Exchange Act when Xerox management did not correct the violations.  Boyle retired from KPMG in 2003.  
+ The SEC's civil fraud injunctive action against four other KPMG audit partners involved in the 1997 - 2000 Xerox audits is ongoing.  See Litigation Release No. 17954 / January 29, 2003 /Accounting and Auditing Enforcement Release No. 1709 / January 29, 2003; Litigation Release No. 18389 / October 3, 2003. 
+ Previously, on April 19, 2005, KPMG agreed to settle the SEC's charges against it in connection with the audits of Xerox from 1997 through 2000. See Litigation Release No. 19191 / April 19, 2005/Accounting and Auditing Enforcement Release No. 2235 / April 19, 2005. As part of that settlement, KPMG consented to the entry of a final judgment that required it to pay disgorgement of $9,800,000 (representing its audit fees for the 1997-2000 Xerox audits), prejudgment interest thereon in the amount of $2,675,000, and a $10,000,000 civil penalty, for a total payment of $22.475 million.  The final judgment also ordered KPMG to undertake a series of reforms designed to prevent future violations of the securities laws.  In addition, the SEC entered an Order finding that KPMG permitted Xerox to manipulate its accounting practices to close a $3 billion "gap" between actual operating results and results reported to the investing public from 1997 through 2000.  These undisclosed actions overstated Xerox's true equipment revenues by at least $3 billion and overstated its true earnings by approximately $1.5 billion during the four-year period.  The Order found that throughout this period KPMG failed to comply with generally accepted auditing standards and allowed Xerox to utilize accounting actions that did not comply with generally accepted accounting principles.  By doing so, KPMG allowed Xerox to manipulate its accounting practices to distort the company's financial results, failed to insist that Xerox disclose those practices and their financial impacts in the company's annual and quarterly reports, and allowed Xerox to falsify its books and records and to fail to maintain adequate internal controls over its accounting.     
+ On April 11, 2002, the Commission brought an injunctive action against Xerox based on some of the same allegations of accounting fraud as are alleged against the KPMG defendants, as well as other allegations.  Without admitting or denying the allegations of the complaint, Xerox consented to the entry of a final judgment that permanently enjoined the company from violating the antifraud, reporting and record keeping provisions of the federal securities laws.  Xerox also paid a $10 million civil penalty, agreed to restate its financial statements and agreed to hire a consultant to review the company's internal accounting controls and policies.   Securities and Exchange Commission v. Xerox Corporation , Civil Action No. 02-CV-2780 (DLC) (S.D.N.Y.) (April 11, 2002).  See Litigation Release No. 17465 / April 11, 2002 / Accounting and Auditing Enforcement Release No. 1542 / April 11, 2002. 
+ On June 5, 2003, the Commission also brought an injunctive action against six former senior executives of Xerox - Paul A. Allaire, G. Richard Thoman, Barry D. Romeril, Philip D. Fishbach, Daniel S. Marchibroda, and Gregory B. Tayler -- based on some of the same allegations of accounting fraud as are alleged against the KPMG defendants, as well as other allegations.  Without admitting or denying the allegations of the complaint, each of these six former senior executives consented to the entry of a final judgment that permanently enjoined them from violating the antifraud, reporting and record keeping provisions of the federal securities laws.  Together, they paid over $22 million in penalties, disgorgement and interest.  That final judgment also barred Allaire, Thoman, Romeril and Fishbach from serving as officers and directors of public companies for certain periods - Allaire (5 years), Thoman (3 years), Romeril (permanently) and Fishbach (5 years).  In addition, Romeril and Tayler agreed to the entry by the Commission of an Order pursuant to Rule 102(e) of the Commission's Rules of Practice that suspends each of them from appearing or practicing before the SEC as an accountant.  This Order suspended Romeril permanently and suspended Tayler for three years with a right to apply for reinstatement after the three-year period.   Securities and Exchange Commission v. Paul A. Allaire, G. Richard Thoman, Barry D. Romeril, Philip D. Fishbach, Daniel S. Marchibroda and Gregory B. Tayler , Civil Action No. 03-CV-4087 (DLC) (S.D.N.Y.) (June 5, 2003).  See Litigation Release No. 18174 / June 5, 2003 / Accounting and Auditing Enforcement Release No. 1796 / June 5, 2003. 
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+        Eric Tyra, Scott Wynne, Peter Berman, and Scott Carey
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19438 / October 20, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2338 / October 20, 2005  
+
+  SECURITIES AND EXCHANGE COMMISSION v. Eric Tyra, Scott Wynne, Peter Berman, and Scott Carey,  Civil Action No. CV-04-P-1052-S (N.D. Al.) 
+
+ The Securities and Exchange Commission announced that the Honorable R. David Proctor, United States District Judge for the Northern District of Alabama, entered a Final Judgment As To Defendant Eric Tyra, enjoining him from future violations of Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.  Tyra consented to the entry of the judgment without admitting or denying the allegations of the Commission's Complaint.  The court ordered disgorgement against Tyra in the amount of $1, and a civil penalty in the amount of $67,500, and prohibited Tyra from acting as an officer or director of any issuer that has a class of registered securities for a period of ten years.    
+ The Commission's Complaint, filed on May 21, 2004 alleged various fraudulent practices in connection with the financial statements of Just for Feet, Inc., a large shoe and sports apparel retailer formerly headquartered in Birmingham, Alabama.  The Complaint alleged that Tyra, Just for Feet's chief financial officer, and others, among other things, recorded on Just for Feet's books unearned receivables and failed to create an adequate reserve for excess or obsolete inventory.  The overstatement of income and assets resulting from this misconduct was reflected on Just for Feet's financial statements included in its Form 10-K filed for fiscal year 1998, Forms 10-Q filed for the first and second quarters of fiscal year 1999, and in its registration statements on Forms S-8 and S-4 filed in May and June of 1999, respectively. 
+ See also: L.R.   18139  (May 15, 2003); L.R.  18571  (February 6, 2004); L.R.  18575  (February 13, 2004); L.R.  18731  (June 1, 2004); and L.R.  19163  (March 31, 2005). 
+ 
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diff --git a/raw/aaer/2005/AAER-2340.txt b/raw/aaer/2005/AAER-2340.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d1856099c9326eb7b7aa8968179d43f0815bbabb
--- /dev/null
+++ b/raw/aaer/2005/AAER-2340.txt
@@ -0,0 +1,1369 @@
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+              Ocumed Group, Inc., Alfred R. Caggia and Louise A. Cummings
+           
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+        Ocumed Group, Inc., Alfred R. Caggia and Louise A. Cummings
+       
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19443 / October 25, 2005 
+
+ Accounting and Auditing  Enforcement 
+Release No.  2340 / October 25, 2005 
+
+  Securities and Exchange Commission v. Ocumed Group, Inc., Alfred R. Caggia and Louise A. Cummings,  (United States District Court for the District of Columbia C.A. No. 1:04CV00829) 
+
+ FEDERAL COURT ENJOINS OCUMED GROUP, FORMER CEO AND DIRECTOR; ORDERS DISGORGEMENT AND PENALTIES EXCEEDING $940,000; ISSUES OFFICER AND DIRECTOR BARS   
+
+ On October 18, 2005, the Honorable Ellen S. Huvelle of the U.S. District Court for the District of Columbia issued a final judgment against Ocumed Group, Inc. ("Ocumed"), a former New Jersey based manufacturer of eye care products; Alfred R. Caggia, its former CEO; and Louise A. Cummings, a former director.  The final judgment, effective as of September 21, 2005, permanently enjoins each from violating Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder and permanently enjoins Caggia and Cummings from aiding and abetting any violation of Section 13(a) of the Exchange Act.  It also orders Caggia and Cummings to pay disgorgement, pre-judgment interest, and civil penalties totaling $915,753 and $25,000, respectively, and bars each from serving as an officer or director of a public company.   
+ In its Complaint filed May 24, 2004, the Commission alleged that Ocumed, Caggia, and Cummings violated or aided and abetted violations of antifraud and/or reporting provisions of the securities laws by including a forged auditor's report with Ocumed's Form 10-KSB for the fiscal year ended April 30, 2002 to make it appear that the company's 2002 financial statements were audited.  In fact, there was no audit.  The Complaint alleged that Caggia created the forged auditor report and signed the Form  
+ 10-KSB, and that Cummings signed the Form 10-KSB without reading or taking any steps to ascertain whether it was true and accurate.           
+ For additional information, see Litigation Release No.  18723  (May, 24, 2004).  
+
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+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2342.txt b/raw/aaer/2005/AAER-2342.txt
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19455 \ November 2, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2342 \ November 2, 2005 
+
+  SECURITIES AND EXCHANGE COMMISSION v. DAVID G. ZILLI (Defendant),  Civil Action No. CV 05-2134 (D.D.C.) (filed November 2, 2005). 
+
+ SEC SUES DAVID G. ZILLI FOR ACCOUNTING FRAUD 
+
+ ZILLI SETTLES AND CONSENTS TO PERMANENT FRAUD INJUNCTION, PERMANENT OFFICER AND DIRECTOR BAR, AND PAYMENT OF OVER $144,000 
+
+ Today the Securities and Exchange Commission filed a settled enforcement action against David G. Zilli, the former Chief Financial Officer of Bon Secours Cottage Health Services ("Cottage Health"), for violating the antifraud provisions of the federal securities laws.  Cottage Health is a subsidiary of a Maryland-based non-profit hospital and healthcare company called Bon Secours Health System, Inc. ("Bon Secours") which issues corporate bonds, in part through public offerings.  The Commission alleged in its complaint that, during Bon Secours' fiscal years 1998 through 2003, Zilli engaged in an extensive scheme of fraudulent accounting practices that created the false appearance of steady earnings growth at Cottage Health.  According to the complaint, Zilli's fraud was accomplished through bogus manual journal entries that overstated the value of numerous assets and the operating income of Cottage Health and understated its liabilities.  As a result of Zilli's fraudulent scheme, Bon Secours' financial statements were cumulatively misstated by an aggregate amount of $117 million during the period between 1998 and 2003.  In February 2004, Bon Secours restated its 2002 consolidated financial statements to correct the impact of Zilli's fraudulent accounting over the relevant periods.   
+ As alleged in the complaint, Zilli was the Vice President-Finance and CFO of Cottage Health from September 1998 through June 2003.  During that time, Zilli supervised Cottage Health's accounting department and was responsible for the creation of the financial statements of the subsidiary.  On a periodic basis, Zilli generated Cottage Health's financial statements and forwarded them to the finance department of Bon Secours where they were consolidated with those of the other subsidiaries to create Bon Secours' annual consolidated financial statements.  Bon Secours included the consolidated financial statements in various public bond offerings that it made to investors.   
+ According to the complaint, from 1998 through 2003, the accounting department prepared preliminary financial statements for Cottage Health and forwarded them to Zilli for review.  Zilli, on numerous occasions, independently devised complex adjusting manual journal entries to the preliminary statements, lacking any support or accounting basis.  The accounting department then finalized the monthly reports for Cottage Health after making the adjustments that Zilli had instructed the accounting personnel to make.  The Commission alleges that the adjustments made by Zilli artificially and fraudulently boosted Cottage Health's income in each period.  As alleged, Zilli created the fraudulent journal entries to derive the specific income amount that he wanted to book for the particular period in order to ensure that Cottage Health's reported performance figures met its financial targets.  The complaint further alleges that Zilli's fraudulent accounting resulted in the overstatement of three general categories of Bon Secours' assets:  accounts receivable, fixed assets and inventory.  According to the complaint, Zilli's misstatements materially inflated Bon Secours' "increase in unrestricted net assets," the equivalent of net income for a non-profit enterprise, by approximately the following amounts:  (a) $20.1 million or 75% in fiscal year 2000; (b) $15.4 million or 31% in fiscal year 2001; and (c) $17.9 million or 270% in fiscal year 2002.  The complaint further alleges that the misstatements overstated Bon Secours' income from operations by approximately the following amounts:  (a) $22.9 million or 106% in fiscal year 2000; (b) $20.6 million or 51% in fiscal year 2001; and (c) $21.9 million or 42% in fiscal year 2002.   
+ Zilli, without admitting or denying the allegations in the Commission's complaint, consented to the entry of the final judgment which permanently enjoins him from violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder.  In addition to the injunctive relief, under the terms of the final judgment, Zilli will pay $144,513 in disgorgement.  Based on Zilli's Sworn Statement of Financial Condition and other documentation, the Commission did not seek a penalty.  The disgorgement amount shall be deemed satisfied upon his payment of that same amount in criminal restitution against Zilli in a parallel criminal action also filed today in the United States District Court for the District of Maryland.  In the event that Zilli is ordered to pay an amount less than $144,513 in criminal restitution, the disgorgement amount that Zilli has agreed to pay in settling the Commission's complaint is equal to $144,513, less the amount of criminal restitution.  Under the terms of the final judgment, Zilli also will be barred permanently from serving as an officer or director of a public company.  Zilli's settlement with the Commission is subject to court approval. 
+ The Commission acknowledges the assistance in its investigation by the United States Attorney's Office for the District of Maryland and the U.S. Postal Inspection Service. 
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+     SEC.gov | Jonathan D. Nelson (Defendant), XIT Land & Energy, Inc., Chisum Travel Center, Ltd., Z8 Properties, Ltd., Three Stars Aviation, LLC, and Chisum Coach, Ltd. (Defendants Solely for Purposes of Equitable Relief) 
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+              Jonathan D. Nelson (Defendant), XIT Land & Energy, Inc., Chisum Travel Center, Ltd., Z8 Properties, Ltd., Three Stars Aviation, LLC, and Chisum Coach, Ltd. (Defendants Solely for Purposes of Equitable Relief)
+           
+     
+ 
+
+   
+
+     
+
+      
+      
+             
+        Jonathan D. Nelson (Defendant), XIT Land & Energy, Inc., Chisum Travel Center, Ltd., Z8 Properties, Ltd., Three Stars Aviation, LLC, and Chisum Coach, Ltd. (Defendants Solely for Purposes of Equitable Relief)
+       
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+                        
+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ Litigation Release No. 19467 / November 16, 2005 
+
+ Accounting and Auditing Enforcement 
+Release No. 2345 / November 16, 2005 
+
+  SEC v. Jonathan D. Nelson (Defendant), XIT Land & Energy, Inc., Chisum Travel Center, Ltd., Z8 Properties, Ltd., Three Stars Aviation, LLC, and Chisum Coach, Ltd. (Defendants Solely for Purposes of Equitable Relief),  Case No. 5-05CV0266-C.  (N.D. Tex., Lubbock Division, filed November 16, 2005) 
+
+ SEC FREEZES ASSETS OF AND OBTAINS OTHER RELIEF AGAINST JONATHAN DWANE "JODY" NELSON, FORMER CFO OF PATTERSON-UTI ENERGY, INC., IN $69 MILLION EMBEZZLEMENT SCHEME 
+
+ On November 16, 2005, U.S. District Judge Sam R. Cummings of the Northern District of Texas, Lubbock Division, entered orders freezing the assets of, and granting other relief against, Jonathan Dwane "Jody" Nelson, age 36, the former chief financial officer of Snyder, Texas-based Patterson-UTI Energy, Inc.  Patterson-UTI, whose common stock trades on the Nasdaq National Market under the symbol PTEN, is the second-largest owner of land-based drilling rigs in North America.  Nelson had abruptly resigned from the company on November 3, 2005, citing unspecified "personal reasons." 
+ In its emergency lawsuit, the SEC alleged that Nelson, who resides in Dallas, Texas, orchestrated a massive phony-invoice scheme to embezzle more than $69 million from Patterson-UTI over five years.  The SEC also named as relief defendants five Nelson-controlled companies alleged to have received proceeds from the scheme:  XIT Land & Energy, Inc. ("XIT"), Chisum Travel Center, Ltd., Z8 Properties, Ltd., Three Stars Aviation, LLC, and Chisum Coach, Ltd. 
+ The SEC's complaint alleges that Nelson created false invoices that caused Patterson-UTI to pay millions of dollars to XIT, a company he secretly controlled that was not a legitimate Patterson-UTI vendor.  To accomplish his scheme, Nelson circumvented Patterson-UTI internal controls by, among other things, forging another company official's initials on payment documents.  According to the complaint, Nelson finally confessed to Patterson-UTI on November 9 that he embezzled approximately $29 million, but company records show that he actually stole $69,434,342 from January 2001 through October 2005.  To hide his scheme, Nelson, among other things, made false written representations to Patterson-UTI's independent auditor about the accuracy of the company's financial statements and signed false public certifications attesting to the truthfulness of the company's quarterly and annual SEC reports. 
+ As the complaint alleges, Nelson transferred the embezzled funds from an XIT bank account to other entities he controlled, including Chisum Travel, Z8 Properties, Three Stars Aviation and Chisum Coach.  The SEC contends that Nelson used these funds to purchase an airplane, an airfield, a cattle ranch, homes, vehicles and a full-service truck stop, among other things.  The SEC named XIT and these other entities as relief defendants solely to secure equitable relief to prevent them from dissipating or hiding the fruits of Nelson's wrongdoing.  
+ The SEC's complaint alleges violations of the antifraud, proxy-solicitation, record-keeping, reporting, internal controls, lying-to-accountants and report-certification 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)(A), 13(b)(2)(B), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-14, 13b2-1, 13b2-2, and 14a-9 thereunder.  The court's order immediately freezes the assets of and appoints a receiver over Nelson and the relief defendants, and requires Nelson and the relief defendants to account for all proceeds stolen from Patterson-UTI, prohibits the destruction of documents and expedites discovery.  In addition, the SEC seeks preliminary and permanent injunctions against Nelson, as well as disgorgement of ill-gotten gains, civil penalties and a bar against him ever serving as an officer or director of another public company.  The SEC further seeks disgorgement of ill-gotten gains against each relief defendant. 
+
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+ SEC Complaint in this matter  -->
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diff --git a/raw/aaer/2005/AAER-2346.pdf b/raw/aaer/2005/AAER-2346.pdf
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+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+                                                 
+     
+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 52813 / November 21, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2347 / November 21, 2005 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-10335 
+: ORDER GRANTING APPLICATION FOR 
+: REINSTATEMENT TO APPEAR AND PRACTICEIn the Matter of : BEFORE THE COMMISSION AS AN ACCOUNTANT 
+: RESPONSIBLE FOR THE PREPARATION OR Donald C. Yount, Jr., CPA : REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+: TO BE FILED WITH THE COMMISSION 
+On September 19, 2000, the Commission filed a complaint against Donald C. Yount, Jr., 
+(“Yount”) and others in SEC v. Charnock, et al., Civil Action No. 00 2239. On September 27, 
+2000, a final judgment was entered by the United States District Court for the District of 
+Columbia permanently enjoining Yount from violating Section 17(a) of the Securities Act of 
+1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange 
+Act”) and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and from aiding and abetting violations of 
+Section 13(b)(2)(B) of the Exchange Act.  Yount consented to the entry of the final judgment 
+without admitting or denying the allegations of the Commission's complaint.  On September 29, 
+2000, Yount was suspended from appearing or practicing as an accountant before the 
+Commission pursuant to Rule 102(e) of the Commission's Rules of Practice.1 
+In the above referenced civil matter the Commission’s complaint alleged, among other 
+things, that (1) from at least May 1996 through December 1997, Yount, as Senior Vice President 
+and Chief Financial Officer of Versatility, Inc. (“Versatility”), knowingly or recklessly 
+participated in the material overstatement of Versatility's assets, revenues and earnings in its 
+financial statements included in periodic reports and registration statements filed with the 
+Commission; (2) Yount aided and abetted Versatility's failure to devise and maintain a system of 
+internal accounting controls; and (3) Yount provided false or misleading management 
+representation letters to Versatility's auditors in connection with Versatility's audit for fiscal year 
+1997 and in connection with registration statements Versatility filed in December 1996 and 
+March 1997. 
+1 See Accounting and Auditing Enforcement Release No. 1323, dated September 29, 2000.  Yount was permitted, 
+pursuant to the order, to apply for reinstatement after three years upon making certain showings. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+ 
+ 
+ 
+    
+    
+This order is issued in response to Yount's application for reinstatement to practice before 
+the Commission as an accountant responsible for the preparation or review of financial 
+statements required to be filed with the Commission. 
+In any future capacity as a preparer or reviewer, or a person responsible for the 
+preparation or review of financial statements required to be filed with the Commission, Yount 
+has stated that he will have his work reviewed by the independent audit committee of any 
+company for which he works, or in some other manner acceptable to the Commission, while 
+practicing before the Commission in this capacity. Yount 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, Yount's 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Yount, it appears that he has complied with the terms of the September 29, 2000, 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 Yount, by 
+undertaking to have his work reviewed by the independent audit committee of any company for 
+which he works, or in some other manner acceptable to the Commission, in his practice before 
+the Commission as a preparer or reviewer of financial statements required to be filed with the 
+Commission, has shown good cause for reinstatement.  Therefore, it is accordingly, 
+2 Rule 102(e)(5)(i) provides: 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a 
+hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated 
+by the Commission for good cause shown.” 17 C.F.R. § 201.102(e)(5)(i). 
+2
+ 
+ 
+ 
+ 
+ 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission's Rules of Practice that 
+Donald C. Yount, 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 
+3
+ 
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2348.pdf b/raw/aaer/2005/AAER-2348.pdf
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+++ b/raw/aaer/2005/AAER-2348.txt
@@ -0,0 +1,64 @@
+UNITED STATES OF AMERICA
+Before the 
+SECURITIES AND EXCHANGE COMMISSION
+Securities and Exchange Act of 1934
+Release No.  52864 / December 1, 2005
+Accounting and Auditing Enforcement
+Release No.  2348 / December 1, 2005
+Admin. Proceeding          
+File No. 3-9354
+_____________________________
+         )
+         )
+IN THE MATTER OF          ) ORDER PERMITTING ATTORNEY TO            
+         ) RESUME APPEARING AND PRACTICING      
+          ) UNDER  RULE 102(e)(5) OF THE              
+         ) COMMISSION’S RULES OF PRACTICE 
+ JAMES P. BROWN                      )
+         )
+                                             )
+_____________________________)
+I.
+On August 5, 1997, the  Commission, pursuant to Rule 102(e)(3) of the Commission’s Rules
+of Practice, suspended attorney James P. Brown (“Brown”) from appearing or practicing before the
+Commission, with the right to apply to resume appearing and practicing after five years.  See
+Opinion and Order, Release No.34-38903 (August 5, 1997).  The basis for the suspension was an
+action by the Commission in th e United States District Court for South Carolina ( SEC v. Policy
+Management Systems Corp , Civil Action No. 96-CV-2193), in which the Commission alleged
+Brown, an attorney licensed in Florida, was working in-house as general counsel and then as senior
+vice president for Management System Cor poration (“PMSC”) from 1986 though 1993.  Brown
+reviewed financial statements contained in certain periodic reports filed on behalf of PMSC with the
+Commission, and certain of these financial statem ents materially misstated PMSC’s results of
+operations in violation of generally accepted accounting principles. The complaint further alleged
+that, as a control person, Brown was liable for PMSC’s failure to make and keep accurate books and
+records and to maintain adequate internal accounting controls, and that Brown provided inaccurate
+information to PMSC’s independent auditors. On July 22, 1997, Brown consented to the entry of
+an order of permanent injunction enjoining him from violations of Sections 13(a), 13(b)(2)(A),
+13(b)(2)(B) and 13(b)(5) of the Exchange Ac t and its Rules 12b-20, 13a-1, 13a-13, 13b2-1 and
+13b2-2 thereunder. 
+In anticipation of the institution of these administrative proceedings, Brown consented to the
+entry of an order (as an offer of settlement) without admitting or denying the findings except as to
+-2-
+the entry of the injunction and the Commission’s jurisdiction over him, both of which he admitted.
+Brown consented to the entry of the Order Instituting Public Proceedings Pursuant to Rule 102(e)
+of the Commission’s Rules of Practice, Making Findings and Imposing Remedial Sanctions, which
+was entered on August 5, 1997. 
+The Opinion and Order provided that Brown could apply to resume appearing and practicing
+before the Commission after a period of five years.
+II. 
+On or about March 2, 2005, over five years after he had been suspended by the Commission,
+on August 5, 1997, Brown filed an application for reinstatement to appear or practice before the
+Commission, which he amended on April 21, 2005.  His application includes two personal affidavits
+in which he swore under penalty of perjury that  he has complied with the Commission’s Opinion
+and Order, that he has not appeared or practiced  before the Commission and that he has not been
+subject to any other disciplinary action during the last seven years and that he personally paid a
+$20,000 civil penalty in connection with the Offer of settlement in the above-referenced action in
+federal court.
+III.
+Based on the forgoing, the Commission has determined that it is appropriate to permit
+Brown, pursuant to Rule 102(e)(5), to resume appearing or practicing before the Commission. 
+Accordingly, it is HEREBY ORDERED that Brown may resume practicing before the
+Commission. 
+By the Commission.
+Jonathan G. Katz
+                                    Secretary
\ No newline at end of file
diff --git a/raw/aaer/2005/AAER-2350.pdf b/raw/aaer/2005/AAER-2350.pdf
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--- /dev/null
+++ b/raw/aaer/2005/AAER-2350.txt
@@ -0,0 +1,214 @@
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+  
+  
+  
+ 
+ 
+ 
+                                                 
+ 
+  
+ 
+     
+ 
+  
+ 
+UNITED STATES OF AMERICA 
+Before The  
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 52878 / December 2, 2005 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 2350 / December 2, 2005  
+ADMINISTRATIVE PROCEEDING  
+File No. 3-12120 
+: 
+: ORDER INSTITUTING PUBLIC  In the Matter of : ADMINISTRATIVE PROCEEDINGS, MAKING 
+: FINDINGS AND IMPOSING REMEDIAL  Joseph T. Boyle, CPA, : 
+: 
+SANCTIONS PURSUANT TO RULE 102(e)  
+: OF THE COMMISSION'S RULES OF PRACTICE
+ 
+Respondent. : 
+I. 
+The Securities and Exchange Commission ("Commission") deems it appropriate and in the public 
+interest that public administrative proceedings be, and hereby are, instituted against 
+Respondent Joseph T. Boyle (CPA) ("Boyle" or "Respondent") pursuant to Rule 102(e)(3)(i) of 
+the Commission's Rules of Practice.1 
+II. 
+In anticipation of the institution of these proceedings, Boyle has submitted an Offer of 
+Settlement ("Offer"), which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceeding brought by or on behalf of the 
+Commission or to which the Commission is a party, and without admitting or denying the 
+findings, except as to the Commission's jurisdiction over the subject matter of these 
+proceedings and as to the entry of the injunction set forth in Section III, which are admitted, 
+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.  
+  
+ 
+  
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+   
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+Boyle consents to the entry of this the 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 Commission finds that: 
+A. Boyle, age 62, is a certified public accountant licensed in New York and was, during the 
+relevant period covered by this Order, a partner at KPMG LLP (“KPMG”). Boyle was the 
+relationship partner for Xerox Corporation (“Xerox” or the “Company”) for the years 1999 and 
+2000. Boyle retired from KPMG in 2003.  
+B. KPMG is a national public accounting firm and, during the relevant period covered by this 
+Order, served as the independent public accountant for Xerox.  
+C. Xerox was, during the relevant period covered by this Order, a New York corporation with its 
+principal place of business in Stamford, Connecticut.  At all times pertinent to the period 
+covered by this Order, the common stock of Xerox was registered with the Commission 
+pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act") and traded 
+on the New York Stock Exchange. 
+D. On January 29, 2003, the Commission filed a complaint against Boyle and others in the 
+United States District Court for the Southern District of New York. SEC v. KPMG LLP, et al., No. 
+03-0671 (DLC). On October 14, 2005, the Co urt entered a final judgment permanently 
+enjoining Boyle from violating Section 10A of the Exchange Act. Boyle consented to the entry of 
+the final judgment without admitting or denying the allegations of the Commission's complaint. 
+E. The Commission’s complaint alleged, among other things, that Boyle violated Section 10A of 
+the Exchange Act. The complaint alleged that in the course of serving as the relationship 
+partner for Xerox, Boyle became aware of information indicating that Xerox was preparing and 
+filing quarterly and annual financial statements and other reports which likely contained 
+material misrepresentations and omissions in violation of the antifraud provisions of the federal 
+securities laws.  According to the complaint, Boyle did not report these likely violations to the 
+Xerox Audit Committee or take other steps required by Section 10A of the Exchange Act when 
+Xerox management and its board did not correct the violations. 
+2 
+
+  
+ 
+  
+ 
+ 
+ 
+  
+              
+    
+     
+      
+        
+  
+ 
+      
+   
+      
+            
+ 
+    
+ 
+   
+ 
+ 
+   
+  
+ 
+    
+ 
+   
+      
+ 
+ 
+ 
+IV.
+ 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+accept Boyle’s Offer of Settlement. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A.    Boyle is suspended from appearing or practicing before the Commission as an 
+accountant. 
+B. After one (1) year from the date of this order, Boyle 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 Boyle’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) Boyle, 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) Boyle, 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 Boyle’s or the firm’s quality control system that would indicate that 
+Boyle 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) Boyle 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) Boyle acknowledges his responsibility, as long as Boyle 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 Boyle 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 
+3 
+
+  
+ 
+ 
+ 
+        
+                                                                                     
+ 
+ 
+  
+  
+  
+ 
+ 
+ 
+relating to Boyle’s character, integrity, professional conduct, or qualifications to appear or 
+practice before the Commission. 
+  By the Commission. 
+Jonathan G. Katz
+       S e c r e t a r y 
+4 
diff --git a/raw/aaer/2005/AAER-2354.pdf b/raw/aaer/2005/AAER-2354.pdf
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--- /dev/null
+++ b/raw/aaer/2005/AAER-2354.txt
@@ -0,0 +1,319 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 52959 / December 15, 2005 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 2354 / December 15, 2005 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-12126 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+GILBERT BERGSMAN, CPA, 
+and 
+LEE LEVINSON, 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 Gilbert Bergsman, CPA, and Lee 
+Levinson, CPA, (“Respondents” or “Bergsman and Levinson”) pursuant to Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice.1
+                                                 
+1 Rule 102(e)(1) provides, in pertinent part, that: 
+ 
+The Commission may … deny, temporarily or permanently, the privilege of appearing or 
+practicing before it in any way to any person who is found … to have engaged in …  improper 
+professional conduct … [W]ith respect to persons licensed to practice as accountants, “improper 
+professional conduct” … means: 
+….. 
+(B) Either of the following two types of negligent conduct: 
+ 
+     
+ 
+ 
+ 2
+                                                                                                                                                            
+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, 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.   
+ 
+III. 
+ 
+ On the basis of this Order and Res pondents’ Offers, the Commission finds2 that:  
+ 
+A. RESPONDENTS 
+ 
+ Gilbert Bergsman was a partner at the accounting firm of Eichler Bergsman & Co., LLP, 
+and a successor firm, Weinick Sanders Leventhal & Co., LLP (“Weinick Sanders”), in New York, 
+New York, since 1991.  Since July 2005, he has been a partner at Raich Ende Malter & Co. LLP in 
+New York, New York.  Bergsman is a certified public accountant licensed in New York and 
+Louisiana.  Bergsman was the engagement partner who supervised the quarterly reviews and 
+annual audit of the financial statements of eSafetyworld, Inc. (“eSafety”) during its fiscal year 
+2001 (ended June 30, 2001). 
+ 
+ Lee Levinson worked as an audit manager at Eichler Bergsman & Co., LLP, and a 
+successor firm, Weinick Sanders, since 1998.  Since July 2005, Levinson has been a manager at 
+Raich Ende Malter & Co. LLP in New York, NY.  Levinson has been primarily responsible for 
+audit and review engagements, and for reviewing the work of other accountants at the firm.  
+Levinson is a certified public accountant in New York.  He was the auditor responsible for 
+conducting the quarterly reviews and annual audit of eSafety’s fiscal 2001 financial statements. 
+ 
+B. OTHER RELEVANT ENTITIES 
+ 
+eSafetyworld, Inc. is a Nevada corporation with its principal place of business in 
+Bohemia, New York.  eSafety’s common stock is registered with the Commission pursuant to 
+Section 12(g) of the Exchange Act. 
+ 
+ 
+* * * * 
+(2)  Repeated instances of unreasonable conduct, each resulting in a violation of 
+applicable professional standards, that indicate a lack of competence to practice before 
+the Commission. 
+ 
+2  The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+ 3
+Eichler Bergsman & Co., LLP (“Eichler Bergsman”) was an accounting firm in New 
+York, New York during the relevant time period.  On January 1, 2004, it merged with Weinick 
+Sanders, another accounting firm in New York, New York.  Eichler Bergsman offered accounting 
+services including auditing, reviews, compilations, tax services, tax advice, tax preparation, and 
+general business advice.  Eichler Bergsman had four partners and twelve employees. 
+ 
+C. FACTS 
+ 
+ 1. Improper Professional Conduct 
+ 
+a. During fiscal 2001, eSafety started a new line of business, involving business 
+consulting services.  In exchange for services, eSafety was to receive cash or stock from its clients 
+– generally start-up companies with no income or established business.  eSafety’s management 
+believed it would receive stock from its clients and valued all shares it was to receive arbitrarily at 
+$0.25 per share.  eSafety’s valuation of the shares it was supposedly to receive as compensation 
+was speculative for revenue recognition purposes, since most of the companies did not have the 
+ability to pay in cash, and there was no established market for the shares of the consulting clients, 
+none of which were publicly traded, and many of which were start-up companies or entities not yet 
+in existence.  eSafety claimed to recognize revenue for these services on a percentage-of-
+completion basis, but there was no basis to determine the percentage of completion, given the 
+vagueness of the consulting arrangements.  These consulting revenues were material in that they 
+comprised approximately 60% of eSafety’s total revenues for the first through third quarters of 
+fiscal 2001, 84% of fourth quarter revenues, and approximately 69% of fiscal 2001 revenues.  In its 
+financial statements, eSafety did not report the consulting revenues as a separate business segment, 
+except in footnotes which did not disclose the dollar amounts. 
+ 
+b. Bergsman and Levinson performed quarterly reviews and issued quarterly review 
+reports for eSafety’s financial statements for the quarters ended September 30, 2000, December 31, 
+2000, and March 31, 2001, which were included in filings eSafety made with the Commission on 
+Forms 10-QSB.  During those quarterly reviews, Bergsman and Levinson failed to make adequate 
+inquiries into eSafety’s recognition of its consulting revenues.  They did not adequately assess 
+whether eSafety had implemented internal controls for a newly adopted accounting policy 
+concerning a new, material revenue stream, and they conducted no communications with eSafety’s 
+audit committee during the quarterly reviews concerning the newly adopted revenue recognition 
+policy.  Nonetheless, Eichler Bergsman issued quarterly review reports stating it was not aware of 
+any material modifications to be made to the financial statements in order to conform with 
+generally accepted accounting principles (“GAAP”).  
+ 
+c. Eichler Bergsman audited eSafety’s financial statements to be included in eSafety’s 
+Form 10-KSB for eSafety’s fiscal year ended June 30, 2001.  During the audit, Bergsman and 
+Levinson concluded that revenue recognition for consulting did not comply with GAAP, and 
+therefore all consulting revenues recognized in the three prior quarters should be reversed and 
+deferred, because the stock that eSafety was to receive as compensation from its consulting clients 
+had no determinable value and eSafety should not have recognized the revenues.  During the 
+course of a dispute with eSafety concerning the recognition of the revenue, Eichler Bergsman 
+ 4
+resigned, but withdrew the resignation after eSafety agreed to adjust its financial statements, and 
+reverse the previously recognized $880,000 in consulting revenues.  Eichler Bergsman ultimately 
+resigned its engagement in 2002 for the reasons set forth in eSafety’s February 20, 2002 Form 8-K. 
+ 
+d. Despite its agreement to reverse the $880,000 in consulting revenues, eSafety did 
+not restate its quarterly financial statements to reverse the consulting revenues recognized for the 
+quarters ended September 30, 2000, December 31, 2000, and March 31, 2001.  Statement on 
+Auditing Standards (“SAS”) 71 and SAS 1 required Bergsman and Levinson to investigate 
+whether facts requiring the reversal of revenue existed at the time of the auditor’s quarterly review 
+reports and the effect of the facts on those reports.  The primary facts leading to the conclusion that 
+the revenues did not comply with GAAP existed at the time.  The recognition of that revenue 
+therefore represented an accounting error as defined by Accounting Principles Board Opinion No. 
+20, Accounting Changes.  Accordingly, eSafety was required to restate its September 30, 2000, 
+December 31, 2000, and March 31, 2001 financial statements.  Nonetheless, eSafety failed to 
+restate its quarterly financial statements, and Bergsman and Levinson allowed their quarterly 
+review reports, which were included in eSafety’s quarterly filings with the Commission, on 
+eSafety’s quarterly financial statements, to remain outstanding. 
+ 
+e. Bergsman and Levinson failed to carry out the fundamental audit procedure of 
+confirming accounts receivable from the consulting clients.  AU §330.  The consulting revenues 
+recognized were highly speculative and unsupported.  The auditors did not assess the purported 
+consulting clients’ existence or their purported willingness and ability to pay for consulting 
+services.  Bergsman and Levinson also unreasonably failed to perform confirmations of the 
+deferred revenue and related accounts receivable during the year-end audit of eSafety.  In addition, 
+Bergsman and Levinson failed to note in their audit report or to require disclosure in eSafety’s 
+financial statements of all related party relationships of eSafety officers and directors with the 
+consulting clients, as required by GAAP.  Statement of Financial Accounting Standards (“SFAS”) 
+No. 57, “Related Party Disclosures.”   
+ 
+f. Bergsman and Levinson also failed to note in their review reports, or to require 
+eSafety’s recognition of consulting revenues to be reported as, a separate segment in eSafety’s 
+quarterly financial statements as required by SFAS No. 131, “Disclosures about Segments of an 
+Enterprise and Related Information.” 
+ 
+g. In addition, during the fiscal 2001 audit, Eichler Bergsman did not appropriately 
+audit eSafety’s reversal and deferment of consulting costs associated with compensation of eSafety 
+officers for general management of the company.  When eSafety reversed and deferred the 
+consulting revenues described above, eSafety also reversed and deferred costs for the 
+compensation of its officers supposedly associated with those revenues.  General management 
+costs are administrative expenses, which cannot be deferred.  Of the total deferred costs 
+approximating $373,000, general and administrative expenses constituted at least $152,000 (or 
+41%).  Therefore, eSafety should not have deferred these costs, but rather should have continued to 
+treat them as period costs and expensed them as incurred, as originally recorded.  Based on their 
+earlier audit testing of eSafety’s compensation costs, Levinson and Bergsman should have realized 
+that the deferred costs included administrative expenses incurred in the management of eSafety.  
+ 5
+Nevertheless, as part of their audit of these adjustments, Bergsman and Levinson failed to question 
+the deferral of the administrative costs.  As a result, eSafety understated its losses for fiscal year 
+2001 by at least 43% (assuming a 32% tax rate). 
+ 
+h. During the audit for eSafety’s fiscal year ended June 30, 2001, Harbor Ridge 
+Communications, Inc. (“Harbor Ridge”) provided Eichler Bergsman with an audit confirmation 
+indicating, among other things, that eSafety had made a loan of approximately $473,288 to Harbor 
+Ridge and that the loan was convertible to a 50% equity stake in Harbor Ridge.  eSafety made a 
+comparable representation.  Except for these representations, Bergsman and Levinson’s work 
+papers contain no documentation to support the Harbor Ridge transaction, nor do they evidence 
+any testing of the transaction or its substance, an understanding of the purposes of the payments, 
+Harbor Ridge’s status and relation to eSafety, or eSafety’s ability to collect the purported loan.  
+Accordingly, Bergsman and Levinson did not have a sufficient basis for concluding that the cash 
+advances were loans to Harbor Ridge or that the cash advances were properly recorded.  The 
+payments to Harbor Ridge did not in fact constitute a loan, and those payments should have been 
+expensed as incurred.  As a result, eSafety understated its net loss for fiscal 2001 by 132% 
+(assuming a 32% tax rate). 
+ 
+i. The conduct described above represents repeated instances of unreasonable conduct 
+and failures to exercise due professional care by Bergsman and Levinson resulting in violations of 
+applicable professional standards in the performance of their reviews and audit of eSafety’s 
+financial statements.  AU §§ 230, 326, 9326. 
+ 
+2. Violations   
+ 
+a. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides that the 
+Commission may deny the privilege of appearing or practicing before it to any person who is 
+found to have engaged in improper professional conduct.  With respect to persons licensed to 
+practice as accountants, “improper professional conduct” may include negligent conduct evidenced 
+by “repeated instances of unreasonable conduct, each resulting in a violation of applicable 
+professional standards, that indicate a lack of competence to practice before the Commission.”  
+Rule 102(e)(1)(ii). 
+ 
+b. Respondents Bergsman and Levinson engaged in improper professional conduct 
+by repeatedly engaging in unreasonable conduct, resulting in a violation of applicable 
+professional standards that indicate a lack of competence to practice before the Commission.  As 
+discussed above, Respondents Bergsman and Levinson (i) failed to make adequate inquiries into 
+eSafety’s new revenue stream and the valuation thereof during the first three quarters of 2001; 
+(ii) allowed their reports on eSafety’s quarterly financial statements to remain outstanding 
+despite eSafety’s failure to reverse the consulting revenues recognized during the first three 
+quarters of 2001; (iii) did not confirm accounts receivable from eSafety’s consulting clients, and 
+did not note or require disclosure of eSafety’s related party relationships with eSafety’s 
+consulting clients; (iv) did not appropriately audit or require correction of eSafety’s deferral of 
+certain administrative costs; and (v) did not obtain sufficient competent evidence to conclude 
+ 6
+that cash advances to Harbor Ridge were loans or investments, which eSafety improperly 
+recorded as assets rather than expenses. 
+ 
+ 3. Findings  
+ 
+ a. Based on the foregoing, the Commissi on finds that Respondents Bergsman and 
+Levinson 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 Bergsman and Levinson’s Offers. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Bergsman is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+ 
+B. Levinson is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+ 
+ C. After one (1) year from  the date of this order, Respondent Bergsman and/or 
+Respondent Levinson 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 accountant.  Su ch 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 or, if the Board has not 
+ 7
+conducted an inspection, has received an unqualified report relating to his, or the firm’s, most 
+recent peer review conducted in accordance with the guidelines adopted by the former SEC 
+Practice Section of the American Institute of Certified Public Accountants Division for CPA 
+Firms or an organization providing equivalent oversight and quality control functions; 
+   (c) Respondent has resolved all di sciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards. 
+ 
+D. The Commission will consider an ap plication by Respondent Bergsman and/or 
+Respondent Levinson 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-2356.txt b/raw/aaer/2005/AAER-2356.txt
new file mode 100644
index 0000000000000000000000000000000000000000..d142f547199d1be8cb27b456d6d5ec91d86ace6d
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+++ b/raw/aaer/2005/AAER-2356.txt
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+                  U.S. SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 
+       Litigation Release No. 19502 / December 20, 2005 
+	   Accounting and Auditing Enforcement  Release No. 2356 / December 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 Judgments Against John Bratten and Charles Elliott 
+	  
+ On December 12, 2005, the U.S. District Court for the District of New Jersey entered final judgments against John Bratten ("Bratten") and Charles Elliott ("Elliott"), two employees of Lucent Technologies, Inc. ("Lucent").  In its Complaint filed on May 17, 2004 and amended on September 30, 2005, the Commission alleged that on September 30, 2000, Lucent and BellSouth Telecommunications, Inc. ("BellSouth") entered into a software pooling agreement, called LOA 105, which obligated BellSouth to pay Lucent $95 million by April 1, 2001 for software that it had to select by September 30, 2002. To induce BellSouth to enter into LOA 105, Bratten agreed to provide BellSouth with a $20 million credit and a 2 percent price discount (valued at $1 million). Bratten failed to notify Lucent's CFO structure that he had agreed to the credit and discount as part of a software pooling transaction. In addition, on October 10, 2000, Bratten executed a letter to BellSouth that falsely represented that the credit and discount had been granted on that date rather than in September. The letter was drafted by Elliott, who knew that Bratten had granted the credit and discount in September as an inducement for BellSouth to enter into LOA 105. As a result of their fraudulent conduct, Lucent violated GAAP by recording the entire $95 million as revenue and operating income, rather than $74 million. 
+ Bratten, a sales Vice President at Lucent, failed to notify Lucent's CFO structure that he had agreed to a $20 million credit and a 2 percent price discount as part of a software pooling transaction entered into by Lucent and BellSouth Telecommunications Inc. ("Bellsouth") on September 30, 2000.  In addition, on October 10, 2000, Bratten executed a letter to BellSouth that falsely represented that the credit and discount had been granted on that date rather than in September.  The letter was drafted by Elliott, a Senior Manager at Lucent who knew that Bratten had granted the credit and discount in September as an inducement for BellSouth to enter into the software pooling agreement.  As a result of their fraudulent conduct, Lucent materially overstated pre-tax income in its financial statements filed with the Commission in a form 8-K on October 24, 2000. 
+
+ Without admitting or denying the allegations in the Commission's Complaint, Bratten and Elliott each consented to the entry of final judgments that permanently enjoin them from violating the antifraud provisions of the federal securities laws and from circumventing or knowingly failing to implement internal controls or directly or indirectly falsifying, or causing to be falsified, a book or record, specifically, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder.  The Court also enjoined Bratten and Elliott from aiding and abetting the periodic reporting, internal controls, and books and records provisions of the Exchange Act, specifically, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder, and ordered Bratten to pay a $40,000 civil penalty and Elliott to pay a $25,000 civil penalty.  Lucent and four other individuals have previously settled the Commission's action against them.  The Commission's action continues against former Lucent employees Nina Aversano, Jay Carter, Alice Leslie Dorn, and Michelle Hayes-Bullock.   
+
+ For more information, see Litigation Releases Nos.  18715  (May 17, 2004) and  19437  (October 20, 2005). 
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diff --git a/raw/aaer/2012/AAER-3353.txt b/raw/aaer/2012/AAER-3353.txt
new file mode 100644
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--- /dev/null
+++ b/raw/aaer/2012/AAER-3353.txt
@@ -0,0 +1,1392 @@
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+     SEC.gov | Todd Farha, et al. 
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+                   Litigation Release No. 22221 / January 10, 2012 
+
+ Accounting and Auditing Release No. 3353 / January 10, 2012 
+
+ Securities and Exchange Commission v. Todd Farha, et al., Civil Action No. 8:12-cv-00047-SDM-MAP (M.D. Fla., January 9, 2012) 
+
+ SEC BRINGS FRAUD AND INSIDER TRADING CHARGES AGAINST THREE FORMER WELLCARE EXECUTIVES 
+
+ On January 9, 2012, the Securities and Exchange Commission ("Commission") filed a civil injunctive action against three former executives of WellCare Health Plans, Inc. ("WellCare"), a managed care services company that administers federal government-sponsored health care programs.  According to the Commission's complaint, from 2003 to 2007, Todd Farha, former Chief Executive Officer, Paul Behrens, former Chief Financial Officer, and Thaddeus Bereday, former General Counsel, (collectively, "the Defendants"), devised and carried out a fraudulent scheme that deceived the Florida Agency for Health Care Administration ("AHCA") and the Florida Healthy Kids Corporation ("Healthy Kids") by improperly retaining over $40 million in health care premiums the company was statutorily and contractually obligated to spend on certain health care services or reimburse to the state agencies.  As a result of the scheme, WellCare recorded the retained amount as revenue, which materially inflated its net income and diluted earnings per share ("EPS") in its public financial statements.   
+
+ As alleged in the complaint, WellCare received premiums from AHCA and Healthy Kids that WellCare was required, by contract and by statute, to spend on certain eligible health care services for low-income plan participants.  If WellCare spent less than a certain percentage of the premiums on eligible health care services, it was required to refund some or all of the difference to the State of Florida.  According to the complaint, the Defendants devised a scheme to evade the state's regulatory framework and fraudulently retain the premiums by, among other methods, funneling the premiums through an internal subsidiary and by applying administrative and other non-allowable expenses in their calculation of money spent on health care services.  In total, through their fraudulent conduct, the complaint alleges that WellCare reduced the refunds it paid to AHCA by approximately $35 million and to Healthy Kids by approximately $6 million.    
+
+ The excess premiums retained by the Defendants went straight to WellCare's bottom line.  WellCare materially misstated its net income and EPS in filings with the Commission and in quarterly and annual earnings releases from 2004-2006 and the first two quarters of 2007.  On January 26, 2009, WellCare filed its Form 10-K for 2007 and restated its financial results for those time periods.  The Restatement reduced WellCare's reported net income and EPS by approximately 14% for fiscal year ("FY") 2004, 9% for FY 2005, 13% for FY 2006, and 9% for the first quarter of FY 2007.   
+
+ The Commission's complaint also alleges that, after setting their fraudulent scheme in motion, the Defendants sold approximately 1.6 million WellCare shares into the public market for gross proceeds of approximately $91 million.  The Commission alleges that the Defendants sold these shares on the basis of the material, nonpublic information that they were conducting a fraudulent scheme that impacted WellCare's financial results, caused false and misleading statements, and imperiled the Company's business relationship with the State of Florida.  According to the complaint, the Defendants sold the shares pursuant to 10b5-1 trading plans that were created and amended in bad faith, and through three public stock offerings conducted while the scheme was ongoing.   
+
+ Based on the conduct alleged in the complaint, the Commission charges that each of the Defendants violated antifraud provisions Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5, and also violated Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1.  All of the Defendants are also charged with aiding and abetting WellCare's violations of reporting, books and records, and internal controls provisions, namely, 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.  Bereday is charged with aiding and abetting Farha's and Behrens' violations of antifraud provisions Section 10(b) and Rule 10b-5(b) of the Exchange Act.  Finally, Farha and Behrens are charged with violating Exchange Act Rules 13b2-2 and 13a-14, and Section 304(a) of Sarbanes-Oxley, which requires that the CEO or CFO of a company that restates its financial results to reimburse the company any incentive-based or equity-based compensation received and any profits realized from the sale of the company's stock during the 12-month period following initial issuance of the misleading financial statements.   
+
+ As to each Defendant, the Commission is seeking a judgment permanently enjoining them from violating the provisions of the securities laws specified above, civil penalties, disgorgement of ill-gotten gains with prejudgment interest, and officer and director bars.  As to Farha and Behrens, the Commission seeks reimbursement of incentive-based and equity-based compensation pursuant to Section 304(a) of Sarbanes-Oxley.   
+
+ In conducting its investigation, the Commission acknowledges assistance from the U.S. Attorney's Office for the Middle District of Florida, the Office of Inspector General for the Department of Health and Human Services and the Federal Bureau of Investigation.   
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2012/AAER-3354.txt b/raw/aaer/2012/AAER-3354.txt
new file mode 100644
index 0000000000000000000000000000000000000000..a304dfda31a41aa88188313aa4d6ebdd885e9066
--- /dev/null
+++ b/raw/aaer/2012/AAER-3354.txt
@@ -0,0 +1,945 @@
+ 
+ 
+SECURITIES AND EXCHANGE COMMISSION
+ 
+Washington, D.C.
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 3354 / January 10, 2012 
+Admin. Proc. File No. 3-14130 
+In the Matter of the Application of 
+R.E. BASSIE & CO.
+ 
+and
+ 
+R. EVERETT BASSIE, C.P.A.
+ 
+c/o Dwight E. Jefferson
+ 
+405 Main Street, Suite 950
+ 
+Houston, TX 77002
+ 
+For Review of Disciplinary Action Taken by 
+PCAOB 
+OPINION OF THE COMMISSION 
+PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD -- REVIEW OF 
+DISCIPLINARY PROCEEDINGS 
+Refusal to Cooperate with Investigation 
+Registered public accounting firm and associated person refused to cooperate with board 
+investigation.  Held, findings of misconduct and sanctions imposed are sustained. 
+APPEARANCES: 
+Dwight E. Jefferson, of Dwight E. Jefferson, PLLC, for R.E. Bassie & Co. and R. Everett 
+Bassie, C.P.A.  
+J. Gordon Seymour, Michael Stevenson, and Davis B. Tyner, for PCAOB. 
+Appeal filed:  November 17, 2010 
+Last brief filed:  February 22, 2011 
+2 
+I. 
+R. Everett Bassie, C.P.A., and R.E. Bassie & Co., a registered public accounting firm 
+("REB" or the "Firm" and, together with Bassie, "Applicants"), filed an application pursuant to 
+1Section 107(c) of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley" or the "Act")  for review of
+disciplinary action taken by the Public Company Accounting Oversight Board ("PCAOB" or the 
+2 3"Board").  Acting pursuant to Section 105(b)(3) of the Act  and PCAOB Rule 5300(b),  the
+Board found that Applicants refused to cooperate with an investigation by the Board's Division 
+of Enforcement and Investigations (the "Division"), permanently revoked the Firm's registration, 
+permanently barred Bassie from association with any registered public accounting firm, and 
+imposed a civil money penalty of $75,000 on Bassie.  We base our findings on an independent 
+review of the record. 
+II. 
+FACTS 
+A. Background 
+This case concerns Applicants' protracted failure to produce to PCAOB staff documents 
+that the staff had requested in connection with an investigation.  The facts, which are largely 
+undisputed, are as follows. 
+1 15 U.S.C. § 7217(c). 
+2 Id. § 7215(b)(3).  Section 105(b)(3) authorizes the Board to impose sanctions, 
+including revocation of the registration of a public accounting firm, bar from association of an 
+associated person, and "such other lesser sanctions as the Board considers appropriate, and as 
+specified by rule of the Board," if a registered public accounting firm or an associated person 
+thereof "refuses to testify, produce documents, or otherwise cooperate with the Board in 
+connection with an investigation" under Section 105. 
+3 Rule 5300(b), incorporating by reference certain provisions of Rule 5300(a), 
+provides that the Board may impose "such disciplinary or remedial sanctions as it determines 
+appropriate," including civil money penalties, if it finds that a registered public accounting firm 
+or an associated person thereof "has failed to comply with an accounting board demand . . . or 
+has otherwise failed to cooperate in an investigation."  PCAOB rules may be found at the Board's 
+website: http://pcaobus.org. 
+ 
+3
+ 
+REB is a public accounting firm that has been registered with the Board pursuant to 
+Section 102 of the Act4  and PCAOB rules since October 2003.  Bassie, who is licensed as a 
+certified public accountant in Texas, was, at all relevant times, the sole proprietor of REB and an 
+associated person of a registered public accounting firm as defined in Section 2(a)(9) of the Act5 
+and PCAOB Rule 1001(p)(i). 
+B. January 2006: Issuance of Order of Formal Investigation 
+On January 10, 2006, the Board issued an Order of Formal Investigation ("OFI") pursuant 
+to PCAOB Rule 5101(a)(1).  The OFI stated that the Board had received information indicating 
+that REB and one of its associated persons may have violated PCAOB rules by failing to comply 
+with certain standards in auditing and reviewing the financial statements of Calypso Wireless, 
+Inc. ("Calypso").  The OFI authorized a formal investigation "to determine whether [REB] or any 
+associated persons of [REB] have engaged in or are engaging in any of the acts or practices 
+described [in the OFI] or in acts or practices of similar purport or object."  The OFI further 
+authorized Division staff to issue Accounting Board Demands ["ABDs"] to any person "pursuant 
+to Section 105(b)(2) of the Act, and the Board's Rules thereunder, to the extent that the 
+information sought is relevant to the matters described" in the OFI.
+6 
+4 15 U.S.C. § 7212. 
+5 15 U.S.C. § 7201(a)(9). 
+6 In relevant part, Section 105(b)(2)(B) of Sarbanes Oxley permits the Board, by 
+rule, to "require the production of audit work papers and any other document or information in 
+the possession of a registered public accounting firm or any associated person thereof . . . that the 
+Board considers relevant or material to the investigation."  15 U.S.C. § 7215(b)(2)(B).  Rule 
+5103(a) tracks the statutory language closely:  it permits the Board, and PCAOB staff designated 
+in an OFI, to issue ABDs "for the production of audit work papers or any other document or 
+information in the possession of a registered public accounting firm or any associated person 
+thereof . . . that the Board or its staff considers relevant or material to the investigation."  
+The "relevant or material" standard is also used in Section 21(b) of the Securities 
+Exchange Act of 1934, 15 U.S.C. § 78u(b), which authorizes the Commission and its officers, in 
+conducting investigations, "to administer oaths and affirmations, subpoena witnesses, compel 
+their attendance, take evidence, and require the production of any books, papers, correspondence, 
+memoranda, or other records which the Commission deems relevant or material to the inquiry." 
+The statutory grant of authority to the Commission under Exchange Act Section 21(b) has been 
+called "[a] potent [weapon], but hardly dispensable in the protection of the investing public and 
+the fairness and honesty of the Nation's financial markets."  SEC v. Arthur Young & Co., 584 
+F.2d 1018, 1023 (D.C. Cir. 1978). 
+4
+ 
+The staff also obtained information that REB's audit work on behalf of Calypso may have 
+involved Bassie's dealings with entities related to the management of another REB audit client, 
+American International Industries, Inc. ("AMIN").  During investigative testimony on 
+May 19, 2006, Bassie testified that, while the Firm was serving as outside auditor for AMIN, 
+Bassie was "charged with a lawsuit" involving Calypso, along with the brother of the president 
+and chief executive officer of AMIN.  Bassie further testified that the litigation arose from a 
+reverse merger involving Calypso and AMIN management, that a dispute arose over payment, 
+and that Bassie was given contested shares to hold pending resolution of the dispute.  Bassie 
+hypothesized that he was named as a defendant in order to pressure the president of Calypso to 
+settle. He testified that he did not consider whether this lawsuit impaired his independence as an 
+auditor.
+7   Bassie was served with the complaint in this lawsuit before REB issued its audit report 
+on Calypso's 2003 financial statements.  However, Applicants admitted in their response to the 
+Board OIDP that there was no disclosure concerning the lawsuit in those financial statements. 
+On November 17, 2006, Division staff served on REB through counsel ("Counsel I") an 
+ABD (the "Firm ABD") requiring REB to produce certain documents pertaining to audit, review, 
+or other services that the Firm provided to AMIN and one of AMIN's subsidiaries, International 
+American Technologies, Inc. ("IAT").
+8   Among the documents requested were "all working 
+papers and other documents concerning the audit, review or other services performed by [REB 
+and its officers and employees]" for AMIN and IAT for the period from January 1, 2003 to the 
+date of the Firm ABD.  The Firm ABD required production of the documents by 
+December 1, 2006.  The Firm did not respond. 
+7 The Board's Order Instituting Disciplinary Proceedings ("Board OIDP"), issued 
+January 9, 2009, alleged that 
+[i]n auditing the financial statements of Calypso, Respondents violated PCAOB Rule 
+3100, Compliance with Auditing and Related Professional Practice Standards, and Rule 
+3600T, Interim Independence Standards, by failing to comply with relevant PCAOB 
+standards, in that Bassie . . . failed to consider whether his role as a co-defendant with 
+Calypso in a dispute involving his service as an escrow agent in a transaction involving 
+both Calypso and the management of Calypso and AMIN 
+impaired his independence as an auditor. 
+8 The Division had previously issued ABDs requiring the production of documents 
+concerning Calypso (the "Calypso ABDs").  The Board's brief on appeal acknowledges that 
+Applicants produced documents responsive to the Calypso ABDs.  But see infra note 12 (noting 
+that the Division stated, in a letter dated March 27, 2007, that some documents requested by the 
+Calypso ABDs had not yet been produced). 
+5
+ 
+C. December 2006:  Issuance of Demand Letter 
+On December 6, 2006, Division staff sent Counsel I a letter "again demanding the 
+immediate production of all documents responsive to the [Firm] ABD," and stating: 
+As we have repeatedly reminded your clients, R.E. Bassie & Co. and Mr. Bassie's 
+cooperation in this matter, including the timely production of documents requested 
+pursuant to an ABD, is required by [the Act] and the rules of [the PCAOB].  See § 105(b) 
+of the Act and PCAOB Rule 5110.  Failure to comply with an [ABD] may constitute 
+grounds for instituting a disciplinary proceeding for non-cooperation with an 
+investigation.  See PCAOB Rule 5110(a). 
+On December 8, Counsel I told Division staff that due to a miscommunication between Counsel 
+I's office and Bassie, Bassie had only recently received the Firm ABD, and that Bassie would 
+produce responsive documents the following week.  
+As of December 27, however, REB had still not produced any documents responsive to 
+the Firm ABD.  On that date, Division staff sent another letter to Counsel I demanding the 
+immediate production of all such documents.  The letter again warned that failure to comply with 
+an ABD could lead to disciplinary action.
+9 
+By letter dated January 2, 2007, Counsel I sought to quash the request for documents.  
+Counsel I asserted that the Board lacked jurisdiction to request any work product created before 
+the effective date of Sarbanes-Oxley and suggested that "some of the recent requests for 
+documents may have fallen within this category."  The letter nonetheless represented that "Mr. 
+Bassie is in the process of gathering and submitting the requested relevant information and will 
+forward it to you pursuant to your request."  On January 10, Division staff responded, noting that 
+(1) the Firm ABD requested only documents from January 1, 2003 or later, and thus not 
+documents created before the effective date of the Act; (2) nothing in the Act or Board rules 
+prohibited the staff from seeking documents created before the effective date of the Act; and (3) 
+Section 105(b)(2)(B) of the Act
+10 and Rule 5105(b) permit the Board to require from a registered 
+public accounting firm the production of any document that the Board considers "relevant or 
+material" to the investigation.  The letter reiterated the demand for the immediate production of 
+documents responsive to the Firm ABD. 
+9 Additional letters dated February 2, 2007, March 27, 2007, and May 17, 2007 
+included similar warnings.  See infra. 
+10 15 U.S.C. § 7215(b)(2)(B). 
+6
+ 
+By January 12, 2007, REB had retained new counsel ("Counsel II").  Counsel II informed 
+Division staff that Counsel I had provided to Bassie only the transmittal letter for the Firm ABD, 
+not the Firm ABD itself, which specified the documents to be produced.11   Counsel II therefore 
+asked Division counsel to resend the Firm ABD and to allow REB "a reasonable amount of time" 
+to respond. Division staff sent a copy of the Firm ABD to Counsel II on January 12, but stated 
+that "[b]ecause responsive documents were due nearly 45 days ago, extending additional time to 
+respond to the ABD is not appropriate.  Under the circumstances, we would expect your client to 
+produce documents immediately, and in any event no later than next week." 
+Counsel II wrote again on January 23, 2007, stating that Bassie had not received the Firm 
+ABD until after Division staff sent it to Counsel II on January 12 and that "my client is 
+cooperating with your request and is in the process of locating said information; however, as he 
+has a very limited staff and is currently in the middle of tax season, it is going to take some time 
+to locate all of the information that you are requesting" (emphasis in original).  Counsel II also 
+commented that the OFI mentioned in Division staff's January 12 letter 
+seemed to indicate that the investigation was pursuant to "In the Matter of R.E. Bassie & 
+Co's audit and review of Calypso Wireless, Inc. PCAOB 105-OFI-2006-001" only.  The 
+information that you are presently requesting [is] for two entirely different companies. 
+While my client is in the process of obtaining your requested information, . . . please 
+provide us with a copy of the Board's Formal Orders of Investigation for Calypso 
+Wireless, Inc., American International and International American Technologies. 
+On February 2, 2007, Division staff sent yet another letter to Counsel II, stating that 
+Bassie had not yet produced documents responsive to the Firm ABD and referring to a telephone 
+conversation between Division staff and Counsel II that addressed, among other things, Counsel 
+II's question regarding the staff's authority to seek documents not directly related to REB's audits 
+and reviews of Calypso:  "As we discussed, the [OFI] does not limit the Division's investigation 
+to matters involving Calypso.  On the contrary, the OFI expressly provides that the Division may 
+investigate any 'acts or practices of similar purport or object.'" 
+On February 16, 2007, having still not received documents responsive to the Firm ABD, 
+Division staff sent Bassie an ABD requiring him individually to produce certain documents 
+related to audits, reviews, or other services performed for AMIN for the period from 
+January 1, 2003 to the present (the "Bassie ABD"; together with the Firm ABD, the "AMIN 
+ABDs").  The Bassie ABD required Bassie to produce the documents by March 2, 2007.  Bassie 
+did not produce any documents. 
+11 The record does not explain how Bassie could have been "in the process of 
+gathering and submitting the requested information" on January 2 if, as of January 12, he had not 
+yet received the Firm ABD. 
+7
+ 
+D. March 3, 2007:  Applicants' Final Response to the AMIN ABDs 
+By letter dated March 3, 2007, Counsel II made his final written response to the staff 
+regarding the production of documents requested by the AMIN ABDs:  "I want to make it 
+perfectly clear that Mr. Bassie is not exhibiting conduct that in any way is meant to be construed 
+as non-cooperation.  Mr. Bassie has a small accounting practice and is in the middle of the 
+busiest time of the year for tax professionals . . . Tax season!" (ellipsis in original).  Counsel II 
+further wrote, 
+[T]he documents you are requesting are several years old and it is requiring a 
+considerable amount of time to collect them and then to prepare them for 
+inspection. . . . To gather the documents at the pace you are requesting would require Mr. 
+Bassie to halt his practice in the middle of tax season and that would be and it is 
+unreasonable.  What we have [asked for] and continue to ask for is additional time until 
+the end of the tax season to complete your request. 
+The March 3 letter additionally observed that Counsel II had reviewed various statutory 
+provisions "and [had] not found a section in the code [sic] that provides you the authority to 
+request the information concerning [AMIN and IAT], under an order of investigation for an 
+entirely unrelated company and order."  Counsel II then asked for copies of any other OFIs that 
+had been issued concerning Bassie or REB. 
+In a reply dated March 27, 2007, Division staff noted that the AMIN ABDs had been 
+outstanding since November 17, 2006 and February 16, 2007 respectively and stated that it was 
+"simply not credible" that the occurrence of tax season was responsible for Applicants' failure to 
+comply with the AMIN ABDs.
+12   The staff therefore refused to allow additional time for 
+providing the documents.  Finally, the staff informed Counsel II that the staff had authority to 
+demand documents related to the AMIN and IAT audits under the Calypso OFI, pointing out that 
+the OFI "explicitly authorizes the staff to investigate not only the potential violations specified 
+therein, but also 'acts or practices of similar purport or object.'"  Division staff sent additional 
+letters to Counsel II regarding Applicants' failure to produce documents responsive to the AMIN 
+ABDs on May 17, 2007 and June 1, 2007.  Counsel II did not respond. 
+12 The letter also rejected the contention that production of the documents would 
+require Bassie to halt his practice, pointing out that, if REB complied with PCAOB auditing 
+standards regarding document retention (which provided that a complete and final set of audit 
+documentation should be assembled for retention as of a date not more than forty-five days after 
+the report release date), it should not require much time to have the AMIN and IAT work papers 
+copied and produced to the Division. 
+The Division's March 27 letter additionally stated that some documents requested by two 
+of the Calypso ABDs had not yet been produced.  As noted above, however, compliance with the 
+Calypso ABDs is not at issue in this proceeding.  See supra note 8. 
+  
+8
+ 
+E. September 10, 2007:  Staff Notifies Applicants of Potential Disciplinary Action 
+On September 10, 2007, Division staff sent Counsel II a letter stating that it intended to 
+recommend that the Board commence a disciplinary proceeding to determine whether Applicants 
+had violated certain rules, laws, or professional standards within the Board's jurisdiction, by, 
+among other things, failing to comply with the AMIN ABDs.
+13   The letter offered Applicants an 
+opportunity to submit to the Division, by September 25, a written statement setting forth their 
+positions regarding whether such a proceeding should be commenced.
+14 
+On the afternoon of September 25, Counsel II left a voicemail message stating that Bassie 
+was preparing a response and requesting additional time to complete and send in the response. 
+Applicants were granted an extension until October 2, 2007.  On October 1, Bassie retained new 
+counsel ("Counsel III"), who requested an additional thirty-day extension.  Bassie was granted an 
+extension until November 1, 2007.  On November 1, Counsel III wrote that he was "diligently 
+analyzing the issues in [the] September 10, 2007 letter," but that he was not yet prepared to 
+respond, and requesting a further sixty-day extension.  The staff agreed to a thirty-day extension, 
+noting that "[t]he length of this investigation is a direct result of Mr. Bassie's repeated and 
+continuing failure to cooperate."  Applicants never submitted a position statement, nor have they 
+produced documents responsive to the AMIN ABDs.  
+III. 
+PCAOB PROCEEDINGS 
+The Board OIDP alleged, among other things, that Applicants had failed to comply with 
+the AMIN ABDs, and that this conduct constituted noncooperation with a Board investigation. 
+On March 3, 2009, the Division filed a motion for summary disposition.  On April 9, 2009, the 
+hearing officer issued an initial decision granting the motion and imposing a revocation and bar, 
+but no money penalty (the "Initial Decision").
+15 
+13 Rule 5110(a)(1) permits the Board to institute a disciplinary proceeding for 
+noncooperation with an investigation "if it appears to the Board . . . that a registered public 
+accounting firm, or a person associated with such a firm, may have failed to comply with an 
+accounting board demand." 
+14 See PCAOB Rule 5109(d) (providing for the submission of such statements of 
+position). 
+15 The hearing officer also granted summary disposition in favor of the Division on a 
+charge that Bassie knowingly made false material declarations in sworn testimony during the 
+Division's investigation.  On appeal, however, the Board found that genuine issues of material 
+fact precluded resolution of that charge by summary disposition.  In light of the sanctions 
+(continued...) 
+9
+ 
+Applicants filed a petition for Board review of the Initial Decision on April 20, 2009.16 In 
+paragraph 1 of their petition, Applicants argued that "Enforcement has unreasonably interpreted 
+[Applicants'] requests for additional extensions of time due to tax season as intentional 
+noncooperation with the investigation," and that Bassie "at all times complied with 
+Enforcement's requests and there is no evidence that he knowingly refused to respond to or 
+produce the requested documents."  In paragraph 3 of their petition, however, Applicants asserted 
+that Bassie 
+did in fact rely on the legal advice of counsel.  [Counsel II] found no authority for [the 
+Division] to request information regarding AMIN under an order of investigation for an 
+entirely unrelated company, advice on which Mr. Bassie relied.  Mr. Bassie made 
+complete disclosure to [Counsel II], sought advice on the legality of the issue, received 
+advice that he did not have to produce information regarding a company wholly unrelated 
+to the investigation, and relied in good faith on the advice. 
+In their petition, Applicants did not attempt to harmonize the assertions in paragraph 1 – that 
+Bassie's requests for more time should not be construed as noncooperation and that the Division 
+acted unreasonably in refusing to give Bassie more time – with the assertions in paragraph 3 – 
+that Bassie was told by Counsel II that he did not have to produce information regarding AMIN 
+and that he relied in good faith on that advice.  
+On May 5, 2009, Applicants filed an amended petition for review.  The amended petition 
+reiterated the arguments made in the original petition, but it included as an attachment an 
+affidavit of Bassie.  Among other things, the affidavit recited that 
+I reasonably relied in good faith on counsel's advice that [the Division] did not have the 
+authority to demand documentation regarding AMIN because AMIN was not the subject 
+of the Board's investigation.  Specifically, the advice I relied upon was that I did not have 
+to respond to an ABD unless the ABD specified AMIN.  The only ABD I received was 
+regarding Calypso Wireless, Inc., which was the only subject of the investigation.  
+After retaining [Counsel II] as my counsel, I did not directly receive any correspondence, 
+including ABDs, from the PCAOB. 
+15 (...continued) 
+imposed, the Board did not remand that aspect of the case or order any further proceedings, 
+effectively dismissing that charge, and it is therefore not before us. 
+16 By this time, Applicants had retained new counsel, who continues to represent 
+them on appeal. 
+10
+ 
+On May 29, 2009, Applicants filed their opening brief, in which they offered to "make 
+available the documents requested by the Board at a mutually agreeable time and place," under a 
+variety of conditions that included a requirement that the Board be responsible for the costs 
+involved in procuring and, if desired, photocopying relevant documents.  Applicants also argued 
+that the Initial Decision should not be summarily affirmed and that the revocation and bar were 
+harsh and excessive. 
+The Board refused to allow the submission of Bassie's affidavit.  It found that Applicants 
+did not file a motion describing any grounds for their failure to adduce the affidavit in the 
+proceedings before the hearing officer, and that it was not apparent from anything in the record 
+what possible grounds there could be.  The Board also found that the affidavit was "at odds with 
+what [Applicants] repeatedly told the Division during the investigation – that they were gathering 
+the documents, intended to cooperate, and just needed an extension until after the tax season," 
+and that it was also at odds with the assertions in the petition for review that their request for an 
+extension until after tax season was reasonable and that the Division had unreasonably 
+interpreted Applicant's requests for additional time due to tax season as intentional 
+noncooperation with the investigation. 
+As to the merits of the proceeding, the Board, citing its authority under Section 105(b)(3) 
+of the Act and Rule 5300(b), found, as an undisputed fact, that Applicants possessed, but did not 
+produce, documents responsive to the AMIN ABDs.  The Board further found that each 
+Applicant's conduct constituted noncooperation, and that summary disposition was appropriate. 
+The Board held that although Section 105(b)(3) is worded in terms of a "refus[al] to . . . produce 
+documents, or otherwise cooperate" with an investigation, the refusal need not be express:  "To 
+hold otherwise would render [S]ection 105(b)(3) a dead letter, since any noncooperating 
+registered firm or associated person could then avoid [S]ection 105(b)(3) sanctions merely by 
+refraining from expressly articulating a refusal to cooperate."  
+The Board found that Applicants did not dispute, either before the hearing officer or 
+before the Board, that the AMIN ABDs were within the scope of ABDs authorized by the 
+Calypso OFI.  The Board acknowledged that Applicants argued that they relied on legal advice 
+they claimed to have received before the disciplinary proceeding was initiated to the effect that 
+they were not obligated to produce documents concerning AMIN and IAT because the OFI 
+named only Calypso, but it found that they did not establish such reliance.   
+The Board affirmed the sanctions imposed by the hearing officer and additionally 
+imposed a civil money penalty against Bassie in the amount of $75,000.  The Board stated that 
+Applicants' offer, made in their opening brief, to make the documents available for review and 
+copying was not, as Applicants contended, a mere "delay" in the production of the documents. 
+The Board therefore gave that offer no weight in the determination of sanctions.  This appeal 
+followed. 
+ 
+11
+ 
+IV. 
+ANALYSIS 
+The record shows that, during the period between the issuance of the Firm ABD on 
+November 17, 2006 and the institution of disciplinary proceedings on January 9, 2009, 
+Applicants did not produce any documents in response to the AMIN ABDs, effectively refusing 
+to cooperate with the investigation.
+17   Instead, Applicants engaged in a protracted campaign of 
+stalling and delay.  The Division granted several extensions and addressed Applicants' questions 
+about the propriety of the ABDs, but Applicants continued to withhold the documents, ultimately 
+lapsing into total noncommunication.  
+A. Applicants' Substantive Arguments 
+Applicants contend that "Calypso was the only proper subject of the OFI and Applicants 
+produced documents in compliance with the OFI."  By asserting that Calypso was "the only 
+proper subject," they appear to contend that the AMIN ABDs were not authorized by the OFI and 
+that they therefore had no obligation to produce documents responsive to the AMIN ABDs. 
+We reject Applicants' attempt to restrict the scope of the OFI to Calypso, the company 
+named as its subject.  Both Sarbanes-Oxley Section 105(b)(2)(B) and PCAOB Rule 5103 permit 
+the Board and designated staff to require the production of any documents that the Board or its 
+staff considers "relevant or material" to an investigation.
+18   The OFI authorized the staff to issue 
+ABDs "to the extent that the information sought is relevant to matters described in this Order of 
+Formal Investigation."  Thus, the statute, the rule, and the OFI are consistent in authorizing 
+requests for information "relevant" to the investigation. 
+As described above, Bassie testified that he held shares involved in a dispute between 
+Calypso and AMIN management and that he was named as a party in a lawsuit involving AMIN 
+management and Calypso, perhaps in order to pressure Calypso's president to settle.  These 
+events transpired while Bassie was auditing both AMIN and Calypso.  The questions about 
+Applicants' independence as auditors raised by Bassie's role in the lawsuit involving Calypso and 
+AMIN management made Applicants' relationship to AMIN relevant to the investigation 
+authorized by the OFI.  Bassie testified, however, that he did not consider whether his 
+involvement in the lawsuit impaired his independence as an auditor, a potential violation of 
+17 As noted above, Applicants' responsiveness to the Calypso ABDs is not at issue in 
+this proceeding. 
+18 See supra note 6 (discussing Section 105(b)(2)(B) and Rule 5103(a)). 
+ 
+12
+ 
+PCAOB rules.19   We therefore find that the AMIN ABDs comported with the statutory and 
+regulatory standard:  they required the production of documents relevant or material to the 
+investigation authorized in the OFI.  Thus, Applicants were required to produce documents 
+responsive to those ABDs.
+20 
+Applicants contend that they "were willing to make available to the PCAOB the 
+documents it requested subject to a mutually agreeable time and place at the advice of [their 
+current counsel]."  Applicants made their offer more than two years after the issuance of the 
+AMIN ABDs, and only after the hearing officer had issued the Initial Decision, recommending a 
+bar for Bassie and revocation for the Firm.  Applicants' belated and conditional offer, which was 
+made only when they faced the imminent prospect of sanctions, does not constitute compliance 
+with the AMIN ABDs.
+21   Moreover, the unwarranted conditions that accompanied the offer 
+further diminish its value. 
+Applicants assert that "[t]here is no evidence to suggest that Applicants would not have 
+produced documents related to AMIN had the PCAOB properly issued an OFI for the same."  As 
+discussed above, however, the Division was authorized to issue the AMIN ABDs because the 
+materials sought appeared to be relevant or material to the investigation authorized in the OFI 
+that named Calypso.  There was no requirement that the Board issue an additional OFI naming 
+AMIN and IAT.  In any event, the assertion that Applicants would have complied had the ABD 
+been worded differently cannot be tested and is not a defense. 
+19 See supra note 7 (noting allegation in Board OIDP that Bassie failed to consider 
+whether his involvement in the lawsuit impaired his independence, a potential violation of 
+PCAOB rules).  Bassie's admission that Calypso's 2003 financial statements contained no 
+disclosure regarding the lawsuit further illustrates the relevance of Applicants' involvement with 
+AMIN to the investigation authorized by the OFI. 
+20 Applicants suggest that their willingness to cooperate with the Division is 
+demonstrated by their production of documents related to the Calypso audit.  Applicants' 
+compliance with the Calypso ABDs does not, however, excuse their failure to produce 
+documents responsive to the AMIN ABDs.  Similarly, Applicants contend that "Bassie was never 
+found in violation of any state or federal regulation regarding the audit work he performed for 
+Calypso, nor was he ever required to re-state Calypso's financial statements."  Whether 
+Applicants' audit work for Calypso violated regulations or standards is not at issue in this 
+proceeding, and the resolution of that question would have no apparent bearing on whether 
+Applicants failed to produce documents in response to the AMIN ABDs. 
+21 Cf., e.g., CMG Institutional Trading, LLC, Securities Exchange Act Rel. No. 
+59325 (Jan. 30, 2009), 95 SEC Docket 13802, 13810 ("[W]e have emphasized repeatedly that 
+NASD should not have to initiate a disciplinary action to elicit a response to its information 
+requests . . . ." (citations omitted)); Gately & Assocs., Exchange Act Rel. No. 62656 (Aug. 5, 
+2010), 99 SEC Docket 31023, 31045 (applying same principles to PCAOB inspection requests). 
+ 
+13
+ 
+For the above reasons, we sustain the Board's action finding that Applicants' failure to 
+produce documents in response to the AMIN ABDs constitutes noncooperation for which the 
+Board was authorized to impose sanctions pursuant to Section 105(b)(3) of the Act and 
+Rule 5300(b). 
+B. Applicants' Remaining Arguments 
+1. Propriety of Summary Disposition 
+Applicants argue that the hearing officer erred in granting the Division's motion for 
+summary disposition because, they claim, there was a material dispute about whether, in refusing 
+to produce the documents in question, they were relying on the advice of counsel.  We disagree. 
+PCAOB Rule 5427(d) provides that summary disposition is appropriate in Board 
+disciplinary proceedings "if the pleadings, depositions, and admissions on file, together with the 
+affidavits, if any, show that there is no genuine issue as to any material fact and that the moving 
+party is entitled to a disposition as a matter of law."
+22   A party seeking summary disposition must 
+make a preliminary showing that no genuine issue of material fact exists.23   The burden then 
+shifts to the nonmovant. To avoid summary disposition, the nonmovant "must contradict the 
+showing by pointing to specific facts demonstrating that there is, indeed, a trialworthy issue."
+24 
+In determining whether there is a genuine dispute as to a material fact, the record "should be 
+'viewed most favorably to the non-moving party,' but the hearing officer 'need not credit purely 
+conclusory allegations, indulge in rank speculation, or draw improbable inferences.'"
+25 
+22 As we have previously noted, Rule 5427 "mirrors the summary judgment standard 
+in Rule 56 of the Federal Rules of Civil Procedure," and we have therefore found federal court 
+interpretations of Rule 56 instructive in interpreting the Board rule.  Gately, 99 SEC Docket at 
+31031. 
+23 E.g., Nat'l Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 735 (1st Cir. 
+1995). 
+24 Id. 
+25 Gately, 99 SEC Docket at 31032 (quoting Nat'l Amusements, 43 F.3d at 735). 
+14
+ 
+There is no factual dispute as to whether Applicants provided to the PCAOB documents 
+specified in the AMIN ABDs.  They did not.26   The Division introduced facts establishing the 
+refusal to produce documents in the statement of undisputed facts filed to support their motion 
+for summary disposition.  The burden then shifted to Applicants to show that there was a 
+trialworthy issue. 
+Applicants attempted to establish a trialworthy issue by arguing that they received and 
+reasonably relied on legal advice in refusing to produce the documents.  They identify two items 
+in the record as supporting their assertion:  first, the March 3, 2007 letter from Counsel II stating 
+that he "[had] not found a section in the code" that provided the Board the authority to request 
+information for AMIN under an OFI that named only Calypso, and second, the Bassie affidavit 
+submitted with the amended petition for review. 
+a. Counsel Letter.  The March 3, 2007 letter is not sufficient to establish a genuine
+ issue of material fact as to whether Applicants received and relied on legal advice that they were 
+not required to produce documents requested in the AMIN ABDs.  The letter states: 
+Mr. Bassie is not exhibiting conduct that in any way is meant to be construed as non­
+cooperation. . . . [I]t is taking a considerable amount of time to collect [the documents] 
+and then to prepare them for inspection. . . . What we have [asked for] and continue to ask 
+for is additional time . . . to complete your request. 
+These statements are inconsistent with the premise that Counsel II had advised Applicants that 
+they were not required to provide the AMIN documents.  There would be no need to collect the 
+documents or prepare them for inspection, and no need for additional time to complete the 
+request, if the ultimate intention were to refuse to produce the documents.  
+Nor does Counsel II's statement that he had not identified a statutory provision allowing 
+the Division to request the AMIN documents create a genuine issue as to whether Counsel II 
+advised Applicants that they should refuse to produce the documents.  That statement suggests 
+only that Counsel II was looking into the question of the breadth of the Board's authority. 
+26 Applicants assert that the Division made a "patently false" statement that "it had 
+never received one document pursuant to the [ABDs] it served on Applicants" because 
+Applicants produced documents in response to the Calypso ABDs.  However, the Division did 
+not assert, and the Board did not find, that Applicant's response to the Calypso ABDs was 
+inadequate.  The Division's brief in support of its motion for summary disposition accurately 
+states that "[n]ot withstanding numerous efforts by Enforcement over nearly 12 months to obtain 
+[documents concerning AMIN], and numerous written warnings that failure to comply with 
+ABDs could lead to disciplinary action, [Applicants] failed to produce a single document."  From 
+the context, it is clear that the Division's statement relates only to the failure to produce 
+documents required by the AMIN ABDs.  The Division did not challenge Applicants' response to 
+the Calypso ABDs. 
+15
+ 
+Nothing in the record considered by the Board suggests that Counsel II concluded, after writing 
+the March 3 letter, that the staff's authority did not extend to demanding the documents specified 
+in the AMIN ABDs, nor does the record show that Counsel II conveyed any such conclusion to 
+Bassie.  Moreover, Applicants do not explain how Bassie could have continued to rely on such a 
+conclusion after Division staff reiterated its position, in its March 27 letter, that the OFI's grant of 
+authority was broad enough to encompass ABDs for documents related to AMIN and IAT.  A 
+finding that Bassie reasonably relied on the advice of Counsel II in refusing to respond to the 
+AMIN ABDs would therefore be based not on evidence, but on the sort of "rank speculation" that 
+does not justify reversing the summary disposition. 
+b. Refusal to Consider Bassie's Affidavit.  Applicants challenge the Board's 
+decision to exclude Bassie's affidavit from the record.  However, PCAOB Rule 5464 requires a 
+party seeking to introduce additional evidence when a matter is on appeal before the Board to 
+"show with particularity that such additional evidence is material and that there were reasonable 
+grounds for failure to adduce such evidence previously."  Applicants did not attempt to make 
+such a showing when they submitted Bassie's affidavit with their amended petition for review. 
+Thus, the Board properly refused to consider the affidavit.  
+In their brief on appeal, Applicants assert that "Applicants were unaware that an affidavit 
+was required to be submitted in support of previous sworn testimony until Enforcement 
+specifically charged that the burden was on Bassie to point to specific facts demonstrating a 
+trialworthy issue."  They point to a passage of the Initial Decision stating that "Applicants have 
+not submitted an affidavit from Bassie or any other evidence to support the truth of Bassie's 
+PCAOB testimony" and assert that "[t]his statement invited [Applicants] to submit an 
+affidavit."
+27 
+There was no requirement that Applicants submit an affidavit.  As discussed above, once 
+the Division introduced evidence sufficient to establish the misconduct at issue, the burden 
+shifted to Applicants to show that there was a genuine issue of material fact that would preclude 
+27 Applicants' quotation from the Initial Decision is taken out of context.  As noted 
+above, the hearing officer granted summary disposition in favor of the Division with respect to 
+the allegation that Bassie provided false testimony during the investigation, an issue that is not 
+involved in this appeal. See supra note 15. The statement that Applicants introduced no 
+affidavit "to support the truth of Bassie's testimony" related to that allegation; it thus has no 
+relevance to this appeal. 
+16
+ 
+the entry of summary disposition.  Whether Applicants attempted to satisfy this burden by 
+testimony, by affidavit, or otherwise was their choice.  But if Applicants wanted to strengthen 
+their case by introducing an affidavit, they should have done so before the hearing officer, not on 
+appeal to the Board.
+28 
+For these reasons, we find that Applicants did not demonstrate that there was a 
+trialworthy issue with respect to whether they reasonably relied on the advice of counsel in 
+failing to produce documents in response to the AMIN ABDs.
+29 
+28 Bassie's affidavit, even if timely presented, would have done little to strengthen 
+his case.  Bassie merely asserted that he was relying on counsel's advice; he provided no details 
+showing that he had made full and complete disclosure to counsel and received relevant advice 
+appropriately tailored to the circumstances.  See, e.g., Howard Brett Berger, Exchange Act Rel. 
+No. 58590 (Nov. 14, 2008), 94 SEC Docket 11615, 11630-31 (discussing cases holding that the 
+advice received must be based on "a full and complete disclosure" to counsel and that a person 
+cannot successfully establish reliance by "'offer[ing] nothing more than his say-so'" but must, 
+instead, "'produc[e] the actual advice from an actual lawyer,'" for example, in the form of an 
+opinion letter or the attorney's live testimony (citations omitted)), petition denied, 2009 WL 
+3160620 (2d Cir. 2009) (summary disposition).  Bassie's affidavit, which does not even specify 
+which of his successive attorneys allegedly rendered the advice on which he purportedly relied, 
+falls far short of this standard. 
+Moreover, the assertions in the affidavit appear to conflate two issues:  whether Bassie 
+was required to respond to the AMIN ABDs when the OFI named only Calypso, and whether he 
+was required to respond to the AMIN ABDs if they were not sent to him "directly" by the 
+PCAOB. Bassie does not assert, in the affidavit or elsewhere, that he was advised by counsel 
+that he was not required to respond to ABDs unless they were sent to him "directly."  
+We also note that, although Bassie asserts that "[t]he only ABD I received was regarding 
+Calypso Wireless, Inc.," he did not argue earlier in the proceeding that he did not receive the 
+Bassie ABD, which was addressed to him.  Further, Counsel II's January 23, 2007 letter stating 
+that Bassie had not received the Firm ABD until after staff sent it to Counsel II on January 12 
+implies that Bassie did subsequently receive the Firm ABD, and Counsel II's representations in 
+the January 23, 2007 letter that Bassie "is cooperating with your request and is in the process of 
+locating said information" shows that if Bassie did not receive the Firm ABD, he was at a 
+minimum aware of the documents he was required to produce. 
+29 Because the Board determined that Applicants did not establish reliance on the 
+advice of counsel, it did not reach the question whether reliance on such advice would be 
+material to the question whether Applicants' conduct constituted noncooperation, or whether such 
+reliance would be relevant to a determination of sanctions.  But see, e.g., Berger, 94 SEC Docket 
+at 11629-30 (finding that advice-of-counsel claim "is not relevant to liability" for failure to 
+appear and provide information to NASD because scienter is not an element of the violation); 
+(continued...) 
+ 
+17
+ 
+V. 
+SANCTIONS 
+Applicants challenge the sanctions imposed by the Board as unwarranted.  They claim 
+that they "have not exhibited behavior constituting noncooperation, nor has Bassie ever been 
+accused of performing insufficient audits."30   In particular, they contend that the civil penalty is 
+unjust and groundless in light of the revocation and bar. 
+Section 107(c)(3) of Sarbanes-Oxley governs our review of sanctions imposed by the 
+Board.31   If we find, "having due regard for the public interest and the protection of investors," 
+that the sanction "is not necessary or appropriate in furtherance of [the] Act or the securities 
+laws," or that the sanction "is excessive, oppressive, inadequate, or otherwise not appropriate to 
+the finding or the basis on which the sanction was imposed," then we may enhance, modify, 
+cancel, reduce, or require the remission of the sanction.
+32   As discussed below, we find no basis 
+to modify the sanction. 
+Congress established the Board to "protect the interests of investors and further the public 
+interest in the preparation of informative, accurate, and independent audit reports."33   To further 
+these goals, the Board is required to "establish, by rule, . . . fair procedures for the investigation 
+29 (...continued) 
+Joseph G. Chiulli, 54 S.E.C. 515, 524 (2000) ("Reliance on counsel . . . does not excuse Chiulli 
+from his obligation to supply information to the NASD.  When Chiulli registered with the 
+NASD, he agreed to abide by its rules which are unequivocal with respect to an associated 
+person's duty to cooperate with NASD investigations." (footnotes omitted)); Michael Markowski, 
+51 S.E.C. 553, 557 (1993) ("When Markowski became registered with the NASD, he agreed to 
+abide by its Rules of Fair Practice, which are unequivocal with respect to the obligation to 
+cooperate with the NASD.  Reliance on counsel is immaterial to an associated person's obligation 
+to supply requested information to the NASD." (footnotes omitted)), aff'd, 34 F.3d 99 (2d Cir. 
+1994). 
+30 In fact, the OIDP alleges numerous statutory and regulatory violations in 
+Applicants' audits of both Calypso and AMIN.  However, these allegations are not at issue in this 
+proceeding, and we have not considered them. 
+31 15 U.S.C. § 7217(c)(3). 
+32 Id. 
+33 Sarbanes-Oxley § 101(a), 15 U.S.C. § 7211(a). 
+  
+ 
+18
+ 
+and disciplining of registered public accounting firms and associated persons of such firms."34 
+The Board may, among other things, "require the production of audit work papers and any other 
+document or information in the possession of a registered public accounting firm or any 
+associated person thereof . . . that the Board considers relevant or material to the investigation."
+35 
+The Act requires every registered public accounting firm to consent "to cooperat[e] 
+in . . . and compl[y] with any request for . . . the production of documents made by the Board in 
+furtherance of its authority and responsibilities" under the Act, to agree to secure and enforce 
+similar consents from each associated person of the firm,
+36 and to acknowledge that the firm 
+"understands and agrees" that cooperation and compliance with any such request for documents, 
+and the securing and enforcement of the required consents from the firm's associated persons, 
+are conditions to the continuing effectiveness of the registration of the firm with the Board.
+37 
+It is clear from these statutory provisions that investigations play a crucial role in 
+furthering the Board's goals of investor protection and the preparation of informative, accurate, 
+and independent audit reports.  The requirements that registered public accounting firms consent 
+to cooperate with document production requests, obtain and enforce similar consents from 
+associated persons, and acknowledge that such cooperation is a condition to the continuing 
+effectiveness of a firm's registration with the Board underscore the seriousness with which 
+Sarbanes-Oxley views cooperation with the Board in furtherance of the Board's statutory 
+responsibilities. Imposing sanctions to deter noncooperation with PCAOB investigations thus 
+clearly serves the public interest. 
+A. Revocation and Bar 
+Nearly ten months passed between the date the Firm ABD was served on REB and the 
+date Division staff warned Applicants that it intended to recommend the commencement of a 
+disciplinary proceeding.  In all those months, not a single document responsive to the AMIN 
+ABDs was produced.  Applicants repeatedly represented (through counsel) that they were in the 
+process of gathering the documents and that they needed more time.  The Division repeatedly 
+responded by granting extensions, while reminding Applicants of their obligation to comply with 
+the ABDs.  The record does not show, however, that Applicants were actually using the extra 
+time to collect the information requested, rather than simply trying to postpone the investigation 
+as long as possible.  Ultimately, Applicants simply stopped responding.  This failure to cooperate 
+impairs the Division's ability to investigate, which in turn impairs the Board's ability to identify 
+violations and sanction violators.  For these reasons, failure to cooperate in an investigation is 
+very serious misconduct. 
+34 Id. § 105(a), 15 U.S.C. § 7215(a). 
+35 Id. § 105(b)(2), 15 U.S.C. § 7215(b)(2). 
+36 Id. § 102(b)(3)(A), 15 U.S.C. § 7212(b)(3)(A). 
+37 Id. § 102(b)(3)(B), 15 U.S.C. § 7212(b)(3)(B). 
+   
+19
+ 
+Applicants argue that no specific harm to a particular investor can be traced back to their 
+failure to cooperate, and that the lack of such identifiable harm should be considered in assessing 
+sanctions.  The Board's power to impose appropriate sanctions in disciplinary proceedings is 
+fundamental to its ability to act in the public interest.
+38   Failure to respond to ABDs frustrates the 
+oversight system envisioned by Sarbanes-Oxley, impeding the Board's ability to discover 
+violations. Noncooperation deprives investors of an important protection that the Act was 
+intended to provide.
+39   The fact that the Board could not identify whether there was specific harm 
+to a particular investor does not detract from the seriousness of the misconduct.40 
+We find, as the Board did, that Applicants' conduct warrants revocation of the Firm's 
+registration and a bar on Bassie's association with any registered public company accounting 
+firm. In choosing to register with the Board, Applicants agreed to cooperate with the Board 
+when it sought information from them.  Bassie, who chose to be an associated person of the 
+Firm, made a similar agreement.  Rather than fulfilling these agreements, however, Applicants 
+used the excuse that they needed more time to collect the information, thus delaying the 
+Division's investigation into their conduct.  As the Board observed, in the absence of mitigating 
+circumstances – of which we find none
+41 – noncooperation indicates a lack of sufficient regard 
+for Board processes and authority designed by statute to protect investors.  Allowing the Firm to 
+remain registered and Bassie to remain an associated person would give them opportunities in the 
+38 Cf. Berger, 94 SEC Docket at 11620 (characterizing NASD Rule 8210, which 
+required NASD members and associated persons to provide information if requested by NASD 
+staff as part of an investigation, complaint, examination, or proceeding as "at the heart of the 
+self-regulatory system for the securities industry"). 
+39 Id. at 11620-21 (finding that delay and neglect by NASD members and their 
+associated persons in responding to requests for information "'undermine the ability of the NASD 
+to conduct investigations and thereby protect the public interest'" (quoting Barry C. Wilson, 52 
+S.E.C. 1070, 1075 (1996)). 
+40 Cf. PAZ Sec., Inc., Exchange Act Rel. No. 57656 (Apr. 11, 2008), 93 SEC Docket 
+5122, 5129 ("[A] Rule 8210 violation will rarely, in itself, result in direct harm to a customer. 
+Rather, failing to respond undermines NASD's ability to detect misconduct that may have 
+occurred and that may have resulted in harm to investors . . . . Thus, even if the failure to respond 
+does not result in . . . harm to investors, it is serious because it impedes detection of such 
+violative conduct." (footnote omitted)), petition denied, 566 F.3d 1172 (D.C. Cir. 2009); Gately, 
+99 SEC Docket at 31044-45 (finding that absence of fraud or deceit does not diminish 
+seriousness of failure to cooperate in PCAOB inspection designed, among other things, to 
+uncover any such misconduct). 
+41 We have explained above why we do not consider mitigating (1) Applicants' 
+purported reliance on advice of counsel, (2) the belated and conditional offer to make documents 
+available, (3) the production of documents responsive to the Calypso ABDs, or (4) the lack of 
+findings that Applicants' audits were insufficient. 
+  
+20
+ 
+future to similarly undermine those processes and thus erode the investor protection that 
+Congress intended the Board to provide.  Moreover, the awareness that a revocation and bar may 
+be imposed as sanctions for noncooperation may deter other firms and associated persons from 
+engaging in similar misconduct.
+42   We therefore sustain the bar and revocation imposed by the 
+Board.43 
+B. Civil Money Penalty 
+We similarly sustain the imposition of a civil money penalty of $75,000.  In cases 
+involving intentional or knowing conduct, including reckless conduct, that results in a violation 
+of the applicable statutory, regulatory, or professional standard, the Board may impose a civil 
+money penalty not exceeding $800,000 against an individual for each violation.
+44 
+Applicants refused for months to produce documents required by the AMIN ABDs.  They 
+repeatedly attempted to stall for time, representing to staff that they were working to fulfill the 
+requests but citing work pressure to justify the alleged need for extensions.  The staff allowed 
+multiple extensions, reminded Applicants repeatedly of their obligation to cooperate with the 
+investigation, and warned Applicants over and over again of the consequences of a failure to 
+cooperate.  Applicants finally stopped responding altogether.  In light of this course of conduct, 
+42 In making this determination, we note that "'general deterrence . . . may be 
+considered as part of the overall remedial inquiry.'"  Siegel v. SEC, 592 F.3d 147, 158 (D.C. Cir. 
+2010) (quoting PAZ Sec., Inc., 494 F.3d 1059, 1066 (D.C. Cir. 2007)), cert. denied, 130 S. Ct. 
+3333 (2010); see also Boruski v. SEC, 289 F.2d 738, 740 (2d Cir. 1961) ("The public interest 
+requires that appropriate sanctions be imposed to secure compliance with the rules, regulations 
+and policies of both NASD and SEC."). 
+43 Applicants contend that the hearing officer's imposition of a bar and revocation 
+was based in part on his finding that Bassie made material false declarations in sworn testimony 
+during the Division's investigation.  See supra note 15. Applicants contend that because the 
+Board effectively dismissed this charge, the sanction should be lowered accordingly.  The Board, 
+however, imposed a bar and revocation even though it did not find the allegations of making 
+false declarations established.  We agree with the Board that the bar and revocation were 
+appropriate as sanctions for the failure to cooperate charge that was not dismissed.  See Sarbanes-
+Oxley Section 105(b)(3)(A), 15 U.S.C. § 7215(b)(3)(A) (authorizing Board to impose revocation 
+and bar, among other sanctions, for refusal to produce documents in connection with 
+investigation). 
+44 Sarbanes-Oxley Sections 105(c)(4)(D)(ii), 105(c)(5), 15 U.S.C. 
+§§ 7215(c)(4)(D)(ii), 7215(c)(5); 17 C.F.R. § 201.1003.  The Act also provides for the imposition 
+of a civil penalty not exceeding $110,000 against an individual for each violation where there is 
+no  showing of scienter.  Sarbanes-Oxley Section 105(c)(4)(D)(i), 15 U.S.C. § 7215(c)(4)(D)(i); 
+17 C.F.R. § 201.1003. As noted above, see supra note 3, PCAOB Rule 5300(b) expressly 
+provides for the imposition of civil penalties for failure to comply with an ABD. 
+21
+ 
+we find that Applicants' deliberate or reckless refusal to cooperate with the investigation satisfies 
+the statutory standard for the imposition of a civil penalty. 
+The Act does not specify factors to be considered in determining whether a penalty is in 
+the public interest.  Here, the Board considered the factors set forth in Exchange Act Section 
+21B(c), which the Commission may consider in determining whether it would be in the public 
+interest to impose a civil penalty in an administrative proceeding.  These factors are whether 
+there was fraudulent misconduct or deliberate or reckless disregard of a regulatory requirement, 
+harm to others, or unjust enrichment, whether the respondent had committed prior violations, and 
+the need for deterrence, as well as such other matters as justice may require.
+45   However, as the 
+Board recognized, a penalty may be imposed under Section 21B(c) even when not all of these 
+factors are present.
+46 
+We have not previously considered the application of the Section 21B factors to a failure 
+to cooperate with an investigation.47   However, Section 21B allows the consideration not only of 
+the enumerated factors (not all of which need be present), but of "such other matters as justice 
+may require."  An analysis based on Section 21B is therefore sufficiently flexible to be used in 
+this context. 
+In this case, Applicants' deliberate or reckless disregard of their obligation to cooperate 
+with the Board's investigation strongly supports the imposition of a civil penalty.  By refusing to 
+produce the requested documents, Applicants prevented the Board from carrying out an 
+investigation that was necessary to determine whether it was proper for Applicants to be allowed 
+to continue to perform audits.  Moreover, by dragging out the matter for months, Applicants 
+caused the Board's staff to expend considerable time trying to obtain the cooperation Applicants 
+should have freely given.  
+Applicants' failure to comply harmed the Board's ability to carry out its investigation. 
+The Board's investigatory power is central to its ability to carry out its statutory responsibilities 
+and fulfill its goals in the public interest.  Its ability to obtain documents from registered public 
+accounting firms and their associated persons is, in turn, critical to the effective conduct of 
+45 Exchange Act Section 21B(c), 15 U.S.C. § 78u-2(c). 
+46 See, e.g., Phlo Corp., Exchange Act Rel. No. 55562 (Mar. 30, 2007), 90 SEC 
+Docket 1089, 1113 n.84 (imposing civil penalty against respondent "even though there is no 
+evidence that unjust enrichment resulted from the violations and even though [the respondent] 
+does not have a history of regulatory violations"). 
+47 In Commission investigations, when the recipient of an administrative subpoena 
+requiring the production of documents or an appearance for the taking of testimony refuses to 
+comply, the Commission has recourse to federal district court, which may issue an order 
+enforcing the subpoena, "and any failure to obey such order of the court may be punished by such 
+court as a contempt thereof."  Exchange Act Section 21(c), 15 U.S.C. § 78u(c). 
+22
+ 
+investigations.  The recalcitrance manifested by Applicants, who had consented to cooperate with 
+the Board's document production requests, interferes with and hinders the Board's performance of 
+these important duties. Moreover, Applicants' failure to cooperate indirectly harmed investors by 
+depriving them of important protection that they should have had under Sarbanes-Oxley.  We 
+therefore regard Applicants' refusal to cooperate with the investigation as very serious 
+misconduct. 
+The need for deterrence also supports a civil penalty.  In imposing a civil penalty in 
+addition to revocation and bar, the Board noted that if individuals are concerned that cooperation 
+with an investigation may provide information that could lead to sanctions, those individuals – 
+absent the threat of a civil penalty – could have an incentive to avoid cooperation in order to 
+maximize their income from issuer audit work for as long as possible.  As the Board observed, in 
+public filings with the Commission, issuers disclosed having paid audit fees totaling $154,000 to 
+the Firm for audit services performed during the period of Applicants' noncooperation.
+48 The 
+Board found that imposition of a civil penalty in such cases may act as a deterrent.  We agree. 
+The record would not support a finding of unjust enrichment, nor a finding of a history of 
+prior misconduct.  The absence of these factors is not determinative; in applying Section 21B in 
+the context of administrative proceedings, we have found civil penalties appropriate "even 
+though there is no evidence that unjust enrichment resulted from the violations and even though 
+[the respondent] does not have a history of regulatory violations."
+49   Moreover, we find that 
+justice requires the consideration of several factors relevant to this matter that are not explicitly 
+enumerated in Section 21B.  The Firm collected $154,000 in audit fees from issuers for audit 
+services performed during the period of Applicants' noncooperation.
+50   Both the duration of the 
+period of noncooperation and the amount of fees collected are factors that may be considered 
+under Section 21B as "such other matters as justice may require."  Additionally, Applicants' 
+stalling, through statements that they were working on collecting the documents and merely 
+needed more time (statements that were not supported by any other record evidence), while not 
+clearly deceitful or fraudulent, is relevant to our consideration of whether a penalty is 
+appropriate. 
+48 See Form 10-K/A filed by FTS Group, Inc. on May 15, 2008 (including REB audit 
+report dated April 11, 2008 on financial statements for period ended December 31, 2007 and 
+disclosing audit fees of $45,000 to REB); Form 10-KSB filed by Larrea Biosciences Corp. on 
+August 6, 2007 (including REB audit report dated July 26, 2007 on financial statements for 
+period ended April 30, 3007 and disclosing audit fees of $64,000 to REB); Form 10-K filed by 
+FTS Group, Inc. on April 16, 2007 (including REB audit report dated April 11, 2007 on financial 
+statements for period ended December 31, 2006 and disclosing audit fees of $45,000 to REB). 
+49 Phlo Corp., 90 SEC Docket at 1113 n.84. 
+50 See supra note 48. 
+ 
+23
+ 
+For the reasons discussed above, we find the penalty justified.51 
+As noted above, Sarbanes-Oxley allows the imposition of a civil penalty as high as 
+$800,000 against an individual for each violative act.  The $75,000 penalty imposed by the Board 
+is far below this limit.52   The Board explained that the penalty is designed in part as deterrence 
+against avoiding cooperation in order to continue collecting audit fees during the pendency of an 
+investigation.  While imposing a larger penalty in this case might provide an even greater 
+deterrent against similar stalling by other registered public accounting firms and their associated 
+persons, a civil penalty of $75,000 appears sufficient to have a deterrent effect on a firm such as 
+Bassie's.  Under these circumstances, we find a civil penalty of $75,000 not excessive, 
+oppressive, inadequate, or otherwise inappropriate.
+53 
+51 The consideration of "such other matters as justice may require" may result in the 
+need to consider additional factors in future cases involving failure to cooperate with an 
+investigation.  
+52 As noted above, a penalty not exceeding $110,000 would be allowed even if the 
+misconduct at issue were not intentional or reckless.  See supra note 44. 
+53 Applicants assert that "they do not possess the financial means to pay any civil 
+fine, let alone $75,000," and they argue that the Commission "must provide Applicants with a 
+separate opportunity to argue specifically against the imposition of a civil money penalty." 
+Sarbanes-Oxley does not recognize ability to pay as a factor to consider in determining 
+whether to impose a civil money penalty.  In cases where the Commission may impose a penalty 
+under Section 21B(c), the ability to pay may be considered, but it is only one factor, it is 
+discretionary, and where, as here, the conduct is egregious, inability to pay may be disregarded. 
+See, e.g., Thomas C. Bridge, Exchange Act Rel. No. 60736 (Sept. 29, 2009), 96 SEC Docket at 
+20848 (stating that "when conduct is 'sufficiently egregious,' the Commission may impose a 
+sanction despite a demonstrated inability to pay" and refusing to grant discretionary waiver of 
+penalties where egregiousness of conduct outweighed any reason to do so (citations omitted)), 
+petition denied sub nom. Robles v. SEC, 2010 U.S. App. LEXIS 26537 (D.C. Cir. Dec. 30, 2010) 
+(unpublished). 
+Applicants had every opportunity to argue against the imposition of a civil penalty in their 
+briefs, yet they gave no substantiation of their claim beyond making the flat statement that they 
+could not pay.  Moreover, although the briefing scheduling order expressly provided Applicants 
+the opportunity to file a reply brief on appeal, Applicants did not take advantage of this 
+opportunity.  Under these circumstances, we find that Applicants did not establish that they were 
+unable to pay the penalty, and we decline to grant them a separate hearing as to this issue.  
+ 
+24
+ 
+For the foregoing reasons, we sustain the findings of misconduct and sanctions imposed 
+by the PCAOB. 
+An appropriate order will issue.54 
+By the Commission (Chairman SCHAPIRO and Commissioners WALTER, PAREDES 
+and GALLAGHER); Commissioner AGUILAR not participating. 
+Elizabeth M. Murphy
+         Secretary 
+54 We have considered all of the arguments advanced by the parties.  We reject or 
+sustain them to the extent that they are inconsistent or in accord with the views expressed herein. 
+Because the issues have been thoroughly briefed and can be adequately determined on the basis 
+of the record filed by the parties, Applicants' request for oral argument is denied.  Rule of 
+Practice 451, 17 C.F.R. § 201.451. 
+UNITED STATES OF AMERICA
+ 
+before the
+ 
+SECURITIES AND EXCHANGE COMMISSION
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 3354 / January 10, 2012 
+Admin. Proc. File No. 3-14130 
+In the Matter of the Application of 
+R.E. BASSIE & CO.
+ 
+and
+ 
+R. EVERETT BASSIE, C.P.A.
+ 
+c/o Dwight E. Jefferson
+ 
+405 Main Street, Suite 950
+ 
+Houston, TX 77002
+ 
+For Review of Disciplinary Action Taken by 
+PCAOB 
+ORDER SUSTAINING DISCIPLINARY ACTION TAKEN BY PUBLIC COMPANY 
+ACCOUNTING OVERSIGHT BOARD 
+On the basis of the Commission's opinion issued this day, it is 
+ORDERED that PCAOB's findings that R.E. Bassie & Co. and R. Everett Bassie, C.P.A. 
+failed to cooperate with an investigation by the Board's Division of Enforcement and 
+Investigations be, and they hereby are, sustained; and it is further 
+ORDERED that the sanctions imposed by PCAOB be, and they hereby are, sustained; and 
+it is further 
+ORDERED that the automatic stay of the Board sanctions imposed on Applicants 
+pending the Commission's review be, and it hereby is, terminated. 
+By the Commission. 
+Elizabeth M. Murphy
+         Secretary 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3355.txt b/raw/aaer/2012/AAER-3355.txt
new file mode 100644
index 0000000000000000000000000000000000000000..18cc80079cd97ae78ed414f3abb5ac55aa7c0338
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+ Litigation Release No. 22224 / January 11, 2012 
+
+ Accounting and Auditing Enforcement No. 3355 / January 11, 2012 
+
+  United States Securities Exchange Commission v. Imperiali, Inc. , Daniel Imperato, Charles Fiscina, and Lawrence O'Donnell Civil Action No. 9:12-cv-80021 (S.D. Fla.)(January 9, 2012) 
+
+ SEC Charges Issuer, Officers and Auditor with Fraud 
+
+ On January 9, 2012, the Securities and Exchange Commission charged Florida-based Imperiali, Inc., one current and one former officer, and its former auditor for their involvement in a fraudulent disclosure and accounting scheme. 
+
+ The SEC's Complaint alleges that between 2005 and 2008, Daniel Imperato orchestrated a scheme to use Imperiali, a business development company that Imperato owned and controlled, to defraud investors by making it appear that Imperiali was a thriving multinational corporation with several wholly-owned businesses, when in fact it was nothing more than a shell corporation. The Complaint alleges that Imperiali raised approximately $2.5 million using offering materials that included numerous material misrepresentations and omissions, and that Imperato and Fiscina drafted, reviewed, and certified at least 16 materially false and misleading registration statements, periodic reports and current reports with the Commission on behalf of Imperiali. Among other things, the Complaint alleges that those filings overvalued Imperiali's virtually worthless assets at amounts ranging from $3.5 million to $269 million, and failed to disclose the issuance of millions of shares of restricted stock. The Complaint also alleges that O'Donnell failed to audit Imperiali's financial statements in accordance with Public Company Accounting Oversight Board (PCAOB) Standards, and issued audit reports on Imperiali's financial statements that he knew or was reckless in not knowing contained materially false and misleading information. 
+
+ The SEC's complaint charges that Imperiali and Imperato violated, or aided and abetted violations of, Sections 5(a), 5(a), and 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 Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; that Imperiali also violated Sections 18(d), 31(a), and 34(b) of the Investment Company Act of 1940 (Investment Company Act) and rule 31a-1 thereunder; that Imperato also violated Sections 13(b)(5) and 15(a) of the Exchange Act and rules 13b2-1, 13b2-2, and 13a-14 thereunder, and Section 34(b) of the Investment Company Act; and that O'Donnell violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks permanent injunctions and civil penalties from each defendant, disgorgement with prejudgment interest from Imperiali and Imperato, and an officer and director bar against Imperato, and Fiscina. 
+
+ Without admitting or denying the SEC's allegations, Fiscina has consented to the entry of a final judgment that permanently enjoins him from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 thereunder, and Section 34(b) of the Investment Company Act, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13 thereunder, and bars him from acting as an officer or director of a public company. The Fiscina final judgment does not impose a civil penalty against him based on his sworn inability to pay. The settlement is subject to the Court's approval. 
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diff --git a/raw/aaer/2012/AAER-3357.pdf b/raw/aaer/2012/AAER-3357.pdf
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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 66268 / January 30, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 3358 / January 30, 2012 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-14723 
+ 
+In the Matter of 
+SYMMETRY MEDICAL, 
+INC. and FRED L. HITE, 
+Respondents. 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+ 
+AND-DESIST ORDER AND A CIVIL 
+PENALTY 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+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 Symmetry Medical, Inc. (“Symmetry” or “the 
+Company”) and Fred L. Hite (“Hite”) (collectively, “Respondents”). 
+II.  
+In anticipation of the institution of these proceedings, each of the Respondents 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 each and over the subject matter of 
+these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting 
+Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, 
+Making Findings, and Imposing a Cease-and-Desist Order and a Civil Penalty (“Order”), as set 
+forth below. 
+ 2 
+ 
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds1
+A. SUMMARY  
+ that: 
+1. In April 2008, Symmetry restated its financial statements for its 2005 and 2006 
+fiscal years and its first and second quarters of fiscal 2007, along with selected financial data for its 
+2003-2006 fiscal years.  The restatement was required because of a financial fraud orchestrated by 
+senior management at one of Symmetry’s wholly owned subsidiaries, the Sheffield, England-
+based Symmetry Medical Sheffield LTD, f/k/a Thornton Precision Components, Limited 
+(“TPC”), whose financial data was at all relevant times consolidated into Symmetry’s financial 
+statements filed with the Commission.  Among other things, TPC’s senior officers—one of whom 
+was also an officer of Symmetry—materially overstated TPC’s revenues and assets, materially 
+understated its expenses, and falsified corporate books and records.  This misconduct went 
+undetected and uncorrected in part because Symmetry failed to devise and maintain adequate 
+internal accounting controls and because TPC personnel circumvented the controls that did exist. 
+The fraud at TPC caused Symmetry to file with the Commission eight quarterly reports on Form 
+10-Q and three annual reports on Form 10-K that materially misstated the Company’s 
+consolidated financial results throughout the relevant period.  It also caused Symmetry’s books 
+and records to be materially inaccurate throughout the relevant period. 
+2.
+ Moreover, in July 2006, Symmetry’s CFO (Respondent Hite), did not provide 
+Symmetry’s Audit Committee with a copy of a status report concerning TPC by Symmetry’s former 
+Director of Internal Audit (the “IA”).  In the report, the IA identified exceptions at TPC, citing 
+among other things bill-and-hold transactions, and failures by TPC (i) to provide requested 
+evidence; (ii) to provide complete evidence; and (iii) to perform proper account reconciliations.  In 
+the report the IA also sought permission to solicit outsourcing proposals from other “Big Four” firms 
+to provide, for the balance of 2006 and for 2007, internal audit services at TPC that would include 
+“internal controls testing and financial audits” there. The IA resigned from Symmetry shortly after 
+preparing this report, and accordingly, was not present at the next Audit Committee meeting (held on 
+July 26, 2006) to present the foregoing findings and request concerning TPC.  Hite—the conduit for 
+materials to be included in board packets for directors’ consideration—provided the status report 
+to the Company’s independent auditor, but did not include it in the Board Packet for the July 2006 
+Audit Committee meeting, and the Committee did not otherwise learn of the report until after the fraud 
+at TPC was discovered in September 2007. 
+3.
+ Finally, Hite received bonuses and incentive-based and equity-based compensation 
+from Symmetry, and also realized Symmetry stock-sale profits, during periods covered by the 
+Company’s April 2008 restatement, for which he has not, to date, reimbursed Symmetry. 
+                                                 
+ 1 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+ 3 
+ 
+B. RESPONDENTS  
+4 .  Symmetry Medical, Inc. (“Symmetry” or “the Company”) is a Delaware 
+corporation headquartered in Warsaw, Indiana.  Through its operating subsidiaries, Symmetry is a 
+manufacturer of medical implants and instruments and also manufactures specialized products for 
+the aerospace industry.  Since its December 2004 initial public offering, Symmetry’s common 
+stock has been registered with the Commission pursuant to Section 12(b) of the Exchange Act and 
+listed on the New York Stock Exchange.  At all relevant times, TPC was one of Symmetry’s 
+operating subsidiaries, and accounted for a substantial portion of Symmetry’s consolidated revenues 
+and net income. 
+5. Fred L. Hite (“Hite”), age 44, has served as Symmetry’s Chief Financial Officer and 
+Senior Vice President since March 2004. 
+C. FACTS  
+The Fraud at TPC  
+6. Beginning prior to Symmetry’s December 2004 initial public offering, and 
+continuing until late September 2007, personnel at the Company’s TPC subsidiary—led by certain 
+members of TPC’s senior management—engaged in a financial fraud through which TPC’s 
+consolidated assets and earnings were materially overstated.  As a result, the financial statements 
+included in Symmetry’s annual reports on Form 10-K for its 2004, 2005 and 2006 fiscal years, as well as 
+its quarterly reports on Form 10-Q for (among other quarters) the first and second quarters of its 2007 
+fiscal year, were materially false and misleading and did not comply with generally accepted 
+accounting principles (“GAAP”).  The financial fraud at TPC involved the systematic understatement 
+of expenses and overstatement of assets and revenues, and was achieved primarily by improperly and 
+prematurely recognizing revenue, improperly capitalizing expenses, overvaluing inventory, and 
+understating costs of goods sold.  The scheme stopped only when, on September 24, 2007, a manager at 
+TPC disclosed the scheme to Symmetry’s CEO. 
+Symmetry’s 2008 Restatement 
+7. Several months later, as a direct result of the fraud at TPC, Symmetry restated its 
+financial statements for its 2005 and 2006 fiscal years and for the first two quarters of its 2007 
+fiscal year.  Symmetry also restated selected financial data for its 2003-2006 fiscal years. The 
+cumulative impact of the restatement—as the table below reflects—was, among other things, to 
+reduce Symmetry’s net income for its 
+2004 fiscal year from $11.7 million (as originally reported) 
+to $8.4 million (as restated), its net income for its 2005 fiscal year from $31.8 million (as originally 
+reported) to a net loss of $9.9 million (as restated), and its net income for its 2006 fiscal year from 
+$24.1 million (as originally reported) to $18.5 million (as restated): 
+ 
+ 4 
+ 
+ 
+Fiscal Period Reported 
+Income 
+ 
+Restated Income 
+ 
+ 
+Difference 
+ 
+ 
+Overstatement 
+ 
+FY 2004 $11.7 million $8.4 million -$3.3 million   39% 
+FY 2005 $31.8 million -$9.9. million -$41.7 million   421%2
+FY 2006 
+ 
+$24.1 million $18.5 million -$5.6 million   30% 
+Q1 2007 $3.7 million $1.6 million -$2.1 million   131% 
+Q2 2007 $4.4 million $4.7 million + 0.3 million -6.4 %3
+ 
+ 
+ 8.. The restatement also caused the following percentage reductions to Symmetry’s 
+financial statement line items for accounts receivable, inventories, and total assets: 
+ 
+Balance Sheet FY 2005 FY 2006 Q1 2007 Q2 2007 
+Item     
+A/R (Net) -18% -31% -30% -28% 
+Inventories -28% -30% -34% -30% 
+Total Assets -13% -14% -15% -14%  
+9. In the seven months between the close of trading on October 4, 2007, after which 
+Symmetry made its first disclosure concerning accounting irregularities at TPC, and the close of 
+trading on April 25, 2008, the day after Symmetry filed its restatement, Symmetry’s stock price fell 
+more than 26%, from $17.74 per share to $13.05 per share.   
+Symmetry’s Deficient Internal Controls 
+ 10. Between 2004 and September 2007, Symmetry failed to implement and maintain 
+adequate internal controls over financial reporting that were sufficient to provide reasonable 
+assurance that Symmetry’s financial statements were accurately stated in accordance with GAAP.  As 
+a result, Symmetry’s accounting controls failed to prevent or detect the above-described fraud at TPC 
+that led to the Company’s April 2008 restatement. 
+ 11. Symmetry did not maintain an effective control environment at its TPC subsidiary.  
+This control deficiency included inadequate operation of corporate entity-level controls, including 
+monitoring controls that were not sufficiently sensitive in scope and therefore failed to detect and 
+prevent on a timely basis management override of controls at TPC and collusion of TPC’s 
+management team to achieve desired financial accounting results.  In certain instances, information 
+                                                 
+2 $33.6 million—or more than 80%--of the reduction in earnings for FY 2005 resulted from the write down of goodwill 
+associated with the acquisition of TPC, since the fraud at TPC had pre-dated the acquisition. 
+ 
+3   Symmetry’s gross profits for Q2 2007 were, however, materially reduced as a result of the restatement, from $15.5 
+million (as originally reported) to $14.7 million (as restated). 
+ 5 
+ 
+critical to an effective review of transactions and accounting entries was not disclosed to corporate 
+management and internal and external auditors. 
+ 12. TPC did not maintain effective controls over the period-end financial reporting 
+process, including controls with respect to journal entries, account reconciliations and proper 
+segregation of duties.  Journal entries, both recurring and nonrecurring, were not uniformly 
+accompanied by sufficient supporting documentation and were not adequately reviewed and 
+approved for validity, completeness and accuracy.  Account reconciliations over balance sheet 
+accounts were not uniformly properly performed and approved for validity and accuracy of 
+supporting documentation.  TPC did not uniformly uphold proper segregation of duties within their 
+accounting department with respect to financial reporting. 
+ 13. TPC did not maintain effective controls over the inventory management process 
+including controls with respect to inventory existence.  TPC did not utilize a comprehensive 
+enterprise resources planning (ERP) system to control its inventories, but rather relied upon 
+physical inventory counts.  The process for compiling and reconciling these physical counts to the 
+general ledger was subject to management override of controls and a lack of proper segregation of duties 
+resulting in inaccurate reporting of inventory quantities on hand. 
+ 14. TPC did not maintain effective controls over the sales and accounts receivable process, 
+including controls with respect to the existence of receivables, sales cutoff, the application of cash 
+receipts, and segregation of duties.  Accordingly, certain sales transactions were fictitiously recorded 
+while certain other transactions were recorded prior to the completion of the revenue process. 
+ 15. TPC did not maintain effective controls over the preparation of the income tax provisions 
+and related deferred and current tax calculations.  Account analyses and reconciliations were not 
+prepared for various tax accounts resulting in erroneous entries which were posted to the tax accounts 
+not being detected or corrected in a timely manner. 
+Hite’s Conduct 
+A. The Internal Audit Status Report 
+ 16. In the Fall of 2005, Symmetry created an internal audit unit, headed by the IA, who 
+was to report to the Chairman of Symmetry’s Audit Committee.  On July 17, 2006, the IA provided 
+Hite and the Company’s independent auditor with a status report for submission to Symmetry’s 
+Audit Committee for consideration at its next meeting, which was scheduled to be held at TPC on 
+July 26, 2006.  Hite was the conduit for materials to be included in the board packets provided to 
+Symmetry’s directors in connection with their board and committee meetings.  In that report, the 
+IA claimed to have identified problematic bill-and-hold transactions at TPC and further asserted that 
+TPC personnel had not provided requested evidence pertaining to the IA’s Q1 2006 sales cut-off, 
+cash cutoff and monthly controls testing.  By July 2006, TPC was misstating its revenues and net 
+income primarily by booking top-side journal entries of fictitious sales revenue and overvaluing 
+inventory to conceal its understatement of costs of goods sold.  These misstatements had not been 
+ 6 
+ 
+detected by the IA and were not included in the report.  Rather the IA’s report only implied the 
+potential presence of deeper problems at TPC, since the report sought permission to solicit 
+outsourcing proposals from “Big Four” accounting firms to provide, for the remainder of 2006 and 
+2007, internal audit services at TPC to include “internal controls testing and financial audits” there, 
+saying, “The extent and severity of issues identified at [TPC] exceed the size and ability of IA’s 
+current staff and consultants from other firms.” 
+ 17. Hite forwarded the status report to the Company’s independent auditor as well as 
+Symmetry’s controller and they discussed it with the IA.  After the IA resigned on or about July 
+19, 2006, Hite did not, however, include the report in the board packet for the July 26 Audit 
+Committee meeting.  According to the minutes of that meeting, Hite told the Committee that the 
+IA had “tested all facilities and all were acceptable with a few exceptions found at [TPC].”  The 
+Audit Committee discussed the IA’s resignation and thereafter the chair of the Audit Committee 
+conducted an exit interview with the IA.  However, Hite did not provide the IA’s report to the 
+Audit Committee, and the Committee did not otherwise learn of the report until after the fraud at 
+TPC was discovered.  Hite did immediately hire a new IA whose initial work included internal 
+controls testing at TPC. 
+ B. The Receipt of Bonuses, Equity-Based Compensation and Stock-Sale Proceeds  
+ 18. As a result of the misconduct at TPC described in paragraph 6 above, Symmetry 
+issued materially inaccurate and non-compliant accounting statements in its (i) December 2004 
+initial public offering and July 2005 secondary offering registration statements; (ii) annual public 
+filings with the Commission for fiscal years 2004, 2005 and 2006; and (iii) quarterly public filings 
+for the first and second quarters of 2007.  Specifically, Symmetry filed Forms 10-K for fiscal years 
+2004 through 2006 and Forms 10-Q for the first and second quarters of 2007 that were in material 
+non-compliance with its financial reporting requirements under the federal securities laws, and 
+Symmetry was required to restate its financial statements for fiscal years 2005 and 2006 and for 
+the first two quarters of its 2007 fiscal year, along with selected financial data for its 2003-2006 
+fiscal years. 
+ 19. During the 12- month periods following Symmetry’s filing of inaccurate financial 
+statements in: (i) its December 2004 IPO and July 2005 registration statements; (ii) its 2004-6 
+annual public filings; and (iii) its quarterly filings for the first and second quarters of 2007, 
+Respondent Hite received, from Symmetry, bonuses and incentive and equity based compensation, 
+and also realized profits from the sale of Symmetry stock. 
+ 20. Respondent Hite has not reimbursed Symmetry for the bonuses, incentive and 
+equity-based compensation or profits from sales of Symmetry stock that he received or obtained 
+during the statutory time periods established by Section 304(a) of the Sarbanes-Oxley Act of 2002. 
+ 
+ 7 
+ 
+ 21. The Commission has not exempted Respondent Hite, pursuant to Section 304(b) of 
+the Sarbanes-Oxley Act of 2004 [15 U.S.C. § 7243(b)], from the application of Section 304(a) [15 
+U.S.C. § 7243(a)] of that Act. 
+  
+Symmetry's Remedial Efforts 
+ 
+ 22. In determining to accept the Offers, the Commission considered remedial acts 
+promptly undertaken by Symmetry and cooperation afforded the Commission staff by 
+Respondents.
+ 
+D. LEGAL ANALYSIS 
+Symmetry 
+ 23. Exchange Act Section 13(a) and Exchange Act Rules 13a-1 and 13a-13 require issuers of 
+registered securities to file annual and quarterly reports with the Commission.  Exchange Act Rule 12b-
+20 requires that these periodic reports contain all material information necessary to make the required 
+statements not misleading.  The filing of a periodic report containing materially false or misleading 
+information constitutes a violation of these provisions.  SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 
+(D.C. Cir. 1978).  Exchange Act Section 13(b)(2)(A) requires issuers of registered securities to make and 
+keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect transactions 
+and dispositions of assets. Exchange Act Section 13(b)(2)(B) requires such issuers to devise and 
+maintain a system of internal accounting controls 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.  Exchange Act Section 13(b)(5) provides that no person 
+shall, among other things, knowingly circumvent a company’s system of internal accounting controls. 
+ 24. As described above, Symmetry failed to devise and maintain effective internal 
+accounting controls in violation of Exchange Act Section 13(b)(2)(B).  This failure allowed officers 
+and employees of Symmetry’s TPC subsidiary to perpetrate a financial fraud that caused Symmetry to 
+maintain materially inaccurate books, records, and accounts in violation of Exchange Act Section 
+13(b)(2)(A), and to file periodic reports with the Commission that included materially false and 
+misleading financial statements in violation of Exchange Act Section 13(a) and Exchange Act Rules 
+12b-20, 13a-1, and 13a-13.  In particular, the assets and earnings Symmetry reported in its annual 
+reports on Form 10-K for its 2004 through 2006 fiscal years, and its quarterly reports on Form 10-Q for 
+the first two quarters of its 2007 fiscal year, were materially overstated. 
+Hite 
+ 25. Symmetry’s internal audit function, and the reports prepared by Symmetry’s IA for 
+Symmetry’s Audit Committee in connection with the IA’s internal audit testing, were, as Hite knew, 
+a part of Symmetry’s system of internal accounting controls as defined in Exchange Act Section 
+13(b)(2)(B).  Hite knowingly circumvented this facet of Symmetry’s system of internal accounting controls 
+ 8 
+ 
+by failing to furnish the IA’s report to Symmetry’s Audit Committee.  Accordingly, Hite violated 
+Exchange Act Section 13(b)(5) and was a cause of Symmetry’s violation of Exchange Act Section 
+13(b)(2)(B). 
+ 26. As a result of Hite’s failure to reimburse Symmetry for the bonuses, incentive and 
+equity-based compensation or profits from sales of Symmetry stock that he received or obtained during 
+the statutory time periods established by Section 304(a) of the Sarbanes-Oxley Act of 2002, Hite 
+violated that provision. 
+IV. 
+FINDINGS 
+Based on the foregoing, the Commission finds that: 
+(a) Symmetry violated Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and 
+Rules 12b-20, 13a-1 and 13a-13 thereunder; and 
+(b) Hite violated Exchange Act Section 13(b)(5) and Sarbanes-Oxley Act Section 304(a), 
+and was a cause of Symmetry’s violation of Exchange Act Section 13(b)(2)(B). 
+ 
+V. 
+ORDER 
+Accordingly, the Commission deems it appropriate to impose the sanctions agreed to in 
+Respondents’ Offers, and it is hereby ORDERED, pursuant to Section 21C of the Exchange Act 
+that
+: 
+A. Respondent Symmetry cease and desist from committing or causing any violations 
+and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and 
+Rules 12b-20, 13a-1 and 13a-13 thereunder; 
+B. Respondent Hite cease and desist from committing or causing any violations and 
+any future violations of Section 13(b)(5) of the Exchange Act and Section 304(a) of the Sarbanes-
+Oxley Act, and from causing any violations and any future violations of Section 13(b)(2)(B) of the 
+Exchange Act; and 
+C. Respondent Hite shall, within ten days of the entry of this Order, pay a civil 
+money penalty in the amount of $25,000 to the United States Treasury. If timely payment is not 
+made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  Such payment shall be: (A) 
+made by wire transfer, 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-
+ 9 
+ 
+delivered or mailed to the Securities and Exchange Commission, Office of Financial 
+Management, 100 F St., NE, Stop 6042, Washington, DC 20549; and (D) submitted under cover 
+letter that identifies Hite 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 Stephen L. 
+Cohen, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-5553. 
+D.
+ Respondent Hite shall, within thirty (30) days of the entry of this Order, reimburse 
+Symmetry for a total of $185,000 in Symmetry bonuses, other incentive-based or equity-based 
+Symmetry compensation, and Symmetry stock sale profits pursuant to Section 304 of the 
+Sarbanes-Oxley Act, 15 U.S.C. § 7243.  Defendant shall satisfy this reimbursement obligation 
+to Symmetry by paying over to Symmetry a combination of cash and vested Symmetry stock 
+that, collectively, totals $185,000 in value, with the stock portion thereof not to exceed $85,000, 
+and with the value of said stock being based on Symmetry’s closing share price on the date the 
+shares are transferred to Symmetry.  Defendant shall simultaneously deliver proof of satisfying 
+this reimbursement obligation to 
+Stephen L. Cohen, Division of Enforcement, Securities and 
+Exchange Commission, 100 F St., NE, Washington, DC 20549-5553. 
+By the Commission. 
+Elizabeth M. Murphy 
+Secretary 
+ 
\ 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. 66269 / January 30, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3359 / January 30, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-14724 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+CHRISTOPHER J. KELLY, 
+ACA  
+ 
+             and 
+ 
+             MARGARET HEBB, ACA 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+             PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+   
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against Christopher J. Kelly, ACA 
+(“Kelly”) and Margaret Hebb, ACA (“Hebb”) (collectively the “Respondents”) pursuant to Section 
+4C
+1 of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice.2
+                                                 
+1 Section 4C provides, in relevant part, that:  
+ 
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege 
+ of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess 
+ the requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have 
+ engaged in unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided 
+ and abetted the violation of, any provision of the securities laws or the rules and regulations thereunder.  
+ 2 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, each Respondent has submitted an 
+Offer of Settlement (“Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public 
+Administrative Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds
+3
+ 
+ that:  
+A. SUMMARY 
+ 
+            1. These proceedings arise out of the Respondents’ improper professional conduct 
+during audits of the 2004, 2005 and 2006 financial statements of Symmetry Medical Sheffield LTD, 
+f/k/a Thornton Precision Components, Limited (“TPC”).  TPC has, since 2003, been a  wholly 
+owned U.K. subsidiary of Symmetry Medical, Inc. (“Symmetry”). Since December 2004, 
+Symmetry has been an NYSE listed company.  TPC’s financial data has at all relevant times been 
+included in Symmetry’s consolidated financial statements filed with the Commission as part of 
+Symmetry’s quarterly 10-Q and annual 10-K filings.  From 1999 through late September 2007, 
+TPC’s management was engaged in a scheme to improperly boost TPC’s revenues, net income and 
+other performance indicators by fraudulently manipulating TPC’s financial accounts.  TPC booked 
+fictitious sales revenues, understated costs of goods sold, created fictitious inventories, improperly 
+capitalized certain tool and die to reduce expenses, and engaged in other accounting manipulations, 
+resulting in material overstatements of net income and material misstatements of other financial line 
+items in Symmetry’s financial statements.   
+ 
+ 2. Since 2003, Ernst & Young, LLP (“E&YUS”) has served as Symmetry’s 
+independent auditor.  In connection with its 2004-6 audits of Symmetry’s consolidated financial 
+statements, E&YUS engaged Ernst & Young LLP UK (“E&YUK”) to audit the financial statements 
+                                                                                                                                                             
+ 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or improper 
+professional conduct. 
+ 
+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.   
+ 3 
+of TPC.  Respondent Kelly served as the audit partner on E&YUK’s 2004-6 TPC audits, while 
+respondent Hebb was the audit manager on the 2005 and 2006 audits.   
+ 
+ 3. Respondents’ audits failed to comply with numerous Public Company Accounting 
+Oversight Board (“PCAOB”) auditing standards.  Respondents failed to obtain sufficient competent 
+evidential matter, failed to exercise due professional care in the planning and performance of their 
+audits, and failed to properly supervise the audits.  The fraud at TPC was not uncovered and 
+E&YUK issued unqualified audit opinions on TPC’s 2004-6 financial statements.  E&YUS, in turn, 
+issued unqualified audit reports for Symmetry’s 2004-6 Form 10-K filings that incorrectly stated 
+that Symmetry’s financial statements were fairly reported in conformity with Generally Accepted 
+Accounting Principles (“GAAP”).   Respondents’ conduct, as further described below, constituted 
+improper professional conduct within the meaning of Rule 102(e)(1)(ii) and (iv) and Section 4C of 
+the Exchange Act. 
+ 
+B. RESPONDENTS 
+ 
+ 4. Christopher J. Kelly, ACA, age 49, is a citizen of the United Kingdom.  In 1987, 
+Kelly became a member of the Institute of Chartered Accountants of England and Wales 
+(“ICAEW”), a professional credential corresponding to that of certified public accountant in the 
+United States.
+4
+ 
+   Kelly was employed with E&YUK from 1984 to 2009 and served as the audit 
+partner on the TPC audit engagement from 2003 until the Fall of 2007.   
+ 5. Margaret Hebb, née Whyte, ACA, age 50, is a citizen of the United Kingdom.  
+Hebb became a member of the ICAEW in 1994.  Hebb served as the senior manager on the TPC 
+audit engagement for the 2005 and 2006 audits.     
+ 
+C. OTHER RELEVANT PARTIES 
+ 
+ 6. Symmetry Medical, Inc. (“Symmetry”), is a Delaware corporation founded in 
+1976 with its headquarters in Warsaw, Indiana.  Symmetry manufactures medical implants and 
+instruments and also manufactures specialized products for the aerospace industry.  Symmetry 
+operates facilities in the United States, the United Kingdom, France, Ireland and Malaysia.  
+Symmetry completed its initial public offering in December 2004.  At all relevant times, 
+Symmetry’s common stock has been registered with the Commission pursuant to Section 12(b) of 
+the Exchange Act and has been listed on the New York Stock Exchange.   
+ 
+7. Symmetry Medical Sheffield LTD, f/k/a Thornton Precision Components, 
+Limited (“TPC”) is a UK limited liability company wholly owned by Symmetry and located in 
+Sheffield, UK.   Symmetry acquired TPC in June 2003.  TPC manufactures forged, cast, and 
+machined implants for the global orthopedic device and aerospace markets.  TPC’s financial data 
+has at all relevant times been included in Symmetry’s consolidated financial statements filed 
+with the Commission as part of Symmetry’s quarterly 10-Q and annual 10-K filings. 
+                                                 
+4  The designations “ACA” (for Associate Chartered Accountant) and FCA (for Fellow Chartered Accountant) are 
+used in the United Kingdom and are analogous to the CPA designation in the United States.   
+ 
+ 4 
+ 
+ 8. Ernst & Young, LLP (“E&YUS”) is a national public accounting firm 
+headquartered in New York City, with offices located throughout the United States.  At all relevant 
+times, E&Y has provided auditing, consulting, and tax services to a variety of companies, 
+including companies whose securities are registered with the Commission.  E&YUS has served as 
+Symmetry’s external auditor since June 2003.   
+ 
+ 9. Ernst & Young LLP UK (“E&YUK”) is an Ernst & Young “member firm” 
+providing accounting and auditing services in the United Kingdom.  E&YUK has audited TPC’s 
+financial accounts since June 2003.   E&YUK is registered with the PCAOB and was required to 
+register with the PCAOB in order to participate—through its audit of TPC—in E&YUS’s audit 
+of Symmetry.   
+ 
+D. FACTS 
+ 
+ The Fraud at TPC 
+ 
+ 10. From 1999 through late September 2007, TPC was engaged in a scheme to 
+improperly boost TPC’s revenues, net income and other performance indicators by fraudulently 
+manipulating TPC’s financial accounts.  TPC booked fictitious sales revenues, understated costs of 
+goods sold, created fictitious inventories, improperly capitalized certain tool and die to reduce 
+expenses, and engaged in other accounting manipulations, resulting in material overstatements of 
+net income and material misstatements of other financial line items in Symmetry’s financial 
+statements. 
+ 
+ Fictitious Sales Revenues 
+ 
+ 11. TPC booked fictitious sales revenues in an effort to make up shortfalls to its 
+monthly and quarterly sales revenues targets.  TPC recorded the fictitious sales by making top-side 
+journal entries to sales and accounts receivable.  When TPC needed additional sales to meet its 
+monthly target, for example, its practice was to book a top-side sales entry to meet that target.  
+ 
+ 12. TPC’s booking of fictitious sales revenues had a significant impact on TPC’s 
+accounts receivable (“AR”) balances.  For example, for fiscal year 2005, TPC’s reported AR was 
+£10,717,000, but of that amount, at least £4,122,000, or roughly 38%, was fictitious.  For fiscal 
+year 2006, TPC’s reported AR was £12,440,000 but of that amount, at least £6,031,000, or roughly 
+48%, was fictitious.   
+ 
+ Understatement of Cost of Revenues and Manipulation of Inventories 
+ 
+13. In an effort to boost TPC’s profits artificially , TPC intentionally understated cost 
+of revenues.  Rather than report the actual costs of inventory sold, TPC’s accounting group made 
+journal entries reducing expense and increasing inventory balances.  As a result of these 
+manipulations, TPC’s balance sheet overstated inventory.   
+ 
+ 5 
+14. In order to conceal their manipulation of costs and inventory, TPC’s accounting 
+staff falsified their detailed inventory ledger, which was prepared after every physical inventory 
+count.  TPC added fictitious work in process (WIP) inventory to the listing to make it appear that 
+TPC’s inventory subledger reconciled to the general ledger and balance sheet.   
+ 
+15. TPC’s manipulation of cost of revenues and inventories had a signific ant  impact 
+on TPC’s financial statements.  For example, for fiscal year 2005, TPC reported inventories 
+valued at £9,753,000.  In reality, only £3,531,000, or 36%, of that inventory actually existed.  
+That same year, TPC underreported its cost of revenues by £2,505,000, thus increasing gross 
+profit by the same amount.  For fiscal year 2006, TPC reported inventory valued at £10,973,000.  
+In reality, only £3,692,000, or 33%, of that inventory actually existed.  For the same period, TPC 
+under-reported costs of goods sold by £1,058,000, thus increasing TPC’s gross profit by the 
+same amount.
+5
+  
+ 
+ Symmetry’s 2008 Restatement 
+ 
+16. The fraud at TPC was not discovered until September 2007, when an employee of 
+TPC came forward and confessed the fraud to Symmetry’s CEO. 
+ 
+ 17. On April 23, 2008, after completing an internal investigation into the accounting 
+irregularities at TPC, Symmetry filed a Form 10-K Annual Report for the fiscal year ended 
+December 29, 2007 and amended Quarterly Reports on Form 10-Q/A for the first and second 
+quarters of fiscal 2007, collectively reflecting the restatement of: (i) Symmetry’s previously issued 
+consolidated financial statements for the 2005 and 2006 fiscal years and the first and second 
+quarters of fiscal 2007; (ii) selected financial data for the 2003, 2004, 2005 and 2006 fiscal years; 
+and (iii) Management’s Discussion and Analysis, based on the restated annual and quarterly 
+financial information.
+  According to Symmetry, the restatement was necessitated by the accounting 
+irregularities at TPC. 
+ 
+18. The restatement negatively impacted Symmetry’s previously reported financial 
+results for fiscal years 2003 through the second quarter of 2007.   The chart below shows that the 
+errors were material to Symmetry’s 2004-6 financial statements:  
+ 
+Fiscal Year Reported Net 
+Income 
+Restated Net 
+Income 
+Difference Overstatement 
+2004 $11.7 million $8.4 million -$3.3 million -39% 
+2005 $31.8 million -$9.9. million -$41.7 million6 -421%  
+2006 $24.1 million $18.5 million -$5.6 million -30% 
+ 
+                                                 
+5 TPC engaged in a number of other improper and fraudulent accounting manipulations in an effort to meet its 
+monthly performance targets.  These techniques included improper tool and die capitalization and manipulation of 
+its accounts payable. 
+ 
+6 $33.6 million of the reduction in earnings for FY 2005 resulted from the write down of goodwill associated with 
+Symmetry’s acquisition of TPC.   
+ 6 
+ 19. In the seven months between the close of trading on October 4, 2007, after which 
+Symmetry made its first disclosure concerning accounting irregularities at TPC, and the close of 
+trading on April 25, 2008, the day after Symmetry filed its restatement, Symmetry’s stock price fell 
+more than 26%, from $17.74 per share to $13.05 per share.     
+ 
+ E&YUK’s Deficient TPC Audits 
+ 
+ Background 
+ 
+ 20. E&YUS audited Symmetry’s consolidated financial statements for fiscal years 
+2004-6.  In connection with its Symmetry audits, E&YUS engaged E&YUK to audit TPC’s 
+financial accounts.  E&YUK’s audits were to be conducted in accordance with PCAOB auditing 
+standards, and TPC’s financial reporting packages were to be prepared in compliance with US 
+GAAP.  E&YUS relied on the results of E&YUK’s audits to issue its unqualified audit reports for 
+Symmetry’s Form 10-K filings for fiscal years 2004-6.     
+ 
+ 21. Respondent Kelly was the E&YUK engagement partner on TPC’s 2004-6 year-end 
+audits.  Respondent Hebb was the E&YUK audit manager on the 2005 and 2006 audit 
+engagements.
+7
+ 
+  The following deficiencies were common to the 2004-6 fiscal year audits. 
+ E&YUK Failed to Properly Audit TPC’s Accounts Receivable Balances 
+ 
+ 22. E&YUK failed to reconcile TPC’s accounts receivable general ledger account to a 
+detailed accounts receivable subsidiary ledger.  See AU § 326.19.  E&YUK was told by TPC that 
+this detailed ledger was unavailable, but did not adequately question this assertion.  Instead, 
+E&YUK reconciled the general ledger account to a summary listing of aged debt by customer.  
+Had E&YUK reconciled to TPC’s detailed ledger,  they would have seen that the general ledger 
+balance, inflated due to premature and fictitious revenue recognition, was far greater than the 
+subsidiary ledger balance.   
+ 
+23. E&YUK failed to properly confirm accounts receivable.  For fiscal year 2004 
+E&YUK relied entirely on alternative procedures, and was able to validate only 7% of its sample 
+through that testing.  E&YUK supplemented this by checks to delivery notes, but its work papers 
+do not clearly document whether this covered the entire sample or only part thereof.  For the 
+fiscal year 2005 audit, 59% of the confirmation sample value was never validated through 
+confirmations or alternative procedures.  For the fiscal year 2006 audit, 26% of the sample was 
+never validated.   
+ 
+24. E&YUK failed to properly document in its work papers, and in its Summary 
+Review Memoranda (“SRM”) submitted to E&YUS, the results of its AR testing.  With respect 
+to the 2005 audit, E&YUK’s SRM contains no discussion of its confirmation of receivables, 
+notwithstanding the fact that E&YUK had been unable to confirm roughly 60% of items tested. 
+ 
+                                                 
+7 Hebb did not work on the 2004 audit engagement, although she had access to the 2004 work papers  in connection 
+with her work on the 2005 and 2006 audit engagements.    
+ 7 
+E&YUK did not adequately review TPC’s journal entries 
+ 
+25. During fiscal years 2004-6, TPC booked fictitious revenues via monthly top- side 
+journal entries.  Any top-side journal entry to sales should have been a red flag to the the audit 
+teams under Respondents’ supervision requiring further investigation.  See AU §§ 316.58-62.  
+Notwithstanding purported documentation in E&YUK’s work papers that they had reviewed and 
+agreed to supporting documentation all “non-standard or significant” journal entries, E&YUK 
+failed to detect and investigate TPC’s monthly top-side journal entries to revenue.   
+ E&YUK failed to properly audit TPC’s inventories 
+ 
+ 26. In order to conceal TPC’s manipulation of costs of revenues, TPC added fictitious 
+WIP inventory to TPC’s inventory ledger.  E&YUK failed to detect this manipulation in their 
+audits of TPC’s inventories.  While E&YUK staff did attend and observe the year-end physical 
+inventory counts at TPC, they failed to perform the crucial audit procedure of ensuring control over 
+inventory tags.  Before leaving the count, the audit teams should have obtained a complete list of 
+all inventory tags issued in the count, or, alternatively, copies of all of the tag books created as part 
+of the physical inventories.  See AU §§ 331 and 316.54.  In each of the audit years in question, the 
+audit teams either failed to do this or failed to properly document that it was done.   
+ 
+ 27. Therefore, when E&YUK’s audit team reviewed TPC’s final inventory listing 
+during the year-end audit, they did not determine that fictitious items had been added.   The 
+significance of E&YUK’s failure to properly audit inventories can be seen when TPC’s reported 
+inventories for 2004-6 are compared to its restated inventories for the same time period. 
+ 
+FY  REPORTED 
+INVENTORY 
+RESTATED 
+INVENTORY 
+Percentage of 
+Reported Inventory 
+that actually 
+existed 
+2004 £6,968,000 £3,250,000 47% 
+2005 £9,753,000 £3,531,000 36% 
+2006 £10,973,000 £3,692,000 34% 
+ 
+Respondents’ Improper Professional Conduct 
+ 
+ 28. The “applicable professional standards” for accountants practicing before the 
+Commission include the PCAOB auditing standards. 
+ 
+ 29. PCAOB auditing standards require that the auditor be proficient in accounting 
+matters and that the “auditor with final responsibility for the engagement should know, at a 
+minimum, the relevant professional accounting and auditing standards and should be 
+knowledgeable about the client.”  AU §230.06, Due Professional Care in the Performance of 
+Work; see also AU § 210, Training and Proficiency of the Auditor.  AU Section 230 also 
+requires an auditor to exercise due professional care and professional skepticism, which includes 
+demonstrating a questioning mind and a critical assessment of audit evidence. 
+ 8 
+ 
+ 30. PCAOB auditing standards require that “ sufficient competent evidential 
+matter…be obtained through inspection, observation, inquiries, and confirmations to afford a 
+reasonable basis for an opinion regarding the financial statements under audit.  AU § 326.01 
+Evidential Matter.    
+ 
+ 31. Auditors must adequately plan, staff and supervise the audit.  See AU § 150.02, 
+Generally Accepted Auditing Standards; 230.06; AU § 311.01 et seq., Planning and Supervision; 
+311.11 et seq.  
+ 
+ 32. Further, AU § 316, Consideration of Fraud in a Financial Statement Audit , 
+requires the auditor to assess the risks of material misstatement due to fraud and to presume that 
+revenue recognition is a fraud risk. 
+ 33. Kelly, as the engagement partner, had overall responsibility for the audit 
+engagements to ensure that E&YUK’s audits of TPC were conducted in accordance with PCAOB 
+auditing standards, including planning and supervising the audit and the review of field work.  AU § 
+311.  During the 2004-6 TPC audits, Kelly unreasonably departed from the PCAOB auditing 
+standards in the manner further described below. 
+ 
+ 34. Hebb, as the audit manager on the 2005 and 2006 engagements, was responsible for 
+supervising and reviewing documentation of field work performed.  During the 2005-6 TPC audits, 
+Hebb unreasonably departed from the PCAOB auditing standards in the manner further described 
+below. 
+ 
+ 35. Respondents (and the audit teams under their supervision) failed to obtain sufficient 
+competent evidential matter in connection with their audits of TPC’s accounts receivable.  
+Respondents failed to properly evaluate the results of their confirmation procedures and did not 
+consider whether the unexamined items could be misstatements and the impact of such potential 
+misstatements on the accounts receivable balance.  The non-validated sample balances were 
+material to TPC’s financial statements and exceeded the tolerable error assigned to the TPC audit 
+by E&YUS.   
+ 
+36. Respondents failed to evaluate the implications, both quantitative and qualitative, 
+of their inability to validate selected receivables.  They did not consider whether the reasons for 
+this inability necessitated a change in assessed risks or a reevaluation of the degree of reliance on 
+management representations.  AU §§ 316.68, 316.74, and 350.25.  
+37. The following chart reflects the extent to which E&YUK failed to substantiate the 
+existence of receivables reported by TPC in fiscal years 2004-6, but nonetheless issued unqualified 
+audit opinions.  
+ 
+ 9 
+FY Reported AR 
+Balance (as of 
+date of testing) 
+Sample Balance 
+Tested 
+% of Sample 
+Balance 
+Validated by 
+E&YUK 
+Value of non-
+validated 
+sample balance 
+2004 £9,136,248 £3,671,012 7%8 £3,420,265  
+2005 £11,195,346 £5,689,114 41% £3,354,692 
+2006 £11,553,278 £9,095,968 74% £2,357,305 
+ 
+38. Respondents and the audit teams under their supervision failed to properly 
+document in E&YUK’s work papers, and in their Summary Review Memoranda (SRM) 
+submitted to E&YUS, the results of E&YUK’s AR testing.  With respect to the 2005 audit, 
+E&YUK’s SRM contains no discussion of its confirmation of receivables, notwithstanding the 
+fact that E&YUK had been unable to confirm roughly 60% of the items tested. 
+ 
+39. Respondents failed to adequately plan, staff and supervise the audits.  As a result, 
+E&YUK failed to properly review TPC’s journal entries and, accordingly, failed to detect and 
+investigate TPC’s fictitious top-side journal entries designed to inflate revenue.  Likewise, 
+because Respondents failed to adequately plan, staff and supervise the inventory audits, E&YUK 
+failed to detect TPC’s manipulation of its inventories.  
+ 
+E. VIOLATIONS 
+ 
+40. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice and Section 4C of the 
+Exchange Act authorize the Commission to censure or deny, temporarily or permanently, the 
+privilege of appearing or practicing before the Commission to accountants who are found to have 
+engaged in improper professional conduct.  Such improper professional conduct includes 
+“repeated instances of unreasonable conduct, each resulting in a violation of applicable 
+professional standards, that indicate a lack of competence to practice before the Commission.”  
+Rule 102(e)(1)(iv)(B)(2).   
+ 41. Respondents’ actions during the engagements were unreasonable, failed to conform 
+to applicable professional standards and indicate a lack of competence to practice before the 
+Commission.  Respondents failed:  (i) to obtain sufficient competent evidential matter in violation 
+of AU § 326;  (ii) to exercise due professional care in the planning and performance of the audit in 
+violation of AU §§ 230 and 316;  (iii) to adhere to the standards for conducting and evaluating the 
+results of accounts receivable confirmation procedures in violation of AU §§ 330 and 350; (iv) to 
+adhere to standards for observation and testing of physical inventory counts in violation of AU §§ 
+331 and 316.54;  (v) adequately to test journal entries for evidence of possible material 
+misstatement due to fraud in violation of AU § 316.58-62; and (vi) properly to plan and supervise 
+the audit in violation of AU § 311. 
+ 
+ 
+                                                 
+8  As noted in ¶ 23 above, E&YUK supplemented  its 2004 AR testing by checks to delivery notes, but its work 
+papers do not clearly document whether this supplemental testing covered the entire sample or only a part thereof.  
+ 10 
+F. FINDINGS 
+ 
+ 42. As a result of the conduct describe above, the Commission finds that Respondents 
+Kelly and Hebb engaged in improper professional conduct pursuant to Rules 102(e)(1)(ii) and 
+102(e)(1)(iv)(B)(2) of the Commission’s Rules of Practice and Section 4C of the Exchange Act.   
+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. Kelly is denied the privilege of appearing or practicing before the Commission as 
+an accountant.   
+ B. After two years from the date of this order, Kelly 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) Kelly, 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) Kelly, or the registered public accounting firm with which he is 
+associated, has been inspected by the Board or equivalent U.K. organization 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) Kelly has resolved any disciplinary issues with the Board or 
+equivalent UK organization, and has complied with all terms and conditions of any sanctions 
+imposed by the Board or equivalent U.K. organization (other than reinstatement by the 
+Commission); and 
+ 
+   (d) Kelly acknowledges his responsibility, as long as Kelly appears or 
+practices before the Commission as an independent accountant, to comply with all requirements 
+ 11 
+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 Kelly to resume appearing or 
+practicing before the Commission provided that his chartered accountant license is current and he 
+has resolved any disciplinary issues with the ICAEW.  However, if licensure is dependent on 
+reinstatement by the Commission, the Commission will consider an application on its other 
+merits. The Commission’s review may include consideration of, in addition to the matters 
+referenced above, any other matters relating to Kelly’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ 
+ D. Hebb is denied the privilege of appearing or practicing before the Commission as 
+an accountant.   
+ E. After two years from the date of this order, Hebb 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 Hebb’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) Hebb, 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) Hebb, or the registered public account ing firm with which she is 
+associated, has been inspected by the Board or equivalent U.K. organization 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) Hebb has resolved any  disciplinary issues with the Board or 
+equivalent UK organization, and has complied with all terms and conditions of any sanctions 
+imposed by the Board or equivalent U.K. organization (other than reinstatement by the 
+Commission); and 
+ 
+   (d) Hebb acknowledges her responsibility, as long as Hebb appears or 
+practices before the Commission as an independent accountant, to comply with all requirements 
+ 12 
+of the Commission and the Board, including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality control standards.   
+ 
+ F. The Commission will consider an application by Hebb to resume appearing or 
+practicing before the Commission provided that her chartered accountant license is current and she 
+has resolved any disciplinary issues with the ICAEW.  However, if licensure is dependent on 
+reinstatement by the Commission, the Commission will consider an application on its other 
+merits.  The Commission’s review may include consideration of, in addition to the matters 
+referenced above, any other matters relating to Hebb’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3361.txt b/raw/aaer/2012/AAER-3361.txt
new file mode 100644
index 0000000000000000000000000000000000000000..5582fec467a611e891aa6e5890d8a4d74d40878e
--- /dev/null
+++ b/raw/aaer/2012/AAER-3361.txt
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+        John J. Todd, Robert D. Manza, and Jeffrey Weitzen
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+ Litigation Release No. 22244 / January 31, 2012 
+
+ Accounting and Auditing Enforcement No. 3361 / January 31, 2012 
+
+  Securities and Exchange Commission v. John J. Todd, Robert D. Manza, and Jeffrey Weitzen ,   United States District Court for the Southern District of California, Case No. 03 CV 2230 BEN 
+
+ FORMER GATEWAY CEO AND CONTROLLER SETTLE SEC FRAUD ACTION 
+
+ On January 25, 2012, final judgments were entered against Jeffrey Weitzen, former CEO of Gateway, Inc., and Robert D. Manza, former controller of Gateway. Weitzen and Manza consented to entry of the final judgments without admitting or denying the allegations made by the Securities and Exchange Commission that they engaged in fraud and other violations of the federal securities laws in connection with Gateway's recognition of revenue in the third quarter of 2000. 
+
+ The SEC alleged that the defendants falsely represented Gateway's financial condition in the third quarter of 2000 in order to meet financial analysts' earnings and revenue expectations. Among other transactions, the SEC alleged that the defendants caused Gateway to record $47.2 million in revenue from a one-time sale of fixed assets to Gateway's third-party information technology services provider in violation of Generally Accepted Accounting Principles (GAAP), and that Manza and defendant John J. Todd, then Gateway's CFO, caused Gateway to recognize an additional $21 million in revenue from an incomplete sale of computers to a second entity, also in violation of GAAP. The SEC alleged that absent either of these transactions, Gateway would not have met analysts' expectations with regard to its third quarter revenue. 
+
+ Weitzen consented to a final judgment permanently enjoining him from violations of the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and payment of a $110,000 civil penalty. Manza consented to a final judgment permanently enjoining him from violations of the antifraud provisions of Section 10(b) and Rule 10b-5 thereunder, and from violations of SEC Rule 13b2-2, which prohibits making misrepresentations and omissions of material fact to company auditors, as well as from aiding and abetting the issuer reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Manza further consented to be barred for five years from acting as an officer or director of a public company, and to pay disgorgement of $85,150, constituting his salary and bonus for the relevant quarter, together with prejudgment interest thereon of $75,551.43 totaling $160,701.43, and a $110,000 penalty. 
+
+ Previously, on March 7, 2007, a jury had rendered a unanimous verdict finding Manza and defendant Todd liable for fraud, making false representations to auditors, aiding and abetting issuer reporting violations and other violations following a three week trial. On May 30, 2007, the Honorable Roger T. Benitez overturned the jury verdict as to the fraud and certain other claims. The SEC appealed that ruling, as well as the District Court's prior August 1, 2006, grant of summary judgment to Weitzen dismissing the SEC's case as to Weitzen. On June 23, 2011, the Ninth Circuit reversed those rulings and remanded the matter to the District Court. 
+
+ The case remains pending as to defendant Todd.   
+
+   
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diff --git a/raw/aaer/2012/AAER-3362.pdf b/raw/aaer/2012/AAER-3362.pdf
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diff --git a/raw/aaer/2012/AAER-3362.txt b/raw/aaer/2012/AAER-3362.txt
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@@ -0,0 +1,155 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  66312 / February 2, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3362 / February 2, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-14737 
+ 
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  DALE SHAFER, 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 Dale 
+Shafer (“Respondent” or “Shafer”) 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. 
+ 
+ 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 4 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+ 
+ 1. Dale Bruce Shafer, age 42, is and has been a certified public accountant 
+licensed since 1996 to practice in the State of Ohio.  He served as interim Chief Financial Officer 
+and Senior Vice President of Oak Hill Financial, Inc. (“Oak Hill”) from December 2006 until May 
+2008. 
+ 
+ 2. Oak Hill was, at all relevant times, an Ohio corporation with its principal 
+place of business in Jackson, Ohio.  Oak Hill was a bank.  At all relevant times, Oak Hill’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 NASDAQ National Market under the symbol OAKF. 
+ 
+ 3. WesBanco Inc., is a holding company incorporated in West Virginia with 
+its principal executive offices in Wheeling, West Virginia.  Its common stock is registered with 
+the Commission pursuant to Section 12(b) of the Exchange Act, and it trades on the Nasdaq 
+under the ticker symbol WSBC. 
+ 
+ 4. On January 19, 2012, the Commission filed a complaint against Shafer in 
+SEC v. Dale Shafer, et al. (Civil Action No. 1:12-CV-62 S.D. Ohio).  On January 27, 2012, the 
+court entered an order permanently enjoining Shafer, by consent, from future violations of Section 
+10(b) of the Exchange Act and Rule 10b-5 thereunder.  Shafer was also ordered to pay $33,484.08 
+jointly and severally in disgorgement of ill-gotten gains and $5,473.73 in prejudgment interest; and 
+a $33,484.08 civil money penalty. 
+ 
+ 5. The Commission’s complaint alleged, among other things, that Shafer 
+owed a fiduciary duty of trust and confidence to the shareholders of Oak Hill to maintain the 
+confidentiality of the information entrusted to him about the merger with WesBanco.  Shafer 
+knowingly or recklessly breached his duty by communicating this information to his cousin and 
+in doing so he thereby received a personal benefit.   
+ 
+IV. 
+ 
+ 
+ 3 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Shafer’s Offer. 
+ 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Shafer is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After five years from the date of this order, Shafer 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 
+ 
+ 4 
+current and he has resolved all other disciplinary issues with the applicable state boards of 
+accountancy.  However, if state licensure is dependent on reinstatement by the 
+Commission, the Commission will consider an application on its other merits.  The 
+Commission’s review may include consideration of, in addition to the matters referenced 
+above, any other matters relating to Respondent’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3363.txt b/raw/aaer/2012/AAER-3363.txt
new file mode 100644
index 0000000000000000000000000000000000000000..af3e1c678e399685b471eae9c01d5a4cce88765b
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+++ b/raw/aaer/2012/AAER-3363.txt
@@ -0,0 +1,1390 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | Smith & Nephew PLC 
+     
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+                   U.S. Securities and Exchange Commission 
+
+ Litigation Release 22252 / February 6, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3363 / February 6, 2012 
+
+  Securities and Exchange Commission v. Smith & Nephew PLC,  Civil Action No. 1: 12-CV-00187 (D.D.C.)(GK) (February, 6, 2012) 
+
+ SEC CHARGES SMITH & NEPHEW PLC WITH FOREIGN BRIBERY 
+
+ The Securities and Exchange Commission today announced a settlement with Smith & Nephew PLC to resolve SEC charges that the global medical device company violated the Foreign Corrupt Practices Act (FCPA) when its subsidiaries bribed public doctors in Greece for more than a decade.  Smith & Nephew PLC, headquartered in London, England, is a global medical device company with operations around the world.   
+
+ The SEC alleges that, from 1997 to June 2008, two of Smith &Nephew PLC's subsidiaries, including its U.S. subsidiary, Smith & Nephew Inc., used a distributor to create a slush fund to make illicit payments to public doctors employed by government hospitals or agencies in Greece.  Smith &Nephew PLC agreed to settle the SEC's charges by paying more than $5.4 million in disgorgement and prejudgment interest.  Smith &Nephew PLC's U.S. subsidiary, Smith & Nephew Inc., agreed to pay a $16.8 million fine to settle parallel criminal charges announced by the U.S. Department of Justice today.   
+
+ The SEC's complaint alleges that, starting in 1997, Smith &Nephew PLC's subsidiaries developed a scheme to create an offshore fund to pay Greek public doctors to purchase products from two Smith &Nephew PLC subsidiaries, Smith & Nephew Inc. and Smith & Nephew GmbH.  According to the complaint, Smith &Nephew PLC's subsidiaries made payments to a total of three shell entities in the United Kingdom controlled by the distributor that were used to pay bribes.  The complaint alleges that on paper, it appeared as if Smith &Nephew PLC's subsidiaries were paying for marketing services, but no services were actually performed.  The complaint also alleges that Smith &Nephew PLC failed to act on numerous red flags of bribery and that employees at Smith &Nephew PLC and its subsidiaries were aware of the payments.   
+
+ Smith &Nephew PLC has consented, without admitting or denying the SEC's allegations, to the entry of a court order permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934; ordering it to pay $4,028,000 in disgorgement and $1,398,799 in prejudgment interest; and ordering it to retain an independent compliance monitor for a period of eighteen months to review its  FCPA compliance program.   
+
+ The SEC acknowledges the assistance of the U.S. Department of Justice, Fraud Section and the Federal Bureau of Investigation.  The SEC's investigation into the medical device industry is continuing. 
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diff --git a/raw/aaer/2012/AAER-3364.txt b/raw/aaer/2012/AAER-3364.txt
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+ 
+ 
+                                                
+ 
+ 
+ 
+   
+  
+       
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  66351 / February 7, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3364 / February 7, 2012 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-14752 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+MATTHEW BELL, ACA, : 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 
+Matthew Bell (“Respondent” or “Bell”) 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. Symmetry Medical, Inc. (“Symmetry”), is a Delaware corporation 
+headquartered in Warsaw, Indiana.  A manufacturer of medical implants and instruments as well 
+as aerospace industry products, Symmetry’s subsidiaries include Symmetry Medical Sheffield 
+LTD, f/k/a Thornton Precision Components, Limited (“TPC”).  Since 2003, TPC’s financial data 
+has been consolidated into Symmetry’s financial statements filed with the Commission.  Since 
+December 2004, Symmetry’s common stock has been registered with the Commission pursuant to 
+Section 12(b) of the Exchange act and listed on the New York Stock Exchange.   
+2. Bell, age 52 and a citizen of the United Kingdom, was employed as TPC’s 
+Financial Director from 2002 to February 2007, when he resigned.  Bell also served as Financial 
+Director of Symmetry’s European operations from June 2003 to 2007.  Bell returned to TPC on a 
+periodic basis through June 2007 to assist with TPC’s financial close process.  Bell is a UK 
+Chartered Accountant.  In September 2010, the Institute of Chartered Accountants of England and 
+Wales (ICAEW) excluded Bell from the ICAEW, with the right to apply for reinstatement after 
+one year. The exclusion order was entered after a hearing on Bell’s role with respect to the 
+accounting irregularities at TPC. 
+3. On February 1, 2012, a final judgment was entered by consent against Bell, 
+permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 
+and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“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, in 
+the civil action styled, Securities and Exchange Commission v. Matthew Bell, et al. (“SEC v. 
+Bell”) (Civil Action No. 3:12cv60), in the United States District Court for the Northern District of 
+Indiana. 
+4. The Commission’s complaint in SEC v. Bell alleged, among other things, 
+that as the Financial Director of TPC, Bell was responsible for reporting TPC’s financial 
+accounts to Symmetry for inclusion in Symmetry’s consolidated financial statements; that 
+shortly after becoming TPC’s Financial Director, Bell learned that TPC was manipulating its 
+financial accounts; that, after initially objecting to these manipulations, Bell participated directly 
+in, and in some cases, augmented them; that these manipulations included pre-booking sales 
+revenues, booking fictitious sales revenues, engaging in sales-buyback arrangements, 
+understating cost of revenues and creating fictitious work-in-process inventories, and overstating 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+amounts for capitalized tool and die; that Bell knew (i) that the foregoing manipulations did not 
+conform to US Generally Accepted Accounting Principles, (i) that the foregoing manipulations 
+materially impacted TPC’s financial statements, (iii) that TPC’s financial statements were 
+consolidated into Symmetry’s financial statements and (iv) that Symmetry was a US publicly 
+traded company; that Bell made serial misrepresentations to Symmetry’s top management as 
+well as its internal and external auditors concerning the foregoing manipulations; and that, 
+notwithstanding all of the foregoing, Bell repeatedly and falsely attested in writing to the 
+accuracy of TPC’s financial statements.  The complaint further alleged that during the period of 
+the foregoing manipulations, Bell sold Symmetry securities for illegal profits totaling $22,409 
+and also received bonuses totaling $113,801. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Bell’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that Bell is suspended from 
+appearing or practicing before the Commission as an accountant.   
+ By the Commission.
+       E l i z a b e t h M . M u r p h y
+       S e c r e t a r y 
+3
+ 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3365.txt b/raw/aaer/2012/AAER-3365.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0c6eb40d75bfeb86d6acd9596fcaacfc93ec1a09
--- /dev/null
+++ b/raw/aaer/2012/AAER-3365.txt
@@ -0,0 +1,162 @@
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+       
+      
+ 
+  
+ 
+      
+  
+      
+    
+       
+       
+  
+  
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+                                                
+ 
+ 
+ 
+   
+  
+       
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 66352 / February 7, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3365 / February 7, 2012 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-14753 
+: 
+: 
+: 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+: PROCEEDINGS PURSUANT TO RULE 
+ LYNNE NORMAN, : 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 Lynne 
+Norman (“Respondent” or “Norman”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . 
+suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently 
+enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the 
+Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of 
+the rules and regulations thereunder. 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+    
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over her and the subject matter of these 
+proceedings, and the findings contained in Section III.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. Symmetry Medical, Inc. (“Symmetry”), is a Delaware corporation 
+headquartered in Warsaw, Indiana.  A manufacturer of medical implants and instruments as well 
+as aerospace industry products, Symmetry’s subsidiaries include Symmetry Medical Sheffield 
+LTD, f/k/a Thornton Precision Components, Limited (“TPC”).  Since 2003, TPC’s financial data 
+has been consolidated into Symmetry’s financial statements filed with the Commission.  Since 
+December 2004, Symmetry’s common stock has been registered with the Commission pursuant to 
+Section 12(b) of the Exchange act and listed on the New York Stock Exchange.   
+2. Norman, age 50 and a citizen of the United Kingdom, was employed as 
+TPC’s controller from approximately 1989 to 2008.  Norman holds a B.A. in business studies from 
+Sheffield University, but is not a UK Chartered Accountant and holds no other accounting licenses 
+or certifications.  She was allowed to resign by Symmetry after disclosing her role in TPC’s 
+accounting irregularities and assisting the company with its restatement of prior year financials.  
+3. On February 1, 2012, a final judgment was entered by consent against 
+Norman, permanently enjoining her from future violations of Sections 10(b) and 13(b)(5) of the 
+Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 13b2-1 and 13b2-2 
+thereunder, and 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, in the civil action styled, Securities and 
+Exchange Commission v. Lynne Norman, et al. (“SEC v. Norman”) (Civil Action No. 3:12cv60), 
+in the United States District Court for the Northern District of Indiana.   
+4. The Commission’s complaint in SEC v. Norman alleged, among other 
+things, that as the controller of TPC, Norman bore responsibility for ensuring the accuracy of 
+TPC’s financial accounts on a monthly and quarterly basis and assisting TPC’s Finance Director 
+in reporting TPC’s financial accounts to Symmetry for inclusion in Symmetry’s consolidated 
+financial statements; that, between at least 2003 and September 2007, Norman knowingly 
+participated in TPC’s manipulation of its financial accounts; that these manipulations included 
+pre-booking sales revenues, booking fictitious sales revenues, engaging in sales-buyback 
+arrangements, understating cost of revenues and creating fictitious work-in-process inventories, 
+and overstating amounts for capitalized tool and die; that Norman knew (i) that the foregoing 
+manipulations did not conform to US Generally Accepted Accounting Principles, (i) that the 
+foregoing manipulations materially impacted TPC’s financial statements, (iii) that TPC’s 
+2
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+ 
+ 
+ 
+   
+ 
+ 
+financial statements were consolidated into Symmetry’s financial statements and (iv) that 
+Symmetry was a US publicly traded company; that Norman made serial misrepresentations to 
+Symmetry’s internal and external auditors concerning the foregoing manipulations; and that, 
+notwithstanding all of the foregoing, Norman falsely attested in writing to the accuracy of TPC’s 
+financial statements in 2007 after the departure of TPC’s Financial Director.   
+IV. 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Norman’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that Norman is suspended 
+from appearing or practicing before the Commission as an accountant.
+ By the Commission.
+       E l i z a b e t h M . M u r p h y
+       S e c r e t a r y 
+3
+ 
\ No newline at end of file
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@@ -0,0 +1,138 @@
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  66479 / February 27, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3367 / February 27, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-14780
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+ ROBERT CHIU,   : 102(e) OF THE COMMISSION’S RULES OF 
+ ( A/K/A Chi Hung Chiu)   : PRACTICE, MAKING FINDINGS, AND 
+      : IMPOSING REMEDIAL SANCTIONS 
+  Respondent.   :  
+      :  
+____________________________________ :   
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Robert 
+Chiu (“Chiu” 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, Paragraph 3 below, which are admitted, 
+Respondent consents to the entry of this Order Instituting Administrative Proceedings Pursuant to 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+ 
+1. Chiu, 51, was an audit partner at a major public accounting firm (the 
+“Firm”) and served as its Relationship Partner for the Syntax-Brillian Corporation (“Syntax”) 
+engagement for the fiscal year ended June 30, 2006, and the fiscal quarter ended September 30, 
+2006.  Chiu also played a similar role in the Firm’s audit of South China House of Technology 
+Consultants Co. Ltd. (“SCHOT”) in 2007.  Chiu has never been licensed as a Certified Public 
+Accountant.  He is a United States citizen living in Valley Village, California. 
+ 
+2. Syntax was a Delaware corporation headquartered in Tempe, Arizona.  
+Syntax developed and marketed, among other things, high-definition LCD televisions primarily in 
+the United States and purportedly in China.  At all relevant times, the Company’s common stock 
+was registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 
+1934 (“Exchange Act”).  Prior to its suspension on July 22, 2008, the Company’s common stock 
+was listed for trading on the Nasdaq under the stock symbol “BRLC.”  The Company’s fiscal year 
+ends on June 30. 
+ 
+3.  On January 30, 2012, the Commission filed a Complaint against Chiu in the 
+United States District Court for the District of Arizona.  On February 20, 2012, the Court entered 
+an order permanently enjoining Chiu, by consent, from aiding and abetting violations of Sections 
+10(b), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act, and Exchange Act Rules 10b-5, 
+13b2-1, and 13b2-2. 
+ 
+4.   The Complaint alleges that Chiu aided and abetted a fraudulent revenue 
+recognition scheme.  From at least June 2006 through April 2008, Syntax’s senior management 
+and members of its Board of Directors engaged in a complex scheme to overstate Syntax’s 
+revenues and earnings and artificially inflate its stock price.  This resulted in Syntax’s reported 
+financial statements being materially false and misleading from the fiscal year ended June 30, 
+2006, through the fiscal first quarter ended September 30, 2007.  The scheme was concealed with 
+ 
+ 3 
+forged sales and shipping documents, as well as through the circular transfer of cash among and 
+between Syntax, its primary manufacturer in Taiwan, Taiwan Kolin Co., Ltd., and its purported 
+distributor in Hong Kong, SCHOT, that altogether created a façade of substantial revenues and 
+cash flows. 
+ 
+5. According to the Complaint, as part of the fraudulent scheme, Syntax 
+executives sought to recognize revenue on what were actually fictitious fiscal 2006 year-end sales 
+between Syntax and SCHOT.  Based on the facts presented to Chiu, he knew it was improper for 
+the Company to recognize revenue on these sales.  Specifically, Chiu knew that the sales failed to 
+meet requirements under GAAP (Generally Accepted Accounting Principles) due in part to the 
+lack of a valid sales distribution agreement between Syntax and SCHOT at the time of the 
+purported sales. 
+ 
+6. The Complaint also alleges that, during the period between August and 
+September of 2007, based on audit procedures the Firm performed in the audits of SCHOT’s 
+financial statements for the period ended in March 2007, Chiu also failed to object to the Firm’s 
+issuance of multiple consents to the reissuance of its audit opinion to Syntax’s Form 10-K for fiscal 
+year 2007. 
+ 
+7. B y the conduct described herein, Chiu aided and abetted the antifraud, 
+recordkeeping, internal control, and communication with auditors provisions of the federal 
+securities laws. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Chiu is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After 5 years from the date of this order, Chiu may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as an accountant. 
+      
+        
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3368.txt b/raw/aaer/2012/AAER-3368.txt
new file mode 100644
index 0000000000000000000000000000000000000000..fb41486e3f52a53ec2a5154018f95d9f65cdc71a
--- /dev/null
+++ b/raw/aaer/2012/AAER-3368.txt
@@ -0,0 +1,1374 @@
+
+
+ 
+ 
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+     
+     
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+       
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+                  U. S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 22279 / March 9, 2012  
+
+ Accounting and Auditing Enforcement Release No. 3368 / March 9, 2012 
+
+ SEC v. Koss Corporation and Michael J. Koss., Civil Case No. 2:11-cv-00991, USDC, E.D., Wisc.  
+
+ DISTRICT JUDGE APPROVES SEC SETTLEMENT WITH KOSS CORPORATION AND MICHAEL J. KOSS, ITS CEO AND FORMER CFO  
+
+ On February 22, 2012, the Honorable Rudolph T. Randa, U.S. District Judge for the Eastern District of Wisconsin, approved the settlement of the Securities and Exchange Commission's  Complaint against Koss Corporation ("Koss"), located in Milwaukee, Wisconsin, and Michael J. Koss, its CEO and former CFO.  The case is based on Koss Corporation's preparation of materially inaccurate financial statements, book and records, and lack of adequate internal controls from fiscal years 2005 through 2009.  The S.E.C. responded to a letter dated December 20, 2011, in which the District Judge Randa requested that the S.E.C. address concerns about the proposed settlement.   Based on the S.E.C.'s response, District Judge Randa stated the Court was "satisfied that the injunctions are sufficiently specific… [and] that the proposed final judgments are fair, reasonable, adequate, and in the public interest."  The Injunctive Orders: 
+
+ (1) Enjoin Koss from violating and Michael J. Koss from aiding and abetting violations of the reporting, books and records and internal controls provisions (Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-11 and 13a-13) of the federal securities laws and Michael J. Koss from violating the certification provision (Section 13a-14 of the Exchange Act) and  
+
+ (2) Order Michael J. Koss to reimburse Koss $242,419 in cash and 160,000 of options pursuant to Section 304 of the Sarbanes-Oxley Act.  This bonus reimbursement, together with his previous voluntary reimbursement of $208,895 in bonuses to Koss Corporation represents his entire fiscal year 2008, 2009 and 2010 incentive bonuses. 
+
+ The Commission acknowledges the assistance of the U.S. Attorney's Office for the Eastern District of Wisconsin, the Federal Bureau of Investigation and the Public Company Accounting Oversight Board.  The Commission considered the cooperation of Koss Corporation and Michael J. Koss in determining to accept their settlement.   
+
+ For further information about the Complaint, see  LR 22138 / AAER 3330  (October 24, 2011). 
+
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diff --git a/raw/aaer/2012/AAER-3369.txt b/raw/aaer/2012/AAER-3369.txt
new file mode 100644
index 0000000000000000000000000000000000000000..63f5a62240796eb225957249f11017c590c34a83
--- /dev/null
+++ b/raw/aaer/2012/AAER-3369.txt
@@ -0,0 +1,1366 @@
+
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+              Fernando J. Espuelas et al.
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+        Fernando J. Espuelas et al.
+       
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+  Litigation Release No.22285 / March 13, 2012  
+
+  Accounting and Auditing Enforcement Release No. 3369 / March 13, 2012  
+
+  Securities and Exchange Commission v. Fernando J. Espuelas et al., Civil Action No. 06 CV 2435 (PAE) (S.D.N.Y. filed Mar. 29, 2006)  
+
+ FORMER STARMEDIA EXECUTIVE AGREES TO SETTLEMENT IN SEC LITIGATION 
+
+ The U.S. Securities and Exchange Commission today announced that on March 12, 2012, the U.S. District Court for the Southern District of New York entered a settled final judgment as to Adriana J. Kampfner, the former Senior Vice President for Global Sales for StarMedia Network, Inc., a now-defunct Internet portal, in  Securities and Exchange Commission v. Fernando J. Espuelas et al.,  Civil Action No. 06 CV 2435 (PAE) (S.D.N.Y. filed Mar. 29, 2006). The Commission's injunctive action alleged violations of the federal securities laws by eight former StarMedia executives. The Commission's amended complaint alleges, in relevant part, that for fiscal year 2000 and the first two quarters of fiscal year 2001, StarMedia's books and records misstated the company's revenue. 
+
+ Without admitting or denying the allegations in the amended complaint, Kampfner consented to the entry of the Final Judgment permanently enjoining her from future violations of Rule 13b2-1 promulgated under the Securities Exchange Act of 1934 (Exchange Act), and from aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act. 
+
+ Two defendants remain in the litigation.  See  Litigation Releases No.  22023  (July 1, 2011); No.  21880  (Mar. 9, 2011); No.  19839  (Sept. 20, 2006); No. 19627  (Mar. 29, 2006). 
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diff --git a/raw/aaer/2012/AAER-3370.txt b/raw/aaer/2012/AAER-3370.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3408376d50aacb411f87be0df2575c76d35d667d
--- /dev/null
+++ b/raw/aaer/2012/AAER-3370.txt
@@ -0,0 +1,1382 @@
+
+
+ 
+ 
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+     SEC.gov | Larry Goldstone, Clarence Simmons, and Jane Starrett 
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+  Litigation Release No. 22287/ March 13, 2012  
+
+  Accounting and Auditing Enforcement Release No. 3370 / March 13, 2012  
+
+  Securities and Exchange Commission v. Larry Goldstone, Clarence Simmons, and Jane Starrett, Case 1:12-cv-00257  (D.N.M.)   
+
+ SEC Files Civil Injunctive Action Against Senior Management of Thornburg Mortgage, Inc. for Alleged Fraudulent Overstatement of Thornburg's Income  
+
+ On March 13, 2012, the Securities and Exchange Commission filed securities fraud charges in the United States District Court for the District of New Mexico against Larry Goldstone, the former chief executive officer and president, Clarence Simmons, the former chief financial officer and senior executive vice-president, and Jane Starrett, the former chief accounting officer of Thornburg Mortgage, Inc. ("Thornburg"), currently TMST, Inc., for allegedly materially misrepresenting the financial condition and liquidity of Thornburg, formerly the country's second largest independent mortgage company.  Goldstone, Simmons, and Starrett reside in Santa Fe, New Mexico.   
+
+ The Complaint alleges that Thornburg, through Goldstone, Simmons, and Starrett, fraudulently overstated its quarterly income by more than $420 million in its 2007 annual report filed with the Commission.  As a result, the Complaint alleges that Thornburg fraudulently reported a profit rather than a loss for the quarter.  According to the Complaint, in the two weeks leading to the filing of its annual report, Thornburg received more than $300 million in margin calls from its lenders that severely drained its liquidity.  The Complaint further alleges that, unable to meet its margin calls on a timely basis, Thornburg violated three of its lending agreements, and received a reservation of rights letter from one lender in which the lender reserved its right to declare Thornburg in default at any time.  Accordingly, the Complaint alleges that in the days before Thornburg filed its annual report, the collateral it used for its lending agreements, adjustable rate mortgage ("ARM") securities, was subject to being seized and sold by its lenders.  According to the Complaint, given the circumstances of Thornburg's liquidity crisis, circumstances that were misrepresented to, and concealed from, the company's auditor, Goldstone, Simmons, and Starrett each knew, or was reckless in not knowing, that Thornburg did not have the intent or ability to hold its ARM  securities until maturity or until their value recovered in the market.  The Complaint concludes that the individual defendants also knew, or were reckless in not knowing, that this meant Thornburg was required to recognize on its income statement approximately $428 million of losses associated with the company's ARM securities, and that the proper accounting treatment for these securities would have resulted in Thornburg reporting a loss rather than a profit for the quarter.   
+
+ The Complaint claims that, based on this conduct, the defendants violated or aided and abetted the violation of, or in the case of Goldstone and Simmons are liable as control persons under Section 20(a) of the Securities Exchange Act of 1934 ("Exchange Act") for Thornburg's violation of, Section 17(a) of the Securities Act of 1933, and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13b2-1, and 13b2-2 thereunder.  The Complaint also claims that Goldstone and Simmons violated Rule 13a-14 of the Exchange Act.  As part of this action, the Commission seeks against each of the defendants an injunction against future violations of the provisions set forth above, officer and director bars, and third tier civil money penalties. 
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diff --git a/raw/aaer/2012/AAER-3371.txt b/raw/aaer/2012/AAER-3371.txt
new file mode 100644
index 0000000000000000000000000000000000000000..113aa19bbf6599211218c927ac9e8716dde1404c
--- /dev/null
+++ b/raw/aaer/2012/AAER-3371.txt
@@ -0,0 +1,1378 @@
+
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+     SEC.gov | Mark A. Jackson and James J. Ruehlen; Thomas F. O’Rourke 
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+              Mark A. Jackson and James J. Ruehlen; Thomas F. O’Rourke
+           
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+        Mark A. Jackson and James J. Ruehlen; Thomas F. O’Rourke
+       
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+ Litigation Release No. 22290 / March 14, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3371 / March 14, 2012 
+
+ Securities and Exchange Commission v. Mark A. Jackson and James J. Ruehlen, Civil Action No. 4:12-cv-00563 (S.D. Tex. filed February 24, 2012) 
+
+  Securities and Exchange Commission v. Thomas F. O'Rourke,  Civil Action No. 4:12-cv-00564 (S.D. Tex. filed February 24, 2012) 
+
+ SEC Charges Three Executives At Noble Corporation With Bribing Customs Officials In Nigeria 
+
+ On February 24, 2012, the Securities and Exchange Commission today charged three Noble Corporation executives with violating the Foreign Corrupt Practices Act (FCPA) by participating in a bribery scheme to obtain illicit permits for oil rigs in Nigeria in order to retain business under lucrative drilling contracts. 
+
+ The SEC alleges that former Noble CEO Mark A. Jackson along with James J. Ruehlen, who is the current Director and Division Manager of Noble's subsidiary in Nigeria, bribed customs officials to process false paperwork purporting to show the export and re-import of oil rigs, when in fact the rigs never moved. The scheme was designed to save Noble Corporation from losing business and incurring significant costs associated with exporting rigs from Nigeria and then re-importing them under new permits. Bribes were paid through a customs agent for Noble's Nigerian subsidiary with Jackson and Ruehlen's approval. 
+
+ The SEC separately charged Thomas F. O'Rourke, who was a former controller and head of internal audit at Noble. The SEC alleges that O'Rourke helped approve the bribe payments and allowed the bribes to be booked improperly as legitimate operating expenses for the company. O'Rourke agreed to settle the SEC's charges and pay a penalty. 
+
+ Noble Corporation  was charged with FCPA violations as part of a sweep of the oil services industry in late 2010 . The company cooperated with investigators and agreed to pay more than $8 million to settle civil and criminal cases.    
+
+ According to the SEC's complaint against Jackson and Ruehlen filed in U.S. District Court for the Southern District of Texas, the executives who perpetrated the scheme worked at Noble and Noble's Nigerian subsidiary Noble Drilling (Nigeria) Ltd, whose rigs operated in Nigeria on the basis of temporary import permits granted by the Nigeria Customs Service (NCS). These temporary permits allowed the rigs to be in the country for a one-year period. NCS had the discretion to grant up to three extensions lasting six months each, after which the rigs were required to be exported and re-imported under a new temporary permit or be permanently imported with the payment of sizeable duties. 
+
+ The SEC alleges that Jackson and Ruehlen had a role in arranging, facilitating, approving, making, or concealing the bribe payments to induce Nigerian customs officials to grant new temporary permits illegally and favorably exercise or abuse their discretion to grant permit extensions. Together, Jackson and Ruehlen participated in paying hundreds of thousands of dollars in bribes to obtain about 11 illicit permits and 29 permit extensions. Jackson approved the bribe payments and concealed the payments from Noble's audit committee and auditors. Ruehlen prepared false documents, sought approval for the bribes, and processed and paid the bribes. 
+
+ The SEC's complaint against Jackson and Ruehlen alleges they directly violated the anti-bribery provisions of Section 30A of the Securities Exchange Act and the internal controls and false records provisions of Section 13(b)(5) and Rule 13b2-1 of the Exchange Act. The complaint alleges that they aided and abetted Noble's violations of Section 30A and the books and records and internal controls provisions of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. The complaint further alleges that Jackson directly violated Exchange Act Rule 13b2-2 by misleading auditors and Exchange Act Rule 13a-14 by signing false certifications of Noble's financial statements. He also is liable as a control person under Section 20(a) of the Exchange Act for violations of the anti-bribery, books and records, and internal controls provisions by Noble, Ruehlen, and O'Rourke. 
+
+ The SEC's complaint against O'Rourke alleges that he aided and abetted Noble's violations of the anti-bribery, books and records, and internal controls provisions of the Exchange Act, and that he directly violated the internal controls and false records provisions of the Exchange Act. Without admitting or denying the SEC's allegations, O'Rourke consented to entry of a court order requiring him to pay a $35,000 penalty and permanently enjoining him from further violations of Sections 13(b)(2)(A), 13(b)(2)(B), 13(b)(5) and 30A of the Exchange Act and Rule 13b2-1. 
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diff --git a/raw/aaer/2012/AAER-3373.txt b/raw/aaer/2012/AAER-3373.txt
new file mode 100644
index 0000000000000000000000000000000000000000..44a387cd473f0b7d8480869e3de899d3308a1730
--- /dev/null
+++ b/raw/aaer/2012/AAER-3373.txt
@@ -0,0 +1,1375 @@
+
+
+ 
+ 
+   
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+     SEC.gov | Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton 
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+              Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton
+           
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+ 
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+        Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton
+       
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+                  U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 22304/March 22, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3373/ March 22, 2012 
+
+  SEC v. Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton , Civil Action No. 07 CV 3444 (JF) (PSG) (N.D. Cal. filed July 2, 2007) 
+
+ SEC SETTLES LITIGATION WITH FORMER VERITAS SOFTWARE CORPORATION HEAD OF SALES 
+
+   The U.S. Securities and Exchange Commission today announced that, on March 20, 2012, the United States District Court for the Northern District of California entered a settled final judgment against Paul A. Sallaberry, the former Executive Vice President of Worldwide Field Operations and head of sales of Veritas Software Corporation, in  SEC v. Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton , Civil Action No. 07 CV 3444 (JF) (PSG) (N.D. Cal. filed July 2, 2007). 
+
+ The final judgment resolves the Commission's case against Sallaberry.  The Commission's amended complaint alleges that certain former Veritas Software Corporation executives inflated Veritas' reported revenues by approximately $20 million in connection with a software sale to America Online, Inc.     
+
+ Without admitting or denying the allegations in the complaint, Sallaberry consented to entry of a final judgment permanently enjoining him from future violations of Rule 13b2-1 promulgated under the Securities Exchange Act of 1934 and ordering him to pay disgorgement and prejudgment interest of $75,000 and a civil penalty of $25,000.   
+
+ Kenneth E. Lonchar remains as a defendant in the Commission's action. 
+
+ See Litigation Release No. 20178 (July 2, 2007). 
+
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diff --git a/raw/aaer/2012/AAER-3375.txt b/raw/aaer/2012/AAER-3375.txt
new file mode 100644
index 0000000000000000000000000000000000000000..3fea0bd2eccd09d3e5dea9dfbbc0f3acc27ef0ff
--- /dev/null
+++ b/raw/aaer/2012/AAER-3375.txt
@@ -0,0 +1,1371 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
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+     
+     
+     SEC.gov | Michael A. Baker and Michael T. Gluk 
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+              Michael A. Baker and Michael T. Gluk
+           
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+        Michael A. Baker and Michael T. Gluk
+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 22315  / April 2, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3375 / April 2, 2012 
+
+  Securities and Exchange Commission v. Michael A. Baker and Michael T. Gluk,  Civil Action No. 1:12-cv-00285 (W.D. Tex.) 
+
+ On April 2, 2012, the Securities and Exchange Commission sued two former executives at Austin, Texas-based ArthroCare Corporation to recover bonus compensation and stock sale profits they received during a period when the company's financial statements were misstated due to accounting fraud. 
+
+ According to the SEC's complaint filed in federal court in Austin, former ArthroCare CEO Michael A. Baker and former CFO Michael T. Gluk are not charged with personal misconduct, but they are still required under Section 304 of the Sarbanes-Oxley Act (SOX) to reimburse ArthroCare for bonuses and stock profits that they received after the company filed false financial statements during 2006, 2007, and the first quarter of 2008.   
+
+ SOX Section 304 requires reimbursement by some senior corporate executives of certain compensation and stock sale profits received while their companies were in material non-compliance with financial reporting requirements due to misconduct.  This can include an individual who has not been personally charged with the underlying misconduct or alleged to have otherwise violated the federal securities laws.
+
+ This is the third enforcement action that the Commission has brought arising out of ArthroCare's accounting misconduct.  The Commission previously settled charges against ArthroCare,  see  Rel. No. 34-63883 (February 9, 2011), and against John Raffle and David Applegate, two former ArthroCare executives alleged to have conducted the scheme to inflate the company's revenues and earnings.   See   Rel. No. 22027  (July 5, 2011). 
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2012/AAER-3376.pdf b/raw/aaer/2012/AAER-3376.pdf
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diff --git a/raw/aaer/2012/AAER-3377.txt b/raw/aaer/2012/AAER-3377.txt
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+++ b/raw/aaer/2012/AAER-3377.txt
@@ -0,0 +1,147 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 66737 / April 4, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3377 / April 4, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-14835 
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  JOHN M. WILLIAMS,   : 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 M. 
+Williams (“Respondent” or “Williams”) 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. 
+ 
+ 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.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. Williams, age 38, worked for Deloitte Tax LLP (“Deloitte”) in Philadelphia, 
+Pennsylvania as a tax manager until January 2010.  Williams has passed the CPA exam but does 
+not hold a CPA license.   
+ 
+ 2. Hi-Shear Technology Corp. (“Hi-Shear”) was, at all relevant times, an 
+issuer with its principal place of business in Torrance, California.  Until its acquisition by 
+Chemring Group PLC (“Chemring”) on November 24, 2009, Hi-Shear common stock was listed 
+on the NYSE Amex under the ticker symbol “HSR.”  Hi-Shear designs and manufactures 
+pyrotechnic, mechanical and electronic products for the defense and aerospace industries.   
+ 
+ 3. On March 2, 2012, the Commission filed a complaint against Williams in 
+SEC v. John M. Williams (Civil Action No. 12-1126).  On March 26, 2012, the court entered an 
+order permanently enjoining Williams, by consent, from future violations of Sections 10(b) of the 
+Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  Williams was also ordered to pay 
+$6,803.18 in disgorgement of ill-gotten gains from his sales of stock, and $620.05 in prejudgment 
+interest; and a $6,803.18 civil penalty. 
+ 
+ 4. The Commission’s complaint alleged, among other things, that Williams 
+acquired nonpublic information concerning the acquisition of Hi-Shear by Chemring while 
+providing tax services to Deloitte’s client Chemring.  The Complaint also alleged that in violation 
+of Deloitte’s policies and his employment agreement, Williams traded in the shares of Hi-Shear 
+shortly before the September 16, 2009 announcement that Chemring would acquire Hi-Shear.  The 
+Complaint further alleged that although Deloitte required Williams to self-report his securities 
+transactions, Williams did not report these trades, and was terminated for cause in January 2010.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Williams’ Offer. 
+ 
+ 
+ 3 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Williams is suspended from appearing or practicing before the Commission as an 
+accountant.   
+B. After five years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the Chief 
+Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or a person responsible for the preparation or review, 
+of any public company’s financial statements that are filed with the Commission.  Such an 
+application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company for 
+which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms of 
+or potential defects in the respondent’s or the firm’s quality control system that would indicate that 
+the respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as Respondent 
+appears or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards.   
+      
+B. The Commission will consider an application by Respondent to resume appearing 
+or practicing before the Commission provided that his state CPA license is current and he has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, if 
+state licensure is dependent on reinstatement by the Commission, the Commission will consider an 
+application on its other merits.  The Commission’s review may include consideration  
+ 
+ 4 
+of, in addition to the matters referenced above, any other matters relating to Respondent’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3379.txt b/raw/aaer/2012/AAER-3379.txt
new file mode 100644
index 0000000000000000000000000000000000000000..2e2345001587622f0011a9a08d27beab52173cc3
--- /dev/null
+++ b/raw/aaer/2012/AAER-3379.txt
@@ -0,0 +1,1378 @@
+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | James Li (a/k/a Ching Hua Li), Thomas Chow (a/k/a Man Kit Chow), Roger Kao (a/k/a Chao Chun Kao), Christopher Liu (a/k/a Chi Lei Liu), and Wayne A. Pratt 
+     
+     
+     
+     
+     
+     
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+              James Li (a/k/a Ching Hua Li), Thomas Chow (a/k/a Man Kit Chow), Roger Kao (a/k/a Chao Chun Kao), Christopher Liu (a/k/a Chi Lei Liu), and Wayne A. Pratt
+           
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+        James Li (a/k/a Ching Hua Li), Thomas Chow (a/k/a Man Kit Chow), Roger Kao (a/k/a Chao Chun Kao), Christopher Liu (a/k/a Chi Lei Liu), and Wayne A. Pratt
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+                     U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 22324 / April 9, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3379 / April 9, 2012 
+
+  SECURITIES AND EXCHANGE COMMISSION v. JAMES LI (A/K/A CHING HUA LI), THOMAS CHOW (A/K/A MAN KIT CHOW), ROGER KAO (A/K/A CHAO CHUN KAO), CHRISTOPHER LIU (A/K/A CHI LEI LIU), AND WAYNE A. PRATT,  Civil Action No. CV-11-1712-PHX-SRB (SRB) (D. Ariz.) (Filed Aug. 30, 2011) 
+
+ FORMER SYNTAX-BRILLIAN CORP. CHIEF EXECUTIVE OFFICER ORDERED TO PAY MORE THAN $11 MILLION FOR INSIDER TRADING AND FINANCIAL FRAUD 
+
+ On April 4, 2012, Judge Susan R. Bolton of the United States District Court for the District of Arizona entered a final judgment against James Li, the former Chief Executive Officer and Director of Syntax-Brillian Corporation ("Syntax"), a developer of high-definition LCD televisions based in Tempe, Arizona.  The Court ordered Li to pay disgorgement of $1,673,481, prejudgment interest of $575,472.93, an insider trading penalty of $4,540,443, and a civil penalty of $4,810,000 for his role in the financial fraud scheme.  The Commission has previously obtained a permanent injunction against Li from future violations of, among other things, the antifraud, reporting, books and records, internal controls, and misrepresentation to auditor provisions of the federal securities laws.  The Court also imposed an officer and director bar against Li. 
+
+ According to the SEC's Complaint, from at least June 2006 through April 2008, Li and other members of Syntax's senior management engaged in a complex scheme to overstate Syntax's revenues and earnings and artificially inflate its stock price.  As a result, Syntax reported false and misleading financial statements beginning in the fiscal year ended June 30, 2006, through the fiscal first quarter ended September 30, 2007.  The scheme included the creation of fictitious sales and shipping documents and coordinating the circular transfer of funds among and between Syntax, its primary manufacturer in Taiwan, and its purported distributor in Hong Kong to make it appear that fake invoices were being paid. 
+
+ The Court previously ordered defendant Thomas Chow to pay disgorgement of $10,370,317, prejudgment interest of $2,567,483, an insider trading penalty of $30,849,951, and a civil penalty of $4,680,000 for his role in the financial fraud scheme, as well as permanently enjoining him from violating the federal securities laws.  The Court also issued permanent injunctions against defendants Roger Kao, Christopher Liu, Wayne Pratt, and Robert Chiu, and imposed monetary sanctions.  In addition, the Commission obtained officer and director bars against Chow, Liu, and Pratt, and issued an administrative order suspending Pratt and Chiu from appearing or practicing before the Commission as an accountant with the right to reapply after five years. 
+
+ On March 5, 2012, the Commission, pursuant to Section 12(j) of the Securities Exchange Act of 1934 ("Exchange Act"), revoked the registration of each class of Syntax's securities registered under Section 12 of the Exchange Act. 
+
+ For more information about this case, please see Litigation Release Nos.  22075  (August 31, 2011) and  22243  (January 30, 2012), and Administrative Proceeding File Nos.  3-14549  (September 14, 2011),  3-14780  (February 27, 2012), and  3-14784  (March 5, 2012). 
+
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+              John J. Todd, Robert D. Manza, and Jeffrey Weitzen
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+        John J. Todd, Robert D. Manza, and Jeffrey Weitzen
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+  Litigation Release No. 22335 / April 18, 2012  
+
+  Accounting and Auditing Enforcement Release No. 3381 / April 18, 2012  
+
+  Securities and Exchange Commission v. John J. Todd, Robert D. Manza, and Jeffrey Weitzen, United States District Court for the Southern District of California, Case No. 03 CV 2230 BEN  
+
+ FORMER GATEWAY CFO SETTLES SEC FRAUD ACTION 
+
+ On April 10, 2012, a final judgment was entered against John J. Todd, a former CFO of Gateway, Inc. Todd consented to entry of the final judgment without admitting or denying the allegations made by the Securities and Exchange Commission that he engaged in fraud and other violations of the federal securities laws in connection with Gateway's recognition of revenue in the third quarter of 2000. This concludes the litigation of this action, brought in 2003 against three former officers of Gateway. 
+
+ The SEC alleged that Todd falsely represented Gateway's financial condition in the third quarter of 2000 in order to meet financial analysts' earnings and revenue expectations. Among other transactions, the SEC alleged that Todd caused Gateway to record $47.2 million in revenue from a one-time sale of fixed assets to Gateway's third-party information technology services provider in violation of Generally Accepted Accounting Principles (GAAP), and that Todd, then Gateway's CFO, caused Gateway to recognize an additional $21 million in revenue from an incomplete sale of computers to a second entity, also in violation of GAAP. The SEC alleged that absent either of these transactions, Gateway would not have met analysts' expectations with regard to its third quarter revenue. 
+
+ Todd consented to a final judgment permanently enjoining him from violations of the antifraud provisions of Section 10(b) and Rule 10b-5 thereunder, and from violations of SEC Rule 13b2-2, which prohibits making misrepresentations and omissions of material fact to company auditors, as well as from aiding and abetting the issuer reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Todd further consented to be barred for ten years from acting as an officer or director of a public company, and to pay disgorgement of $165,000, constituting his salary and bonus for the relevant quarter, together with prejudgment interest thereon of $138,162.24 totaling $303,162.24, and a $110,000 penalty. 
+
+ Previously, on March 7, 2007, a jury had rendered a unanimous verdict finding Todd and defendant Robert D. Manza, Gateway's former controller, liable for fraud, making false representations to auditors, aiding and abetting issuer reporting violations and other violations following a three week trial. On May 30, 2007, the Honorable Roger T. Benitez overturned the jury verdict as to the fraud and certain other claims. The SEC appealed that ruling, as well as the District Court's prior August 1, 2006, grant of summary judgment to Gateway's former CEO, Jeffrey Weitzen, dismissing the SEC's case as to Weitzen. On June 23, 2011, the Ninth Circuit reversed those rulings and remanded the matter to the District Court. On January 25, 2012, the Court entered final judgments against Weitzen and Manza pursuant to their consents. [LR 22244 (January 31, 2012.]   
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+              Don W. Watson, Edward W. O’Brien, and Gary M. Opper
+           
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+        Don W. Watson, Edward W. O’Brien, and Gary M. Opper
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 22338 / April 18, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3382 / April 18, 2012 
+
+  Securities and Exchange Commission v. Don W. Watson, Edward W. O'Brien, and Gary M. Opper , Case No. 2:09-cv-00442-LOA (D. Ariz.) 
+
+ SEC ANNOUNCES SETTLEMENT OF ACCOUNTING FRAUD CHARGES AGAINST FORMER CSK AUTO CORPORATION MANAGEMENT 
+
+ On April 18, 2012, the Securities and Exchange Commission announced that final judgments have been entered in the United States District Court in Phoenix, Arizona against three former officers and managers of Phoenix-based CSK Auto Corporation (CSK).  The Commission's complaint, filed in 2009, alleged that from 2002 to 2004, Don W. Watson, CSK's former chief financial officer, senior vice president, and treasurer, Edward W. O'Brien, CSK's former controller, and Gary M. Opper, CSK's former director of credit and receivables, engaged in a scheme to materially overstate CSK's income by aggressively recognizing vendor allowances and failing to write off vendor allowance receivables when management knew the receivables were uncollectible.  Because of the scheme, CSK filed false financial statements overstating pre-tax income for fiscal year 2002 by 48.6%, or $11.2 million, fiscal year 2003 by at least $37.4 million, thereby reporting pre-tax income instead of a pre-tax loss, and fiscal year 2004 by at least 67.2%, or $21.4 million.  At the time of the fraud, CSK was one of the nation's largest auto parts retailers with over 1000 stores located throughout the western United States.  In July 2008, CSK became a wholly owned subsidiary of O'Reilly Automotive, Inc. 
+
+ Pursuant to his final judgment, Watson consented to a permanent injunction, a permanent officer and director bar, and agreed to reimburse O'Reilly Automotive, Inc. ("O'Reilly"), which acquired CSK, $646,404.17 in bonuses and stock profits pursuant to Section 304 of the Sarbanes-Oxley Act of 2002, ("SOX"), 15 U.S.C. § 7243.    In a related criminal action brought by the U.S. Department of Justice, on September 21, 2011, Watson was sentenced to two years' imprisonment, to be followed by three years' supervised release, and ordered to pay restitution in the amount of $1,016.13, based on his guilty plea to a to a one-count superseding felony information, charging him with conspiracy to commit securities fraud and mail fraud, in violation of 18 U.S.C. § 371. 
+
+ Pursuant to his final judgment, O'Brien consented, without admitting or denying the allegations in the Commission's complaint, to a permanent injunction, a permanent officer and director bar, and agreed to pay $33,386 in disgorgement and prejudgment interest.  Pursuant to his final judgment, Opper consented, without admitting or denying the allegations in the Commission's complaint, to full injunctive relief and agreed to pay $10,906 in disgorgement and prejudgment interest.  In the related DOJ criminal action, both O'Brien and Opper pled guilty to obstruction of justice in connection with the Commission's investigation by providing false information to CSK's counsel, knowing that the results of CSK's internal investigation would be disclosed to the Commission staff, in violation of 18 U.S.C. § 1505.  On November 10, 2011, both O'Brien and Opper were sentenced to three years' probation, and ordered to pay a $10,000 and $2,500 fine, respectively.  
+
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+ 
+
+   
+
+    
+
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+  
+  
+
+     
+   
diff --git a/raw/aaer/2012/AAER-3386.txt b/raw/aaer/2012/AAER-3386.txt
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index 0000000000000000000000000000000000000000..d24c1511a4737cdfca47ff7cb260f25c3fd6402e
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@@ -0,0 +1,100 @@
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 67048 / May 23, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 3386 / May 23, 2012 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-10415 
+ 
+In the Matter of  
+Charles P. Morrison, CPA 
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On January 31, 2001 Charles P. Morrison, CPA (“Morrison”) was suspended from 
+appearing or practicing before the Commission as an accountant as a result of settled public 
+administrative proceedings instituted by the Commission against Morrison pursuant to Rule 
+102(e)(3)(i) of the Commission's Rules of Practice.
+1
+The Commission found that Morrison had been permanently enjoined by the United 
+States District Court for the Eastern District of Pennsylvania from future violations of Section 
+10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder.  The 
+Commission’s complaint alleged that, from at least December 1996 through July 1998, Morrison 
+violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by creating, reviewing 
+and approving false financial statements and Disclosure Reports of the Allegheny Health, 
+Education and Research Foundation (“AHERF”) and certain subsidiaries.  The complaint further 
+alleged that Morrison falsely certified to the bond trustee of certain AHERF subsidiaries and 
+others that the 1997 audited financial statements fairly presented the consolidated financial 
+position and the results of operations for AHERF as of and for the fiscal year ended June 30, 
+1997 and that they were prepared in accordance with GAAP. 
+  Morrison consented to the entry of the 
+order without admitting or denying the findings therein.  This order is issued in response to 
+Morrison’s application for reinstatement to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 1364 dated January 31, 2001.  Morrison was permitted, 
+pursuant to the order, to apply for reinstatement after three years upon making certain showings. 
+ 
+ 2 
+In his capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Morrison 
+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.  Morrison 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, Morrison’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”
+2
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Morrison, it appears that he has complied with the terms of the January 31, 2001 order 
+suspending him from appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to his character, integrity, 
+professional conduct, or qualifications to practice before the Commission that would be a basis 
+for adverse action against him pursuant to Rule 102(e) of the Commission’s Rules of Practice, 
+and that Morrison, 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, 
+  This “good cause” determination is 
+necessarily highly fact specific. 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission’s Rules of Practice that 
+Charles P. Morrison, CPA is hereby reinstated to appear and practice before the Commission as 
+an accountant responsible for the preparation or review of financial statements required to be 
+filed with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+Elizabeth M. Murphy  
+Secretary  
+                                                 
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a 
+hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated 
+by the Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ 
\ No newline at end of file
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@@ -0,0 +1,100 @@
+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 67049 / May 23, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  3387 / May 23, 2012 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-11782 
+ 
+In the Matter of  
+Frank D. Edwards, CA 
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+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 December 27, 2004, Frank D. Edwards, CA (“Edwards”) was suspended from 
+appearing or practicing before the Commission as an accountant as a result of settled public 
+administrative proceedings instituted by the Commission against Edwards pursuant to Rule 
+102(e)(3)(i) of the Commission's Rules of Practice.
+1
+The Commission found that Edwards had been permanently enjoined by a United States 
+District Court from violating Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the 
+Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-13, 
+13b2-1, and 13b2-2 thereunder in an action brought against him and other defendants by the 
+Commission.  In its complaint, the Commission alleged that Edwards, as the Chief Financial 
+Officer of Robotic Vision Systems, Inc. (“Robotic”), signed certain misleading filings with the 
+Commission while he knew, or was reckless in not knowing, that the financial statements 
+contained therein contained material overstatements of revenue and net income resulting from 
+the improper recognition of revenue, that he failed to disclose relevant information to Robotic’s 
+external auditors, and that he violated and aided and abetted violations of the books and records 
+and internal controls provisions of the Exchange Act. 
+  Edwards consented to the entry of the order 
+without admitting or denying the findings therein.  This order is issued in response to Edwards’ 
+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. 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 2156 dated December 27, 2004.  Edwards was permitted, 
+pursuant to the order, to apply for reinstatement after five years upon making certain showings. 
+ 
+ 2 
+In his capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Edwards 
+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.  Edwards 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, Edwards’ 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”
+2
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Edwards, it appears that he has complied with the terms of the December 27, 2004 order 
+suspending him from appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to his character, integrity, 
+professional conduct, or qualifications to practice before the Commission that would be a basis 
+for adverse action against him pursuant to Rule 102(e) of the Commission’s Rules of Practice, 
+and that Edwards, 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, 
+  This “good cause” determination is 
+necessarily highly fact specific. 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission’s Rules of Practice that 
+Frank D. Edwards, CA is hereby reinstated to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+Elizabeth M. Murphy  
+Secretary  
+                                                 
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a 
+hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated 
+by the Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ 
\ No newline at end of file
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+++ b/raw/aaer/2012/AAER-3390.txt
@@ -0,0 +1,123 @@
+ 
+ 
+UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 67219 / June 19, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3390 / June 19, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-14922 
+ 
+ 
+In the Matter of 
+ 
+RONALD J. MANGINI, CPA, 
+ 
+             Respondent. 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS AND 
+IMPOSING TEMPORARY SUSPENSION 
+PURSUANT TO RULE 102(e)(3) OF THE 
+COMMISSION’S RULES OF PRACTICE 
+                    
+  
+ 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted pursuant to 
+Rule 102(e)(3) of the Commission’s Rules of Practice, 17 C.F.R. § 201.102(e)(3),
+ 1
+ 
+  against Ronald 
+J. Mangini (“Respondent” or “Mangini”).   
+ 
+                                                 
+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. 
+ 
+The Commission finds that: 
+ 
+A. RESPONDENT 
+ 
+1. Mangini, age 63, is and has been a certified public accountant licensed to practice in 
+the State of New York.  From at least January 1, 2008 until June 30, 2010, Mangini was a principal, 
+and managing and general partner of Marshall Granger & Company LLP (“Marshall Granger”), an 
+accounting firm located in Armonk, New York. 
+   
+ B. CIVIL INJUNCTION 
+   
+2. On March 21, 2012, the United States District Court for the Southern District of 
+New York  entered a final judgment against Mangini , permanently enjoining him from future 
+violations, direct or indirect, of Section 17(a) of the Securities Act of 1933, and Section 10(b) of 
+the Securities Exchange Act of 1934 and Rule 10b- 5 thereunder.  Securities and Exchange 
+Commission v. Brown , et al. , Civil Action Number 10 Civ. 5564 (MGC) .  Under the final 
+judgment, Mangini is liable to pay disgorgement in the amount of $484,000, plus prejudgment 
+interest thereon in the amount of $28,625, and a civil penalty in the amount of $484,000.  
+ 
+3. The Commission’s complaint alleged, among other things, that, from at least April 
+2008 through June 2010, Mangini, together with a co-defendant, offered and sold what purported 
+to be the common stock and promissory notes of Infinity Reserves -Tennessee, Inc. (“IRT”).  The 
+IRT stock and notes were fictitious.  IRT was solely owned by a Marshall Granger client and, at 
+the time, its principal asset, a natural gas pipeline  in Tennessee, had been inoperative for over a 
+decade.  To perpetuate the scheme, without the knowledge or authorization of the Marshall 
+Granger client who owned IRT, Mangini falsely held himself out to be an officer of, and the stock 
+and notes to be bona fide interests in, IRT.  In reality, the offering was a sham and a Ponzi scheme.  
+Mangini, together with his co-defendant, fraudulently obtained more than $2.1 million from at least 
+thirteen investors, including Marshall Granger clients, selling the sham IRT securities. 
+ 
+III. 
+ 
+Based upon the foregoing, the Commission finds that a court of competent jurisdiction has 
+permanently enjoined Mangini, a CPA,  from violating the f ederal securities laws within the 
+meaning of Rule 102(e)(3)(i)(A) of the Commission’s Rules of Practice.  In view of these findings, 
+the Commission deems it appropriate and in the public interest that Mangini be temporarily 
+suspended from appearing or practicing before the Commission. 
+   
+ IT IS HEREBY ORDERED that Mangini  be, and hereby is, temporarily suspended from 
+appearing or practicing before the Commission.  This Order shall be effective upon service on the 
+Respondent. 
+ 
+  
+ 3 
+IT IS FURTHER ORDERED that Mangini may within thirty days after service of this 
+Order file a petition with the Commission to lift the temporary suspension.  If the Commission 
+within thirty days after service of the Order receives no petition, the suspension shall become  
+permanent pursuant to Rule 102(e)(3)(ii). 
+ 
+ If a petition is received within thirty days after service of this Order, the Commission shall, 
+within thirty days after the filing of the petition, either lift the temporary suspension, or set the 
+matter down for hearing at a time and place to be designated by the Commission, or both.  If a 
+hearing is ordered, following the  hearing, the Commission may lift the suspension, censure the 
+petitioner, or disqualify the petitioner from appearing or practicing before the Commission for a 
+period of time, or permanently, pursuant to Rule 102(e)(3)(iii). 
+ 
+This Order shall be served upon Mangini personally or by certified mail at his last known 
+address. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
+ 
+ 
+ 
+ 
\ No newline at end of file
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+              FalconStor Software, Inc.
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+       
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+ Litigation Release No. 22405 / June 28, 2012 
+
+ Accounting and Auditing Enforcement No. 3392 / June 28, 2012 
+
+ SEC v. FalconStor Software, Inc., United States District Court for the Eastern District of New York, Civil Action No. CV 12-3200 (DRH) (filed on June 27, 2012) 
+
+ SEC Charges Long Island Software Company in Connection with Bribery Scheme 
+
+ On June 27, 2012, the Securities and Exchange Commission ("Commission") charged that FalconStor Software, Inc., a Long Island, N.Y., data storage company, misled investors about bribes it paid to obtain business with a subsidiary of J.P. Morgan Chase & Co. FalconStor has agreed to pay a $2.9 million civil penalty to settle the Commission's case. 
+
+ The Commission's complaint, filed in federal district court in the Eastern District of New York, alleges that from October 2007 through July 2010, the Company's co-founder and then-chief executive officer, president and chairman, who is now deceased (the "CEO'), ordered the bribes, which were paid to three executives of the subsidiary, JPMorgan Chase Bank, National Association, and their relatives. The bribes given and offered, which totaled approximately $430,000, included grants of FalconStor options and restricted stock, direct cash payments, gift cards, payment of golf club fees, and lavish entertainment, including gambling in Macau and Las Vegas casinos. The CEO resigned in September 2010, after admitting that he had been involved in improper payments to a customer. 
+
+ The complaint further alleges that shortly after the bribes began, FalconStor secured a direct, multi-million dollar, contract with JPMC, which then became one of FalconStor's largest customers and a major source of FalconStor's revenue during the relevant period. Thereafter, on several quarterly earnings calls and in two earnings releases filed with the Commission on Forms 8-K in April 2008 and February 2009, the CEO touted FalconStor's large, direct contract with JPMC as a vindication of the quality and desirability of FalconStor's products and proof of its strides in moving to direct sales rather than relying on third-party distributors. FalconStor never disclosed that JPMC's business resulted, in whole or in part, from the inducements that it was lavishing on JPMC's employees. 
+
+ The complaint also alleges that the Company also granted restricted stock and options to relatives of two of the executives even though the recipients provided no bona fide services to the Company and the grants were thus not covered by the Company's registered Incentive Stock Plan. In addition, the Company failed to accurately record the expenses associated with the bribes on its books and records, and failed to devise or implement a system of effective internal accounting controls to detect or prevent the bribes, which violated state law and were inconsistent with the Company's policies. 
+
+ The complaint charges FalconStor with violating the books-and-records and internal controls provisions of the Securities Exchange Act of 1934, Sections 13(b)(2)(A) and 13(b)(2)(B), and the offering registration provisions and certain antifraud provisions of the Securities Act of 1933, Sections 5(a), 5(c), and 17(a)(2) and (3). 
+
+ FalconStor has agreed to settle this matter by consenting to a court order permanently enjoining it from violating Sections 5(a), 5(c), and 17(a)(2) and (3) of the Securities Act and Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; ordering it to pay a civil monetary penalty of $2.9 million; and ordering it to comply with certain undertakings. The proposed settlement is subject to court approval. 
+
+ FalconStor is a Delaware corporation headquartered in Melville, New York. The Company also maintains offices in California, and throughout Europe, Asia and Australia. FalconStor's common stock trades on NASDAQ under the symbol FALC. 
+
+ The Commission thanks the U.S. Attorney's Office for the Eastern District of New York and the Federal Bureau of Investigation, and acknowledges to cooperation of the New York County District Attorney's Office in this investigation. 
+
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diff --git a/raw/aaer/2012/AAER-3393.pdf b/raw/aaer/2012/AAER-3393.pdf
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+ 
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+              
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+                                                
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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.  67423 / July 12, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3393 / July 12, 2012 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-14947 
+In the Matter of 
+STANLEY NG, C.P.A., 
+Respondent. 
+ORDER INSTITUTING CEASE-
+ AND-DESIST PROC EEDINGS PURSUANT 
+TO SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER AND ORDER OF 
+SUSPENSION PURSUANT TO RULE 
+102(e)(2) OF THE COMMISSION’S RULES 
+OF PRACTICE 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted against Stanley Ng, CPA, (“Ng” or 
+“Respondent”) pursuant to Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”) 
+and also deems it appropriate to issue an order of forthwith suspension of Ng pursuant to Rule 
+102(e)(2) of the Commission’s Rules of Practice [17 C.F.R. §201.102(e)(2)].
+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, Respondent consents to the Commission’s 
+Rule 102(e)(2) provides in pertinent part: “Any ... person who has been convicted of a felony or a 
+misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the 
+Commission.” 
+1 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+    
+ 
+ 
+jurisdiction over him and the subject matter of these proceedings and to the entry of this Order 
+Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act 
+of 1934, Making Findings and Imposing a Cease-and-Desist Order and Order of Suspension 
+Pursuant to Rule 102(e) of the Commission’s Rules of Practice (“Order”), as set forth below. 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds2 that: 
+1. This matter concerns insider trading by Ng, who in late 2007 and 2008 disclosed 
+material nonpublic information that he obtained in the course of his employment at Marvell 
+Technology Group, Ltd. (“Marvell”) to Winifred Jiau (“Jiau”) and Son Ngoc Nguyen (“Nguyen”). 
+Jiau and Nguyen, in turn, traded Marvell securities based on the material nonpublic information. 
+2. By virtue of his conduct, Ng violated Section 10(b) of the Exchange Act and Rule 
+10b-5 thereunder. 
+3. Stanley Ng , age 43 and a resident of Cupertino, California is a Certified Public 
+Accountant (“CPA”) licensed in California (although his license is currently inactive).  From 2002 
+through 2011, Ng worked in the finance department of Marvell, serving as the company’s “SEC 
+Reporting Manager” from 2002 until September 2010.  Ng has already pleaded guilty to one count 
+of conspiracy to commit securities fraud and wire fraud before the United States District Court for 
+the Southern District of New York in U.S. v. Ng, S4 11-cr-161 (JSR), and has been sentenced to 
+two years of probation, ordered to forfeit $6,464 (based on the illegal trading profits of his direct 
+tippees) and fined $2,000. 
+4. Jiau , age 44, is currently incarcerated in a federal correctional facility in California 
+after being convicted in June 2011 of securities fraud and conspiracy to commit securities fraud 
+and wire fraud, and sentenced to a 48-month term of imprisonment by the United States District 
+Court for the Southern District of New York in U.S. v. Jiau, 11-cr-161 (JSR).  Jiau is also the 
+subject of a permanent antifraud injunction, which was entered against her by the United States 
+District Court for the Southern District of New York in SEC v. Longoria, et al., 11-cv-753 (JSR). 
+5. Nguyen , age 39, is a resident of San Jose, California.  Nguyen pleaded guilty to one 
+count of conspiracy to commit securities fraud and wire fraud before the United States District 
+Court for the Southern District of New York in U.S. v. Nguyen, S3 11-cr-161 (JSR), and was 
+sentenced to one year of probation and ordered to forfeit $6,464 in illegal trading profits. 
+6. Marvell  is a Bermuda corporation headquartered in Santa Clara, California.  
+Marvell is a global provider of semiconductors and microprocessor integrated circuits.  
+Marvell’s securities are registered with the Commission pursuant to Section 12(b) of the 
+Exchange Act and its stock trades on the NASDAQ under the symbol “MRVL.” 
+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
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+7. In late 2007 and 2008, Ng, Jiau and Nguyen participated in a scheme to exchange 
+material nonpublic information for the purpose of executing securities trades while in possession of 
+material nonpublic information.  Ng agreed to provide Jiau with material, nonpublic information 
+regarding the financial performance of his employer, Marvell.  In exchange, Jiau and Nguyen 
+agreed to provide Ng with stock tips. 
+8. On May 17 and May 27, 2008, Ng spoke to Jiau by telephone and provided her 
+with inside information regarding Marvell’s performance for its first fiscal quarter, which had 
+ended on May 3, 2008 and for which Marvell would publicly announce results on May 29, 2008.  
+Specifically, Ng informed Jiau that Marvell would announce quarterly revenues of $804 million, a 
+gross profit margin of 51.6%, and earnings per share would be $0.11.  These results were 
+significantly better than market analysts’ expectations at the time. 
+9. On May 29, 2008, prior to Marvell’s announcement of its quarterly results, Jiau 
+purchased 875 shares of Marvell stock while in possession of material nonpublic information that 
+she had received from Ng.   
+10. That same day Ng also had a telephone conversation with Nguyen during which Ng 
+provided Nguyen with material nonpublic information regarding Marvell’s quarterly earnings. 
+11. Later that day (and before Marvell announced its quarterly results), Nguyen 
+purchased 1,000 shares of Marvell stock while in possession of material nonpublic information that 
+he had received from Ng.  
+12. After market-close on May 29, 2008, Marvell released its quarterly results for the 
+first quarter of 2008, including revenues of $804 million, a gross profit margin of 52% and 
+earnings per share of $0.11, almost exactly as Ng had stated.  These results, which were 
+significantly better than market analysts expected, caused the stock price to increase 23% (from 
+$14.08 per share at market-close on May 29 to $17.36 per share at market-close on May 30). 
+13. The increase in Marvell’s stock price resulted in combined profits of $6,464 for 
+Jiau and Nguyen. (Ng did not share in the insider trading profits of Jiau or Nguyen.) 
+14. By providing the information regarding Marvell’s quarterly earnings to Jiau and 
+Nguyen, Ng violated the duty he owed to Marvell to keep all material nonpublic information 
+concerning the company confidential, as well as a specific company policy which prohibits the 
+tipping of material nonpublic information to persons outside Marvell. 
+15. As a result of the conduct described above, Ng 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. 
+3
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+  
+ 
+ 
+ 
+IV. 
+In view of the foregoing, the Commission finds that Ng has been convicted of a felony 
+within the meaning of Rule 102(e)(2) and deems it appropriate to impose the sanctions agreed to 
+in Ng’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Pursuant to Section 21C of the Exchange Act, Ng shall cease and desist from 
+committing or causing any violations and any future violations of Section 10(b) of the Exchange 
+Act and Rule 10b-5 thereunder. 
+B. Ng is forthwith suspended from appearing or practicing before the Commission 
+pursuant to Rule 102(e)(2) of the Commission’s Rules of Practice. 
+C. Pursuant to Section 21C(f) of the Exchange Act Ng, is barred from acting as an 
+officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the 
+Exchange Act [15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of the 
+Exchange Act [15 U.S.C. § 78o(d)]. 
+D. Ng shall, within 180 days of the entry of this Order, pay disgorgement of $6,464 
+and prejudgment interest of $984.23, for a total of $7,448.23, to the Securities and Exchange 
+Commission to be remitted to the United States Treasury.  Ng’s obligations to pay disgorgement in 
+the amount of $6,464 and pre-judgment interest in the amount of $984.23 will be credited dollar 
+for dollar by the amount of the forfeiture order of $6,464 entered against Ng in criminal case 
+number 11-CR-0161 (JSR) in the United States District Court of the Southern District of New 
+York. Thus, within 180 days of the entry of this Order, Ng shall pay $984.23 to the Securities and 
+Exchange Commission to be remitted to the United States Treasury.  If timely payment is not 
+made, additional interest shall accrue pursuant to SEC Rule of Practice 600.  Payment shall be: (A) 
+made by wire transfer, United States postal money order, certified check, bank cashier’s check, 
+bank money order, or by credit or debit card via Pay.gov through the SEC website at 
+http://www.sec.gov/about/offices/ofm.htm; (B) made payable to the Securities and Exchange 
+Commission; (C) hand-delivered or mailed to Enterprise Services Center, Accounts Receivable 
+Branch, 6500 South MacArthur Boulevard, Oklahoma City, Oklahoma 73169; and (D) submitted 
+under cover letter that identifies Ng as the Respondent in these proceedings, the file number of 
+these proceedings, a copy of which cover letter and money order or check shall be sent to Sanjay 
+Wadhwa, Associate Director, Division of Enforcement, Securities and Exchange Commission, 
+New York Regional Office, 3 World Financial Center, Suite 400, New York, New York 10281. 
+E. Ng shall, within 180 days of the entry of this Order, pay a civil money penalty in 
+the amount of $6,464 to the Securities and Exchange Commission to be remitted to the United 
+States Treasury.  If timely payment is not made, additional interest shall accrue pursuant to 31 
+U.S.C. 3717. Such payment shall be: (A) made by wire transfer, United States postal money order, 
+certified check, bank cashier’s check, bank money order, or by credit or debit card via Pay.gov 
+4
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; (B) made payable to the 
+Securities and Exchange Commission; (C) hand-delivered or mailed to Enterprise Services Center, 
+Accounts Receivable Branch, 6500 South MacArthur Boulevard, Oklahoma City, Oklahoma 
+73169; and (D) submitted under cover letter that identifies Ng as the Respondent in these 
+proceedings, the file number of these proceedings, a copy of which cover letter and money order or 
+check shall be sent to Sanjay Wadhwa, Associate Director, Division of Enforcement, Securities 
+and Exchange Commission, New York Regional Office, 3 World Financial Center, Suite 400, New 
+York, New York 10281. 
+By the Commission.  
+Elizabeth M. Murphy 
+Secretary 
+5
+ 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3397.txt b/raw/aaer/2012/AAER-3397.txt
new file mode 100644
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@@ -0,0 +1,1370 @@
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+ Litigation Release No. 22432 / August 2, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3397 / August 2, 2012 
+
+ SEC v. Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton, Civil Action No. 07 CV 3444 (CW) (N.D. Cal. filed July 2, 2007) 
+
+ SEC Settles Litigation With Former Veritas Software Corporation Chief Financial Officer 
+
+   The U.S. Securities and Exchange Commission today announced that, on July 20, 2012, the United States District Court for the Northern District of California entered a settled final judgment against Kenneth E. Lonchar, the former Chief Financial Officer of Veritas Software Corporation, in  SEC v. Mark Leslie, Kenneth E. Lonchar, Paul A. Sallaberry, Michael M. Cully, and Douglas S. Newton , Civil Action No. 07 CV 3444 (CW) (N.D. Cal. filed July 2, 2007). 
+
+ The final judgment resolves the Commission's case against Lonchar, the last remaining defendant in the Commission's action against certain former Veritas Software Corporation executives.  The Commission's amended complaint alleges that Lonchar and other executives inflated Veritas' reported revenues by approximately $20 million in connection with a software sale to America Online, Inc.  The complaint further alleges that from at least 2000 until his resignation in 2002, Lonchar and others applied three improper accounting practices to "smooth" artificially Veritas' financial results. 
+
+ Without admitting or denying the allegations in the complaint, Lonchar consented to entry of a final judgment permanently enjoining him from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and ordering him to pay disgorgement and prejudgment interest of $300,000 and a civil penalty of $100,000.   
+
+ On August 2, 2012, the Commission issued an Order in a related, settled administrative proceeding suspending Lonchar from appearing or practicing before the Commission as an accountant with the right to request reinstatement after five (5) years from the date of the Order, pursuant to Rule 102(e) of the Commission's Rules of Practice.  The suspension is based on the entry of the final judgment in  SEC v. Leslie, et al. , enjoining Lonchar from future violations of the antifraud provisions of the Exchange Act.  Without admitting to the findings in the Commission's Order, except as to jurisdiction and the entry of the final judgment, Lonchar consented to the issuance of the Order.  
+
+ See Litigation Release No. 20178 (July 2, 2007); [Securities Exchange Act Release No. 34-67590.]   (August 2, 2012) 
+
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diff --git a/raw/aaer/2012/AAER-3398.pdf b/raw/aaer/2012/AAER-3398.pdf
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index 0000000000000000000000000000000000000000..41da8f4eae771ae87c42dedd2498057818cb914a
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diff --git a/raw/aaer/2012/AAER-3398.txt b/raw/aaer/2012/AAER-3398.txt
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+++ b/raw/aaer/2012/AAER-3398.txt
@@ -0,0 +1,160 @@
+ 
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 67590 / August 2, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3398 / August 2, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-14972
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+ KENNETH E. LONCHAR, 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 Kenneth 
+E. Lonchar, CPA (“Respondent” or “Lonchar”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.1
+   
+ 
+                                                
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 
+ 2 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.3  below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+ 1. Lonchar, age 54, has been a certified public accountant licensed to practice 
+in the State of Idaho.  This license lapsed in 1995.  He served as Chief Financial Officer (“CFO”) of 
+Veritas Software Corporation (“Veritas”) from April 1997 until his resignation in October 2002. 
+ 
+ 2. Veritas, now a wholly owned subsidiary of Symantec Corporation, was a 
+software company headquartered in Mountain View, California that created and licensed data 
+storage software.  At all relevant times, Veritas’ common stock was registered with the 
+Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) 
+and was quoted on the Nasdaq National Market.    
+ 
+ 3. On July 20, 2012, a final judgment was entered against Lonchar, 
+permanently enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 
+10b-5 thereunder, in the civil action entitled Securities and Exchange Commission v. Leslie, et al., 
+Civil Action No. C 07-3444-CW, in the United States District Court for the Northern District of 
+California.  Lonchar was also ordered to pay $300,000 in disgorgement representing profits gained 
+as a result of the conduct alleged in the amended complaint and prejudgment interest thereon, and a 
+$100,000 civil money penalty. 
+   
+ 4. The Commission’s amended complaint alleged Lonchar knowingly 
+participated in two schemes to manipulate Veritas’ publicly reported revenues and earnings.  The 
+complaint alleged that Veritas artificially inflated reported revenues by approximately $20 million 
+in connection with a software sale to America Online, Inc. (“AOL”) in 2000.  According to the 
+complaint, Lonchar, Veritas’ CFO, applied an accounting treatment to the transaction that did not 
+comply with generally accepted accounting principles (“GAAP”).  The complaint also alleged that 
+Lonchar and others concealed the true nature of the transaction with AOL, which allowed Veritas 
+to artificially inflate its reported revenue.  The complaint further alleged that from at least 2000 
+until his resignation in 2002, Lonchar and others also applied three non-GAAP accounting 
+ 
+ 3 
+practices to “smooth” artificially Veritas’ financial results and that they concealed these 
+manipulations from Veritas’ independent auditors.   
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Lonchar’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Lonchar is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After five (5) years from the date of this order, Respondent may request that 
+the Commission consider his reinstatement by submitting an application (attention: Office of 
+the Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the respondent’s or the firm’s quality control system that would indicate 
+that the respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards.   
+ 
+ 4 
+ 
+ 
+ 5 
+C. The Commission will consider an application by Respondent 
+to resume appearing or practicing before the Commission provided that his state CPA 
+license is current and he has resolved all other disciplinary issues with the applicable state 
+boards of accountancy.  However, if state licensure is dependent on reinstatement by the 
+Commission, the Commission will consider an application on its other merits.  The 
+Commission’s review may include consideration of, in addition to the matters referenced 
+above, any other matters relating to Respondent’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3400.pdf b/raw/aaer/2012/AAER-3400.pdf
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@@ -0,0 +1,1387 @@
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+ Litigation Release No. 22408 / July 3, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3401 / July 3, 2012 
+
+ Securities and Exchange Commission v. Gold Standard Mining Corp. (formerly known as Fluid Solutions Inc.), Panteleimon Zachos, Kenneth G. Eade, Edward Randall Gruber, CPA, and Gruber & Company, LLC, Civil Action No. CV-12-5662 PA (CWx)   (C.D. Cal.) 
+
+ SEC CHARGES GOLD STANDARD MINING CORP. AND OTHERS FOR FALSE AND MISLEADING STATEMENTS CONCERNING RUSSIAN GOLD MINING OPERATIONS. 
+
+ On June 29, 2012, the Securities and Exchange Commission filed a civil action in the United States District Court for the Central District of California against Gold Standard Mining Corp. ("Gold Standard"), its Chief Executive Officer/Chief Financial Officer Panteleimon Zachos, attorney Kenneth G. Eade, auditor E. Randall Gruber and his firm Gruber & Company LLC.   
+
+ In its complaint, the Commission alleges that, between May 2009 and April 2011, Gold Standard filed numerous reports about its purported Russian gold mining operations that were materially false and misleading in various respects.  According to the complaint, Gold Standard represented that it had acquired a Russian gold mining company known as Ross Zoloto Co., Ltd. ("Ross Zoloto"), but did not inform investors that it had agreed to allow the prior owner of Ross Zoloto to keep profits from existing operations or of issues surrounding Russian government registration or approval of the business combination.  The complaint also alleges that Gold Standard filed false or misleading financial statements.  
+
+ The complaint alleges that Gold Standard and Zachos were responsible for these misstatements, and that Eade, Gruber and Gruber & Co. substantially assisted Gold Standard in making these false and misleading statements.  The complaint further alleges that Gruber & Co., through its sole member Edward Randall Gruber, misrepresented in an audit opinion that it had audited the company's 2007, 2008 and 2009 consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board.   
+
+ Without admitting or denying the allegations in the Commission's complaint, Gold Standard and Zachos consented to final judgments pursuant to which Gold Standard will be enjoined from violating Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rules 10b-5, 12b-20, 13a-11 and 13a-13 thereunder, and Zachos will be enjoined from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder.  Zachos will also be barred from serving as an officer or director of a public company.  The judgments are subject to court approval.  
+
+ The complaint alleges that Eade and Gruber aided and abetted Gold Standard's violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; Gruber & Co. violated Sections 10(b) and 10A(a) of the Exchange Act and Rule 10b-5(b) thereunder, and aided and abetted the violations of Gold Standard of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; and Gruber violated Section 10A(a) of the Exchange Act and aided and abetted the violations of Gruber & Co. of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder or, in the alternative, in liable as a control person of Gruber & Co. LLC with respect to those violations pursuant to Section 20(a) of the Exchange Act.  The Commission seeks permanent injunctions, disgorgement, prejudgment interest and civil penalties against Eade, Gruber and Gruber & Co. and seeks to bar Eade from serving as an officer or director of a public company. 
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diff --git a/raw/aaer/2012/AAER-3403.txt b/raw/aaer/2012/AAER-3403.txt
new file mode 100644
index 0000000000000000000000000000000000000000..92b7ee72464ffd13871c51d353ff3454ab640d3c
--- /dev/null
+++ b/raw/aaer/2012/AAER-3403.txt
@@ -0,0 +1,513 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 67767 / August 31, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3403 / August 31, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15001 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+FEDERICO QUINTO, JR., CPA,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS  
+ PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS  
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against Federico Quinto, Jr., CPA 
+(“Respondent” or “Quinto”) pursuant to Section 4C1 of the Securities Exchange Act of 1934 
+(“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.2 
+ 
+ 
+                                                 
+1 Section 4C provides, in relevant part, that:  
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege 
+of appearing or practicing before the Commission in any way, if that person is found . . . (1) not to possess the 
+requisite qualifications to represent others . . . (2) to be lacking in character or integrity, or to have engaged in 
+unethical or improper professional conduct; or (3) to have willfully violated, or willfully aided and abetted the 
+violation of, any provision of the securities laws or the rules and regulations thereunder.  
+ 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+it . . . to any person who is found . . . to have engaged in unethical or improper professional conduct.  
+ 
+2 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public 
+Administrative Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that:  
+ 
+A. SUMMARY 
+ 
+1. These proceedings arise out of Respondent’s improper professional conduct as the 
+engagement partner on the 2007 audit (the “Audit”) and first three quarterly reviews of 2008 (the 
+“Quarterly Reviews”) of Soyo Group, Inc.’s (“Soyo”) financials.  In this capacity, Quinto failed to 
+ensure that Vasquez & Company, LLP’s (“Vasquez”) engagement team for Soyo adhered to the 
+Standards of the Public Company Accounting Oversight Board (“PCAOB Standards”) in 
+performing audit and review procedures in key areas, such as debt and going concern.  Quinto’s 
+improper professional conduct included: failure to obtain sufficient competent evidential matter; 
+failure to properly consider Soyo’s ability to continue as a going concern; failure to modify the 
+auditor’s report appropriately when Soyo did not make required disclosures; failure to act with due 
+professional care; failure to prepare and maintain adequate work papers; and failure to adhere to 
+standards of conducting reviews of interim financial information.    
+ 
+B. RESPONDENT 
+ 
+2. Federico “Jun” Quinto, Jr., CPA, age 57, is a resident of Cerritos, California.  
+Quinto is a principal at the Vasquez accounting firm and served as the engagement partner on the 
+Soyo Audit and Quarterly Reviews.  As the engagement partner, Quinto was ultimately responsible 
+for the overall conduct of the Audit and Quarterly Reviews.  Quinto is a certified public accountant 
+licensed in the state of California.   
+ 
+                                                 
+3  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any o ther 
+person or entity in this or any other proceeding.   
+ 
+3 
+ 
+C. OTHER RELEVANT PARTIES 
+ 
+3. Vasquez & Company, LLP, a limited liability partnership headquartered in Los 
+Angeles, California, is a public accounting firm registered with the Public Company Accounting 
+Oversight Board (“Board”) engaged in the business of providing auditing, tax, and consulting 
+services.  Vasquez issued an unqualified opinion in its auditor’s report in connection with its audit 
+of Soyo’s 2007 financial statements and included, with Vasquez’s consent, in Soyo’s 2007 Form 
+10-K.  Vasquez personnel also performed the Quarterly Reviews. 
+ 
+4. Soyo Group, Inc. was, at the time of the relevant conduct discussed herein, a 
+Nevada corporation located in Ontario, California, primarily in the business of selling televisions, 
+monitors, computer parts and peripherals through its wholly-owned subsidiary.  Soyo voluntarily 
+filed periodic reports with the Commission and Vasquez committed to perform its engagements 
+associated with such filings in accordance with PCAOB Standards.  Soyo’s common stock had 
+been quoted on OTC Link, but such quotations have now been discontinued.  On May 5, 2009, 
+Soyo filed for bankruptcy protection.  Soyo has ceased all business operations and is liquidating 
+under the supervision of a receiver. 
+ 
+D. FACTS 
+ 
+ Background 
+ 
+5. During 2007 and the first three quarters of 2008, Soyo booked over $47 million in 
+sales from at least 120 fictitious transactions with 21 customers, resulting in material 
+overstatements in Soyo’s reported net revenues in several periodic reports filed with the 
+Commission.  While this fraud was being committed, Soyo was financing its business operations 
+through millions in borrowings from United Commercial Bank (“UCB”).  Notwithstanding the 
+phony profits, Soyo struggled to obtain enough cash to continue its operations and it regularly 
+violated its debt covenants with UCB.  Indeed, to obtain additional bank financing for Soyo and 
+keep its existing line of credit with UCB from defaulting, Soyo falsely reported in the second and 
+third quarter of 2008 that it completed a $6 million debt-for-equity transaction with one of its 
+vendors.   
+ 
+Failure to Obtain Sufficient Competent Evidential Matter 
+ 
+6. Under PCAOB Standards, the Vasquez audit team was required to obtain sufficient 
+competent evidential matter by performing audit procedures to afford a reasonable basis for an 
+opinion regarding the financial statements under audit.  See PCAOB Interim Standard – AU § 326, 
+Evidential Matter.4   
+                                                 
+4 “AU” refers to the specific sections of the codification of the American Institute of Certified Public Accountants 
+(“AICPA”) professional standards, known as the Statements on Auditing Standards, as issued by the Auditing 
+Standards Board of the AICPA.  Following passage of the Sarbanes-Oxley Act of 2002, these standards were 
+adopted as the PCAOB Standards in 2003.  References in this Order are to the standards in effect at the time of the 
+relevant conduct. 
+4 
+ 
+ 
+7. Quinto failed to ensure that the audit team performed appropriate audit procedures 
+in the area of Soyo’s debt obligations.  In planning the Audit, the Vasquez audit team identified 
+Soyo’s asset-based credit line (“ABL”) with UCB as a contract that had audit significance given 
+the magnitude of the UCB debt on Soyo’s balance sheet.5  The audit team performed an analysis of 
+the ABL and noted that Soyo was not in compliance with three of its six debt covenants as of 
+December 31, 2007.  The debt covenant violations were important because they were events of 
+default under Soyo’s lending agreement with UCB, and could have triggered the termination of the 
+credit line and acceleration of the UCB debt.  Such actions by UCB could have forced Soyo into 
+bankruptcy as the company was highly dependent on its credit line to fund its ongoing business 
+operations and Soyo did not have sufficient cash (or assets readily convertible to cash) to repay the 
+UCB debt.  Accordingly, the debt covenant violations, if not waived, could have had catastrophic 
+consequences for Soyo.  Yet Quinto and the other members of the audit team did not make any 
+inquiries of UCB about Soyo’s ABL debt covenant violations or otherwise obtain evidence 
+supporting a waiver.   
+  
+8. In addition, the Vasquez audit team’s work with respect to the multi-million dollar 
+purchase order financing line with UCB was also deficient, as there was a complete absence of 
+documentation or analysis of the terms and conditions of the purchase order financing line, 
+rendering it impossible to determine if Soyo was in compliance with that debt obligation as of 
+December 31, 2007.6 
+ 
+Failure to Properly Consider Soyo’s Ability to Continue as a Going Concern 
+ 
+9. Under PCAOB Standards, the Vasquez audit team had the responsibility to evaluate 
+whether there was substantial doubt about Soyo’s ability to continue as a going concern for a 
+reasonable period of time.  See PCAOB Interim Standard – AU § 341, The Auditor’s 
+Consideration of an Entity’s Ability to Continue as a Going Concern.   
+ 
+10. There were numerous conditions and events Quinto knew or should have known 
+during the Audit that, in the aggregate, indicated there could be substantial doubt about Soyo’s 
+ability to continue as a going concern for a reasonable period of time.  Those conditions and events 
+were that:   
+ 
+                                                                                                                                                             
+ 
+5 As of December 31, 2007, Soyo’s total debt with UCB was approximately $27.8 million, or 63 percent of Soyo’s 
+total liabilities.  Around $16.9 million of this debt was associated with the ABL with UCB while the remainder was 
+a purchase order financing line with UCB. 
+ 
+6 The audit team also failed to obtain sufficient competent evidential matter to support increases to the ABL during 
+2007 (from $12 million to $17 million) that were disclosed in Soyo’s 2007 Form 10 -K.  For example, there is no 
+support in Vasquez’s audit work papers that the credit limits for the ABL were increased in April and December of 
+2007, or that all other terms of those agreements were unmodified.  Moreover, Vasquez’s audit work papers reflect 
+no inquiry about why Soyo overdrew its ABL by approximately $1 million in the third quarter of 2007.  
+ 
+5 
+ 
+ Soyo was in violation of its debt covenants with UCB;7  
+ Soyo was heavily reliant on its borrowings with UCB; 
+ Soyo needed to extend the maturity date of the ABL due to its inability to pay; 
+ Soyo received credit limit increases to the ABL; 
+ Soyo had, during the year, exceeded its credit limit with UCB; 
+ Soyo was very near its credit limit on the ABL; 
+ UCB required Soyo’s chief executive officer (“CEO”) and chief financial 
+officer (“CFO”) to jointly sign a $6.5 million personal guaranty to obtain the 
+ABL;  
+ UCB did not renew the purchase order financing line when it expired in 
+February 2008; and 
+ Additional financing was expensive for Soyo. 
+ 
+11. Vasquez’s audit work papers are devoid of any consideration of these events as they 
+relate to going concern or any rationale for Vasquez’s failure to evaluate going concern, even 
+though during the pre-audit planning meeting the Vasquez audit team identified debt covenants as 
+an area that needed testing because it could affect going concern.    
+ 
+Failure to Modify the Auditor’s Report Appropriately When Soyo Did Not Make 
+Required Disclosures 
+ 
+12. Under PCAOB Standards, if management omits from the financial statements, 
+including the accompanying notes, information that is required by generally accepted accounting 
+principles (“GAAP”), the auditor should express a qualified or an adverse opinion and should 
+provide the information in the auditor’s report, if practicable, unless its omission from the auditor’s 
+report is specifically recognized as appropriate.  See PCAOB Interim Standard – AU § 431, 
+Adequacy of Disclosure in Financial Statements.   
+ 
+13. Quinto failed to ensure adherence to this PCAOB Standard.  Soyo was required to 
+make specific disclosures in its financial statements with regard to its debt obligations, including 
+the terms and conditions of the debt and whether Soyo had any events of non-compliance with its 
+debt.  See Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, ¶¶ 
+18-19; SEC Regulation S-X, Rules 4-08(c) (requiring disclosures of covenant breaches and 
+waivers) and 5-02-19(b) (requiring disclosure of the terms and conditions of significant short-term 
+debt).  Further, Vasquez’s audit team advised Soyo that the company needed to make such 
+disclosures.  Soyo did not.  Despite the known reporting deficiencies, Vasquez expressed an 
+unqualified opinion and Quinto did not note the reporting deficiencies in Vasquez’s auditor’s 
+report for 2007.8  As discussed above, the debt covenant violations were likely material given that: 
+                                                 
+7 AU § 341.06 states that conditions and events that could raise a going concern issue would include, for example, 
+defaults on loan or similar agreements and the restructuring of debt. 
+ 
+8 PCAOB Interim Standard – AU § 312.38, Audit Risk and Materiality in Conducting an Audit, states:  
+ 
+6 
+ 
+ 
+ Soyo was heavily dependent on the UCB debt to fund its business operations; 
+ Soyo had violated multiple debt covenants with UCB; 
+ Soyo’s debt with UCB constituted a large percentage of Soyo’s total 
+liabilities; and 
+ Soyo did not have sufficient cash (or other liquid assets) or other available 
+sources of financing to repay the UCB debt if called. 
+ 
+Vasquez only noted in its work papers that Soyo had debt covenants with respect to the ABL and 
+was not in compliance with them, and that such would be disclosed in Soyo’s next filing (which 
+they were not).   
+ 
+Failure to Act with Due Professional Care 
+  
+14. PCAOB Standards required Quinto to exercise due professional care throughout the 
+audit.  Due professional care means the auditor must act with professional skepticism – an attitude 
+that includes a questioning mind and a critical assessment of audit evidence.  The auditor should 
+not be satisfied with less than persuasive evidence because of a belief that management is honest.  
+See PCAOB Interim Standard – AU § 230, Due Professional Care in the Performance of Work. 
+ 
+15. Quinto failed to maintain an attitude of professional skepticism in performing and 
+reviewing the audit procedures with respect to Soyo’s debt and with respect to evaluating Soyo as a 
+going concern.  As discussed above, Quinto did not probe whether Soyo’s debt covenant 
+violations, and other conditions and events related to its debt, presented any concerns, and ignored 
+the impact of the debt covenant violations regarding the issue of going concern.  In addition, 
+although Quinto knew or should have known of the reporting deficiencies associated with Soyo’s 
+debt obligations, he did not appropriately modify Vasquez’s opinion on the financial statements 
+due to the omission of information required by GAAP. 
+ 
+Failure to Prepare and Maintain Adequate Work Papers 
+ 
+16. PCAOB Standards require that the auditor’s work papers clearly demonstrate that 
+the work was in fact performed.  Audit documentation must also contain sufficient information to 
+enable an experienced auditor, having no previous connection to the engagement, to: (1) 
+understand the nature, timing, extent, and results of the procedures performed, evidence obtained, 
+and conclusions reached and (2) determine who performed the work, when the work was 
+completed, and identify when the work was reviewed and by whom.  See PCAOB Auditing 
+Standard (“PCAOB AS”) No. 3, Audit Documentation.  
+ 
+                                                                                                                                                             
+If the auditor concludes, based on the accumulation of sufficient evidential matter, that the effects of likely 
+misstatements, individually or in the aggregate, cause the financial statements to be materially misstated, the auditor 
+should request management to eliminate the misstatement.  If the material misstatement is not eliminated, the 
+auditor should issue a qualified or an adverse opinion on the financial statements. 
+7 
+ 
+17. Quinto failed to ensure that the Vasquez audit team documented the work that they 
+performed in a manner consistent with PCAOB Standards.  Vasquez’s audit work papers do not 
+include any discussion of a waiver of Soyo’s debt covenant violations, and there is no 
+documentation of the rationale behind concluding that no substantial doubt exists about Soyo’s 
+ability to continue as a going concern for a reasonable period of time.  Moreover, many of 
+Vasquez’s significant audit findings and issues are not included in Vasquez’s engagement 
+completion document.9  These include, for instance, that: 
+ 
+ Soyo had violated its debt covenants with UCB; 
+ Soyo had overdrawn its credit limit on the ABL in the third quarter of 2007; 
+ UCB had increased the credit limit for the ABL in April and December of 
+2007; 
+ Soyo had almost fully utilized its available credit limit on the ABL with UCB; 
+ UCB had extended the maturity date for the ABL; 
+ Soyo’s CEO and CFO provided a $6.5 million personal guaranty to UCB; 
+ UCB did not renew Soyo’s purchase order financing line; 
+ Soyo had obtained an additional financing line at a high cost; and 
+ Soyo had the ability to continue as a going concern for a reasonable period of 
+time. 
+ 
+Failure to Adhere to Standards of Conducting Reviews of Interim Financial 
+Information 
+ 
+18. Quinto also failed to ensure that the Quarterly Reviews were performed in 
+accordance with PCAOB Standards.  A review of interim financial information consists primarily 
+of analytical procedures and inquiries designed to address significant accounting and disclosure 
+matters relating to the interim financial information to be reported.  This would ordinarily include 
+making inquiries regarding compliance with debt covenants and, if the auditor becomes aware of 
+significant adverse conditions or events, going concern.  Moreover, the auditor should prepare 
+documentation of the interim review work performed that includes any significant findings or 
+issues.  See PCAOB Interim Standard – AU § 722, Interim Financial Information.  As discussed 
+below, each of the Quarterly Reviews of Soyo’s financials was deficient.   
+First Quarter of 2008 
+19. As with the Audit, Vasquez’s interim review work in the areas of debt, going 
+concern, and documentation were inadequate.  Vasquez’s work papers for the first quarter of 2008 
+note that Soyo’s ABL with UCB matured on May 5, 2008, yet no inquiry was made regarding 
+Soyo’s plans to repay or extend the debt prior to the filing of Soyo’s first quarter 2008 Form 10-Q 
+on May 15, 2008.  Quinto was also informed that Soyo again overdrew the credit limit of its ABL 
+by approximately $1 million (without UCB’s consent) during the first quarter of 2008, but the 
+                                                 
+9 PCAOB AS No. 3, ¶13 requires an auditor to identify all significant findings or issues in an engagement 
+completion document. 
+8 
+ 
+work papers reflect no inquiry by Vasquez on this issue.10  Further, the first quarter work papers 
+show no inquiry regarding Soyo’s compliance with its debt covenants related to the ABL, despite 
+the fact that debt covenant violations were noted as of December 31, 2007.  Quinto also did not 
+require that Soyo correct the previously identified disclosure deficiencies in its financial statements 
+regarding the failure to report its debt covenants and lack of compliance with them, which became 
+even more significant as the debt covenant violations extended over multiple periods. 
+ 
+20. Although Vasquez’s “Engagement Continuance Form” for the first quarter of 2008 
+states that Vasquez would assess going concern due to Soyo’s liquidity issues, Vasquez failed to 
+perform any such inquiries during its interim review.  In addition to the adverse conditions and 
+events regarding Soyo’s debt that existed during the Audit, in the first quarter of 2008, Quinto knew 
+or should have known that the following circumstances further indicated that there could be 
+substantial doubt about Soyo’s ability to continue as a going concern for a reasonable period of 
+time:  
+ 
+ Soyo’s ABL with UCB was due on May 5, 2009 (prior to filing the Form 10-
+Q for the period ended March 31, 2008), but was not paid off at maturity;  
+ Soyo had exceeded its credit limit on the ABL without UCB’s consent in the 
+first quarter of 2008;  
+ Vasquez’s analytic review states that Soyo’s accounts payable had increased 
+in the first quarter of 2008 due to a liquidity problem; and 
+ Soyo’s accounts receivables over 30 days due increased sharply from 11 
+percent to 27 percent in the first quarter of 2008, thus indicating possible 
+collection issues. 
+Under these circumstances, Quinto should have ensured that the Soyo engagement team made 
+inquiries regarding management’s plan to address the adverse conditions and document their 
+findings.  He did not.   
+ 
+21. In addition, none of the issues discussed in this section were included in Vasquez’s 
+engagement completion document for the first quarter of 2008.   
+Second Quarter of 2008 
+22. Vasquez’s deficient interim review work continued into the second quarter of 2008.  
+Vasquez’s interim review work papers for that quarter confirm that Soyo had, in fact, been in 
+violation of its d ebt covenants with UCB in the first quarter of 2008. 11  Again, no inquiry was 
+performed in the second quarter about any waiver of the historical debt covenant violations.  
+                                                 
+10 Soyo’s first quarter 2008 Form 10-Q states that the ABL credit limit was raised from $17 million to $18 million, 
+which would negate a default, but the work papers do not reflect any inquiry by the Soyo engagement team 
+regarding this purported credit limit increase. 
+ 
+11 As mentioned previously, Soyo was in compliance with its debt covenants in the second quarter of 20 08, but due 
+only to its recording of the phony $6 million debt-for-equity swap. 
+9 
+ 
+Furthermore, Soyo ignored Vasquez’s comments in the second quarter of 2008 to include  
+additional disclosures regarding the terms of its debt obligations.  Yet the work papers reflect no 
+inquiry by Quinto (or anyone else) of Soyo’s management as to why Vasquez’s comments were 
+not addressed.  Moreover, in the second quarter of 2008, Quinto a gain failed to ensure that the 
+Soyo engagement team consider the going concern issue, even though there were further indicators 
+that Soyo’s viability was uncertain.  These included, in addition to the conditions previously 
+mentioned, that: 
+ 
+ Vasquez stated, in its “Business Risk Identification and Planning Form,” that 
+it expected Soyo to have difficulty meeting its financing and working capital 
+requirements;  
+ Soyo had utilized 99.6 percent of its consolidated credit line with UCB by 
+June 30, 2008; 
+ Soyo had applied for, but did not obtain, new lines of credit in the second 
+quarter of 2008;  
+ Quinto was aware that Soyo was struggling to maintain its profitability in 
+order to obtain additional financing; and 
+ Only 44 percent of Soyo’s accounts receivable were current (as opposed to 88 
+percent as of December 31, 2007) by the end of the second quarter of 2008. 
+ 
+23. As with the first quarter, none of the issues discussed in this section were 
+mentioned in the engagement completion document for the second quarter of 2008.   
+Third Quarter of 2008 
+24. In the third quarter of 2008, Quinto again failed to ensure that the Soyo engagement 
+team properly consider whether there was substantial doubt about Soyo’s ability to continue as a 
+going concern for a reasonable period of time.  Adding to the already sizable amount of evidence 
+indicating that Soyo faced significant financial difficulties, during the third quarter, Quinto knew or 
+should have known of the following additional events and conditions: 
+ 
+ Quinto was informed that Soyo was struggling to find financing; 
+ Soyo’s accounts receivables balance, aging (days sales outstanding), and bad 
+debt write-offs all increased, indicating that Soyo was continuing to have 
+difficulty collecting from its customers; 
+ Soyo obtained an additional loan from UCB that matured on November 5, 
+2008, without being paid off (prior to the filing of the Form 10-Q for the third 
+quarter of 2008), and Soyo’s CEO and CFO had to provide an additional 
+$900,000 personal guaranty on this loan; 
+ Vasquez’s “Business Risk Identification and Planning Form” stated that Soyo 
+had used all available credit by the end of the third quarter; and  
+ Soyo had to obtain a $557,000 loan from a friend of its CFO, reflecting that 
+the company was forced to resort to unconventional means of financing. 
+ 
+10 
+ 
+25. Nevertheless, neither the third quarter engagement completion document nor the 
+work papers as a whole reflect any inquiry or consideration in the area of going concern. 
+   
+E. VIOLATIONS 
+ 
+26. Rule 102(e)(1)(ii) provides that the Commission may temporarily or permanently deny 
+an accountant the privilege of appearing or practicing before it if it finds, after notice and 
+opportunity for hearing, that the accountant engaged in “improper professional conduct.”  Such 
+improper professional conduct includes, as applicable here, negligent conduct, defined as “[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).  
+ 
+27. Quinto, as engagement partner, was responsible for ensuring that the Audit and 
+Quarterly Reviews were conducted in accordance with PCAOB Standards.  Instead, under 
+Quinto’s leadership, Vasquez’s engagement team for Soyo: failed to obtain sufficient competent 
+evidential matter, AU § 326; failed to properly consider Soyo’s ability to continue as a going 
+concern, AU § 341; failed to modify the auditor’s report appropriately when Soyo did not make 
+required disclosures, AU § 431; failed to act with due professional care, AU § 230; failed to 
+prepare and maintain adequate work papers, PCAOB AS No. 3; and failed to adhere to standards 
+of conducting reviews of interim financial information, AU § 722.  These multiple audit and 
+quarterly review failures demonstrate that Quinto’s actions during the Soyo engagements were 
+unreasonable, failed to conform to applicable professional standards, and indicate a lack of 
+competence to practice before the Commission. 
+ 
+F.  FINDINGS 
+ 
+28. Based on the foregoing, the Commission finds that Quinto engaged in improper 
+professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+   
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Quinto’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Quinto is denied the privilege of appearing or practicing before the Commission as 
+an accountant.   
+ 
+ B. After one year from the date of this Order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+11 
+ 
+       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 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 that inspection did not identify any 
+criticisms of or potential defects in the Respondent’s or the firm’s quality control system that 
+would indicate that the Respondent will not receive appropriate supervision; 
+ 
+   (c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards.   
+ 
+C. The Commission will consider an application by Respondent to resume appearing 
+or practicing before the Commission provided that his state CPA license is current and he has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, 
+if state licensure is dependent on reinstatement by the Commission, the Commission will 
+consider an application on its other merits.  The Commission’s review may include  
+consideration of, in addition to the matters referenced above, any other matters relating to 
+Respondent’s character, integrity, professional conduct, or qualifications to appear or practice 
+before the Commission.  
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
\ No newline at end of file
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new file mode 100644
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@@ -0,0 +1,87 @@
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 67856 / September 13, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3405 / September 13, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15022
+       
+      :  
+        :  
+        :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+ R. JEFFREY ROOKS, 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 R. 
+Jeffrey Rooks (“Respondent” or “Rooks”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.1   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.2 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, 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. Rooks, age 46, is and has been a certified public accountant licensed to 
+practice in the State of Georgia since 1992.   
+ 
+ 2. On September 5, 2012, a final judgment was entered against Rooks, 
+permanently enjoining him from future violations of Sections 10(b) and 14(e) of the Exchange Act 
+and Rules 10b-5 and 14e-3 thereunder, in the civil action entitled Securities and Exchange 
+Commission v. R. Jeffrey Rooks, Civil Action Number 1:12-CV-2988-CAP, in the United States 
+District Court for the Northern District of Georgia.  Rooks was also ordered to pay $18,482.12 in 
+disgorgement, $1,432.68 in prejudgment interest, and a $4,620.54 civil money penalty. 
+ 
+   3. The Commission’s complaint alleged, among other things, that Rooks 
+traded in the securities of Chattem, Inc., while in possession of material, non-public information 
+that had been tipped to him from an accounting partner who misappropriated the information from 
+an accounting client, while further knowing that the information was obtained in breach of a duty 
+of trust in confidence that the accounting partner owed to the accounting client. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Rook’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that Rooks is suspended from 
+appearing or practicing before the Commission as an accountant. 
+ 
+ By the Commission. 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
\ No newline at end of file
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@@ -0,0 +1,950 @@
+SECURITIES AND EXCHANGE COMMISSION
+ 
+Washington, D.C.
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Rel. No. 67900 / September 20, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 3407 / September 20, 2012 
+Admin. Proc. File No. 3-14323 
+In the Matter of
+ 
+MICHAEL C. PATTISON, CPA
+ 
+c/o Patrick J. Richard
+ 
+James H. Vorhis
+ 
+Nossaman LLP
+ 
+50 California Street, 34th Floor
+ 
+San Francisco, CA  94111
+ 
+OPINION OF THE COMMISSION 
+RULE 102(e) PROCEEDING 
+Grounds for Remedial Action
+ 
+Civil Injunction
+ 
+Certified public accountant was permanently enjoined from violating internal accounting 
+controls and books and records provisions of the federal securities laws.  Held, it is in the 
+public interest to permanently disqualify respondent from appearing or practicing before 
+the Commission as an accountant. 
+APPEARANCES: 
+Patrick J. Richard and James H. Vorhis, of Nossaman LLP, for Michael C. Pattison, 
+CPA. 
+Marc J. Fagel, Susan F. LaMarca, and Robert L. Tashjian, for the Division of 
+Enforcement. 
+2
+ 
+Appeal filed:  October 21, 2011 
+Last brief received:  January 26, 2012 
+I. 
+Michael C. Pattison, a certified public accountant ("CPA") and former Controller of 
+Embarcadero Technologies, Inc. ("Embarcadero") from January 2000 through July 2005, appeals 
+from an initial decision of an administrative law judge.
+1   The law judge decided this matter based 
+on cross-motions for summary disposition, granting the Division's motion and denying Pattison's 
+motion. The law judge found that Pattison was enjoined from violating internal accounting 
+controls and books and records provisions of the federal securities laws and permanently denied 
+him the privilege of appearing or practicing before the Commission pursuant to Rule 102(e)(3) of 
+the Commission's Rules of Practice.
+2   We base our findings on an independent review of the 
+record, except with respect to those findings not challenged on appeal. 
+II. 
+A. District Court Injunctive Proceeding 
+On September 24, 2010, following a civil trial in the United States District Court for the 
+Northern District of California, a jury found that Pattison violated Section 13(b)(5) of the 
+3 4Securities Exchange Act of 1934  and Exchange Act Rule 13b2-1  in connection with Pattison's
+involvement in backdating stock options.5   On June 9, 2011, the District Court issued a corrected 
+order finding that the jury's verdict was "supported by substantial evidence in the record," and 
+1 Michael C. Pattison, CPA, Initial Decision Rel. No. 434 (Sep. 29, 2011), 102 SEC 
+Docket 46456. 
+2 17 C.F.R. § 201.102(e)(3). 
+3 Exchange Act Section 13(b)(5) provides 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 paragraph (2)."  15 U.S.C. § 78m(b)(5). Section 
+13(b)(2)(A) and (B), respectively, require that every issuer subject to the statute make and keep 
+books, records, and accounts which, in reasonable detail, accurately and fairly reflect the 
+transactions and dispositions of the issuer's assets, and devise and maintain a system of internal 
+accounting controls sufficient to provide reasonable assurances that transactions and assets are 
+handled as prescribed in the statute.  15 U.S.C. §§ 78m(b)(2)(A) and (B).  
+4 Exchange Act Rule 13b2-1 provides that "[n]o person shall directly or indirectly, 
+falsify or cause to be falsified, any book, record or account" subject to Section 13(b)(2)(A).  
+17 C.F.R. § 240.13b2-1. See also supra note 3. 
+5 The jury did not find Pattison liable on claims that he had violated or aided and 
+abetted violations of antifraud provisions or aided and abetted violations of reporting provisions 
+of the federal securities laws. 
+ 
+3
+ 
+denying Pattison's motions for judgment as a matter of law and a new trial.6   On that same date, 
+the District Court entered a separate corrected final judgment against Pattison, permanently 
+enjoining him from violating Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1.7 
+The District Court ordered Pattison to disgorge $74,446 and pay a civil money penalty of 
+$50,000. Pattison has appealed the District Court's final judgment to the United States Court of 
+Appeals for the Ninth Circuit.
+8   That appeal is pending.  The District Court's findings are 
+summarized below. 
+1. Embarcadero and its Employee Stock Option Policy 
+Embarcadero is a software company headquartered in San Francisco, California.  In 
+April 2000, Embarcadero held an initial public offering and remained a publicly-traded company 
+through June 2007.  From late 2000 until the third quarter of 2004, Embarcadero's chief 
+executive officer ("CEO"), Stephen Wong, granted stock options to employees pursuant to 
+authorization from the company's Compensation Committee.  
+A stock option "is the right to purchase a share of stock from a company at a fixed price, 
+referred to as the 'strike price,' on or after a specified vesting date."
+9   A recipient who exercises 
+the option by purchasing stock from the company at the strike price is then free to sell the same 
+stock at its current market price.
+10   Companies generally grant stock options with a strike price 
+6 SEC v. Michael C. Pattison, Corrected Order Denying Plaintiff's Motion to Strike; 
+Denying Defendant's Motion for Judgment as a Matter of Law; and Denying Defendant's Motion 
+for a New Trial, No. C-08-4238 EMC (N.D. Cal. June 9, 2011) (amending order issued on 
+Feb. 22, 2011). 
+7 SEC v. Michael C. Pattison, Corrected Order and Judgment Granting Motion for 
+Entry of Final Judgment, No. C-08-4238 EMC (N.D. Cal. June 9, 2011) (amending order issued 
+on Feb. 23, 2011). 
+8 SEC v. Raj P. Sabhlok and Michael C. Pattison, No. C-08-4238 EMC (N.D. Cal. 
+July 28, 2011).  Sabhlok, the other party in the complaint, was Embarcadero's Chief Financial 
+Officer during the period at issue and consented to an injunction from violating or aiding and 
+abetting the violation of various reporting, recordkeeping, internal controls, and antifraud 
+provisions of the federal securities laws, a $200,000 civil money penalty, and a $300,000 
+forfeiture under Section 304(a) of the Sarbanes-Oxley Act of 2002, 15 U.S.C. § 7243(a).  SEC v. 
+Raj P. Sabhlok and Michael C. Pattison, No. C-08-4238 CRB (N.D. Cal. Apr. 21, 2010). 
+9 United States v. Reyes, 577 F.3d 1069, 1073 (9th Cir. 2009). 
+10 SEC v. Jasper, 678 F.3d 1116, 1119 (9th Cir. 2012) (citation omitted). 
+ 
+ 
+  
+4
+ 
+equal to the market price on the date the stock option is granted.11   "Backdating" stock options 
+refers to "the practice of recording an option's grant date and strike price retrospectively."12 
+Where the backdating results in a strike price that is lower than the fair market value of the stock 
+on the date of the actual grant, the option is referred to as "in the money" because it has 
+immediate positive value on that date.
+13 
+Pattison, who had been a practicing accountant since 1987, was the only licensed CPA in 
+Embarcadero's Finance Department and served as the company's Controller from January 2000 
+through July 2005.  As Controller, Pattison oversaw Embarcadero's day-to-day accounting 
+functions and was responsible for communicating with auditors and preparing financial 
+statements that were filed with the Commission.
+14   During that time, he was also responsible for 
+"recording all equity account activity," including activity related to the issuance of stock options 
+to employees. 
+Embarcadero's stock option plan, which was approved by the Board of Directors and 
+stockholders in February 2000, governed the manner in which the company issued and accounted 
+for stock options. In that plan, Embarcadero adopted an accounting convention promulgated in 
+1972 referred to as the Accounting Principles Board Opinion No. 25 ("APB 25").  Under APB 
+25, a company granting an in-the-money stock option is required "to record an expense for the 
+'profit,' treated as compensation to the option recipient over the [option's] vesting period."
+15   In 
+other words, the benefit to the option recipient is recorded on the company's corporate books and 
+11 Reyes, 577 F.3d at 1073. 
+12 Id.; see also New Mexico State Inv. Council v. Ernst & Young LLP, 641 F.3d 
+1089, 1093 (9th Cir. 2011) ("Backdating of options occurs when a company's officers or 
+directors responsible for administering the [company's] stock option plan monitor the price of the 
+company stock and then award a stock option grant as of a certain date in the past when the share 
+price was lowest, thus locking in the largest possible gain for the option recipient."). 
+13 See SEC v. Berry, 580 F. Supp. 2d 911, 913 n.2 (N.D. Cal. 2008).  If a stock 
+option is issued at a strike price equal to the fair market value of the stock on the date of the 
+actual grant, then the option is "at the money," whether or not backdating has occurred.  See SEC 
+v. Reyes, 491 F. Supp. 2d 906, 908 (N.D. Cal. 2007). 
+14 Because the company's stock was registered with the Commission pursuant to 
+Exchange Act Section 12(g) and traded on Nasdaq, Exchange Act Section 13 required 
+Embarcadero to file with the Commission annual reports (Form 10-K) that included audited 
+financial statements and quarterly reports (Form 10-Q).  15 U.S.C. § 78m. 
+15 New Mexico State Inv. Council, 641 F.3d at 1093, 1096. 
+  
+5
+ 
+in the company's financial statements as a non-cash compensation expense.16   Otherwise, "the 
+company's reported net income is overstated for each of the years the options vest, potentially 
+deceiving the market and investors."17   Pattison knew that under APB 25 "in-the-money" options 
+had to be reported as a compensation expense. 
+Although Embarcadero adopted a method of accounting for in-the-money stock options, 
+Pattison knew that the company nevertheless understood that it had not and would not grant that 
+type of stock option.  For example, Embarcadero's legal counsel told Pattison that the company 
+would not backdate stock options.  Pattison drafted and distributed a July 1, 2002 internal 
+controls memorandum explaining that "since the IPO[,] no option has ever been issued at below 
+fair market value.  Therefore, there have been no additional deferred comp charges.  The 
+Company does not intend to issue below fair market value options in the future."  Pattison 
+authored another internal controls memorandum, dated March 14, 2003, in which he stated that 
+there would be no stock option grants below fair market value.  Pattison also knew that, 
+consistent with the memoranda and the advice provided by Embarcadero's legal counsel, 
+Embarcadero publicly stated that it had not granted in-the-money stock options.  For example, 
+Embarcadero stated in Forms 10-K covering fiscal years 2003 and 2002 that it adopted APB 25, 
+and that "[s]ince the date of the initial public offering, all stock options grants made during the 
+year were at fair market value, which is defined as the closing share price on the day prior to the 
+option grant date." 
+2. Pattison Did Not Properly Record Backdated Stock Option Grants 
+From late 2000 through 2004, Wong nonetheless granted in-the-money stock options, and 
+Pattison did not properly record these transactions.  Near the end of each quarter, Pattison 
+compiled and sent to Wong a proposed list of employees who were to receive in-the-money stock 
+options. These stock options were backdated, i.e., the date of the strike price on the stock option 
+was earlier than the date that Wong approved the grant.
+18   After receiving approval from Wong, 
+Pattison sent the information to E*Trade, which maintained Embarcadero's stock options data, 
+where he entered the backdated information instead of the date on which Wong approved the 
+grant.  E*Trade then entered the backdated information provided by Pattison into a database used 
+to track Embarcadero's stock option grants.  At Pattison's direction, an administrative assistant 
+prepared stock option agreements for Embarcadero's employees.  The assistant relied on the 
+backdated information in the E*Trade database to prepare the agreement. 
+16 Reyes, 577 F.3d at 1073. 
+1120. 
+17 New Mexico State Inv. Council, 641 F.3d at 1093; see also Jasper, 678 F.3d at 
+18 See supra notes 12 & 13 and accompanying text. 
+  
+6
+ 
+Embarcadero's auditors reviewed the company's stock option activity each quarter.  In 
+connection with that review, Pattison provided the auditors with quarterly summaries of stock 
+option activity.  Although it was important to the auditors to know whether stock options were 
+backdated in connection with their review of the company's financial statements and disclosures, 
+neither the quarterly summaries that Pattison prepared for them nor Pattison himself informed the 
+auditors that stock options were backdated.  
+ At Wong's instruction, Pattison also "parked" stock options, i.e., reserved stock options 
+for later use by purportedly having assigned them to an employee.  For example, in April 2002, 
+Pattison represented through the E*Trade template and in a quarterly summary provided to the 
+auditors that a purported employee named Kent Scantland received 75,000 stock options. 
+Pattison knew, however, that Scantland was no longer an employee and that the stock options 
+were not intended for him.  When Pattison asked Wong what to do about "the 75K place marker 
+to Kent Scantland" and informed him that the auditors "tend[ed] to spend a fair deal of time on 
+the options," Wong replied, "If you can wipe it, then we should do so since it is out of the 
+money."  After the auditors tested the Scantland grant as part of their review, they recorded in 
+their workpapers Pattison's explanation that the Scantland grant had been an error and recorded 
+in the wrong place under the wrong name.  Pattison did not tell the auditors that Wong instructed 
+him to "sock away" stock options or to "wipe" the Scantland grant. 
+Pattison parked stock options on a second occasion.  In May 2004, Embarcadero's Vice 
+President of Human Resources asked to speak with Pattison about an allegation that he "put some 
+options in an employee's account for another employee."  Pattison admitted that he did so, to 
+which the vice president responded that, "It is just wrong on so many levels." 
+In 2006, Embarcadero's Audit Committee retained a law firm to conduct an internal 
+investigation after receiving a report from the company's auditors about past stock option grants. 
+Embarcadero's Board of Directors formed a "Special Committee" to analyze the company's past 
+stock options practices, "including all option grants from the Company's initial public offering in 
+April 2000 to August 2006 . . . ."  The Special Committee concluded that "about half" of the 
+"1,086 individual stock option grants on 119 different dates, representing more than 6.5 million 
+shares of common stock" "were misdated and mispriced from the time of the initial public 
+offering until March 2005."  On December 18, 2006, Embarcadero issued a press release 
+announcing the Audit Committee's conclusion that all of the company's previously issued 
+financial statements should not be relied upon.  Embarcadero thereafter filed a restatement of 
+certain portions of its financial statements variously covering fiscal years 2006 through 2002. 
+The restatement explained that as a result of the revised accounting for the options in question, 
+Embarcadero's stock-based compensation expense figures from the time of the initial public 
+offering in April 2000 through December 31, 2005 had been understated by a total of $14.6 
+million. 
+ 
+7
+ 
+3. District Court Judgment 
+The District Court found that 
+[t]he weight of the evidence established that [Pattison] systematically backdated 
+stock option grants on a regular basis, misrepresented the dates of actual 
+approval by CEO Wong, failed to affirmatively disclose the practice to the Board 
+and . . . auditors, and failed to insure that an accounting expense was taken for 
+the . . . 'in-the-money' grants he facilitated.  The weight of the evidence also 
+shows that he thereby circumvented internal controls against backdated options. 
+The District Court concluded that the "jury found that [Pattison] acted knowingly when he 
+falsified records and/or circumvented internal controls to make it appear that no stock option 
+grants were backdated and below fair market value."  The District Court enjoined Pattison from 
+violating Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1, and ordered him to 
+disgorge $74,446 and pay a civil money penalty of $50,000. 
+B. Administrative Proceedings 
+On April 5, 2011, based on the injunction, we issued an Order Instituting Proceedings 
+pursuant to Rule of Practice 102(e)(3)(i) and temporarily suspended Pattison from appearing or 
+practicing before the Commission.
+19   Pattison filed a timely petition to lift the temporary 
+suspension, which the Division of Enforcement opposed.20   We denied Pattison's petition and 
+directed that a hearing be held before a law judge.21   After a prehearing conference, Pattison and 
+the Division each moved for summary disposition pursuant to Rule 250 of the Commission's 
+Rules of Practice.
+22   On September 29, 2011, an administrative law judge found there was no 
+genuine issue with regard to any material fact and granted the Division's motion pursuant to Rule 
+250. The law judge found that the District Court "permanently enjoined Pattison from violating 
+federal securities laws, by reason of his misconduct, in an action brought by the Commission." 
+In determining the appropriate sanction, the law judge found it "in the public interest to 
+permanently disqualify Pattison from appearing or practicing before the Commission."  This 
+appeal followed. 
+19 17 C.F.R. § 201.102(e)(3)(i). 
+20 See 17 C.F.R. § 201.102(e)(3)(ii). 
+21 See 17 C.F.R. § 201.102(e)(3)(iii). 
+22 17 C.F.R. § 201.250. 
+ 
+8
+ 
+III. 
+Rule of Practice 102(e) has been the primary tool available to the Commission to preserve 
+the integrity of its processes and ensure the competence of the professionals who appear and 
+practice before it.23   The Commission adopted the rule as a "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."
+24   The rule generally 
+enables the Commission to initiate administrative disciplinary proceedings against professionals 
+who do not possess the requisite qualifications to represent others, lack character or integrity, 
+engage in unethical or improper professional conduct, have violated or have been enjoined from 
+violating or aiding and abetting the violation of the federal securities laws, have had their license 
+to practice revoked or suspended, or have been convicted of a felony or misdemeanor involving 
+moral turpitude.
+25   The sanctions available in such proceedings include a censure, temporary 
+suspension, and permanent disqualification from practice before the Commission.26 
+In a proceeding under Rule 102(e)(3), the Division has the burden to show that the 
+petitioner has been permanently enjoined by a court of competent jurisdiction, by reason of his 
+misconduct in an action brought by the Commission, from violating or aiding and abetting the 
+violation of the federal securities laws, or has been found by a court of competent jurisdiction in 
+an action brought by the Commission, or by the Commission in an administrative proceeding, to 
+23 Chris G. Gunderson, Esq., Exchange Act Rel. No. 61234 (Dec. 23, 2009), 97 SEC 
+Docket 24040, 24046 (citing Marrie v. SEC, 374 F.3d 1196, 1200 (D.C. Cir. 2004) (stating that 
+Rule of Practice 102(e) "is directed at protecting the integrity of the Commission's processes, as 
+well as the confidence of the investing public in the integrity of the financial reporting process"); 
+Touche Ross & Co. v. SEC, 609 F.2d 570, 582 (2d Cir. 1979) (stating that Rule of Practice 2(e), 
+the predecessor to Rule of Practice 102(e), "represents an attempt by the Commission to protect 
+the integrity of its own processes," and upholding the validity of Rule of Practice 2(e) as 
+"reasonably related" to the purposes of the federal securities laws). 
+24 Gunderson, 97 SEC Docket at 24046 (citing Touche Ross, 609 F.2d at 582). 
+25 See 17 C.F.R. §§ 201.102(e)(1)-(3). 
+26 See 17 C.F.R. §§ 201.102(e)(1), 201.102(e)(3)(iv). According to Rule of Practice 
+102(f), "practicing before the Commission" includes, but is not be limited to, "[t]ransacting any 
+business with the Commission," and "[t]he 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."  17 C.F.R. § 201.102(f). 
+ 
+9
+ 
+have violated or aided and abetted the violation of the federal securities laws.27   Once that burden 
+has been met, the burden shifts to the petitioner to show cause why he should not be censured or 
+temporarily or permanently disqualified from appearing and practicing before the Commission.28 
+A petitioner in a Rule 102(e)(3) proceeding may not collaterally attack any finding made against 
+him or fact admitted by him the in the underlying proceeding.
+29 
+Here, the Division satisfied its burden by showing that the District Court, a court of 
+competent jurisdiction, in an action brought by the Commission, found Pattison in violation of 
+internal accounting controls and books and records provisions of the federal securities laws and, 
+based on its findings, permanently enjoined him from violating those provisions.  The sole issues 
+therefore are whether Pattison has shown cause why he should not be sanctioned, and if he has 
+not, to determine the appropriate remedial sanction. 
+Pattison, however, challenges the Division's right to bring this proceeding under Rule 
+102(e)(3).  He argues that "the Commission should be required to base any administrative 
+discipline, including a permanent suspension, under a subsection of Rule 102(e)(1)" because "any 
+other ruling leaves open the chance of administrative sanctions with no standard."  Pattison 
+points to Rule 102(e)(1)(ii), which permits the Commission to discipline an accountant for 
+"improper professional conduct," and to Rule 102(e)(1)(iv), which defines that term, with respect 
+to persons licensed to practice as accountants, to mean: 
+(A) intentional or knowing conduct, including reckless conduct, that results in a 
+violation of applicable professional standards; or 
+(B) either of the following two types of negligent conduct:  
+(1) a single instance of highly unreasonable conduct that results in a 
+violation of applicable professional standards in circumstances in which an 
+accountant knows, or should know, that heightened scrutiny is warranted. 
+27 17 C.F.R. § 201.102(e)(3)(iv); see also Gunderson, 97 SEC Docket at 24047. 
+28 Id. 
+29 17 C.F.R. § 201.102(e)(3)(iv); see also Gunderson, 97 SEC Docket at 24048 
+("Gunderson may not contest, in this administrative proceeding, the findings made against him 
+by the district court in the federal injunctive action."). 
+  
+ 
+ 
+  
+10
+ 
+(2) repeated instances of unreasonable conduct, each resulting in a 
+violation of applicable professional standards, that indicate a lack of competence 
+to practice before the Commission.30 
+From this, he concludes that "the conduct for which an accountant is disciplined must be done 
+with a certain level of mens rea." 
+Pattison argues that proceeding under Rule 102(e)(3), as the Division did here, would 
+allow the Division to "seek discipline after any permanent injunction, regardless of the level of 
+scienter involved in the underlying claim, or the type of claim" (emphasis in original).  He 
+characterizes as "immaterial" the citations by the Division and law judge to analogous 
+settlements under Rule 102(e)(3) because those matters were "not prosecuted through the 
+administrative tribunal."  Pattison states that he was entitled to summary disposition because the 
+Division failed to "provide notice of its basis for discipline" or "adequately allege liability" under 
+Rule 102(e)(1). 
+Pattison's argument fails to recognize the distinct bases for disciplinary action provided 
+under subsections (3) and (1) of Rule 102(e).  The Commission may, pursuant to Rule 
+102(e)(3)(i)(A), suspend or bar a respondent based on an injunction.  This does not create a 
+"chance of administrative sanctions with no standard."  To the contrary, the Rule has a structured, 
+precise standard:  Once the respondent has requested a hearing, the Division must establish that 
+the respondent has been "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" as the basis for the proceeding.  Rule 102(e)(3) thus reflects our 
+determination that a finding by a court of competent jurisdiction that a respondent has violated 
+securities laws, or that an injunction against future violations is warranted, is a sufficient standard 
+of unfitness for practice before the Commission that we "will afford a hearing only to consider 
+mitigating or other factors why neither censure nor temporary or permanent disqualification 
+should be imposed."
+31   "The overall purpose of the . . . amendment [that added paragraph (3) to 
+Rule 102(e)] is to prevent situations in which the investing public places its trust in, or reliance 
+upon, attorneys, accountants, engineers, and other professionals or experts who have 
+30 17 C.F.R. § 201.102(e)(1)(iv). 
+31 See Final Amendment to Rule 2(e) of the Rules of Practice, Exchange Act Rel. 
+No. 9164 (May 10, 1971), 1971 WL 126066, at *1 (adding to Rule 2(e) new language enabling 
+the Commission to "restrict practice before the Commission by persons found to have violated or 
+to have participated in violations of the securities laws and by persons who have been 
+permanently enjoined from violating the securities laws, whether or not a finding of past 
+violation has been made").  Furthermore, "no distinction will be made between injunctions and 
+findings which have been contested and those which have been entered upon consent." Id. 
+  
+ 
+ 
+11
+ 
+demonstrated an unwillingness or inability to comply with the requirements of the Federal 
+securities laws . . . ."32 
+Rule 102(e)(3) then permits the respondent to show cause why he or she should not be 
+censured or temporarily or permanently disqualified from appearing and practicing before the 
+Commission.  Under this provision, the Commission acts "with due regard to the public 
+interest."
+33   The standards by which we are guided in assessing the public interest are those set 
+forth in Steadman v. SEC34 in determining the appropriate remedial sanction under Rule 
+102(e)(3).35   As noted, we also consider any mitigative factors established by the respondent. 
+Rule 102(e)(3)(i)(A) is analogous to our statutory authority under Exchange Act Section 
+15(b)(6)(A)(iii) to discipline a regulated person who is enjoined from any action, conduct, or 
+practice specified in Exchange Act Section 15(b)(4)(C).
+36   Matters brought pursuant to this 
+provision require only that the Division establish that the respondent is a person associated or 
+seeking to become associated, or, at the time of the alleged misconduct, was associated or was 
+seeking to become associated with a broker or dealer, or is a person participating, or at the time 
+of the alleged misconduct, was participating in a penny stock offering, and that the person "is 
+32 Id. Pattison incorrectly states that Rule 102(e)(3) permits the Division to "seek 
+discipline after any permanent injunction, regardless of the level of scienter involved in the 
+underlying claim, or the type of claim."  Subpart 3 is limited to injunctions based on violations of 
+the federal securities laws.  Thus, the standard for the presumption of unfitness to practice before 
+the Commission is directly related to the individual's failure to comply with statutes administered 
+by the Commission. 
+33 17 C.F.R. § 102(e)(3)(i); see also Gunderson, 97 SEC Docket at 24044 (under 
+Rule 102(e)(3), permanently disqualifying attorney, in Commission adjudicatory appeal from a 
+law judge's initial decision, from appearing or practicing before the Commission based on 
+injunction against violating registration and antifraud provisions of the federal securities laws); 
+Herbert M. Campbell, Initial Decision Rel. No. 266 (Oct. 27, 2004), 83 SEC Docket 3997 (under 
+Rule 102(e)(3), permanently disqualifying attorney, in Commission adjudicatory proceeding 
+before a law judge, from appearing or practicing before the Commission based on injunction 
+against violating reporting and antifraud provisions of the federal securities laws). 
+34 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). 
+35 Gunderson, 97 SEC Docket at 24048. 
+36 15 U.S.C. § 78o(b)(6)(A)(iii).  Exchange Act Section 15(b)(4)(C) authorizes the 
+Commission to sanction a broker or dealer or an associated person of a broker or dealer who is 
+permanently or temporarily enjoined from acting as a certain kind of securities professional, or 
+from engaging in or continuing any conduct or practice in connection with any such activity, or 
+in connection with the purchase or sale of any security.  15 U.S.C. § 78o(b)(4)(C). 
+ 
+12
+ 
+enjoined from any action, conduct, or practice" specified in Exchange Act Section 15(b)(4)(C).37 
+Once this has been established, the respondent charged under Exchange Act Section 
+15(b)(6)(A)(iii) is not permitted to collaterally attack the underlying injunction or findings of the 
+38 39 court.   Courts have repeatedly upheld this principle.   A respondent who wishes to challenge 
+37 See, e.g., Vladimir Boris Bugarski, Exchange Act Rel. No. 66842 (Apr. 20, 2012), 
+103SEC Docket 53374, 53378 ("It is undisputed that the district court enjoined Respondents 
+from conduct in connection with the purchase or sale of securities and that, at the time of the 
+alleged misconduct, Respondents were participating in an offering of penny stock.  Accordingly, 
+we find that the threshold statutory requirements [under Exchange Act Section 15(b)(6)(A)(iii)] 
+for the imposition of sanctions have been satisfied."); Phillip J. Milligan, Exchange Act Rel. No. 
+61790 (Mar. 26, 2010), 98 SEC Docket 26791, 26796 (finding that "the statutory requirements 
+for the imposition of sanctions have been satisfied" under Exchange Act Section 15(b)(6)(A)(iii) 
+where the record established that the respondent had been enjoined from engaging in fraudulent 
+conduct in connection with the purchase or sale of securities and that, at the time the enjoined 
+conduct occurred, the respondent was associated with a broker-dealer); Thomas J. Donovan, 58 
+S.E.C. 1032, 1042-43 (2005) (finding that respondent was formerly associated with a broker-
+dealer and enjoined from further violations of the antifraud provisions of the federal securities 
+laws, and that Exchange Act Section 15(b)(6)(A)(iii) authorized the Commission to sanction 
+respondent); Michael T. Studer, 57 S.E.C. 890, 893 (2004) (finding that the respondent was 
+associated with a broker or dealer and enjoined from engaging in any conduct or practice in 
+connection with either (a) the activity of a broker or dealer or (b) the purchase or sale of a 
+security, and that Exchange Act Section 15(b)(6)(A)(iii) authorized the Commission to sanction 
+the respondent), aff'd, 148 F. App'x 58 (2d Cir. 2005) (unpublished). 
+38 See Milligan, 98 SEC Docket at 26796-97 (finding in a proceeding brought under 
+Exchange Act Section 15(b)(6)(A)(iii), where the respondent was a person enjoined from any 
+action, conduct, or practice specified in Exchange Act Section 15(b)(4)(C), that "[w]e have 
+repeatedly held that a respondent in a follow-on proceeding may not challenge the findings made 
+by the court in the underlying proceeding and we consider those findings in determining the 
+appropriate sanction.") (citing James E. Franklin, Exchange Act Rel. No. 56649 (Oct. 12, 2007), 
+91 SEC Docket 2708, 2713 ("It is well established that [respondents are] collaterally estopped 
+from challenging in [follow-on] administrative proceeding the decisions of the district court in 
+the injunctive proceeding.")). 
+39 Studer v. SEC, 148 F. App'x 58, 59 (2d Cir. 2005) (unpublished) (finding that 
+respondent, in an appeal of a follow-on administrative proceeding "is prohibited from relitigating 
+the factual and legal conclusions of the district court regarding his violations of federal securities 
+laws"); see also Gann v. SEC, 361 F. App'x 556, 558 (5th Cir. 2010) (unpublished) (finding, in 
+an appeal of a follow-on administrative proceeding, that "[b]ecause the factual issues in this case 
+were fully litigated and resolved in the district court, we treat the district court's findings of fact 
+as conclusive and binding on the parties"); Brownson v. SEC, 66 F. App'x 687, 688 
+(continued...) 
+  
+ 
+13
+ 
+the underlying injunction or court's findings may only do so by filing an appeal in the appropriate 
+United States Court of Appeals.40 
+By contrast, Rule 102(e)(1), codified by the Sarbanes-Oxley Act of 2002,41 authorizes the 
+Commission to discipline professionals for "improper professional conduct," defined for 
+accountants as conduct that the Commission finds "results in a violation of applicable 
+professional standards," and meets certain mens rea requirements.  Thus, a proceeding under 
+Rule 102(e)(1)(ii) does not necessarily involve conduct that is illegal, nor does it involve a 
+situation where another adjudicatory tribunal has already made findings of misconduct and 
+imposed a sanction.  Unlike proceedings brought under Rule 102(e)(3), the Commission itself 
+must make the determination as to whether the respondent's conduct fits within certain standards 
+carefully defined under Rule 102(e)(1), including, with respect to accountants, whether 
+professional standards have been violated with a defined mens rea.  If such conduct falls within 
+the proscriptions of Rule 102(e)(1), the Commission must then determine whether a sanction is 
+appropriate.  Similarly, proceedings brought, for example, under Exchange Act Section 
+15(b)(4)(A) or (D) require the Commission to make its own findings of misconduct before it can 
+determine the appropriate sanction, if any.
+42   That is because, as with Rule 102(e)(1), the 
+Commission does not have in the record findings made by another adjudicatory tribunal to serve 
+as a basis for a sanction determination.  In proceedings brought under Rule 102(e)(3) based on an 
+underlying injunction, however, the Commission may rely on the findings of a court that an 
+injunction against future violative conduct is warranted.
+43 
+39 (...continued) 
+(unpublished) (9th Cir. 2003) (finding, in an appeal of a follow-on administrative proceeding, 
+that respondent's "plea agreement and criminal conviction are substantial evidence supporting the 
+SEC's conclusion that it is in the public interest to permanently bar [respondent] from association 
+with a broker or dealer.  See Hinkle Northwest, Inc. v. SEC, 641 F.2d 1304, 1308 (unpublished) 
+(9th Cir. 1981) (stating that collateral estoppel may be used where party seeks to apply finding 
+from criminal case to subsequent civil proceeding)."). 
+40 Franklin, 91 SEC Docket at 2713-14 (finding, in a proceeding instituted under 
+Exchange Act Section 15(b)(6)(A), that "[t]he appropriate forum for Franklin's challenge to the 
+validity of the injunction and the district court's evidentiary rulings is through an appeal to the 
+United States Court of Appeals . . . ."), petition denied, 285 F. App'x 761 (D.C. Cir. 2008) (per 
+curiam). 
+41 Pub. L. No. 107-204, § 602, 116 Stat. 745 (2002). 
+42 15 U.S.C. §§ 78o(b)(4)(A), (D). 
+43 17 C.F.R. § 201.102(e)(3)(i)(A).  Alternatively, the Commission may rely on 
+findings by a court in an action brought by the Commission, or by the Commission in an 
+(continued...) 
+ 
+14
+ 
+Accordingly, we reject Pattison's contention that this matter should have been brought 
+under Rule 102(e)(1) and find that the Division appropriately brought this proceeding under 
+Rule 102(e)(3). 
+B. Public Interest Factors 
+In assessing the need for sanctions in the public interest, we consider, among other things: 
+the egregiousness of the respondent's actions, the isolated or recurrent nature of the infraction, 
+the degree of scienter involved, the sincerity of the respondent's assurances against future 
+violations, the respondent's recognition of the wrongful nature of his or her conduct, and the 
+likelihood that the respondent's occupation will present opportunities for future violations.
+44 Our 
+"inquiry into . . . the public interest is a flexible one, and no one factor is dispositive."45 We also 
+consider the extent to which the sanction will have a deterrent effect.46 
+We find that Pattison's conduct was egregious and recurrent.  For every quarterly period 
+over four years, Pattison facilitated improper backdating by falsifying Embarcadero's books and 
+records and circumventing Embarcadero's system of internal accounting controls.  Corporate 
+books and records are "'the bedrock elements of our system of corporate disclosure and 
+accountability,'" and thus "accurate recordkeeping is an essential ingredient in promoting 
+management responsibility."
+47   Likewise, 
+[i]nternal controls safeguard assets and assure the reliability of financial records, 
+one of their main jobs being to prevent and detect errors and irregularities that 
+arise in the accounting systems of the company.  Internal accounting controls are 
+43 (...continued) 
+administrative proceeding, that a respondent has violated or aided and abetted the violation of the 
+federal securities laws.  17 C.F.R. § 201.102(e)(3)(i)(B). 
+44 Steadman, 603 F.2d at 1140. 
+45 David Henry Disraeli, Exchange Act Rel. No. 57027 (Dec. 21, 2007), 92 SEC 
+Docket 852, 875, petition denied, 33 F. App'x 334 (D.C. Cir. 2008) (per curiam). 
+46 Franklin, 91 SEC Docket at 2708, 2719 & n.28 (citing Ahmed Mohamed Soliman, 
+52 S.E.C. 227, 231 n.12 (1995); Lester Kuznets, 48 S.E.C. 551, 555 (1986); McCarthy v. SEC, 
+406 F.3d 179, 188, 190 (2d Cir. 2005)). 
+47 SEC v. World-Wide Coin Inv., Ltd., 567 F. Supp. 724, 746 (N.D. Ga. 1983) 
+(citation omitted). 
+  
+ 
+15
+ 
+basic indicators of the reliability of the financial statements and the accounting 
+system and records from which financial statements are prepared.48 
+Pattison's actions betrayed these principles and, as the District Court found, had profound 
+effects.  Embarcadero understated corporate expenses by more than $14 million.  The company 
+possessed books and records and filed public reports with the Commission that failed to 
+accurately and fairly reflect its transactions and disposition of its assets.  It suffered the receipt of 
+decreased payments when employees exercised backdated stock options.  The Company's share 
+value was potentially diluted as a result of enhanced incentives to exercise stock options.  In 
+2007, Embarcadero restated portions of its financial statements going back as far as fiscal year 
+2002, and faced negative tax consequences associated with the restatement.  In addition to being 
+enjoined, Pattison was ordered to disgorge $74,446—representing the portion of his profit 
+attributable to exercising his own backdated stock options—and pay a second-tier civil money 
+penalty of $50,000, which the District Court judge determined was reflective of the jury's view 
+that Pattison "knowingly engaged in conduct violative of regulatory and statutory laws."
+49 We 
+therefore reject Pattison's characterization of his misconduct as a "mere technical violation" 
+arising "from a single decision made to delegate option-granting authority to the CEO in the 
+fourth quarter of 2000." 
+We find that Pattison acted with a high degree of scienter.  Pattison had been a practicing 
+accountant for roughly fifteen years and was the only licensed CPA in Embarcadero's Finance 
+Department.  Despite knowing that APB 25 required the company to record in-the-money stock 
+option grants as outgoing compensation and that the company did not intend to grant in-the­
+money stock options, in part based on internal controls memoranda that Pattison authored, 
+Pattison nonetheless facilitated the improper granting of in-the-money stock options.  He did so 
+by entering backdated information into Embarcadero's E*Trade database, directing his 
+administrative assistant to prepare stock option agreements for Embarcadero's employees based 
+on the backdated information, providing to the company's auditors, without further elaboration, 
+quarterly summaries that he knew contained backdated information, and parking backdated stock 
+48 Id. at 750 (citation omitted); see also Management's Report on Internal Control 
+over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, 
+Exchange Act Rel. No. 47986 (June 18, 2003), 80 SEC Docket 1196, 1217 ("The establishment 
+and maintenance of internal control over financial reporting has always been an important 
+responsibility of management.  An effective system of internal control over financial reporting is 
+necessary to produce reliable financial statements and other financial information used by 
+investors."). 
+49 See supra note 7, Corrected Order and Judgment Granting Motion for  Entry of 
+Final Judgment, at 6. 
+ 
+ 
+  
+16
+ 
+options in various inactive employee accounts for later use.50   The District Court determined that 
+"[a] reasonable inference is that Defendant consciously intended to hide the actual grant approval 
+dates from the auditors and keep backdated options from being publicly reported.  Certainly, the 
+jury could have so found."
+51   We conclude that Pattison's repeated efforts to conceal improper 
+backdating further demonstrate that he acted with a high degree of scienter.52 
+Pattison asserts that the Initial Decision and the District Court improperly determined that 
+he acted with scienter and argues that the jury found him liable for a violation that did not require 
+a showing of scienter.  He contends that "[t]he 'knowing' standard of Section 13(b)(5) is not the 
+same as 'scienter.'  A 'knowing' violation of Section 13(b)(5) means that Pattison was found to 
+have acted intentionally, but not that he acted with the 'intent to deceive, manipulate, or defraud' 
+as is required for scienter-based claims.  See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 
+(1975)."  The District Court, in fact, found that Pattison acted with an intent to deceive.
+53   It did 
+50 As the District Court found, "every stock option grant during the period in 
+question has a grant date selected with hindsight, yet [Pattison] never expressly disclosed the date 
+of actual approval by CEO Wong on any document.  Nor did [Pattison] ever explicitly 
+communicate to [the] auditors Embarcadero's practice of selecting grant dates with hindsight." 
+See supra note 6, Corrected Order Denying Plaintiff's Motion to Strike; Denying Defendant's 
+Motion for Judgment as a Matter of Law; and Denying Defendant's Motion for a New Trial, at 
+14-15 (emphasis in original). 
+51 See supra note 6, Corrected Order Denying Plaintiff's Motion to Strike; Denying 
+Defendant's Motion for Judgment as a Matter of Law; and Denying Defendant's Motion for a 
+New Trial, at 15. 
+52 See Milligan, 98 SEC Docket at 26798-99 & n.20 (finding that respondent acted 
+with a high degree of scienter based on his attempts to conceal misconduct) (citing Justin F. 
+Ficken, Exchange Act Rel. No. 58802 (Oct. 17, 2008), 94 SEC Docket 10887, 10892). 
+53 "Mr. Pattison fails to explain how a knowing falsification is really anything 
+different from an intent to deceive.  In other words, if a person intentionally makes a false 
+statement (found here), that is tantamount to an intent to deceive. . . . As noted in the legislative 
+history for § 13, '[t]he knowledge required is that the person be aware that he is or may be 
+making a false statement or causing corporate records to be falsified through a conscious 
+undertaking or due to his conscious disregard for the truth.'  S. Rep. 95-114, at 4107." SEC v. 
+Michael C. Pattison, Order Denying Defendant's Motion for Judgment of Law and Motion for a 
+New Trial; and Granting in Part and Denying in Part Defendant's Motion to Amend Judgment, 
+No. C-08-4238 EMC (N.D. Cal. June 9, 2011), at 14.  Pattison also claims that, because the 
+District Court used a general verdict form, "one cannot even determine whether Mr. Pattison was 
+found liable for a 'knowing falsification of records' or, instead, an internal controls violation." 
+The jury, however, found that Pattison violated Exchange Act Section 13(b)(5) pursuant to a jury 
+(continued...) 
+ 
+ 
+ 
+17
+ 
+so, not as a misstatement of the jury's finding of a violation, but in connection with the Court's 
+assessment of the necessity of imposing an injunction as a remedy for that violation.  Pattison is 
+estopped from attacking here the factual findings or legal conclusions of the underlying 
+injunctive proceeding.
+54   In any event, we are unpersuaded by his argument. 
+We do not construe the term "scienter" so narrowly.  While it is true that the United 
+States Supreme Court in Ernst & Ernst defined scienter as "a mental state embracing intent to 
+deceive, manipulate, or defraud," it did so in the context of a securities fraud case.  There, the 
+Court predicated the actor's state of mind on elements, i.e., deceit, manipulation, and fraud, that 
+explicitly were the basis for the violation at issue.  The Supreme Court, however, also discussed 
+scienter more generally as "knowing or intentional misconduct," given that the issue in that case 
+was "whether scienter is a necessary element" of a private cause of action under Exchange Act 
+Section 10(b) and Rule 10b-5 thereunder, or "whether negligent conduct alone is sufficient."
+55 
+Courts have consistently relied on the broader definition of scienter in the context of violations of 
+56 57 the federal securities laws.   We, too, have viewed scienter through a wider lens. 
+53 (...continued) 
+instruction specifically providing that a knowing falsification was required, and that knowingly, 
+as used in Exchange Act Section 13(b)(5) "means intentionally; recklessness is not sufficient." 
+Id. at 14. 
+54 Supra note 29, see also supra note 38. 
+55 Ernst & Ernst, 425 U.S. at 197. 
+56 See, e.g., Dura Pharm., Inc., 544 U.S. 336, 341 (2005) ("scienter, i.e., a wrongful 
+state of mind, see Ernst & Ernst, [425 U.S. 185] at 197"); WPP Luxembourg Gamma Three Sarl 
+v. Spot Runner, Inc., 655 F.3d 1039, 1051 (9th Cir. 2011) ("The requisite state of mind for a 
+securities fraud case is scienter, which is knowing or intentional conduct, or reckless conduct 'to 
+the extent that it reflects some degree of intentional or conscious misconduct, or what we have 
+called deliberate recklessness.'") (citation omitted), cert. denied, 132 S. Ct. 2713 (2012); Graham 
+v. SEC, 222 F.3d 994, 1000 (2d Cir. 2000) (scienter in aiding and abetting cases is established by 
+showing defendant rendered assistance to violator of federal securities laws "knowingly or 
+recklessly"); SEC v. Falstaff Brewing Corp., 629 F.2d 62, 77 (D.C. Cir. 1980), cert. denied, 449 
+U.S. 1012 (1980) (finding that scienter is "[a] knowledge of what one is doing and the 
+consequences of those actions"); Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 167 (2d Cir. 
+1980) (finding that "scienter is 'knowing or intentional misconduct'"). 
+57 See Phlo Corp., Exchange Act Rel. No. 55562 (Mar. 30, 2007), 90 SEC Docket 
+1089, 1103 (finding that "[t]he scienter requirement [in an aiding and abetting violation] may be 
+satisfied by showing that [respondent] knew of, or recklessly disregarded, the wrongdoing and 
+her role in furthering it"); cf. Michael J. Marrie, CPA, Exchange Act Rel. No. 48246 
+(continued...) 
+ 
+18
+ 
+Here, the District Court found that Pattison acted with scienter based on his conduct. 
+Specifically, the District Court found: 
+While the instant case is a civil action and not a criminal action, the § 13 jury 
+instruction that the parties agreed upon stated that knowing falsification was 
+required – in other words, the SEC (although it did not have to) agreed to the 
+criminal liability scienter requirement.  Accordingly, there was scienter in this 
+case (in the sense of a knowing falsification); at least, the jury so found.
+58 
+The District Court found that Pattison provided sincere assurances against future 
+violations but that he also had not recognized the wrongful nature of his conduct.  For example, 
+the Court found that Pattison voluntarily disclosed his misconduct to attorneys representing 
+Embarcadero's Special Committee and voluntarily met with the Commission during its 
+investigation.  But the Court also found that Pattison either placed blame for stock options 
+backdating on others or denied any wrongdoing.  Indeed, Pattison continues to dispute that his 
+conduct was egregious and argues that "books and records claims do not fall under the antifraud 
+provisions of the securities laws, and should not be addressed with the 'severest of sanctions.'" 
+We are concerned that, despite his assurances against future violations, Pattison's failure to 
+appreciate the gravity of his misconduct raises troubling questions about his fitness to appear and 
+practice before the Commission.  
+Pattison asserts that the likelihood is low that his occupation will present opportunities 
+for future violations.  He states that he has "worked for the last seven years without any blemish 
+on his record.  He has not moved professionally towards the public sector, and even submitted a 
+Declaration in the District Court action expressly stating he had no intention to work for a public 
+company again."  He also asserts that his "employment history since leaving Embarcadero bears 
+57 (...continued) 
+(July 29, 2003), 80 SEC Docket 2694, 2704-05 & n.14 ("The question is not whether an 
+accountant recklessly intended to aid in the fraud committed by the audit client, but rather 
+whether the accountant recklessly violated applicable professional standards [in connection with 
+a proceeding brought under Rule 102(e)(1)]."), reversed on other grounds, 374 F.3d at 1205 
+(rejecting respondents' contention that, because the Commission borrowed the definition of 
+recklessness used in substantive antifraud provisions for purposes of a proceeding under Rule 
+102(e)(1), the Commission also was required to adopt other elements of a securities fraud 
+violation, such as the requirements of an intent to defraud and materiality). 
+58 To the extent that Pattison contends that scienter must be an element of the 
+underlying violations in order for us to evaluate the degree of scienter under the Steadman 
+factors, he is incorrect.  See Steadman, 603 F.2d at 1140 ("We heartily endorse the Commission's 
+view that while scienter is not required to make out violations of several of the statutory sections 
+involved here, the respondent's state of mind is highly relevant in determining the remedy to 
+impose.").  
+  
+19
+ 
+that out. Pattison has changed jobs—he no longer works for a public company and instead 
+performs trust and estate work [as an accountant] for a company owned by a private individual." 
+Pattison, however, remains licensed as a CPA.  Moreover, the Court found that Pattison 
+stated in his deposition that his work for the company is "[m]uch the same as what I would do at 
+a public accounting firm."
+59   Should the company go public or be acquired by a public company, 
+the accuracy of its historical books and records could be critical, and Pattison could potentially 
+find himself in a position to handle the company's future accounting duties.  Moreover, Pattison's 
+statement that he "is not likely to appear before the Commission again, but . . . has demonstrated 
+over these last seven years that he possesses the skills and moral character to do so in the future," 
+suggests the possibility of his eventually appearing and practicing before the Commission.  We 
+conclude that a reasonable likelihood exists that Pattison's occupation will present opportunities 
+for future violations.
+60 
+Pattison asserts that the law judge improperly granted summary disposition because he 
+presented mitigating facts that required an evidentiary hearing.  Rule of Practice 250(b) provides 
+that a hearing officer may grant a motion for summary disposition without an in-person hearing if 
+"there is no genuine issue with regard to any material fact and the party making the motion is 
+entitled to a summary disposition as a matter of law."
+61   Once the Division showed that it had 
+satisfied the criteria for summary disposition, Pattison had the opportunity to produce documents, 
+affidavits, or some other evidence to demonstrate that there was a genuine and material factual 
+dispute that the law judge could not resolve without a hearing. 
+Pattison's submissions below "relate[d] to the appropriateness of the sanction," which we 
+have considered fully above, but did not raise "the existence of a genuine issue of material 
+59 See supra note 53, Order Denying Defendant's Motion for Judgment of Law and 
+Motion for a New Trial; and Granting in Part and Denying in Part Defendant's Motion to Amend 
+Judgment, at 12. 
+60 Pattison cites to SEC v. Monarch Fund, 608 F.2d 938, 943 (2d. Cir. 1979), and 
+SEC v. Nat'l Student Mktg. Corp., 457 F. Supp. 682 (D. D.C. 1978) for the proposition that "the 
+more time that has passed since a violation, the lesser the need for an injunctive sanction." 
+Pattison's citations are inapposite.  In these cases, the courts considered the propriety of imposing 
+an injunction. As we have discussed, the propriety of Pattison's injunction is not at issue. 
+Moreover, these cases suggest that courts consider the amount of time that has elapsed since the 
+last violation as one among many factors in evaluating whether there exists a reasonable 
+likelihood of future violations. 
+61 17 C.F.R. § 201.250(b). 
+20
+ 
+fact."62   An in-person hearing therefore was not required.  Pattison states that it is mitigating that 
+he has worked for the last seven years without a blemish on his record, has not moved 
+professionally towards the public sector, and voluntarily told the Special Committee that he 
+backdated stock option grants.  We already have accepted these facts as true and taken them into 
+consideration above. 
+Pattison also states that he "was still working at Embarcadero for almost a year after the 
+alleged violations occurred and thus his compliance with these statutes began while he was still 
+working at Embarcadero."  Yet Pattison also highlights the fact that, by the end of 2004, the 
+company, not Pattison, decided to enforce the prohibition against granting in-the-money stock 
+options and that none was granted thereafter as a result.  Pattison asserts that he was "absolved by 
+a jury of all fraud and [aiding and abetting] false reporting charges," and the violation occurred 
+nearly seven years ago.  While we accept these statements as true, we do not agree that the need 
+for a permanent suspension is diminished given the other facts of this case.  Pattison also argues 
+that we should consider as mitigating that the District Court prevented him from presenting "his 
+key accounting expert"
+63 and improperly admitted as evidence Embarcadero's Form 10-K for the 
+2006 fiscal year, which restated numerous portions of financial statements for previous years, and 
+that the Division failed to designate expert witnesses at the trial.  Pattison is prohibited from 
+attempting to relitigate the District Court's findings.
+64 
+Pattison argues that a permanent suspension is "far in excess of other accountants who 
+have had securities fraud judgments entered against them for backdating stock options."  The 
+62 Gary M. Kornman, Exchange Act Rel. No. 59403 (Feb. 13, 2009), 95 SEC 
+Docket 14246, 14264 & n.62 (citing Seghers, 548 F.3d at 134), petition denied, 592 F.3d 173 
+(D.C. Cir. 2010). 
+63 Pattison attached to his reply brief the accounting expert's "anticipated testimony" 
+that he asserts he "was required to provide to the District Court," and which was intended to 
+support his argument that his conduct was not egregious.  Commission Rule of Practice 452, 17 
+C.F.R. § 201.452, permits the admission of additional evidence where the evidence is material 
+and where there exist reasonable grounds for failing to produce the evidence earlier.  Pattison has 
+not met the rule's requirements.  He filed no motion to adduce this additional evidence.  Nor did 
+he provide an explanation for his failure to adduce the document earlier (i.e., before the law 
+judge or in earlier filings on appeal) or respond when the Division challenged his submission. 
+Pattison also does not explain how this attachment is material.  We nevertheless admit it as a 
+matter of discretion. 
+64 See supra note 54. 
+ 
+21
+ 
+cases to which Pattison cites, however, were settled matters.65   We have repeatedly observed that 
+comparisons to sanctions in settled cases are inappropriate because respondents who offer to 
+settle may properly receive lesser sanctions than they otherwise might have.  That is because, "in 
+settlement cases we take into account pragmatic considerations such as the avoidance of 
+time-and-manpower-consuming adversary proceedings."
+66 
+65 In all of the cited cases, respondents settled both the underlying injunctive matter 
+and the follow-on Rule 102(e) proceeding.  See Antonio Canova, Exchange Act Rel. No. 59758 
+(Apr. 13, 2009), 95 SEC Docket 16041; Anthony Bonica, Exchange Act Rel. No. 62242 (June 8, 
+2010), 98 SEC Docket 28963; Clinton Ronald Greenman, Exchange Act Rel. No. 61147 (Dec. 
+10, 2009), 97 SEC Docket 23380; John Wilroy, Exchange Act Rel. No. 61148 (Dec. 10, 2009), 
+97 SEC Docket 23384; Gregory Pasko, Exchange Act Rel. No. 61149 (Dec. 10, 2009), 97 SEC 
+Docket 23388; Lisa Roberts, Exchange Act Rel. No. 60345 (July 20, 2009), 96 SEC Docket 
+18982; Kevin Brooks, Exchange Act Rel. No. 59785 (Apr. 17, 2009), 95 SEC Docket 16159; 
+Dennis Kavelman and Arcangelo Loberto, Exchange Act Rel. No. 59648 (Mar. 30, 2009), 95 
+SEC Docket 15530. 
+Pattison also refers to the result in Robert W. Armstrong, III, 58 S.E.C. 542 (2005), a 
+litigated case, where an accountant was found to have violated the antifraud provisions and was 
+not permanently suspended under Rule 102(e).  Armstrong is not applicable here.  That matter 
+was brought under Rule 102(e)(1), which, as we have explained, involves procedures and 
+standards different from those in a Rule 102(e)(3) proceeding.  Moreover, "in light of the unique 
+circumstances [in that case], we . . . determined, as an exercise of our equitable discretion, not to 
+impose any suspension" pursuant to Rule 102(e)(1) without providing any analysis or identifying 
+the unique circumstances leading to this result.  Accordingly, Armstrong provides no 
+precedential guidance with respect to the imposition of sanctions pursuant to Rule 102(e)(3). 
+66 Nassar and Co., Inc., 47 S.E.C. 20, 26 & n.37 (1978) (citing cases), aff'd, 600 
+F.2d 280 (D.C. Cir. 1979); see also Justin F. Ficken, Exchange Act Rel. No. 58802 (Oct. 17, 
+2008), 94 SEC Docket 10887, 10892-93 (rejecting respondent's argument in an administrative 
+proceeding based on an underlying injunction that he should not receive a harsher sanction than 
+that imposed on other individuals who committed violations similar to the one for which he was 
+enjoined but where the other individuals settled their administrative proceedings); Leslie A. 
+Arouh, 57 S.E.C. 1099, 1123 (2004) (rejecting respondent's argument that sanction was unjust 
+where more culpable respondent received lesser sanction); cf. Dennis Todd Lloyd Gordon, 
+Exchange Act Rel. No. 57655 (Apr. 11, 2008), 93 SEC Docket 5089, 5118 (where NASD had 
+previously offered to settle charges for lesser sanctions than ultimately imposed after litigation, 
+Commission rejected argument that NASD's alleged willingness to accept a lesser sanction in 
+settlement shows that NASD did not consider that more stringent sanctions were necessary, 
+noting "it is well established that those who offer to settle may properly receive lesser sanctions 
+than they otherwise might have based on 'pragmatic considerations such as the avoidance of 
+time-and-manpower-consuming adversary proceedings.'"). 
+ 
+ 
+ 
+22
+ 
+The appropriate sanction in any case, moreover, depends on the particular facts and 
+circumstances presented.67   Litigated cases typically present a fuller, more developed record of 
+facts and circumstances for purposes of assessing appropriate sanctions than do settled matters.68 
+Here, the record shows that, although Pattison was not found liable on the fraud charge in the 
+injunctive action, the Court made extensive findings in justification of the injunction against him 
+concerning the egregiousness of the conduct and his level of scienter.  As discussed above, these 
+violations go to the heart of an accountant's obligations in any practice before the Commission 
+and justify the bar against such practice.
+69 
+67 See Robert L. Burns, Advisers Act Rel. No. 3260 (Aug. 5, 2011), 101 SEC Docket 
+44807, 44824 n.52 ("[I]t is well established that the appropriateness of a sanction 'depends on the 
+facts and circumstances of each particular case and cannot be precisely determined by 
+comparison with the action taken in other proceedings.'") (citing Paz Sec., Inc., Exchange Act 
+Rel. No. 57656 (Apr. 11, 2008), 93 SEC Docket 5122, 5134, petition denied, 566 F.3d 1172 
+(D.C. Cir. 2009) (citing Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187 (1973)); cf. 
+World Trade Fin. Corp., Exchange Act Rel. No. 66114 (Jan. 6, 2012), 102 SEC Docket 49942, 
+49966 & n.82 (noting, in review of FINRA matter, that the "appropriate sanction, however, 
+depends on the facts and circumstances of each case and cannot be precisely determined by 
+comparison with action taken in other proceedings.") (citing Butz, 411 U.S. at 187); see also 
+McCarthy, 406 F.3d at 188 (stating that an appeals court's review of Commission sanctions 
+"receives only limited benefit from comparison to sanctions imposed in other cases due to the 
+highly fact-dependent nature of the propriety of sanctions"); Hiller v. SEC, 429 F.2d 856, 858 
+(2d Cir. 1970) (rejecting respondent's argument that the imposition of lesser sanctions in other 
+cases involving purportedly more serious violations is inconsistent and stating that "we cannot 
+disturb the sanctions ordered in one case because they were different from those imposed in an 
+entirely different proceeding") (citing Tager v. SEC, 344 F.2d 5, 8-9 (2d Cir. 1965) ("Failing a 
+gross abuse of discretion, the courts should not attempt to substitute their untutored views as to 
+what sanctions will best accord with the regulatory powers of the Commission.")). 
+68 See Nassar and Co., Inc., 47 S.E.C. at 26. In the settled matters cited by Pattison, 
+for example, we do not have a record that would permit a comparison with all the Steadman 
+factors influencing a sanction decision, such as the likelihood that a respondent's occupation will 
+present opportunities for future violations. 
+69 Pattison argues that a bar is unprecedented and that no accountant has "ever been 
+permanently barred from practicing in front of the Commission for a books and records 
+violation." For the reasons discussed in the text, we believe the bar against practice before the 
+Commission is justified here because of the connection between the nature of the violation and 
+the duties involved in any practice by an accountant before the Commission. 
+ 
+ 
+23
+ 
+As we have stated, "[t]he Commission disciplines professionals pursuant to Rule 102(e) 
+in order to 'protect the integrity of its processes.'"70   The Commission adopted the rule as a 
+"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."
+71   We believe that permanently disqualifying Pattison from appearing or practicing 
+before the Commission is remedial because it will prevent Pattison and deter others from 
+disregarding their professional responsibilities and protect the investing public by encouraging 
+reliable corporate disclosure and accountability through accurate recordkeeping and diligent 
+compliance with internal accounting controls. 
+An appropriate order will issue.
+72 
+By the Commission (Chairman SCHAPIRO and Commissioners WALTER, PAREDES 
+and GALLAGHER); Commissioner AGUILAR not participating. 
+Elizabeth M. Murphy
+          Secretary 
+70 Robert W. Armstrong, III, 58 S.E.C. 542, 571-72 & n.62 (2005) (citing Touche 
+Ross & Co. v. SEC, 609 F.2d 570, 582 (2d Cir. 1979) (stating that Rule of Practice 2(e), the 
+predecessor to Rule of Practice 102(e), "represents an attempt by the Commission to protect the 
+integrity of its own processes" and upholding the validity of Rule of Practice 2(e) as "reasonably 
+related" to the purposes of the federal securities laws). 
+71 Gunderson, 97 SEC Docket at 24046 (citing Touche Ross, 609 F.2d at 582). 
+72 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. 
+UNITED STATES OF AMERICA
+ 
+before the
+ 
+SECURITIES AND EXCHANGE COMMISSION
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Rel. No. 67900 / September 20, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 3407 / September 20, 2012 
+Admin. Proc. File No. 3-14323 
+In the Matter of
+ 
+MICHAEL C. PATTISON, CPA
+ 
+c/o Patrick J. Richard
+ 
+James H. Vorhis
+ 
+Nossaman LLP
+ 
+50 California Street, 34th Floor
+ 
+San Francisco, CA  94111
+ 
+ORDER IMPOSING REMEDIAL SANCTIONS 
+On the basis of the Commission's Opinion issued this day, it is 
+ORDERED that Michael C. Pattison, CPA be, and he hereby is, permanently disqualified 
+from appearing or practicing before the Commission as an accountant. 
+By the Commission. 
+Elizabeth M. Murphy
+          Secretary 
\ 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. 67884 / September 18, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3408 / September 18, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15033 
+       
+      :  
+ :  
+ : CORRECTED 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  Michael K. Krohn, 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 Michael 
+K. Krohn (“Krohn” or “Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1   
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+                                                 
+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 
+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 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings and the findings contained in Section III.2 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions 
+(“Order”), as set forth below 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+III. 
+ 
+ 1. Krohn, age 36, resides in Round Rock, Texas.  He is and has been a certified 
+public accountant licensed to practice by the State of Arizona.  Krohn provided accounting advice to 
+entities regarding the offering of securities in violation of the federal securities laws.    
+ 
+ 2. On August 6, 2012 the Commission filed a complaint against Krohn in SEC 
+v. The Companies (TC), LLC, et al., (Civil Action No. 2:12-cv-00765-DN).  On August 9, 2012, 
+the court entered an order permanently enjoining Krohn, by consent, from future violations of 
+Sections 5(a), 5(c), 17(a)(2), and 17(a)(3) of the Securities Act of 1933.   
+ 
+  3.  The Commission’s complaint alleged, among other things, that Krohn, in 
+violation of federal securities laws and in connection with the sale of approximately $11.9 million 
+of securities to approximately 169 investors, made material misrepresentations and omissions 
+regarding, among other things, the value of company assets.  The alleged misrepresentations and 
+omissions were contained in private placement memoranda (“PPMs”) used in unregistered 
+offerings.  The complaint alleged that Krohn participated in drafting and providing content for the 
+PPMs and solicited investors.  The complaint further alleged that the securities were not registered, 
+in violation of the federal securities laws, because the PPMs wrongfully relied on the exemption to 
+registration pursuant to Regulation D, Rule 506.  The complaint alleged that the offerings did not 
+meet the Regulation D, Rule 506 requirements because the securities were offered through general 
+solicitation. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Krohn’s Offer. 
+ 
+ 3 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Krohn is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After two years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the Chief 
+Accountant) to resume appearing or practicing before the Commission as: 
+ 
+       1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the respondent’s or the firm’s quality control system that would indicate 
+that the respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring partner reviews and quality control 
+standards.   
+      
+The Commission will consider an application by Respondent to resume appearing 
+or practicing before the Commission provided that his state CPA license is current and he 
+has resolved all other disciplinary issues with the applicable state boards of accountancy.  
+However, if state licensure is dependent on reinstatement by the Commission, the 
+Commission will consider an application on its other merits.  The Commission’s review  
+may include consideration of, in addition to the matters referenced above, any other matters 
+relating to Respondent’s character, integrity, professional conduct, or qualifications to appear or 
+practice before the Commission.  
+ 4 
+  
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3409.txt b/raw/aaer/2012/AAER-3409.txt
new file mode 100644
index 0000000000000000000000000000000000000000..ac8a94f8f66fbc64710ab49b5af8434514c97f45
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+++ b/raw/aaer/2012/AAER-3409.txt
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+              Tyco International Ltd.
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+       
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 22491 / September 24, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3409 / September 24, 2012 
+
+  Securities and Exchange Commission v. Tyco International Ltd , 1:12-CV-01583 (D.D.C. filed Sept. 24, 2012) 
+
+ SEC CHARGES TYCO WITH MAKING ILLICIT PAYMENTS TO FOREIGN OFFICIALS  
+
+ The Securities and Exchange Commission today announced that it filed a settled civil action in the United States District Court for the District of Columbia against Tyco International Ltd.  The complaint alleges that Tyco violated the books and records, internal controls, and anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA).  Tyco has agreed to pay over $13 million in disgorgement and prejudgment interest to settle the charges. 
+
+ In April 2006, the Commission filed a settled accounting fraud, disclosure, and FCPA injunctive action against Tyco.  At the time of the 2006 settlement, Tyco had committed to and commenced a review of its FCPA compliance and a global internal investigation of possible additional FCPA violations.  As a result of that review and investigation, certain FCPA violations have come to light for which the misconduct occurred, or the benefit to Tyco continued, after the 2006 injunction.  Those are the violations that are alleged in today's complaint. 
+
+ Accordingly, the Commission's complaint alleges that, from 2006 to 2009, Tyco subsidiaries operated twelve illicit payment schemes.  Many of the schemes involved fake commissions and related payments, and several also included the use of third-party agents to funnel money improperly.  The complaint further alleges that Tyco's books and records were misstated as a result of the misconduct and that Tyco failed to devise and maintain internal controls sufficient to detect the violations.  The complaint also alleges that payments by a sales agent to Turkish government officials violated the anti-bribery provisions of the FCPA.   
+
+ In settling the Commission's charges, Tyco has consented to the entry of a proposed final judgment permanently enjoining it from violating Sections 13(b)(2)(A), 13(b)(2)(B), and 30A(a) of the Securities Exchange Act of 1934 and ordering it to pay disgorgement of $10,564,992, plus prejudgment interest of $2,566,517.  The proposed settlement is subject to the approval of the District Court. 
+
+ According to the SEC's complaint, Tyco voluntarily disclosed this conduct to the Commission and thereafter took extensive remedial measures, including firing the employees involved in the misconduct, exiting certain lines of business, and making significant enhancements to its FCPA compliance program.  
+
+ The Commission acknowledges the assistance of the U.S. Department of Justice's Fraud Section in this matter.  Today the Department of Justice announced related criminal proceedings, pursuant to which Tyco has agreed to pay criminal penalties in excess of $13 million. 
+
+ For further information about the Commission's 2006 action against Tyco, see Litigation Release No. 19657 (Apr. 17, 2006).  
+
+   SEC Complaint in this matter  
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diff --git a/raw/aaer/2012/AAER-3410.txt b/raw/aaer/2012/AAER-3410.txt
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+     SEC.gov | Gilbert G. Lundstrom et al. and Don A. Langford 
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+        Gilbert G. Lundstrom et al. and Don A. Langford
+       
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+                  U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 22493 / September 25, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3410 / September 25, 2012 
+
+  SEC v. Gilbert G. Lundstrom et al. , Civil Action No. 8:12-cv-00343 (D. Neb., filed September 25, 2012);  SEC v. Don A. Langford , Civil Action No. 8:12-cv-00344 (D. Neb., filed September 25, 2012) 
+
+ SEC Charges Bank Executives in Nebraska with Understating Losses During Financial Crisis 
+
+ The Securities and Exchange Commission today charged three former bank executives in Nebraska for participating in a scheme to understate millions of dollars in losses and mislead investors and federal regulators at the height of the financial crisis.  One of the executives and his son also are charged with insider trading.  
+
+ The SEC alleges that Gilbert G. Lundstrom, who was the CEO and chairman of the board at Lincoln, Neb.-based TierOne Bank, along with president and chief operating officer James A. Laphen and chief credit officer Don A. Langford played a role in TierOne understating its loan-related losses as well as losses on real estate repossessed by the bank.  TierOne had expanded into riskier types of lending in Las Vegas and other high-growth geographic areas in Arizona and Florida, and the bank was experiencing a significant rise in high-risk problem loans.  TierOne's primary banking regulator, the Office of Thrift Supervision (OTS), directed TierOne to maintain higher capital ratios as a result of the bank's increase in high-risk problem loans.  To appear to comply with these heightened capital requirements, Lundstrom, Laphen, and Langford disregarded information showing that the collateral securing certain TierOne loans and real estate repossessed by the bank was overvalued due to the bank's reliance on stale and inadequately discounted appraisals.  The losses were understated by millions of dollars in multiple SEC filings.   
+
+ According to the SEC's complaints filed in U.S. District Court for Nebraska, the truth about TierOne's losses did not become publicly known until late 2009 after OTS required TierOne to obtain new appraisals for its impaired loans.  TierOne, in turn, disclosed more than $130 million in loan losses.  Had these loss provisions been booked in the proper quarters, the bank would have missed its required capital ratios as far back as the fourth quarter of 2008.  Following the announcement of these loss provisions, TierOne's stock price dropped more than 70 percent, and the bank filed for bankruptcy shortly after it was shut down by OTS in June 2010.   
+
+ With regard to the insider trading charges against the Lundstroms, the SEC alleges that Gilbert Lundstrom tipped his son in 2009 with confidential details about a proposed asset sale between TierOne and Great Western Bank.  Based on this material, nonpublic information, Trevor Lundstrom bought nearly 210,000 TierOne shares between June and September 2009 in anticipation of the asset sale.  Following a September 4, 2009 public announcement about the transaction, Lundstrom sold his TierOne holdings for $225,921 in illicit profits. 
+Without admitting or denying the allegations in the SEC's complaint, Gilbert Lundstrom, Laphen, and Trevor Lundstrom have agreed to settle the charges against them.  Gilbert Lundstrom consented to a final judgment enjoining him from violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2, from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-1, 13a-11, and 13a-13, and from controlling any person who violates Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13; barring him from serving as an officer or director of a public company; and imposing civil penalties of $500,921.   
+
+ Laphen consented to a final judgment enjoining him from violations of Exchange Act Sections 10(b) and 13(b)(5) and Rules 10b-5, 13b2-1, and 13b2-2 and from aiding and abetting violations of or controlling any person who violates Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13; barring him from serving as an officer or director of a public company; and imposing a civil penalty of $225,000.   
+
+ Trevor Lundstrom consented to a final judgment enjoining him from violations of Exchange Act Section 10(b) and Rule 10b-5; imposing disgorgement of $225,921, plus prejudgment interest of $16,507; and imposing a $225,921 civil penalty. 
+
+ The SEC's case against Langford is ongoing.  The SEC alleges that Langford violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5(a) and (c), 13b2-1, and 13b2-2, and aided and abetted violations of Exchange Act Sections 10(b), 13(a), and 13(b)(2)(A) and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13.  The SEC's complaint seeks a permanent injunction, civil money penalties, and an officer and director bar against Langford.   
+
+   Lundstrom Complaint  
+    Langford Complaint  
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diff --git a/raw/aaer/2012/AAER-3411.pdf b/raw/aaer/2012/AAER-3411.pdf
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diff --git a/raw/aaer/2012/AAER-3411.txt b/raw/aaer/2012/AAER-3411.txt
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+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  67945 / September 28, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 3411 / September 28, 2012 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-12468 
+ 
+In the Matter of  
+Douglas W. Marcille, 
+CPA 
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On October 31, 2006 Douglas W. Marcille, CPA (“Marcille”) was suspended from 
+appearing or practicing before the Commission as an accountant as a result of settled public 
+administrative proceedings instituted by the Commission against Marcille pursuant to Rule 
+102(e)(3)(i) of the Commission's Rules of Practice.1  This order is issued in response to 
+Marcille’s application for reinstatement to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+The Commission found that Marcille had been permanently enjoined by the United States 
+District Court for the Southern District of Florida from future violations of Sections 5(a), 5(c), 
+17(a)(2) and 17(a)(3) of the Securities Act of 1933.  The Commission’s complaint alleged that 
+between March 2002 and August 2003 U.S. Gas & Electric, Inc., acting through executives of 
+the company, including Marcille, its then-chief financial officer, and others, raised more than 
+$6.8 million from investors in a series of unregistered offerings of securities. The defendants 
+used a boiler room of telemarketers to offer and sell securities to approximately 180 investors 
+throughout the United States, many of whom were senior citizens. The complaint further alleged 
+that, U.S. Gas, through Marcille and others, failed to disclose to investors that excessive 
+commissions were being paid to the boiler room telemarketers out of the offering proceeds, and 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 2506 dated October 31, 2006.  Marcille was permitted, 
+pursuant to the order, to apply for reinstatement after three years upon making certain showings. 
+ 
+ 2 
+made misrepresentations to investors in one of the offerings regarding the amount of 
+management fees that would be paid out.  
+The Commission's complaint also alleged that U.S. Gas, Marcille, and another executive 
+violated the registration provisions of the federal securities laws by failing to file registration 
+statements in connection with the offerings. The complaint further alleged that U.S. Gas 
+committed issuer reporting violations by failing to make required periodic filings with the 
+Commission.  
+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, Marcille 
+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.  Marcille 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, Marcille’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Marcille, it appears that he has complied with the terms of the October 31, 2006 order 
+suspending him from appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to his character, integrity, 
+professional conduct, or qualifications to practice before the Commission that would be a basis 
+for adverse action against him pursuant to Rule 102(e) of the Commission’s Rules of Practice, 
+and that Marcille, by undertaking to have his work reviewed by the independent audit committee 
+of any company for which he works, or in some other manner acceptable to the Commission, in 
+his practice before the Commission as a preparer or reviewer of financial statements required to 
+be filed with the Commission, has shown good cause for reinstatement.  Therefore, it is 
+accordingly, 
+                                                 
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this section may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a 
+hearing; however, the suspension or disqualification shall continue unless and until the applicant has been reinstated 
+by the Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ 
+ 
+ 3 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission’s Rules of Practice that 
+Douglas W. Marcille, CPA is hereby reinstated to appear and practice before the Commission as 
+an accountant responsible for the preparation or review of financial statements required to be 
+filed with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+Elizabeth M. Murphy  
+Secretary  
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3414.txt b/raw/aaer/2012/AAER-3414.txt
new file mode 100644
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+++ b/raw/aaer/2012/AAER-3414.txt
@@ -0,0 +1,1387 @@
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+                  U.S. Securities and Exchange Commission 
+
+ Litigation Release No. 22500 / September 28, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3414 / September 28, 2012 
+
+  SEC v. Subramanian Krishnan , Civil No.: 12-CV-2495 PAM-JJG (USDC Minn., Filed Sept. 28, 2012). 
+
+ SEC CHARGES FORMER CFO WITH EVADING INTERNAL CONTROLS TO PAY FOR UNAUTHORIZED TRAVEL AND ENTERTAINMENT EXPENSES 
+
+ On September 28, 2012, the Securities and Exchange Commission filed a partially-settled civil injunctive action in the U.S. District Court for the District of Minnesota against Subramanian Krishnan (Krishnan).  In its complaint, the Commission alleges that Krishnan, the former Chief Financial Officer (CFO) of Digi International, Inc. (Digi), engaged in conduct which resulted in the filing of inaccurate reports and accompanying certifications in Digi's annual quarterly reports from March 2005 through May 2010.  Krishnan engaged in a course of conduct, as a result of which corporate funds were used to pay for unauthorized travel and entertainment expenses.  Krishnan authorized such expenses for Digi employees, caused the Company to file inaccurate reports, failed to enforce Digi's internal controls, demonstrated a lack of management integrity, failed to act to reveal inaccurate reports, and wrongly certified that he evaluated the effectiveness of Digi's internal controls and disclosed they were effective. 
+
+ Without admitting or denying the allegations in the Commission's complaint, Krishnan consented to a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder.  Krishnan is also permanently restrained and enjoined from future violations of Sections 13(a) and 13(b)(5) and Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1 and 13b2-2 thereunder of the Exchange Act and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.  Krishnan consented to a bar from serving as an officer or director of any issuer with the duration of the bar and amount of disgorgement, prejudgment interest, and a civil penalty to be determined by stipulation of the parties or by motion of the Commission at a later date.  
+
+ Jennifer Moore, Justin J. Sutherland, and Karen I. Martinez conducted the Commission's investigation; Daniel J. Wadley and Thomas M. Melton will lead the litigation. 
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diff --git a/raw/aaer/2012/AAER-3417.txt b/raw/aaer/2012/AAER-3417.txt
new file mode 100644
index 0000000000000000000000000000000000000000..cc25caf2de4dcd2cc83dea0e94f206ce45f51d10
--- /dev/null
+++ b/raw/aaer/2012/AAER-3417.txt
@@ -0,0 +1,1395 @@
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+              Joseph J. Monterosso, et. al.
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+        Joseph J. Monterosso, et. al.
+       
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+                  U.S. Securities and Exchange Commission 
+
+ Litigation Release 22513 / October 18, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3417 / October 18, 2012 
+
+  Securities and Exchange Commission v. Joseph J. Monterosso, et. al.,  Civil Action No. 07-61693 (S.D. Fla., initial complaint filed on November 21, 2007) 
+
+ District Court Orders More Than $3 Million In Remedies, Grants Motions For Disgorgement, Civil Penalties and Officer-And-Director Bars Against Timothy Huff, Lawrence Lynch, Joseph J. Monterosso, Luis Vargas  
+
+ On October 17, 2012, the United States District Court for the Southern District of Florida granted the Commission's motions for disgorgement, civil penalties, and officer-and-director bars against the four remaining defendants in a civil action arising from a Florida-based accounting fraud. 
+
+ The district court adopted a recommendation previously entered by a magistrate judge and ordered the following remedies: 
+
+    Former GlobeTel Communications (GlobeTel) chief executive officer Timothy Huff to pay a $1.21 million penalty and $1.5 million in disgorgement plus prejudgment interest.  Judge Joan A. Lenard calculated Huff's penalty by imposing a third-tier penalty for each of Huff's 10 most-serious false disclosures.  She also ordered him to disgorge the full $1.5 million that he received when he exercised stock options in the midst of the fraud.   
+
+   Former GlobeTel chief financial officer Lawrence Lynch to pay a $780,000 civil penalty.   
+
+   Former GlobeTel former executive Joseph J. Monterosso to pay a $300,000 penalty and $675,000 in disgorgement plus prejudgment interest (joint-and-severable with Luis Vargas) and Monterosso barred from serving as an officer or director of a public company for 10 years.   
+
+   Former GlobeTel employee Luis Vargas to pay a $150,000 penalty and $675,000 in disgorgement plus prejudgment interest (joint-and-severable with Joseph J. Monterosso) and Vargas barred from serving as an officer or director of a public company for 10 years. 
+
+  Starting in November 2007, the Commission brought civil actions against the defendants in connection with GlobeTel Communications Corp., now World Surveillance Group Inc. (GlobeTel).  GlobeTel reported millions of dollars in telecommunications revenue from 2002 to 2006 that the Commission alleged was fake.  Huff and former GlobeTel chief financial officer Thomas Jimenez were sentenced to prison as a result of parallel criminal prosecutions.   See U.S. v. Huff , 09-cr-60295-DMM (S.D. Fla.);  U.S. v. Jimenez , 08-cr-60367-DTKH (S.D. Fla.).  GlobeTel and Jimenez previously consented to the entry of judgments against them in the Commission's action. 
+
+ The Commission's complaint against Huff alleged that he created a scheme from 2002 to 2004 that made it appear that GlobeTel bought and sold telecom "minutes" with other companies in Mexico, Brazil and the Philippines.  The complaint alleged that, in reality, there were no transactions and that Huff and Jimenez created false invoices and technical documents and that they lied to auditors. 
+
+ The Commission's complaint against Monterosso and Vargas alleged that they created hundreds of false invoices from 2004 to 2006 that made it appear that GlobeTel's three wholly-owned subsidiaries, Centerline Communications, LLC (Centerline), Volta Communications, LLC (Volta), and Lonestar Communications, LLC (Lonestar) bought and sold telecom "minutes" with other wholesale telecom companies. The complaint alleged that, in reality, there were no transactions under the program that GlobeTel executives described as the "off-net" revenue program. It alleged that two of GlobeTel's subsidiaries - Volta and Lonestar - actually did no business. It alleged that the third subsidiary, Centerline, reported millions of dollars in business with Monterosso's and Vargas' own private company, Carrier Services Inc. (CSI), which did not occur. 
+
+ The Commission's complaint against Lynch alleged that he was aware that the invoices submitted by Monterosso and Vargas did not represent actual telecom business conducted by Centerline.  The complaint alleged that Lynch made and approved journal entries in GlobeTel's financial records to record revenue and to conceal that GlobeTel and its supposed counter-parties were not paying their bills. 
+
+ In May 2008 and August 2010 respectively, Lynch and Huff consented to the entry of judgments against them in the Commission's action.  On May 20, 2008, the court barred Lynch from serving as an officer or director for five years.  On September 7, 2010, the court permanently barred Huff from serving as an officer or director. 
+
+ On March 31, 2011, the court granted the Commission's motions for summary judgment against Monterosso and Vargas. 
+
+ The GlobeTel case was investigated and litigated by Brent Mitchell, Peter Rosario, Jeffrey Infelise, Gina Twyman and Reid Muoio. 
+
+ For further information, please see Litigation Release Numbers  20371  (November 26, 2007) [initial complaint filed];  20550  (May 1, 2008) [civil injunctive action filed against GlobeTel and three former executives];  21202  (September 9, 2009) [civil action filed against Timothy J. Huff]; and  21913  (April 1, 2011) [summary judgment granted against Joseph J. Monterosso and Luis Vargas]. 
+
+ The Commission acknowledges the assistance of the Internal Revenue Service, the Federal Bureau of Investigation, the Tax Division of the United States Department of Justice, and the United States Attorney's Office for the Southern District of Florida. 
+
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diff --git a/raw/aaer/2012/AAER-3419.txt b/raw/aaer/2012/AAER-3419.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7c72c93ffb93fbfd2f0e10dccb68bd5d88800492
--- /dev/null
+++ b/raw/aaer/2012/AAER-3419.txt
@@ -0,0 +1,133 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 68097 / October 24, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3419 / October 24, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15077 
+ 
+ 
+In the Matter of 
+ 
+STORMY L. DEAN, 
+ 
+             Respondent. 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS AND 
+IMPOSING TEMPORARY SUSPENSION 
+PURSUANT TO RULE 102(e)(3) OF THE 
+COMMISSION’S RULES OF PRACTICE 
+                    
+   
+  
+  
+I. 
+ 
+ T he Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted pursuant to 
+Rule 102(e)(3)
+1 of the Commission’s Rules of Practice against Stormy L. Dean (“Respondent” or 
+“Dean”).   
+ 
+                                                 
+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. 
+ 
+The Commission finds that: 
+ 
+A. RESPONDENT 
+ 
+1. Stormy L. Dean, age 54, is a resident of Ralston, Nebraska.  From 1995 
+through 2008, Dean served in various capacities in the accounting department of infoUSA, Inc. 
+(“Info”), an Omaha-based database marketing company.  At Info, Dean served as controller, 
+principal accounting officer, and chief financial officer (“CFO”).  Dean was Info’s CFO from 
+January 2000 to September 2003, and then again from January 2006 through December 2008.  As 
+Info’s CFO, Dean signed and certified Info’s public filings.  Dean passed the certified public 
+accountant (“CPA”) examination in 1995 and holds a CPA certificate in the state of Nebraska.  
+Dean has never obtained a CPA license.      
+   
+ B. CIVIL INJUNCTION AND FINDING OF LIABILITY FOR VIOLATIONS 
+   
+2. On May 29, 2012, the U.S. District Court for the District of Nebraska 
+entered a final judgment against Dean, permanently enjoining him from future violations, direct or 
+indirect, of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and 14(a) of the Securities 
+Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9 
+thereunder.  Securities and Exchange Commission v. Stormy L. Dean, et al., Civil Action Number 
+8:10-cv-00102-LSC-FG3.  In the final judgment, the court declared that Dean “acted in bad faith 
+toward shareholders of [Info], when committing the acts and omissions that led to this proceeding, 
+and knew his actions were contrary to the interests of [Info] and its shareholders.”   
+ 
+3. Previously, on March 2, 2012, after a trial, a jury for the U.S. District Court 
+for the District of Nebraska, issued a verdict finding Dean liable for violations of Sections 10(b), 
+13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), 14(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-
+1, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9 thereunder.  Securities and Exchange Commission v. 
+Stormy L. Dean, et al., Civil Action Number 8:10-cv-00102-LSC-FG3.        
+ 
+4. The Commission’s complaint alleged that Dean signed and certified Info’s 
+false Forms 10-K and proxy statements that materially understated and failed to properly disclose 
+the perquisite compensation of Vinod Gupta, Info’s former chief executive officer and Chairman 
+of the Board of Directors, and failed to properly disclose related party transactions involving 
+Gupta.  The complaint alleged that for the years 2003 through 2007, Gupta used Info to pay for his 
+personal expenses associated with private jet flights, a yacht, homes, automobiles, credit card 
+expenses, country club memberships, and life insurance policies.  As CFO, Dean approved Info’s 
+payment of Gupta’s personal expenses and signed and certified Info’s false Forms 10-K for 2005 
+and 2006 which incorporated information from Info’s proxy statements.  The complaint also 
+alleged that Dean aided and abetted the filing of Info’s false Form 10-K for 2003 which 
+incorporated information from Info’s proxy statements.              
+ 
+ 3 
+III. 
+ 
+Based upon the foregoing, the Commission finds that a court of competent jurisdiction has 
+found Respondent to have violated the Federal securities laws and permanently enjoined him from 
+violations of the Federal securities laws within the meaning of Rule 102(e)(3)(i)(A) and (B) of the 
+Commission’s Rules of Practice.  In view of these findings, the Commission deems it appropriate 
+and in the public interest that Respondent be temporarily suspended from appearing or practicing 
+before the Commission. 
+   
+ IT IS HEREBY ORDERED that Stormy L. Dean be, and hereby is, temporarily suspended 
+from appearing or practicing before the Commission.  This Order shall be effective upon service 
+on the Respondent. 
+ 
+ IT IS FURTHER ORDERED that Respondent may within thirty days after service of this 
+Order file a petition with the Commission to lift the temporary suspension.  If the Commission 
+within thirty days after service of the Order receives no petition, the suspension shall become 
+permanent pursuant to Rule 102(e)(3)(ii). 
+  
+ If a petition is received within thirty days after service of this Order, the Commission shall, 
+within thirty days after the filing of the petition, either lift the temporary suspension, or set the 
+matter down for hearing at a time and place to be designated by the Commission, or both.  If a 
+hearing is ordered, following the hearing, the Commission may lift the suspension, censure the 
+petitioner, or disqualify the petitioner from appearing or practicing before the Commission for a 
+period of time, or permanently, pursuant to Rule 102(e)(3)(iii). 
+ 
+This Order shall be served upon Respondent personally or by certified mail at his last 
+known address. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
+ 
+ 
+ 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3420.pdf b/raw/aaer/2012/AAER-3420.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..73415cc768731965aee90e6045031452af0c3b06
Binary files /dev/null and b/raw/aaer/2012/AAER-3420.pdf differ
diff --git a/raw/aaer/2012/AAER-3421.txt b/raw/aaer/2012/AAER-3421.txt
new file mode 100644
index 0000000000000000000000000000000000000000..85c5cce0d8aeaeeb58ea48802546d1c3ee0a54d8
--- /dev/null
+++ b/raw/aaer/2012/AAER-3421.txt
@@ -0,0 +1,1390 @@
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+                  U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 22520 / October 26, 2012 
+ Accounting and Auditing Enforcement Release No. 3421 / October 26, 2012 
+
+  Securities and Exchange Commission v. Michael Johnson , Civil Action No. 1:12-CV-03709 (U.S. District Court for the Northern District of Georgia) 
+
+ 
+
+ On October 24, 2012, the Securities and Exchange Commission charged Michael Johnson, a divisional merchandise manager at Kohl's, which is a national department store.  The complaint alleged that Johnson assisted the financial fraud at Carter's, Inc, an Atlanta-based manufacturer of children's clothing.  Specifically, the SEC alleges that Johnson assisted Joseph Elles, a former Executive Vice President of Sales at Carter's, in concealing his financial fraud from senior Carter's management.  That scheme caused Carter's to materially misstate its net income and expenses in several financial reporting periods between 2004 and 2009. 
+
+ The SEC's complaint, filed in the United States District Court for the Northern District of Georgia, alleges that between 2004 and 2009, Elles fraudulently manipulated the amount of discounts that Carter's granted to Kohl's, Carter's largest wholesale customer in order to induce Kohl's to purchase greater quantities of Carter's clothing for resale.  In an effort to conceal the scheme, Elles persuaded Kohl's to defer subtracting the discounts from payments until later periods.   Elles also persuaded Johnson, who handled the Carter's account at Kohl's to sign a false confirmation that misrepresented to Carter's accounting personnel the timing and amount of those discounts. By concealing the amount of discounts that had been promised to Kohl's, Elles  and Johnson caused Carter's to materially understate it expenses in certain quarters and materially overstate its earnings in those quarters. 
+
+ After conducting its own internal investigation, Carter's was required to issue restated financial results for the affected periods. 
+
+ The SEC's complaint alleges that Johnson violated Rule 13b-2 of the Securities Exchange Act of 1934 ("Exchange Act"), which prohibits any person from directly or indirectly falsifying or causing to be falsified an issuer's accounting records.  The complaint also alleges that Johnson aided and abetted Elles' violations of Section 13b(5) of the Exchange Act, which among other things, prohibits any person from knowingly falsifying the books, records and/or accounts of an issuer, and Rule 13b2-1 thereunder.  The SEC is seeking permanent injunctive relief and financial penalties against Johnson. 
+
+ This is the third case that the SEC has filed in this continuing investigation.  The Commission previously charged Joseph Elles ( see   SEC v. Joseph Elles, Litigation Release No. 21784  / December 20, 2010) and Joseph Pacifico ( see   Litigation Release No. 22517  / October 19, 2012). When the Commission announced the first case, the Commission also announced that it had entered into a non-prosecution agreement with Carter's, based in part on Carter's prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter's extensive and substantial remedial actions.   See   Release No. 2010-252  / December 20, 2010.  Pursuant to that agreement, Carter's has continued to cooperate during the Commission's continuing investigation. 
+
+ The SEC acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Georgia and the Federal Bureau of Investigation in this matter.   
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diff --git a/raw/aaer/2012/AAER-3423.txt b/raw/aaer/2012/AAER-3423.txt
new file mode 100644
index 0000000000000000000000000000000000000000..81a32519c9f9978871a97915398c267d4f920e0a
--- /dev/null
+++ b/raw/aaer/2012/AAER-3423.txt
@@ -0,0 +1,1399 @@
+
+
+ 
+ 
+   
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+     SEC.gov | Lee Cole, Linden Boyne, Kevin B. Donovan and Timothy Quintanilla 
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+                  U.S. SECURITIES AND EXCHANGE COMMISSION 
+
+ Litigation Release No. 22529 / November 9, 2012 
+ Accounting and Auditing Enforcement Release No. 3423 / November 9, 2012 
+
+  Securities and Exchange Commission v. Lee Cole, Linden Boyne, Kevin B. Donovan and Timothy Quintanilla , Civil Action No. No. 12 Civ. 8167 (RJS) (S.D.N.Y.) 
+
+ SEC Charges Former Officers and Auditor of Electronic Game Card, Inc. with Fraud 
+
+ 
+
+ The Securities and Exchange Commission yesterday charged three executives with repeatedly lying to investors about the operations and financial condition of an Irvine, Calif.-based company that purported to sell credit card-size electronic games.  The SEC also charged the company's independent auditor with facilitating the scheme. 
+
+ The SEC Complaint alleges that chief executive officer Lee Cole and chief financial officer Linden Boyne orchestrated a scheme in which Electronic Game Card Inc. (EGMI) enticed investors by claiming to have millions of dollars in annual revenue, hold millions of dollars in investments, and own an off-shore bank account worth more than $10 million.  In reality, many of the company's purported contracts were phony, the purported investments were merely in entities affiliated with Cole or Boyne, and the bank account did not exist.  As a result of EGMI's false claims, the company's outstanding common stock was once valued as high as $150 million.  EGMI is now bankrupt and its stock is worthless. 
+
+ The SEC charged the company's outside auditor - certified public accountant Timothy Quintanilla - with repeatedly issuing clean audit opinions about EGMI based on reckless and deficient audit work.  Also charged is Kevin Donovan, who later replaced Cole as CEO and ignored many red flags about the accuracy of the company's public statements and the integrity of Cole and Boyne.  He provided false information during conference calls with analysts and investors. 
+
+ The SEC's Complaint alleges that, from 2007 to 2009, EGMI repeatedly reported non-existent revenues and assets, misrepresented its business operations, and failed to disclose related-party transactions.  Those misrepresentations and others like them were just part of a scheme that Cole and Boyne orchestrated through EGMI to reap approximately $12 million in unlawful gains.  While they were making material misrepresentations to inflate EGMI's stock price, Cole and Boyne also secretly funneled millions of shares of EGMI stock to entities based in Gibraltar that they secretly controlled.  They directed the Gibraltar entities to sell the shares, and proceeds of those sales were transferred to people or entities associated with Cole and Boyne or to EGMI itself.  Cole and Boyne bolstered their lies by providing falsified documents to the company's outside auditors. 
+
+ The SEC Complaint alleges that, as EGMI's engagement partner, Quintanilla and the public accounting firm Mendoza Berger & Co. LLP issued clean audit opinions for EGMI's year-end financial statements for 2006, 2007, and 2008, even though those statements were riddled with material misstatements and omissions.  Mendoza Berger and Quintanilla knowingly or recklessly misrepresented that the firm had conducted audits of EGMI's financial statements "in accordance with the standards of the Public Company Accounting Oversight Board (United States)."  Mendoza Berger's opinion stated that EGMI's financial statements "present[ed] fairly, in all material respects, the financial position" of EGMI.  In fact, Mendoza Berger had not audited critical aspects of EGMI's financial statements, and its work did not conform to the standards of the Public Company Accounting Oversight Board (PCAOB).  Quintanilla had no meaningful basis to have Mendoza Berger issue an opinion on EGMI's financial statements. 
+
+ The SEC Complaint further alleges that, shortly after Donovan became CEO, he was notified of many red flags related to the company's public statements about its operations, finances, and share count.  Donovan violated the antifraud provisions of the securities laws when he led several public conference calls with securities analysts and investors in 2009, and knowingly or recklessly relayed false financial information about the company that had been provided to him by Cole and Boyne. 
+
+ The SEC's action was filed in the U.S. District Court for the Southern District of New York, alleging violations by Cole and Boyne of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933; Sections 10(b), 13(b)(5), 13(d), and 16(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 13d-1, 13d-2, 16a-2, and 16a-3 thereunder; and Section 304 of the Sarbanes-Oxley Act of 2002.  The SEC action also alleges that Cole and Boyne are liable as control persons and for aiding and abetting violations of Sections 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.  The SEC action alleges violations by Donovan of Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  In addition, the SEC action alleges violations by Quintanilla of Section 17(a) of the Securities Act and Sections 10(b), 10A(a)(1), and 10A(b)(1) of the Exchange Act and Rule 10b-5 thereunder.  The action against Quintanilla also charges him with aiding and abetting violations of Sections 10(b), 10A(a)(1), and 10A(b)(1) of the Exchange Act and Rule 10b-5 thereunder. 
+
+ The complaint seeks, among other things, a final judgment ordering Cole, Boyne, Donovan, and Quintanilla to pay financial penalties and permanently enjoining them from future violations of the securities laws; enjoining Cole, Boyne, and Donovan from serving as officers and directors of public companies and from participating in penny stock offerings; and ordering Cole, Boyne, and Quintanilla to disgorge their ill-gotten gains with prejudgment interest. 
+
+ The New York Regional Office's Michael Paley, Stephen Larson, James Addison, Gwen Licardo and Aaron Arnzen conducted the investigation.  The SEC thanks the Public Company Accounting Oversight Board for its assistance in this matter. 
+
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diff --git a/raw/aaer/2012/AAER-3424.txt b/raw/aaer/2012/AAER-3424.txt
new file mode 100644
index 0000000000000000000000000000000000000000..354a8ad866ee51cd40c3351882809285212806c4
--- /dev/null
+++ b/raw/aaer/2012/AAER-3424.txt
@@ -0,0 +1,124 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 68234 / November 14, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3424 / November 14, 2012  
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15091
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+JAMES S. QUAY a/k/a JIM 
+QUAY a/k/a STEPHEN 
+QUAY a/k/a STEPHEN 
+JAMESON, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING  
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+ 
+ 
+   
+   
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against James 
+S. Quay a/k/a Jim Quay, Stephen Quay, and Stephen Jameson (“James Quay” 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 . . . attorney … 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.2 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) 
+of the Commission’s Rules of Practice, 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. James Quay, age 51, was previously an attorney licensed in the states of 
+Georgia, Oklahoma, and Texas and has since been disbarred in Georgia and Texas, stemming 
+from his 2005 federal criminal conviction for filing a false income tax return for which he was 
+sentenced to 15 months incarceration.  Although not licensed as a certified public accountant, 
+James Quay purports to have sat for and passed the Uniform Certified Public Accountant 
+Examination. 
+ 
+ 2. On October 18, 2012, a final judgment was entered by consent against 
+James Quay, permanently enjoining him from future violations of Sections 5(a), 5(c), and 17(a) of 
+the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 15(a) of the Exchange Act and 
+Rule 10b-5 thereunder, in the civil action entitled Securities and Exchange Commission v. James 
+S. Quay, et al., Civil Action No. 1:12-cv-03429-RWS, in the United States District Court for the 
+Northern District of Georgia.  
+ 
+ 3. The Commission’s complaint alleged , among other things,  that, from at 
+least October 2007 until at least January 2012, James Quay failed to disclose  to actual or potential 
+investors: (1) compensation, revenue or commissions derived from their participation or 
+investment; (2) information regarding prior or current cri minal, regulatory or professional 
+licensure actions; (3) material information regarding the use of investor funds; (4) overstating 
+investment returns; (5) understating investment risks; or (6) misrepresenting the nature of an 
+investment. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent James Quay’s Offer. 
+ 
+ 3 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. James Quay is suspended from appearing or practicing before the Commission as 
+an accountant.   
+ 
+B. James Quay is suspended from appearing or practicing before the Commission as 
+an attorney.   
+ 
+  
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
+ 
+ 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3426.pdf b/raw/aaer/2012/AAER-3426.pdf
new file mode 100644
index 0000000000000000000000000000000000000000..a70ee8a893529a00e04bff00856920775a2a9246
Binary files /dev/null and b/raw/aaer/2012/AAER-3426.pdf differ
diff --git a/raw/aaer/2012/AAER-3427.txt b/raw/aaer/2012/AAER-3427.txt
new file mode 100644
index 0000000000000000000000000000000000000000..7dd3abe55099f712dfdfd66d2f34d41b1fe3e302
--- /dev/null
+++ b/raw/aaer/2012/AAER-3427.txt
@@ -0,0 +1,1129 @@
+SECURITIES AND EXCHANGE COMMISSION
+Washington, D.C.
+SECURITIES EXCHANGE ACT OF 1934
+Rel. No. 68431 /December 13, 2012
+ACCOUNTING AND AUDITING ENFORCEMENT
+Rel. No. 3427 /December 13, 2012
+Admin. Proc. File No. 3-13797
+In the Matter of the Application of
+WENDY MCNEELEY, CPA
+c/o Robert L. Michels, Esq.
+Winston & Strawn LLP
+35 Wacker Dr.
+Chicago, IL 60601
+OPINION OF THE COMMISSION
+102(e) PROCEEDING
+Grounds for Remedial Action
+Improper Professional Conduct
+Certified public accountant acting as audit manager engaged in improper professional
+conduct in the audit of the financial statements of a private company and a related fund.
+Held, it is in the public interest to deny the accountant the privilege of appearing or
+practicing before the Commission for six months.
+APPEARANCES:
+Robert L. Michels, Scott P. Glauberman, and J. Malcolm Cox, of Winston & Strawn LLP,
+for Wendy McNeeley.
+Andrea Wood and Robert Moye, for the Division of Enforcement.
+Appeal filed: February 11, 2011
+Last brief received: May 2, 2011
+Oral Argument: November 2, 2011
+
+2
+I.
+Wendy McNeeley, a licensed certified public accountant and former audit manager at
+Ernst &Young ("E&Y"), appeals from the decision of an administrative law judge. The law
+judge found that McNeeley engaged in improper professional conduct as defined in the
+Commission's Rule of Practice 102(e)' while serving as the audit manager during E&Y's audit of
+AA Capital Partners, Inc. ("AA Capital"), a registered investment adviser, and AA Capital Equity
+Fund, L.P. (the "Equity Fund") for the year ended December 31, 2004. The law judge found that
+McNeeley's improper professional conduct was the result of a single instance of highly
+unreasonable conduct that resulted in a violation of generally accepted auditing
+standards ("GAAS") in circumstances in which McNeeley knew, or should have known, that
+heightened scrutiny was warranted.2 The law judge determined that, because of this conduct,
+McNeeley should be denied the privilege of appearing or practicing as an accountant before the
+Commission for one year. We base our findings on an independent review of the record, except
+for findings that the parties do not challenge on appeal.
+II.
+A. AA Capital and its Affiliates
+This matter involves McNeeley's audit of a series of transactions through which AA
+Capital transferred approximately $1.9 million from client trust accounts to its president and co-
+founder, John Orecchio, purportedly to pay a tax assessment by the Internal Revenue Service. At
+the time of the audit, AA Capital was headquartered in Chicago, Illinois, and co-owned, equally,
+by Orecchio and his business partner, Paul Oliver, Jr. In addition to being president, Orecchio
+served as AA Capital's director and secretary and exercised day-to-day management and control
+over AA Capital. Oliver served as AA Capital's chairman and treasurer. AA Capital's chief
+financial officer and chief compliance officer was Mary Beth Stevens, who was responsible for
+AA Capital's entire accounting function.3
+AA Capital had several affiliated private equity funds into which AA Capital's clients
+invested money. The largest of these funds was the Equity Fund, which had approximately $131
+million in assets under management as of December 31, 2004. The Equity Fund was governed
+by an Amended and Restated Limited Partnership Agreement (the "Partnership Agreement"),
+which gave the Equity Fund's general partner, AA Private Equity Investors Management, LLC
+17 C.F.R. § 201.102(e)(1)(ii).
+GARS are standards of conduct relating to how auditors should perform an audit.
+See SEC v. Arthur Young & Co., 590 F.2d 785, 788 n.2, 789 n.4 (9th Cir. 1979). GARS are
+generally described in the American Institute of Certified Public Accountants ("AICPA")
+Codification of Statements of Auditing Standards, hereinafter cited as "AU § _."
+None of AA Capital's employees testified at the hearing.
+
+("AA Investors Management LLC"), control over the Equity Fund. Orecchio and Oliver each
+owned twenty percent of the general partner. The Equity Fund's limited partners were three
+pension funds, which had their investment commitments deposited into separate bank trust
+accounts ("Investor Trust Accounts") in the name of each investor. The Equity Fund could call
+capital from the Investor Trust Accounts for three primary purposes: (i) to make investments;
+(ii) to pay management fees; or (iii) to pay overhead expenses.
+B. E&Y's Audits
+E&Y became AA Capital's auditors in 2002, but in 2004, became concerned about
+whether it had the resources to staff those engagements. This concern caused some delay, but
+E&Y eventually agreed to audit AA Capital and its affiliated funds for the fiscal years ended
+December 31, 2003 and 2004. Because of the delay, however, E&Y had to conduct the 2003 and
+2004 audits concurrently. AA Capital also requested a June 30, 2005 deadline so that investors
+would have the financial statements necessary to complete their tax filings. The deadline
+required E&Y to conduct ten audits simultaneously by June 30, 2005.
+E&Y began the audits during the spring and early summer of 2005 and assigned
+McNeeley as audit manager. The audit team also included an independent review partner, John
+Kavanaugh; an engagement partner, Gerard Oprins; two audit seniors; and two audit staff.
+McNeeley was twenty-nine-years old at the time and had been licensed as a certified public
+accountant for approximately eight years. As audit manager, McNeeley reported to the
+engagement partner, Oprins, but McNeeley was responsible for overseeing day-to-day audit
+planning and executing audit strategy. McNeeley also supervised the audit staff and reviewed
+audit workpapers in significant risk areas.
+As part of the planning process, E&Y's audit team determined not to rely on AA Capital's
+internal controls because E&Y determined those controls to be "ineffective" for purposes of
+E&Y's audit. McNeeley explained that this determination was primarily due "to the lack of
+sophistication with the client's accounting function and that they kept all their books and records
+in Excel format." This determination meant that E&Y's audit would need to test all account
+balances substantively and verify (or "vouch") all capital calls and distributions.
+McNeeley also expressed concern early in the audit process about meeting the June 30
+deadline because of staffing constraints, another audit engagement McNeeley was conducting by
+herself, and atwo-week vacation McNeeley intended to take (and did take) starting May 20,
+2005. McNeeley, for instance, wrote inane-mail to Oprins in May 2005 that she was "very
+concerned about the wrap up of this engagement." In a subsequent email in June 2005,
+McNeeley again wrote "to convey that the June 30th deadline will be challenging to meet," but
+added that she believed "that we will be able to meet the June 30 deadline" and "just wanted to
+prepare Mary Beth [Stevens]" for the fact "that things may be pulled together at the last minute."
+
+4
+C. Discovery of Orecchio's Purported Tax Loans
+Sometime during the audit, the E&Y team noticed that AA Capital's accounts receivable
+schedule (the "Receivable Schedule")4 listed four cash transfers to Orecchio (collectively, the
+"Transfers"). The Receivable Schedule described the transfers as "John —tax payment" and
+totaled approximately $1.92 million. The Transfers were spread over approximately six months,
+at uneven intervals, in varying amounts, and with slightly different structures:
+• On May 19, 2004, $987,000 was transferred from two Investor Trust Accounts to AA
+Capital's primary bank account. The same day, $602,150 was transferred from AA
+Capital's primary bank account to Orecchio's personal bank account.
+• On August 2, 2004, $190,000 was transferred from three Investor Trust Accounts to AA
+Capital's primary bank account. The same day, $190,154 was transferred from AA
+Capital's primary bank account to Orecchio's personal bank account.
+• On September 20, 2004, $600,000 was transferred from three Investor Trust Accounts to
+AA Capital's primary bank account. The same day, $579,000 was transferred from AA
+Capital's primary bank account to Orecchio's personal bank account.
+• On November 5, 2004, $550,000 was transferred from three Investor Trust Accounts to
+the Equity Fund's bank account. The same day, $550,000 was transferred from the Equity
+Fund's bank account to Orecchio's personal bank accounts
+On or around May 7, 2005, an E&Y audit staff member, Corina Rojas, had a conversation
+with Stevens about the Transfers. Rojas documented the conversation with a note on the
+Receivable Schedule:
+Per conversation w/ Mary Beth Stevens, CFO, all of the funds held under AA
+Capital Inc. had not finalized their audits, tax filings, and therefore John Orrechio
+[sic], (managing member) did not have a final tax return draft that included
+taxable income w/ set figures. Therefore he had to estimate his tax liability [and]
+made a payment to the IRS for 1,921,150.... The 1,921,150 is essentially a loan
+made to John Orrechio [sic]. Mary Beth Stevens expects to receive payment from
+either Mr. Orrechio [sic] or the IRS after taa~es are finalized.
+McNeeley explained that the Receivable Schedule was prepared by Stevens and
+contained a list "of disbursements from the entity and gives further detail and break out of what
+those amounts related to."
+The parties stipulated to these details, although an e-mail dated June 16, 2005,
+from Stevens to McNeeley, described the Transfers in slightly different amounts: $596,129
+(May 19, 2004); $188,100 (August 2, 2004); $573,210 (September 20, 2004); and $544,500
+(November 5, 2004).
+
+5
+Rojas, who did not testify, further noted on the Receivable Schedule that Orecchio's co-owner,
+Oliver, had also received a tax advance —for $18,228.
+D. McNeeley's Audit Steps Regarding the Transfers
+McNeeley testified that, "at some point," she saw the Receivable Schedule listing the four
+transfers to Orecchio. She. could not remember, however, precisely when she first learned of the
+Transfers, explaining that "it is hard for me to remember exactly when I learned things
+throughout the audit." McNeeley recalled meeting with Stevens to discuss the Receivable
+Schedule, but could not recall when that meeting occurred. McNeeley remembered asking
+Stevens during their meeting to provide "any and all documentation that she had regarding the
+tax advances." According to McNeeley, Stevens responded to the request for documents by
+directing McNeeley to the tax advance amounts listed in the Receivable Schedule. McNeeley
+added that she and the audit team "also had other documentation that we had previously been
+provided that also reflected and supported [the Transfers]."
+The first document was a general ledger. McNeeley explained that the ledger was a
+document prepared by Stevens reflecting "all transactions going through the company for a set
+period of time." The ledger showed the detail of the individual purported tax payments, dollar
+amounts, and dates paid.
+The second document was a management representation letter (which was actually two
+documents: one each for AA Capital and the Equity Fund). The letters were signed by Stevens
+and Orecchio and represented to E&Y that AA Capital's and the Equity Fund's accounting
+records were complete and accurately reflected all transactions. The management letter for the
+Equity Fund included a general representation that all related-party transactions were properly
+recorded or disclosed in the financial statements. Neither management representation letter,
+however, explicitly mentioned the Transfers.
+The third document was the Partnership Agreement, which allowed tax-related transfers
+in certain situations. Section 7.3.1 of the agreement provided that "if net income of the [Equity
+Fund] is allocated to [its] Partners in any fiscal year," then the Equity Fund could make "tax
+distributions" to satisfy any tax liability such partner "would actually have incurred.i6 Here,
+however, the Equity Fund had a net investment loss in both 2003 and 2004, and neither of the
+other two parties involved in the Transfers (Orecchio and AA Capital) were partners in the
+Equity Fund.
+McNeeley testified that she "read through" the Partnership Agreement at the beginning of
+the audit and "gained an understanding of all the significant provisions within the limited
+partnership agreement." She could not recall, however, whether she reviewed the Partnership
+Agreement when evaluating the Transfers. As she explained, "I don't have a specific recollection
+o~ looking at [the Partnership Agreement] while ...looking at the accounts receivable schedule,
+6 The Partnership Agreement's Section 7.3.3, which was subject to Section 7.3.1,
+similarly provided for advances to partners to satisfy estimated taxes.
+
+C~
+but I had previously looked at the [Partnership Agreement] at the beginning of field work and
+had an understanding of the provision allowed for in the agreement."
+When asked during the hearing, McNeeley also testified that she and the audit team never
+sought nor received any third-party confirmation regarding the Transfers, such as documentation
+from the IRS evidencing a tax liability assessment. McNeeley also could not remember whether
+she ever asked about Orecchio's ability to repay the Transfers. As McNeeley explained, "we had
+no reason to question the collectibility of the receivable from John Orecchio to AA Capital
+Partners. We understand him to be a successful wealthy business man. He had capital in the
+[E]quity [F]und as well as investments and various other funds." McNeeley added, "Based on
+my recollection of the transaction, we understood it to be an erroneous tax liability that had been
+assessed to John Orecchio; and therefore, he anticipated settlement with the IRS and was going
+to use that to repay it."
+McNeeley also could not recall contacting the E&Y tax department for any reason.
+E&Y's tax department prepared AA Capital's tax returns at the time of the audits and, therefore,
+likely could have confirmed whether AA Capital had reported income in 2003 or 2004 on which
+Orecchio would owe taxes. McNeeley testified, however, that she "d[id]n't know why I would go
+and inquire [ofJ the E&Y tax team ...when the tax liability that John Orrechio [sic] received
+advances for related to his personal tax return ...and our tax department wouldn't have all the
+information necessary to make the evaluation of his personal tax position."
+McNeeley testified at various points during the hearing that she was comforted by her
+understanding that Oliver and Orecchio "would have full knowledge about each other's tax
+advances." McNeeley could not recall, however, ever confirming whether Oliver actually knew
+about the Transfers. In fact, McNeeley could not recall whether she or any other member of the
+audit team ever spoke with Orecchio or Oliver about any aspect of the Transfers. McNeeley
+instead testified that she "understood" that the two partners "would have full knowledge of each
+other's tax advances" and that she based this understanding "on Paul Oliver being the treasurer of
+the company and having full access to the records." McNeeley later added that Oliver "had the
+opportunity to become aware of such transaction and had a fiduciary ...obligation as a co-owner
+of AA Capital Partners to be aware of all the transaction [sic] and ongoing of the business [sic]."
+Near the end of the audit, McNeeley went on vacation for approximately two weeks,
+beginning May 20, 2005. After her return, McNeeley e-mailed Stevens "to get clarification as to
+exactly what the tax liability related to." In her initial email, sent June 7, 2011, McNeeley
+expressed confusion to Stevens about who owed the tax liability and whether any payment had
+been made. McNeeley, for example, asked Stevens to clarify that accruals "labeled as'John's T~
+Payment' ...are accruals for the Corporation's tax payments and not personal tax liabilities of
+the Shareholders." McNeeley also asked "when are the actual payments expected to be made[?]"
+Stevens responded that Orecchio had been "dinged by the IRS and incurred multiple fees
+and tax payments." Stevens added that most of the supposed tax assessment amounts were not
+correct, but could not be settled with the IRS until the audit and tax work were completed.
+
+Stevens explained, "Payments for which [Orecchio] is truly liable for he will pay and a majority,
+if not all, will be refunded back to him which he will then repay the company."
+McNeeley expressed continued confusion in a follow-up email about what she described
+as "these hefty tax assessments." McNeeley wrote to Stevens that "it's my understanding that no
+money has actually been paid from or received by AA Capital in relation to the payment of John
+[Orecchio]'s taxes," and asked "if it is proper to present a liability on the books of AA Capital for
+which AA Capital does not currently have obligation to pay." Stevens wrote back to clarify that
+AA Capital was owed an accounts receivable from Orecchio and, in turn, AA Capital owed an
+accounts payable to the Equity Fund.
+On the same day as her email exchange with Stevens, McNeeley documented her
+understanding of the Transfers with a note in the workpapers:
+[T]he Equity fund made approx. [$] 1,921,304 of tax payments for John Orrechio
+[sic] during 2004. [T]he Equity fund has set up a receivable -from AA Capital
+Partners for reimbursement of this amt. E&Y verified that AA Cptl Ptnrs has a
+reciprocal payable balance to Equity. E&Y also noted that AA Cptl has an
+offsetting receivable balance from John Orrechio [sic]. Appears proper.
+Oprins testified that he saw McNeeley's note, but he could not recall "one way or the
+other" whether McNeeley ever discussed the Transfers with him. Oprins could recall only that
+McNeeley kept him informed about what was happening during the audits, but not the specific
+audit steps taken regarding the Transfers or whether he had discussed the Transfers with the audit
+team.
+E. E&Y's Subsequent Review Testing
+As part of the 2004 audit, the E&Y audit team conducted "subsequent review testing" of
+transactions that occurred after the 2004 year end. E&Y's workpapers showed that the audit team
+looked at AA Capital's cash receipt and disbursement records for "significant" or "unusual" items
+that may have occurred between January 1, 2005 and March 31, 2005. McNeeley wrote in the
+workpapers that "no unusual items" were uncovered during this subsequent review.
+AA Capital's 2005 accounts receivable schedule, however, showed that AA Capital made
+nine more disbursements to Orecchio in January and February 2005, totaling $482,000. The
+2005 accounts receivable schedule described these transfers as "J.O. taxes," "JO Tax Distrib," or
+"JO Tax Dist." The record is not clear, however, whether McNeeley saw these subsequent
+transfers. The only document in the record that lists the subsequent transfers is the 2005
+accounts receivable schedule. That document, however, includes entries dated as late as
+December 31, 2005 and therefore could not have existed at the time McNeeley was completing
+the audit in June 2005.
+
+F. The 2004 Financial Statement
+E&Y completed the audits by the end of June 2005 and issued unqualified audit opinions
+for AA Capital's and the Equity Fund's 2004 financial statements. E&Y's audit opinion
+represented that E&Y had conducted its audit in accordance with GARS and that the audit
+provided a reasonable basis for E&Y's opinion that AA Capital's and the Equity Fund's financial
+statements fairly presented the firms' financial positions, results of operations, and cash flows.'
+The audited financial statements provided no specifics about the $1.92 million tax
+advance to Orecchio. Instead, AA Capital's 2004 financial statements disclosed only that the
+company had $2.534 million in "[flee and accounts payable" and $2.251 million in "[a]ccounts
+receivable from affiliates." The notes to AA Capital's financial statements also provided no
+mention of transfers to Orecchio. The notes instead discussed only that the company had paid
+$264,176 in "certain reimbursable expenses" for several of AA Capital's related funds. The
+Equity Fund's financial statements similarly listed a $1.92 million "[a]ccounts receivable from
+AA Capital Partners, Inc.," with no other details such as the terms or manner of settlement.
+E&Y's internal GAAP Disclosure Checklist stated that "[n]otes or accounts receivable
+from officers, employees or affiliated companies must be shown separately and not included
+under a general heading such as notes or accounts receivable." In response to this item,
+McNeeley checked a box indicating "not applicable." McNeeley explained that she checked "not
+applicable" because she believed the requirement was limited to making sure that "accounts
+receivable with related parties is not grouped in with other accounts receivables from trade
+creditors and that was not the case in either one of these financial statements."
+G. Discovery of Orecchio's Fraud
+AA Capital engaged E&Y to audit the company and its related funds again the following
+year, 2005. Jennifer Aquino replaced McNeeley as the audit manager because McNeeley was on
+maternity leave. Most of the 2005 E&Y audit team otherwise remained the same.
+During the 2005 audit, Aquino asked Stevens for documentation supporting the tax
+transfers to Orecchio, but never received anything in return. Aquino testified that the E&Y audit
+team had several internal meetings regarding the transfers and sent Orecchio an e-mail, but the
+record provides no indication that Orecchio ever responded. Those steps, Aquino recalled, were
+The audit opinion for AA Capital's financial statements included a disclaimer that
+AA Capital's policy was to prepare its financial statements on a tax basis of accounting. The
+financial statements, the audit opinion explained, were not intended to be presentations in
+conformity with generally accepted accounting principals ("GAAP"). Despite this disclaimer,
+Oprins and McNeeley both acknowledged that GAAP disclosure requirements for related-party
+transactions were the same no matter whether the financial statements were tax-based or GAAP-
+based. The audit opinion for the Equity Fund's financial statements did not include a tax basis
+disclaimer.
+
+"the best that we felt we could do at that time." She explained that, because the audit team
+"didn't have anything to audit," they could only wait to receive something more from AA Capital.
+Aquino also learned during the audit that, by the end of 2005, the t~ transfers to Orecchio had
+grown to $5.7 million. As McNeeley's expert witness testified, AA Capital's financial statements
+expressly identified the Transfers as "accounts receivables," which indicated that the Transfers
+were short-term advances repayable within one year. Aquino, therefore, found it significant that
+the 2004 transfers not only still existed on AA Capital's books in 2005, but had, in fact,
+increased.
+The audit team eventually decided that they would not continue with the 2005 audit until
+Orecchio paid back the "tax loan" and E&Y had received enough documentation to audit the
+transfer balance. On June 30, 2006, Oprins informed Stevens and Orecchio that E&Y would not
+release its 2005 audit opinions until Orecchio repaid the transfers. The E&Y audit team also
+raised a "going concern" issue regarding AA Capital's ability to fund its operations. The audit
+team was unable to resolve these issues, and E&Y never issued its 2005 audit reports.
+In August 2006, the Commission conducted a "for cause" on-site examination of AA
+Capital to investigate a tip from the U.S. Department of Labor about a kickback scheme. During
+the examination, Commission staff learned that Orecchio had misappropriated approximately $5
+million through a fraudulent tax-loan mechanism. In September 2006, the Commission filed a
+complaint in U.S. District Court against AA Capital and Orecchio. The complaint alleged that
+AA Capital and Orecchio misappropriated at least $10.7 million from AA Capital's advisory
+clients, and the U.S. District Court placed a receiver over AA Capital.g The U.S. Department of
+Justice subsequently brought criminal charges against Orecchio in 2009 for wire fraud and theft
+of funds from an employee benefit plan. Orecchio pleaded guilty in February 2010, and a U.S.
+District Court sentenced Orecchio to more than nine years in prison.9 The Commission also
+instituted administrative proceedings against Stevens and Oliver for their involvement in the
+fraud. Stevens and Oliver eventually consented to, among other things, a bar and twelve-month
+suspension, respectively; civil penalties; and acease-and-desist order.'o
+H. Rule 102(e) Administrative Proceeding
+In March 2010, the Commission issued an Order Instituting Proceedings ("OIP") against
+McNeeley and her supervisor, Gerard Oprins, in connection with their audit of AA Capital. The
+OIP charged McNeeley and Oprins with engaging in improper professional conduct as defined in
+Rule 102(e) "in that their conduct constituted (A) intentional or knowing conduct, including
+SEC v. AA Capital Partners, Inc., No. 06-C-4859 (N.D. Ill. Sept. 8, 2006).
+United States v. Orecchio, No. 09-CR-622 (N.D. Ill. 2010).
+10 Mary Beth Stevens, Investment Advisers Act Rel. No. 2973 (Jan. 5, 2010),
+97 SEC Docket 24420; Paul W. Oliver, Jr., Advisers Act Rel. No. 2903 (July 17, 2009), 96 SEC
+Docket 19124.
+
+10
+reckless conduct, that resulted in a violation of the applicable professional standards, or in the
+alternative, (B) negligent conduct, consisting of a single instance of highly unreasonable conduct
+that resulted in a violation of applicable professional standards in circumstances in which
+Respondents knew, or should have known, that heightened scrutiny was warranted." After an
+eight-day hearing, an administrative law judge issued an initial decision finding that McNeeley's
+actions did not constitute reckless conduct, but did constitute highly unreasonable conduct in
+circumstances warranting heightened scrutiny that resulted in a violation of the applicable
+professional standards. The law judge found that Oprins also violated the applicable professional
+standards, but that his actions were neither reckless nor highly unreasonable. McNeeley appeals
+the law judge's decision."
+Rule of Practice 102(e) permits us to censure or deny (either permanently or temporarily)
+the privilege of appearing or practicing before the Commission to persons found to have engaged
+in improper professional conduct. The rule defines three classes of "improper professional
+conduct" for accountants, but this appeal concerns only one: whether McNeeley engaged in "a
+single instance of highly unreasonable conduct that results in a violation of applicable
+professional standards in circumstances in which an accountant knows, or should know, that
+heightened scrutiny is warranted."'Z We find, for the reasons below, that McNeeley engaged in
+such improper professional conduct.
+A. Heightened Scrutiny Was Warranted
+Our Rule 102(e) analysis first considers whether the Transfers warranted heightened
+scrutiny. Under Rule 102(e), "heightened scrutiny" is warranted "when matters are important or
+material, or when warning signals or other factors should alert an accountant" to a heightened
+risk.'3 These factors were clearly present here.
+" Because the law judge's decision regarding Oprins was not appealed, the only
+issue before us on appeal is whether McNeeley engaged in improper professional conduct. See
+Gerard A.M. Oprins, CPA, Securities Exchange Act Rel. No. 63931 (Feb. 18, 2011) (giving
+notice, "pursuant to Rule 360(d) of the Commission's Rules of Practice, that the initial decision
+of the administrative law judge has become the final decision of the Commission with respect to
+Gerard A.M. Oprins").
+12 17 C.F.R. § 201.102(e)(1)(iv)(B)(1). The other two classes of improper
+professional conduct are "intentional or knowing conduct, including reckless conduct, that results
+in a violation of applicable professional standards;" and "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." 17 C.F.R. § 201.102(e)(1)(iv)(A),
+(e)(1)(iv)(B)(2).
+13 Amendment to Rule 102(e) of the Commission's Rules of Practice ("Amendment to
+Rule 102(e)"), 63 Fed. Reg. 57,164, 57,168 (Oct. 26, 1998).
+
+11
+First, the Transfers were related-party transactions, which we and the courts have
+repeatedly held require heightened scrutiny.14 The reason for this, the D.C. Circuit has explained,
+"is apparent: Although in an ordinary arms-length transaction, one may assume that parties will
+act in their own economic self-interest, this assumption breaks down when the parties are related.
+A company that would perform a thorough credit-risk assessment before extending a loan might
+not do so if the loan were to one of its officers or directors.i15 That is the case here. AA Capital
+essentially extended a loan from clients' trust accounts to Orecchio, who was not only an officer
+and director of AA Capital, but also a founder and co-owner. Transactions involving such strong
+related-party relationships, the D.C. Circuit has explained, alert auditors that a firm may not have
+thoroughly vetted those transactions and that, as a result, heightened scrutiny is needed —exactly
+the case that faced McNeeley.16
+Second, the Transfers were plainly material, which we have also stated triggers
+heightened scrutiny." McNeeley counters that materiality "is irrelevant" because, she contends,
+auditors are concerned only with material transactions. She claims that to hold that materiality
+warrants heightened scrutiny would therefore mean that every transaction would warrant
+heightened scrutiny. She argues that multi-million dollar tax liabilities are not unusual for
+private equity firm partners and do not necessarily require heightened scrutiny. Even if we
+accepted this latter proposition regarding the absolute amount of the tax liabilities, the Transfers
+here were more than 100 times greater than a transfer to Orecchio's equal partner in a year in
+which the Equity Fund had no net income.18 Even McNeeley described the $1.9 million transfers
+combination warrants heightened scrutiny.19
+'4 McCurdy v. SEC, 396 F.3d 1258, 1261 (D.C. Cir. 2005) (citing Howard v. SEC,
+376 F.3d 1136, 1149 (D.C. Cir. 2004)) (noting that related-party transactions "are viewed with
+extreme skepticism in all areas of finance"), affg James Thomas McCurdy, CPA, 57 S.E.C. 277
+(2004); see also Gordon v. Comm'r, 85 T.C. 309, 326-27 (1985) (explaining "heightened"
+skepticism for related-party transactions); AU § 334 (recognizing need for care in the
+examination of material related-party transactions).
+15 McCurdy, 396 F.3d at 1261.
+16 McCurdy, 396 F.3d at 1264 ("The related-party interest underlying the transaction
+was not minor: Bagwell was the founder and CEO of the fund, a trustee, and its investment
+advisor.").
+" Amendment to Rule 102(e), 63 Fed. Reg. at 57,168 (stating that heightened
+scrutiny is warranted "when matters are important or material").
+'g Cf. McCurdy, 396 F.3d at 1264 (affirming Commission's finding of recklessness
+where auditor failed to investigate adequately arelated-party receivable that "was nearly ten
+times the amount of the GARS-dictated materiality threshold").
+19 See McCurdy, 57 S.E.C. at 295 (finding heightened scrutiny to be warranted
+where, among other things, the receivable at issue "arose from a related party transaction" and
+(continued...)
+
+12
+Finally, McNeeley argues that the material, related-party nature of the Transfers cannot
+provide a basis for finding that the Transfers warranted heightened scrutiny because, she claims,
+the Division failed to make such allegations in the OIP. To the contrary, however, the OIP
+expressly alleged that "McNeeley identified Orecchio's 'tax loan' as a related party transaction,
+[but] failed to apply heightened scrutiny or perform any additional audit steps to evaluate it."
+Moreover, the standard for determining whether notice is adequate is whether "the respondent
+'understood the issue' and'was afforded full opportunity' to justify [her] conduct during the
+course of the litigation.i20 We find that McNeeley, who has been represented by counsel
+throughout these proceedings, adequately understood the allegation that the Transfers warranted
+heightened scrutiny because of their material, related-party nature and that she had ample
+opportunity to defend herself against those allegations.
+B. McNeeley Violated Applicable Professional Standards
+Our analysis of whether McNeeley engaged in improper professional conduct next
+addresses whether McNeeley violated applicable professional standards. Here, we find that
+McNeeley violated three professional standards: ,(i) exercising due professional care,
+(ii) obtaining sufficient competent evidence, and (iii) rendering an accurate audit report.Z'
+1. Failure to Exercise Due Professional Care
+GARS require auditors to exercise due professional care when conducting an audit and
+preparing a report.22 Under this standard, auditors must maintain an attitude of professional
+skepticism, which includes "a questioning mind and a critical assessment of audit evidence.i23
+Until an auditor obtains an understanding of the business purpose of material related-party
+19 (...continued)
+was "clearly material"); AU § 334.07 ("The auditor should place emphasis on testing material
+transactions with parties he knows are related to the reporting entity."); cf. McCurdy, 396 F.3d at
+1263-64 (finding that auditor's failure to investigate material, related-party transaction was
+reckless under Rule 102(e)).
+20 Aloha Airlines, Inc. v. Civil Aeronautics Bd., 598 F2d 250, 262 (D.C. Cir. 1979).
+21 AU § 230.01 (professional care); AU § 326.22 (sufficient competent evidential
+matter); AU § 508.07 (accurate audit report).
+2z AU § 230.01 ("Due professional care is to be exercised in the planning and
+performance of the audit and the preparation of the report.").
+Z3 AU § 230.07; see also AU § 230.08 ("[P]rofessional skepticism should be
+exercised throughout the audit process."); AU § 330.15 (requiring auditors to exercise an
+appropriate level of professional skepticism in designing and conducting the confirmation
+process).
+
+13
+transactions, her audit is not complete.24 Here, numerous red flags and other irregularities
+surrounded the Transfers —anomalies that should have triggered McNeeley's professional
+skepticism and led her to investigate further at that point. Instead, McNeeley did essentially
+nothing, and an unqualified audit opinion was eventually issued. As explained below, this failure
+to investigate fell well below the necessary level of professional care.
+The first, and most glaring, red flag that McNeeley failed to investigate properly involved
+the Equity Fund's Partnership Agreement. That agreement contemplated tax-related transfers
+only for partners of the Equity Fund. Neither Orecchio nor AA Capital, however, was a partner
+in the fund. The Partnership Agreement also contemplated tax-related transfers only for years in
+which the fund allocated net income to such partners. The Equity Fund, however, had a net
+investment loss in both 2003 and 2004.
+Even a relatively casual understanding of the Partnership Agreement, therefore, should
+have, at a minimum, alerted McNeeley that the agreement's terms did not accord with what she
+knew about the Transfers. As an auditor, McNeeley was responsible for reconciling these
+discrepancies, and verifying that the Equity Fund's governing documents allowed the Transfers
+was perhaps the most basic auditing step McNeeley could have taken. The workpapers,
+however, contain no indication that she made any effort to square the Partnership Agreement
+with the Transfers, and McNeeley herself testified that she could not remember whether she
+reviewed the Partnership Agreement subsequent to learning of the Transfers. Instead, McNeeley
+claims only that "she was familiar with private equity partnership agreements and the typical
+provisions within such agreements, and based on her review of the Partnership Agreement at the
+outset of the audit, she understood its provisions." Given the centrality of the Partnership
+Agreement in determining the permissibility and appropriate reporting of the Transfers, it was
+incumbent upon McNeeley to have a better understanding of the Partnership Agreement than she
+did. The lack of evidence that McNeeley performed any follow-up regarding the Partnership
+Agreement leads us to one of two conclusions: either McNeeley did not review the agreement
+sufficiently to notice and understand the obvious red flags or she noticed the red flags, but did
+nothing about them. Either is a failure to exercise due care.
+In her appeal, McNeeley disputes that the Partnership Agreement contained any red flags,
+because, she claims, the agreement in fact allowed for tax distributions and advances. McNeeley
+does not explain, however, how the agreement actually allowed for the Transfers, other than to
+point to what she calls the "common sense" argument that the "very reason that Mr. Orecchio
+chose to disguise his misappropriations as a tax advance was that the Partnership Agreement
+clearly allows for tax advances under the circumstances here. If it had not, he would not have
+used the Partnership Agreement to justify withdrawing the money." McNeeley's generic,
+unsupported, after-the-fact assertion that the Partnership Agreement allowed for tax distributions
+and advances in certain situations —situations that, on their face, did not apply here — is not a
+foundation on which one may properly base an audit. Moreover, McNeeley's contention that it is
+"common sense" that a fraudster's cover-up would conform to the governing documents is
+contradicted here by the audit evidence of the Partnership Agreement's provisions, and
+underscores how little attention she paid to that evidence.
+24 AU § 334.09(a).
+
+14
+The inconsistencies between the Transfers and the Partnership Agreement were not the
+only red flags that McNeeley failed to investigate. Stevens gave McNeeley and her audit team
+inconsistent explanations for why Orecchio needed the Transfers. The first explanation Stevens
+gave was that Orecchio needed the Transfers because he "did not have a final tax return draft
+[and] [t]herefore he had to estimate his tax liability and make a payment to the IRS." This
+explanation suggests that Orecchio's alleged tax liability was based on his own estimate. Later,
+however, Stevens told McNeeley that Orecchio had been "dinged by the IRS and incurred
+multiple fees and tax payments." This explanation suggests that Orecchio's alleged tax liability
+was based on an IRS calculation (which Orecchio believed was incorrect).25 The record again
+contains no evidence that McNeeley exercised appropriate caxe by attempting to reconcile these
+inconsistencies.
+McNeeley defends her failure to investigate by arguing that Stevens's explanations were
+not, in fact, inconsistent. As McNeeley testified, she understood the Transfers to be "a taY
+assessment that was assessed to Mr. Orrechio [sic] based on his estimated taxes[, which] he
+believed ...was erroneous in nature because it was not based on final numbers." McNeeley,
+however, points to no evidence supporting this after-the-fact rationalization that Orecchio had
+incurred some sort of estimated, erroneous taxes. To the contrary, McNeeley's convoluted
+explanation of the situation raises its own set of questions.26 How, for example, did Orecchio
+estimate a nearly $2 million tax liability for a year in which the Equity Fund had no net
+investment income? How did Orecchio's erroneous tax estimate, which the workpapers indicated
+was related to a failure by "all of the funds held under AA Capital" to finalize their audits and t~
+filings, explain why Orecchio withdrew money from only the Equity Fund? How does an
+erroneous tax assessment explain why the Transfers, even when taken out of the Equity Fund,
+were not always drawn from the same client trust accounts? How does an erroneous tax
+assessment explain why the Transfers took place on multiple dates, at uneven intervals, and in
+varying amounts? Again, the record contains no indication that McNeeley explored these
+questions. Instead, McNeeley simply accepted management's explanations at face value.
+An additional, obvious question would have been how not having "final numbers" led
+Orecchio to estimate taxes that were more than 100 times larger than what his equal partner
+Oliver paid. McNeeley argues that Orecchio's disproportionately large tax liability was not
+suspicious because she was told that his tax liability was the result of an erroneous assessment
+that McNeeley contends "would not bear any relation to the amount of a correct tax liability or
+the amount of someone else's correct tax liability." In support, McNeeley points to an E&Y tax
+partner's testimony in which he theorized that the IRS could make any variety of mistakes that
+could result in large tax discrepancies, such as entering incorrect numbers on one's tax files. This
+zs In yet a third explanation, a managing director at AA Capital told Oprins that AA
+Capital's partners "were incurring substantial interest and penalties as a result of late filings of tax
+returns." The record does not indicate that McNeeley was aware of this explanation.
+Z6 Cf. Michael J. Marcie, CPA, 56 S.E.C. 760, 784 (2003) (rejecting "an
+after-the-fact justification for [respondents'] failure to exercise the required degree of
+professional care"), rev'd on other grounds, 374 F.3d 1196 (D.C. Cir. 2004).
+
+15
+hypothetical example, however, is inconsistent with the reason for the Transfers that McNeeley
+was initially given: that someone erroneously estimated Orecchio's taxes because of not having
+final tax information. McNeeley's explanation for her lack of suspicion about Orecchio's
+disproportionate taa~ liability thus highlights the difference between the two explanations she was
+given. The record contains no evidence that McNeeley ever investigated the reasons for these
+differing explanations.
+The record also contains no evidence that McNeeley ever attempted to verify Orecchio's
+ability to repay the tax advance. McNeeley testified only that she could not recall whether she
+inquired into Orecchio's ability to pay, and added that "we had no reason to question the
+collectibility [because] [w]e understood him to be a successful wealthy businessman who had
+capital in AA Capital Partners, Inc. plus investments in various other funds." McNeeley's
+assumption about Orecchio, however, again lacked support. The workpapers contained no
+evidence that McNeeley inquired into Orecchio's overall financial condition. What were these
+"various other funds" worth? Were these investments liquid enough to satisfy the amount of the
+short-term loans? What were his liabilities? Were his assets encumbered by any debt? Did
+Orecchio have sufficient liquid assets to repay the loan in a time period consistent with the loan
+being classified as a short-term receivable? The workpapers contain no evidence that McNeeley
+ever investigated these questions.27 Stevens also told McNeeley that the IRS was likely to
+reimburse Orecchio for the supposedly erroneous tax payments, but the workpapers contain no
+evidence supporting that claim either.
+Ultimately, because McNeeley never investigated, let alone reconciled, these various
+inconsistencies, McNeeley's various hypothetical explanations for the Transfers remained just
+that: hypotheticals. Pursuant to GARS, however, "[i]f a representation made by management is
+contradicted by other audit evidence," an auditor may not simply hypothesize, but "should
+investigate the circumstances, and consider the reliability of the representation made.i28 That
+was repeatedly the case here. But instead of investigating, McNeeley did essentially nothing.29
+McNeeley contends that any follow-up regarding the Transfers would have been futile
+because, she claims, individuals at AA Capital were engaged in collusive fraud. In support, she
+notes that Orecchio had forged two IRS notices that she claims show that "AA Capital's
+27 Cf. Gregory M. Dearlove, CPA, Exchange Act Rel. No. 57244 (Jan. 31, 2008), 92
+SEC Docket 1867, 1887 (rejecting auditor's reliance on family's ability to repay loan where
+auditor did not determine whether family's assets were encumbered by other debts and auditor
+"saw no financial statements or other proof of the family's financial condition other than local
+media reports that the [family members] 'were billionaires"'), petition denied, 573 F.3d 801 (D.C.
+Cir. 2009).
+28 AU § 333.04.
+29 Our identification of examples of steps that McNeeley could have taken, but did
+not, is not intended to imply that she necessarily was required to take all of these steps to fulfill
+her professional duties. Rather, faced with multiple red flags, McNeeley had an obligation to
+investigate more than she did.
+
+16
+management had plainly prepared a series of false documents to dole out to the auditors as
+necessary." She acknowledges that the record contains no evidence that the audit team ever saw
+the notices, but hypothesizes that "[m]ore demands [from McNeeley] would have been met with
+more false documents." Individuals at AA Capital were indisputably engaged in fraud, and
+E&Y's auditors were plainly not receiving accurate information about the Transfers. It is thus
+possible that, no matter the steps McNeeley took, individuals at AA Capital would have
+continued to hide the Transfers' true nature. The gravamen of the charge against McNeeley,
+however, is not her failure to uncover the fraud itself, but her failure to adhere to GARS during
+the audit. An auditor, we have explained, "is not a guarantor of the accuracy of financial
+statements of public companies, but the Commission and the investing public rely heavily on
+auditors to perform their tasks in auditing public companies 'diligently and with a reasonable
+degree of competence.ii30 Therefore, although "[w]e do not know whether [the] fraud would
+have been uncovered had [McNeeley] fulfilled [her] professional duties in conducting the audit,
+. •..that is not relevant to our inquiry."31
+McNeeley also defends her conduct by challenging whether the Division met its burden
+of proving that McNeeley, in fact, failed to take the various follow-up auditing steps described
+above (such as reviewing the Partnership Agreement a second time in connection with the
+Transfers or verifying Orecchio's tax liability). McNeeley asserts that the only evidence against
+her is her own failure to remember whether she took the steps described above and the
+workpapers' failure to mention whether she took such steps. She claims that the Division, by
+relying on such evidence, is essentially faulting her for not memorializing "every fact gathered,
+conversation held, or procedure performed in the course of an audit.i32 McNeeley's argument,
+however, misconstrues her auditing responsibilities and the Division's case against her.
+Understanding the red flags described above was crucial to understanding, and approving the
+accounting treatment of, the underlying Transfers. As we have stated before, "[w]e consider the
+absence of work papers to be evidence that the audit team did not devote substantial, if any,
+3o See Marcie, 56 S.E.C. at 795 (quoting Touche Ross & Co. v. SEC, 609 F.2d 570,
+581 (2d Cir. 1979)).
+31 See Macrae, 56 S.E.C. at 794-95; see also Michael S Hope, CPA, 49 S.E.C. 568,
+606 (1986) (noting that the Commission has repeatedly held that "being lied to" is not an
+automatic defense to charges of improper professional conduct); Touche Ross & Co., 45 S.E.C.
+469, 469 (1974) (finding that "deception ...did not relieve Touche of its responsibility to
+perform its audits in conformity with generally accepted auditing standards").
+3z McNeeley frames this argument as an error by the law judge to apply the proper
+burden of proof. McNeeley, in fact, frames much of her appeal in terms of errors by the law
+judge. Our de novo review, however, cures any error that the law judge may have made. See
+Robert M. Fuller, 56 S.E.C. 976, 989 n.30 (2003), petition denied, 95 F. App'x 361 (D.C.
+Cir. 2004). The law judge's opinion thus ceased to have any force or effect once McNeeley filed
+her petition for review. See Fundamental Portfolio Advisers, Inc., 56 S.E.C. 651, 679 n.44
+(2003); 17 C.F.R. § 201.360(d), (e).
+
+17
+effort to review the areas in question. ii33 And here, McNeeley does not dispute that the
+workpapers do not explain, or even mention, the red flags described above or that the workpapers
+fail to document any steps she may have taken toward understanding or reconciling the red flags.
+In the end, despite a variety of significant red flags surrounding the Transfers, McNeeley
+and the E&Y team verified only the amount of those Transfers ($1.9 million). On almost every
+other aspect, McNeeley had only vague, unsupported, and often contradictory management
+representations, which raised more questions than they answered. McNeeley's failure to follow
+up on such obvious, outstanding issues was a clear failure to exercise due care.
+2. Failure to Obtain Sufficient Competent Evidential Matter
+McNeeley's lack of due care also led to the related auditing failure of not obtaining
+sufficient competent evidential matter. GAAS require auditors to obtain evidence sufficient to
+afford a reasonable basis for an opinion with respect to the financial statements under review.3a
+GARS explain that "[t]he amount and kinds of evidential matter required to support an informed
+opinion are matters for the auditor to determine in the exercise of his or her professional
+judgment after a careful study of the circumstance in the particular case.i35 GARS also warn that
+management representations "are not a substitute for the application of th[e] auditing procedures
+necessary to afford a reasonable basis for an opinion regarding the financial statements under
+audit," and auditors may not become satisfied with less than persuasive evidence merely because
+they believe that management is honest.36 These warnings were all the more urgent in the
+context of auditing a transaction requiring heightened scrutiny because it was a material, related-
+party transaction involving a member of management. McNeeley's audit did not conform to
+these standards.
+If the Transfers were, as Stevens represented them to be, related to a tax liability, then a
+variety of obvious evidential material about the Transfers should have been readily obtainable,
+such as IRS-related correspondence, filings, or checks. But McNeeley did not require Stevens to
+produce any of this material. Nor did McNeeley question Stevens's failure to produce such
+documents when McNeeley asked Stevens to provide all documents related to the Transfers — a
+non-response that should have raised its own set of questions. McNeeley relied only on a
+receivable schedule, a general ledger, and management representation letters.37 These documents
+told McNeeley little about the Transfers other than the amount that was transferred to Orecchio.
+In fact, McNeeley's June 7 emails to Stevens showed that McNeeley could not tell from those
+33 Dearlove, 92 SEC Docket at 1883 n.39 (noting that "workpapers are ordinarily the
+foundation on which support for audit conclusions is demonstrated").
+34 AU § 326.22.
+3s Id
+36 AU §§ 333.02, 230.09.
+37 McNeeley also claims to have relied on the Partnership Agreement, but, as
+discussed, that document did not support the validity of the Transfers.
+
+18
+documents such basic information as whether the Transfers related to a personal or corporate tax
+liability, whether any payment had yet been made, or who, if anyone, made such payment. Nor
+did the materials on which McNeeley relied answer the various questions discussed above, such
+as why the Transfers came only from the Equity Fund or how an erroneously estimated tax
+liability could be nearly $2 million, which was more than 100 times more than his equal partner
+Oliver's liability, in a year in which the Equity Fund had no net investment income. McNeeley's
+correspondence with Stevens was a good starting point for answering these questions, but
+Stevens's responses about Orecchio's being "dinged by the IRS" were still only unsubstantiated
+management representations, lacked detail, and arguably contradicted Stevens's earlier
+explanation about the Transfers' being related to estimated taxes.
+In fact, other than the Partnership Agreement, the evidential materials McNeeley obtained
+were all representations or internal accounting documents generated by management. As GARS
+expressly warn, evidential matter regarding related-party transactions, such as the Transfers,
+"should extend beyond inquiry of management.i38 GARS are even more specific concerning the
+audit of related-party transactions involving an uncollected balance (the case here). GARS
+identify certain sources an auditor should consider when testing an uncollected balance from a
+related party, including "audited financial statements, unaudited financial statements, income tax
+returns, and reports issued by regulatory agencies, taxing authorities, financial publications, or
+credit agencies.ii39 Other than looking at AA Capital's past financial statements, however, the
+record does not show that McNeeley consulted any of these materials.
+To the contrary, McNeeley effectively admits to not seeking certain evidential material
+(such as tax documents or cancelled checks) when she argues that it was not her job to
+investigate the legitimacy of Orecchio's ultimate use of the Transfers. McNeeley acknowledged
+during her testimony, however, that it was "a typical procedure" for an audit team to seek
+confirmation of a transaction from third parties. McNeeley testified that she did not do that in
+this case because she "essentially already got" such confirmation by obtaining the management
+representation letters signed by Orecchio. She explained that "the only party related to the
+transaction from AA Capital to John Orrechio [sic] would be John Orrechio [sic]. And so we did
+obtain a confirmation from him in the form of the management representation letter." This
+confusing explanation, however, concedes that the letters McNeeley obtained were from
+management (a related party), and not a third party. Furthermore, these management
+representation letters did not expressly address the Transfers and thus did not support the
+legitimacy of the Transfers.ao
+38 AU § 334.09.
+39 AU § 334.10e.
+4o Cf. Kevin Hall, CPA, Exchange Act Rel. No. 61162 (Dec. 14, 2009), 97 SEC
+Docket 23679, 23692 (finding insufficient evidence to conclude that auditors engaged in
+unreasonable conduct where auditors questioned management about the problematic transactions
+and included a representation about the problematic transactions in the management
+representation letter).
+
+19
+3. Failure to Ensure Issuance of an Accurate Audit Report
+McNeeley also failed to ensure that E&Y issued accurate audit reports. GARS require
+that the financial statements subject to an audit be presented in accordance with GAAP.a'
+GAAP, as compared to GARS, focus "not upon an auditor's judgment but upon how specific
+accounting tasks should be performed."42 GAAP include FAS 57, which requires that disclosure
+of related-party transactions must indicate (i) the nature of the relationship involved; (ii) a
+description of the transaction; (iii) the dollar amount of the transaction; and (iv) amounts due
+from or to related parties and, if not otherwise apparent, the terms and manner of settlement.a3
+Here, McNeeley failed to ensure that AA Capital's and the Equity Fund's financial statements
+disclosed the Transfers in compliance with GAAP.
+McNeeley claims that AA Capital's and the Equity Fund's financial statements complied
+with GAAP, but we fail to see how. The financial statements included the Transfers only
+vaguely as part of an "account receivable" and provided no information about the parties
+involved, terms, or manner of settlement. In fact, McNeeley had no real means of ensuring that
+the financial statements complied with FAS 57, as she saw essentially no evidential material
+providing the information required by FAS 57 nor did she make any other real attempt to
+understand the Transfers.
+The Transfers also do not fall within an exception to FAS 57, which states that "[i]n some
+cases, aggregation of similar transactions by type of related party may be appropriate. ii44 As the
+exception explains, "[s]ometimes, the effect of the relationship between the parties may be so
+pervasive that disclosure of the relationship alone will be sufficient.t45 That is not the case here.
+The Transfers were purportedly tax-related transfers to an officer. The only similar transaction
+41 See AU § 410.01 ("The first standard of reporting is: The report shall state
+whether the financial statements are presented in accordance with generally accepted accounting
+principles.").
+42 Dearlove v. SEC, 573 F.3d 801, 804 (D.C. Cir. 2009). GAAP include a hierarchy
+of statements published by the Financial Accounting Standards Board ("FASB") and by the
+AICPA. The highest level of GAAP hierarchy consists of the FASB Statements of Financial
+Accounting Standards ("FAS"). On June 30, 2009, FASB issued the FASB Accounting
+Standards Codification ("FASB ASC") and established the FASB ASC as the source of
+authoritative U.S. GAAP. FASB ASC is effective for interim and annual periods ending after
+September 15, 2009. See Commission Guidance Regarding the Financial Accounting Standards
+Board's Accounting Standards Codification, Exchange Act Rel. No. 60519A (Aug. 19, 2009),
+96 SEC Docket 19829. FAS 57 is currently codified in FASB ASC Topic 850, Related Party
+Disclosures. Because the conduct at issue took place before the codification, this opinion uses
+the FAS designations.
+43 FAS No. 57 ¶2.
+44 FAS No. 57 n.3.
+as Id.
+
+was AA Capital's transfer to Oliver. AA Capital's other related-party transactions involved
+reimbursable expenses to AA Capital's related funds —transactions that the financial statements
+fully disclosed and that did not relate to the Transfers.
+C. McNeeley Acted Highly Unreasonably
+Our Rule 102(e) analysis finally examines whether McNeeley's auditing failures were
+highly unreasonable. Highly unreasonable conduct "is an intermediate standard, higher than
+ordinary negligence but lower than the traditional definition of recklessness.ii46 Whether conduct
+is highly unreasonable is measured objectively by the degree of the departure from professional
+standards rather than by the intent of the accountant.47 McNeeley violated that standard here.
+As noted earlier, verifying that the Partnership Agreement allowed the Transfers was
+perhaps the most basic auditing step McNeeley could have taken during the audit, but did not.
+The record establishes, however, that McNeeley either (i) never discovered the obvious
+inconsistencies between the Partnership Agreement and the Transfers' terms, or (ii) she
+discovered those inconsistencies but took no steps to reconcile them. Either conclusion
+constitutes an egregious auditing failure.
+McNeeley also faced a variety of other red flags that she should have investigated further.
+Such investigation could have involved any number of simple, obvious follow-up steps, such as
+requiring AA Capital to produce copies of IRS correspondence or cancelled checks to validate
+the Transfers. Instead, McNeeley relied only on management representations, knew only what
+information Stevens provided to her —information that was vague and contradictory —and
+confirmed only how much money flowed from the Equity Fund to Orecchio.48
+McNeeley's reliance on Stevens's unsupported representations was made worse by the fact
+that McNeeley had previously determined that AA Capital's internal controls were "ineffective."
+McNeeley downplays the significance of that determination by arguing that AA Capital's internal
+controls were ineffective "only in the sense that the audit team could not rely on such controls as
+a substitute for conducting substantive audit procedures; and ...this was completely ordinary for
+a relatively small and new private equity company." This, however, is exactly the point. A
+determination that AA Capital had weak internal controls did not mean the company was
+necessarily doing anything wrong. It did, however, alert McNeeley that she should rely on more
+than management representations.
+46 Amendment to Rule 102(e), 63 Fed. Reg. at 57,167.
+a~ Id
+48 Cf., e.g., McCurdy, 57 S.E.C. at 295 ("McCurdy failed to undertake such simple,
+obvious steps as contacting [the fund investment adviser] or the [fund's] Trustees for more
+information, or reviewing copies of [the investment adviser]'s tax returns or credit reports. Under
+these circumstances, McCurdy's failure to obtain additional competent evidence regarding the
+collectibility of the Receivable was highly unreasonable.").
+
+21
+McNeeley further exacerbated the unreasonableness of her auditing conduct by denying
+readers of the financial statements any chance to make their own determination about the
+Transfers. The financial statements gave readers no way to know that AA Capital had lent $1.9
+million to Orecchio or what the terms of that loan were. Even E&Y's own internal disclosure
+checklist, which McNeeley went through when conducting the audit, reminded its auditors of
+FAS 57's requirements and stated that accounts receivable from officers or employees "must be
+shown separately and not included under a general heading such as notes or accounts receivable."
+Although a firm's own internal guidance may not be a professional standard on which we can
+base a finding of improper professional conduct under Rule 102(e), E&Y's internal guidance was
+such an obvious reminder of GAAP's requirements that the guidance made McNeeley's failure to
+comply all the more glaring.a9
+Any one of McNeeley's auditing failures would have been highly problematic. But taken
+together, the failures are especially egregious. McNeeley was faced with multiple red flags
+surrounding a material, related-party transaction. She had any number of avenues for
+investigating those red flags, but pursued none of them. She then compounded those failures by
+not ensuring that, at a minimum, readers of the financial statements would be aware of the
+Transfers and could thus make their own determination about the Transfers' importance. This
+failure to comply with auditing standards with respect to the Transfers constituted highly
+unreasonable conduct as defined in Rule 102(e).
+McNeeley presents several broad, generalized, arguments about why we should not find
+her conduct to have been highly unreasonable. She argues, for instance, that it is inconsistent to
+find that she acted highly unreasonably when the law judge found that her supervisor, Oprins,
+had not acted highly unreasonably during the same audit. The law judge's finding regarding
+Oprins, however, is not before us on appeal. And while the law judge ultimately found that
+Oprins had not acted highly unreasonably for purposes of Rule 102(e), the law judge also found
+that Oprins had failed to comply with auditing standards.
+49 Cf. Dormu v. District of Columbia, 795 F. Supp. 2d. 7, 29 (D.D.C. 2011) (noting
+that the D.C. Court of Appeals has "held that internal guidelines and policies do not establish a
+standard of care, but 'may properly be received in evidence as bearing on the standard of care"'
+(citations omitted)); Sabratek Liquidating LLC. v. KPMG LLP, No. O1-C-9582, 2003 WL
+22715820, at *6 (N.D. Ill. 2003) (unpublished) (noting that KPMG's internal standards and
+procedures "could shed light on KPMG's knowledge of applicable accounting standards and
+whether the result of its conduct was foreseeable"); Gregory O. Trautman, Exchange Act Rel.
+No. 61167 (Dec. 15, 2009), 98 SEC Docket 26534, 26563 (finding recklessness where petitioner
+did not know that late trading was illegal despite internal instruction manual that mandated that
+orders be placed before 4:00 p.m.).
+
+22
+Of more significance, however, is that GARS establish different roles and responsibilities
+for different audit team members. GARS explain that "[a]uditors should be assigned to tasks and
+supervised commensurate with their level of knowledge, skill, and ability so that they can
+evaluate the audit evidence they are examining.i50 Here, as engagement partner, Oprins was
+responsible for, among other things, overseeing the audit manager (i.e., McNeeley), reviewing
+the workpapers, and signing the audit report. McNeeley, by comparison, was responsible for
+overseeing day-to-day audit planning, executing audit strategy, supervising audit staff, and
+reviewing audit workpapers in significant risk areas. Significantly, she was also responsible for
+reporting to Oprins any significant questions concerning the audits' Any failure by McNeeley to
+bring such red flags to Oprins's attention, therefore, could explain how Oprins could have
+performed his duties in a manner commensurate with his knowledge, skill, or ability, even where
+McNeeley did not.
+We recognize that Oprins was told about the loans, but the record is unclear whether
+McNeeley brought the red flags to his attention. Given the uncertainty in the record, we cannot
+say whether Oprins knew or should have known about the problems surrounding the Transfers.
+McNeeley, however, had tie red flags in front of her. Given her role in the audit, we therefore
+conclude it is appropriate to find that she engaged in improper professional conduct.52
+so AU § 230.06.
+s' Cf. AU § 311.14 ("The auditor with final responsibility for the audit should direct
+assistants to bring to his attention significant accounting and auditing questions raised during the
+audit so that he may assess their significance.").
+52 McNeeley filed a letter with the Commission on November 9, 2011, repeating an
+assertion made during oral argument that the law judge erred when concluding that "the record
+does not establish that Oprins was ever made aware that the Transfers were purportedly made to
+satisfy an erroneous tax liability." McNeeley argues that the law judge's conclusion was wrong
+because Oprins, in his Amended and Restated Answer to the OIP, "admit[ed] that he was told
+that Orecchio borrowed the [$1.92 million] as a loan to pay an erroneous tax assessment." In her
+letter, McNeeley attached Oprins's Answer "for the Convenience of the Commissioners because
+it was discussed during oral argument on November 2, but was not attached to any of the briefs."
+On November 16, 2011, the Division moved to strike McNeeley's letter, arguing
+that "the Answer was already part of the record submitted to the Commission pursuant to
+Commission Rule of Practice 460." The Division added that "the content of the letter shows that
+its true purpose is to argue again certain factual findings in the Initial Decision." We grant the
+Division's motion. As discussed in the text, the issue is not whether Oprins was told about the
+loans, but whether McNeeley alerted Oprins to the various red flags surrounding those loans.
+McNeeley's letter adds nothing that was not already argued or part of the record, and our Rule of
+Practice 450(a) provides that, "[n]o briefs in addition to those specified in the briefing schedule
+order may be filed except with leave of the Commission." 17 C.F.R. § 201.450(a).
+
+~~
+McNeeley also disputes the sufficiency of the Division's evidence by pointing to the fact
+that a majority of witnesses at the hearing testified that her conduct was reasonable. The majority
+of witnesses, however, were McNeeley's own witnesses. It is not surprising that those witnesses
+testified in McNeeley's favor. We find, however, that the Division's expert's testimony and
+conclusion that McNeeley's conduct was "an extreme departure from GARS" was more
+persuasive.
+McNeeley challenges the persuasiveness of the Division's expert by asserting that the
+expert "conceded" that McNeeley did not engage in highly unreasonable conduct. We disagree
+with that characterization of the testimony. The expert's supposed concession occurred during
+cross-examination, during which the expert acknowledged that reasonable auditors could
+disagree with his conclusion that McNeeley's conduct was an extreme departure from GARS,
+i. e., that her conduct was reckless. The expert then added that it was "certainly possible" that
+reasonable auditors could disagree about whether McNeeley's conduct was reasonable.
+Because GAAS "were established by consensus among members of the accounting
+profession," accounting professionals can, by GAAS's very nature, disagree about their
+provisions.53 Thus, read in context, the Division's expert's statements were no more than a
+reflection of the process by which GARS were established. The expert was otherwise
+unequivocal about his conclusion that McNeeley's conduct was an extreme departure from
+GARS, and our findings that McNeeley's conduct was highly unreasonable are consistent with
+that testimony. Moreover, even if, as McNeeley claims, the Division's expert had conceded that
+McNeeley's conduct was not highly unreasonable, the Commission has its own expertise and is
+not bound by expert testimony regarding auditing standards. In fact, determining whether
+McNeeley's conduct was highly unreasonable is the reason for this proceeding. As we have
+explained, "while the opinions of qualified expert accountants may be helpful, this Commission
+must in the last analysis weigh the value of expert testimony against its own judgment of what is
+sound accounting practice.'~sa
+IV.
+When determining an appropriate sanction, "we are mindful of the remedial nature of
+Rule 102(e) and our purpose in promulgating the rule to ensure that the Commission's 'processes
+continue to be protected, and that the investing public continues to have confidence in the
+s3 pCAOB Release 2003-025 (Dec. 17, 2003), PCAOB Rulemaking Docket Matter
+No. 010 (noting that "generally accepted" auditing and accounting standards were established by
+consensus).
+sa Haskins &Sells, Accounting Series Release No. 73 (Oct. 30, 1952), 1952 SEC
+LEXIS 1062, at *28; see also Dearlove, 92 SEC Docket at 1897-98 (noting that "[t]he
+Commission may consider expert testimony, but it is not bound by such testimony even where it
+is available").
+
+24
+integrity of the financial reporting process.ii55 As we recognized in our release adopting the 1998
+amendments to Rule 102(e), "the Commission has limited resources" and therefore "must rely on
+the competence and independence of the auditors who certify, and the accountants who prepare,
+financial statements.i56 Because of this, the Commission and the investing public must "rely
+heavily on accountants to assure corporate compliance with federal securities law and disclosure
+of accurate and reliable financial information.X57
+McNeeley failed to meet these obligations. McNeeley was responsible for auditing a
+material, related-party transaction that raised obvious concerns. She had ample opportunity to
+investigate these red flags, yet did essentially nothing. McNeeley instead deferred to her client's
+unsupported representations about the Transfers during the audit and to her client's subsequent,
+limited disclosure preferences in the financial statements. Such an egregious failure to comply
+with auditing standards "jeopardize[s] the achievement of the objectives of the securities laws
+and can inflict great damage on public investors.i58
+McNeeley's conduct also indicates a risk that she will commit future violations. As the
+D.C. Circuit has recognized, "the existence of a violation raises an inference that it will be
+repeated,i59 and McNeeley has made clear that she intends to remain an auditor if permitted. Our
+concern that McNeeley will commit future violations is exacerbated by McNeeley's subsequent
+failure to recognize the wrongfulness of her conduct. McNeeley has consistently asserted that
+she conducted the audit appropriately. While a respondent has the right to present a vigorous
+defense, McNeeley's testimony and subsequent arguments on appeal reflect a continuing failure
+to grasp the role of an auditor. McNeeley argues, for example, that she had no duty to verify the
+legitimacy of the reasons for the Transfers (e.g., verifying that Orecchio owed the taxes that he
+claimed). This assertion ignores the importance of obtaining third-party evidence, especially
+when auditing related-party transactions and, more generally, displays a failure to appreciate the
+overarching obligation to exercise due care and professional skepticism. McNeeley also testified,
+and now argues on appeal, that the evidential matter she obtained from AA Capital was sufficient
+to understand the Transfers. That evidential matter, however, consisted almost exclusively of
+management representations that were often vague and contradictory. Perhaps most troubling,
+McNeeley not only fails to recognize her failures, but she also argues that "[t]his case arose only
+because a criminal audit client, who now resides in a federal prison, successfully led an effort to
+defraud her and the rest of the audit team." Orecchio's fraud, however, did not cause her auditing
+ss 
+Dearlove, 92 SEC Docket at 1912 (quoting Amendment to Rule 102(e), 63 Fed.
+Reg. at 57,164).
+56 Amendment to Rule 102(e), 63 Fed. Reg. at 57,165.
+5' 
+ra.
+58 Touche Ross & Co., 609 F.2d at 581.
+s9 Geiger v. SEC, 363 F.3d 481, 489 (D.C. Cir. 2004) (affirming violation of
+Securities Act Section 5 and related cease-and-desist order).
+
+25
+failures. Her highly unreasonable conduct caused her auditing failures. Orecchio's fraud served
+only to expose those failures. Such an inability to recognize the wrongfulness of her conduct
+gives us concern that McNeeley will repeat her misconduct in the future.
+McNeeley disputes that a likelihood of her committing a future violation exists because
+of her "perfect record in the nearly six years since the [a]udits." An otherwise clean disciplinary
+history, however, is not determinative for purposes of our sanctions analysis.60 We also find little
+assurance in McNeeley's performance history given that McNeeley would have known that, once
+the Commission instituted these proceedings, her conduct would be more highly scrutinized,
+which reduced the likelihood of her committing additional misconduct during this time.
+We recognize that imposing a sanction on McNeeley could have collateral consequences,
+such as tarnishing her reputation, but such consequences are outweighed by our concern that
+"[a]n incompetent or unethical practitioner has the ability to inflict substantial damage to the
+Commission's processes, and thus the investing public, and to the level of trust and confidence in
+our capital markets.X61 We have accordingly warned that "'where such individuals engage in
+professional misconduct which impairs the integrity of the Commission's processes, the
+Commission has an obligation to respond through the application of Rule 102(e).i62
+On appeal, McNeeley argues that any suspension at this stage of the proceedings would
+be punitive because the Division did not issue the OIP until "nearly five years after the Audits
+ended." McNeeley claims that, "[i]f there were a legitimate need to protect the public, Ms.
+McNeeley would not have been allowed to continue practicing before the Commission year after
+year after year." We disagree. Bringing a 102(e) case against an accountant involves various
+complexities, not the least of which is that problems with an audit, which can be complex, are
+not typically brought to light until the problems with the underlying financial statements are
+understood. The Commission is also entitled to prioritize its resources toward disciplining
+fraudsters. Although auditors and the underlying fraudsters both pose a threat to the public, they
+present the Commission with differing priorities, which are reflected in the different sanctions
+6o Cf., e.g., Steven Altman, Esq., Exchange Act Rel. No. 63306 (Nov. 10, 2010), 99
+SEC Docket 34405, 34437 n.81 (imposing bar against attorney for engaging in improper
+profession conduct under Rule 102(e) despite attorney's previously clean disciplinary record),
+petition denied, 666 F.3d 1322 (D.C. Cir. 2011); James C. Dawson, Advisers Act Rel. No. 3057
+(July 23, 2010), 98 SEC Docket 30697, 30704 (imposing bar despite respondent's previously
+clean record in a nearly thirty-year career and respondent's claim that such a record established a
+"marked unlikelihood" of future violations); Gary M. Kornman, Exchange Act Rel. No. 59403
+(Feb. 13, 2009), 95 SEC Docket 14246, 14259 (imposing bar despite respondent's lack of
+disciplinary history), petition denied, 55 F.3d 173 (D.C. Cir. 2010).
+61 Altman, 99 SEC Docket at 34437 (quoting Keating, Muething, & Klekamp, 47
+S.E.C. 95, 120 (1979) (concurring opinion)) (imposing bar while noting the "potential collateral
+consequences that may result from our decision in this case").
+62 Id. (quoting Keating, 47 S.E.C. at 120).
+
+26
+ultimately leveled against the various actors involved with fraudulent financial statements (e.g.,
+jail for Orecchio; a professional bar for Stevens; and asix-month suspension for McNeeley).
+Our rules, in fact, reflect these differing priorities by expressly contemplating that government
+resources will be focused first toward the fraudsters. Rule 210(c)(3), in particular, allows
+criminal prosecutorial authorities, such as the U.S. Department of Justice, to seek a stay of a
+Commission enforcement or disciplinary hearing "during the pendency of a criminal
+investigation or prosecution arising out of the same or similar facts that are at issuei63 — a rule the
+Department of Justice has used in the past to stay Commission Rule 102(e) proceedings against
+auditors.6a
+Here, the delay in instituting the proceedings obviated the need for a stay by the
+Department of Justice, and the OIP was issued less than a month after Orecchio pleaded guilty in
+his criminal proceedings and within three and one half years of the Division discovering the
+fraud. This timing is consistent both with the considerations described above and with other
+administrative proceedings in which we have imposed sanctions against auditors under Rule
+102(e).65 We therefore see nothing unusual or punitive about imposing a sanction at this stage of
+the proceedings.
+McNeeley challenges the appropriateness of imposing a suspension by arguing that the
+record contains no evidence that her misconduct was intentiona1.66 We have explained, however,
+that "a negligent auditor can do just as much harm to the Commission's processes as one who
+acts with an improper motive.i67 A disciplinary matter involving highly unreasonable conduct is
+63 17 C.F.R. § 201.210(c)(3).
+64 See Hall, 97 SEC Docket at 23689 (noting that "[1]argely because the
+administrative proceeding was stayed at the request of the Department of Justice, pending
+resolution of criminal proceedings arising out of the fraud, the hearing did not begin until July
+2007," which was approximately seventeen months after the order instituting proceedings was
+filed).
+bs See, e.g., Marcie, 374 F.3d at 1199 (involving OIP that was issued "just shy of
+five years" after audit at issue); Dearlove, 92 SEC Docket at 1873, 1919 (involving OIP that was
+issued more than four years after audit at issue).
+66 McNeeley also argues that the law judge erred by failing to conduct the multi-
+factor public interest analysis outlined in Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979),
+aff d on other grounds, 450 U.S. 91 (1981). The D.C. Circuit, however, has recognized that "the
+Commission is not required to follow any mechanistic formula in determining an appropriate
+sanction." Kornman v. SEC, 592 F.3d 173, 186 (D.C. Cir. 2010).
+67 Amendment to Rule 102(e), 63 Fed. Reg. at 57,167.
+
+27
+therefore not necessarily less egregious than one involving intentional or reckless conduct, and,
+for all the reasons described in this opinion, we believe that this is such a case.68
+Nevertheless, we believe that certain factors weigh in favor of a more measured sanction
+than the three-year suspension that the Division believes is appropriate. McNeeley, for example,
+was a relatively young auditor at the time of the audits and had not been in the industry as long as
+some others against whom we have imposed sanctions under Rule 102(e).69 McNeeley was also
+overseen by a supervisor, Oprins, who the law judge found had not fully complied with his own
+auditing duties. Although the law judge ultimately concluded that Oprins's auditing failures did
+not amount to highly unreasonable conduct under Rule 102(e), Oprins's conduct during the audit
+raised sufficient questions about the adequacy of Oprins's supervision to suggest that a sanction
+less severe than what the Division requests is appropriate.
+In weighing all of the considerations, we therefore believe that asix-month suspension
+from appearing or practicing before the Commission is appropriate. This time spent out of
+auditing will impress upon McNeeley the severity of her auditing failures, thus providing specific
+deterrence to her and providing more general deterrence to the auditing profession.
+68 See Dearlove, 92 SEC Docket at 1912 (recognizing "that, under some
+circumstances, unreasonable conduct is not necessarily a less egregious disciplinary matter than
+either intentional or reckless conduct, or highly unreasonable conduct in circumstances
+warranting heightened scrutiny").
+69 See, e.g., Dearlove, 92 SEC Docket at 1913 (imposing four-year suspension for
+auditor who had been an accountant for approximately twenty-five years at time of audit by
+noting, in part, that "Dearlove's lengthy audit experience makes his failure to conduct the .. .
+audit in accordance with applicable professional standards all the more troubling"); McCurdy, 57
+S.E.C. at 295-96 (imposing one-year suspension for auditor who had been a CPA for nearly
+twenty years at time of audit by noting, in part, that "[t]his lengthy experience makes his failure
+to conduct the audit in accordance with applicable professional standards particularly
+troublesome").
+
+28
+For the reasons above, we find that McNeeley engaged in improper professional conduct
+as defined in the Commission's Rule of Practice 102(e) and that, as a result, McNeeley should be
+denied the privilege of appearing or practicing as an accountant before the Commission for six
+months. An appropriate order will issue.70
+By the Commission (Chairman SCHAPIRO and Commissioner WALTER);
+Commissioner PAREDES, concurring in part and dissenting only with respect to the sanction
+imposed, Commissioners AGUILAR and GALLAGHER not participating.
+Elizabeth M. Murphy
+Secretary
+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.
+
+Commissioner PAREDES, dissenting with respect to the sanction imposed:
+The Commission has found that Wendy McNeeley, a certified public accountant and
+audit manager, violated the Commission's Rule of Practice 102(e) ("Rule 102(e)"). Although I
+concur, on the basis of the record before us, that McNeeley's conduct violated Rule 102(e), I
+cannot support the sanction imposed by the majority of the Commission. In light of the facts of
+this matter, asix-month suspension from appearing or practicing before the Commission is more
+severe than is appropriate to achieve its purpose.'
+The conduct of McNeeley that gave rise to this matter occurred over seven years ago
+while McNeeley served as audit manager for an audit of a client's 2004 financial statements.
+Over the course of the past several years, McNeeley has had ample time to reflect on her failure
+to perform an audit according to applicable standards — an audit that, as the Commission's
+opinion notes, occurred when McNeeley "was a relatively young auditor."z
+Furthermore, after the deficient audit and throughout the course of the Commission's
+action against McNeeley, McNeeley has been employed by a national accounting firm and has
+continued to appear and practice before the Commission.3 That McNeeley has continued
+practicing without any other disciplinary action being brought against her indicates her
+comportment with professional standards of conduct and, perhaps more tellingly, belies the
+majority's concern that she poses such a risk that asix-month suspension is warranted at this
+point in her career after so much time has elapsed since the conduct underlying her Rule 102(e)
+violation. Simply put, the majority of the Commission too readily concludes that there is a risk
+that McNeeley will commit future violations.4
+There is no evidence in the record that McNeeley has engaged in any subsequent
+improper professional conduct since the occurrence of the conduct that is the basis of this matter.
+To the contrary, McNeeley has shown over a meaningful number of years —after the violation —
+that she is capable of performing her responsibilities in accordance with applicable standards.s
+See Commission Opinion, text accompanying supra note 55.
+Commission Opinion, text accompanying supra note 69.
+j Wendy McNeeley, CPA, Initial Decision Rel. No. 411 (Dec. 28, 2010), 100 SEC
+Docket 36461, 36464-65.
+See Commission Opinion, supra pp. 24-25.
+5 The OIP against McNeeley was filed nearly five years after completion of the
+audit of the 2004 financials, and the Commission heard oral argument more than one and a half
+years later. No stay of proceedings against McNeeley was requested by the Department of
+(continued...)
+
+To the extent that McNeeley's clean record since the Rule 102(e) violative conduct is a result of
+her taking extra care, that is precisely the intended effect of a remedial sanction.
+I am not persuaded that there is a justifiable remedial purpose to be served by subjecting
+McNeeley to a six-month suspension at this time. Therefore, I am troubled that the six-month
+suspension will have an unnecessarily punitive effect. The Commission's interests would be
+appropriately served with a less severe sanction, perhaps a censure. Accordingly, I dissent with
+respect to the sanction imposed by the majority of the Commission.
+' (...continued)
+Justice, and there is nothing in the record to indicate that the length of time that passed was the
+result of any obstruction, cover-up, or delaying tactics on McNeeley's part.
+
+UNITED STATES OF AMERICA
+before the
+SECURITIES AND EXCHANGE COMMISSION
+SECURITIES EXCHANGE ACT OF 1934
+Rel. No. 68431 /December 13, 2012
+ACCOUNTING AND AUDITING ENFORCEMENT
+Rel. No. 3427 /December 13, 2012
+Admin. Proc. File No. 3-13797
+In the Matter of the Application of
+WENDY MCNEELEY, CPA
+c/o Robert L. Michels, Esq.
+Winston & Strawn LLP
+35 Wacker Dr.
+Chicago, IL 60601
+ORDER IMPOSING REMEDIAL SANCTIONS
+On the basis of the Commission's opinion issued this day, it is
+ORDERED that Wendy McNeeley be, and hereby is, denied the privilege of appearing or
+practicing before the Commission as an accountant for six months from the date of this order.
+By the Commission.
+Elizabeth M. Murphy
+Secretary
diff --git a/raw/aaer/2012/AAER-3428.txt b/raw/aaer/2012/AAER-3428.txt
new file mode 100644
index 0000000000000000000000000000000000000000..0dd25500597ce2fdc91d7140623a03a446cee143
--- /dev/null
+++ b/raw/aaer/2012/AAER-3428.txt
@@ -0,0 +1,253 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 68432 / December 13, 2012 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3428 / December 13, 2012 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15129 
+In the Matter of 
+ 
+DELOITTE & TOUCHE (SOUTH 
+AFRICA), 
+Respondent. 
+ORDER INSTITUTING ADMINISTRATIVE 
+AND CEASE-AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTIONS 4C AND 21C OF 
+THE SECURITIES EXCHANGE ACT OF 
+1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate 
+and in the public interest that public administrative and cease-and-desist proceedings be, 
+and hereby are, instituted pursuant to Sections 4C and 21C of the Securities Exchange 
+Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice against Deloitte & Touche (South Africa) (“Respondent,” “DT-SA,” or the 
+“Firm”). 
+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 the Firm 
+and the subject matter of these proceedings, which are admitted, Respondent consents to 
+the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings 
+Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) 
+of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions and a Cease-and-Desist Order (“Order”), as set forth below. 
+ 
+2 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+Summary 
+This matter arises from an independence-impairing business relationship 
+between DT-SA – acting through its wholly-owned consulting affiliate, Deloitte 
+Consulting (Pty) Ltd. (“DC-SA”) – and Director (defined below).  In April 2006, DC-SA 
+entered into a consulting contract with Director.  At that time, the relationship was not a 
+prohibited business relationship; Director did not serve on the board of directors of, or 
+otherwise in a decision-making capacity for, any DT-SA audit client.  When, in 2007, 
+Director joined the board of Company A, an SEC-registrant audit client of DT-SA – and 
+notwithstanding Director’s neither serving on Company A’s audit committee nor 
+interacting with DT-SA’s audit team – Director’s relationship with DC-SA thereby 
+became a prohibited business relationship under Commission Rule 2-01 of Regulation S-
+X.2  DT-SA did not have adequate controls in place to identify, and otherwise did not 
+identify, the creation of the prohibited relationship.  While the prohibited relationship was 
+in place, DT-SA issued audit reports with respect to Company A, and DC-SA also 
+renewed the contract with the Director.  DC-SA did not identify the prohibited 
+relationship until August 2008, whereupon DT-SA initiated a review of the matter that 
+ultimately resulted in the termination of the relationship in October 2008 (but effective 
+September 30, 2008). 
+As a result, DT-SA engaged in improper professional conduct, violated Rule 2-
+02(b) of Regulation S-X and caused its audit client Company A to file periodic reports 
+with the Commission that failed to include independently audited financial statements as 
+required by Exchange Act Section 13(a), Exchange Act Rule 13a-1, and Regulation S-X. 
+Respondent 
+1. DT-SA, a member firm of Deloitte Touche Tohmatsu Limited, is a 
+registered public accounting firm headquartered in Johannesburg, South Africa.  At all 
+relevant times and continuing to the present, DT-SA has provided audit and other 
+professional services to a variety of companies, including Company A, whose securities 
+are registered with the Commission and trade in U.S. markets.  DT-SA wholly owns 
+DC-SA, which provides consulting services to various companies in South Africa. 
+Relevant Issuer 
+2. At all relevant times, Company A’s ordinary shares were registered with 
+the Commission pursuant to Section 12(b) of the Exchange Act, and its American 
+                                                 
+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  This Order makes no finding with respect to Company A’s reported financial statements for  any fiscal 
+year in which the matter discussed herein occurred. 
+3 
+Depositary Shares were listed on the New York Stock Exchange.  DT-SA served as 
+Company A’s auditor throughout the relevant period and continues to serve in that role. 
+The Director 
+3. Director was an independent consultant hired by DC-SA to assist its work 
+in the energy industry.  Director joined the Board of Directors of Company A on 
+September 1, 2007, and Director remains in that position to this day. 
+Facts 
+A. The Relationship Between DT-SA And Director 
+4. DC-SA hired Director in April 2006 as an independent contractor with 
+expertise in the energy industry.  At that time, DC-SA performed a conflict and 
+background check on Director.  Director was not then on the board of directors of, and 
+did not otherwise serve in a decision-making capacity for, any DT-SA audit client; thus, 
+the check did not identify any conflict of interest or independence concern related to the 
+Firm’s relationship with Director.  DC-SA renewed or extended Director’s contract 
+several times, but it did not conduct any further conflicts checks or inquire about 
+Director’s business relationships after Director’s initial retention. 
+5. On September 1, 2007, Director was appointed to the Board of Directors 
+of Company A, a Commission-registered audit client of DT-SA.  DT-SA did not have 
+adequate controls in place to identify, and otherwise did not identify, the creation of the 
+prohibited relationship on a timely basis.  DC-SA subsequently renewed Director’s 
+contract with the Firm, but, not having conducted any new conflicts checks, and in the 
+absence of any identification of the relationship as potentially problematic by DC-SA 
+personnel, did not recognize that Director’s simultaneous work for DC-SA and service 
+as a director of Company A would impair DT-SA’s auditor independence with respect 
+to Company A. 
+6. Director openly referred to Director’s role on Company A’s board in 
+several communications with various DC-SA personnel, and several internal DC-SA 
+communications among the consulting personnel also included references to Director’s 
+professional experience, including Director’s service on Company A’s Board of 
+Directors.  DC-SA’s personnel, however, did not recognize their significance despite 
+having been trained that the Firm’s having a direct business relationship with an audit 
+client director was inconsistent with auditor independence standards.  Consequently, 
+they did not recognize that Director’s appointment to Company A’s Board created an 
+independence concern and thus did not consult with the audit team or with the Firm’s 
+independence personnel.  As a result, and because they did not learn of it through 
+inquiry, the Firm’s controls, or otherwise, the members of the DT-SA audit team 
+assigned to work on Company A’s audits were not aware of Director’s business 
+relationship with DC-SA prior to the identification of the issue as described below.   
+4 
+B. Identification of Prohibited Relationship 
+7. On August 11, 2008, as a part of its ongoing independence education 
+efforts, DT-SA’s director of independence sent an e-mail to personnel at DT-SA and 
+DC-SA notifying them of recently announced Commission enforcement actions in a 
+case finding a direct business relationship between an auditor and an audit client 
+director, and reminding them about business relationship requirements.  In response to 
+that e-mail, a DC-SA consultant identified the relationship with Director as raising a 
+potential independence concern. 
+8. DT-SA initiated a review of the matter.  As a result of its review of the 
+relationship with Director, DT-SA terminated the relationship in October 2008 (but 
+effective September 30, 2008). 
+9. DT-SA subsequently informed Company A’s audit committee of the 
+business relationship with Director. 
+Legal Analysis 
+A. Independence Principles Governing the Relationship between DT-SA 
+and Director 
+10. The basic elements of an auditor independence violation in the business-
+relationship context are (1) an independence-impairing relationship; (2) existing during 
+all or part of the period covered by the audit, or the period of the audit work, or both; 
+followed by (3) issuance of an audit report asserting the auditor’s independence from 
+the client.  See Rule 2-01(c)(3) of Regulation S-X.3  Business relationships with persons 
+associated with the audit client in a decision-making capacity, such as audit client 
+directors, officers and substantial stockholders are embraced by this prohibition.  See 
+Rule 2-01(c)(3).  Section 6.02.02.e of the Commission’s Codification of Financial 
+Reporting Policies (“Codification”) (available at 7 Fed. Sec. L. Rep. (CCH) ¶ 73,272) 
+provides, among other things, that: 
+In addition to the relationships specifically prohibited by Rule 2-01, joint 
+business ventures, limited partnership agreements, investments in supplier 
+or customer companies, leasing interests (except for immaterial landlord-
+tenant relationships) and sales by the accountant of items other than 
+professional services are examples of other connections which are also 
+included within this classification. 
+                                                 
+3  Rule 2-01(c)(3) provides: 
+ An accountant is not independent if, at any point during the audit and professional engagement 
+period, the accounting firm or any covered person in the firm has any direct or material indirect 
+business relationship with an audit client, or with persons associated with the audit client in a 
+decision-making capacity, such as an audit client’s officers, directors, or substantial stockholders. 
+The relationships described in this paragraph do not include a relationship in which the accounting 
+firm or covered person in the firm provides professional services to an audit client or is a 
+consumer in the ordinary course of business. 
+5 
+11. DT-SA’s direct business relationship with Director falls within Reg. S-X’s 
+prohibition.  Director served as an audit-client director while simultaneously serving as 
+a paid consultant to DT-SA.  Although Rule 2-01(c)(3) provides an exception for 
+business relationships involving a consumer in the ordinary course of business, that 
+exception has no application here where neither party was acting in the capacity of a 
+consumer; a cooperative service arrangement like that presented here does not qualify 
+for this exception. 
+B. Violation of Rule 2-02(b) of Regulation S-X and of Issuer Reporting 
+Provisions 
+12. Because DT-SA’s business relationship with Director impaired DT-SA’s 
+independence, it both constituted and caused certain statutory and regulatory violations.  
+Each time DT-SA signed an audit report for Company A where either the period 
+covered by the audit or the period of the audit work (or both) overlapped with DT-SA’s 
+business relationship with Director, DT-SA directly violated Rule 2-02(b) of 
+Regulation S-X.  See Rule 2-02(b) (requiring accountant’s report to “state whether the 
+audit was made in accordance with generally accepted auditing standards”).  The DT-
+SA year-end audit reports for Company A’s fiscal years ending in September 2007 and 
+September 2008 each incorrectly stated that they were performed in accordance with 
+the independence standards of GAAS reflected in Rule 2-02(b).  Thus, DT-SA’s failure 
+to comply with Rule 2-02(b) of Regulation S-X caused its audit client Company A to 
+file annual reports with the Commission that failed to include independently audited 
+financial statements as required by Exchange Act Section 13(a) and Exchange Act Rule 
+13a-1.  DT-SA is responsible for causing Company A’s reporting violations with 
+respect to annual reports filed in January 2008 and 2009, for the aforementioned fiscal 
+years, because DT-SA should have known that the Firm’s business relationship with 
+Director would cause Company A to lack independence for the corresponding audits. 
+C. Improper Professional Conduct 
+13. DT-SA’s failure to comply with Rule 2-01 of Regulation S-X described 
+above also constitutes improper professional conduct under Exchange Act Section 4C 
+and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice, which 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…improper professional conduct.” 
+14. DT-SA’s conduct constituted improper professional conduct on account of 
+DC-SA’s failure (a) at the point when Director joined the board of directors of 
+Company A, to identify the independence-impairing relationship; (b) at the points at 
+which Director’s contract with DC-SA was renewed or extended, to perform any 
+updated independence review or conflicts check; and (c) at the points at which various 
+DC-SA personnel, who knew of Director’s consulting relationship with the Firm, 
+received communications explicitly identifying Director as a member of Company A’s 
+Board, to recognize that the Firm’s continued employment of Director while Director 
+6 
+simultaneously served on Company A’s Board interfered with DT-SA’s obligation to 
+maintain its independence as Company A’s auditor. 
+DT-SA’s Remedial Efforts 
+In determining to accept the Offer, the Commission considered remedial acts 
+undertaken by Respondent and cooperation afforded the Commission staff. 
+IV. 
+Based on the foregoing, the Commission finds that Respondent DT-SA 
+(a) violated Rule 2-02(b) of Regulation S-X; (b) caused Company A to violate Exchange 
+Act Section 13(a) and Exchange Act Rule 13a-1; and (c) engaged in improper 
+professional conduct pursuant to Exchange Act Section 4C and Rule 102(e) of the 
+Commission’s Rules of Practice. 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent’s Offer. 
+Accordingly, it is hereby ORDERED, effective immediately, that Respondent 
+DT-SA is hereby censured. 
+IT IS FURTHER ORDERED that Respondent DT-SA shall, within ten (10) days 
+of the entry of this Order, pay disgorgement of $200,000 and prejudgment interest of 
+$47,043.66 to the United States Treasury.  If timely payment is not made, additional 
+interest shall accrue pursuant to Commission Rule of Practice 600.  Payment must be 
+made in one of the following ways: 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request; 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the Commission website at http://www.sec.gov/about/offices/ofm.htm; or 
+(3) Respondent may pay by certified check, bank cashier’s check, or United States 
+postal money order, made payable to the Securities and Exchange Commission 
+and hand-delivered or mailed to: 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+DT-SA as a Respondent in these proceedings, and the file number of these proceedings.  
+A copy of the cover letter and check or money order, or documentation of whatever other 
+form of payment is used, must be simultaneously sent to Brian M. Privor, Senior 
+7 
+Counsel, Division of Enforcement, Securities and Exchange Commission, 100 F St., 
+N.E., Washington, DC 20549-5546. 
+IT IS FURTHER ORDERED, effectively immediately, that Respondent DT-SA 
+shall cease and desist from committing or causing any violations and any future 
+violations of Rule 2-02(b) of Regulation S-X, and from causing any violations and any 
+future violations of Exchange Act Section 13(a) and Rule 13a-1 thereunder. 
+By the Commission. 
+Elizabeth M. Murphy 
+Secretary 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3429.txt b/raw/aaer/2012/AAER-3429.txt
new file mode 100644
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@@ -0,0 +1,145 @@
+ 
+ 
+1 
+ 
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 68435 / December 14, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3429 / December 14, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15077 
+ 
+ 
+In the Matter of 
+ 
+ STORMY L. DEAN 
+  
+ 
+ORDER DENYING MOTION 
+TO LIFT TEMPORARY SUSPENSION 
+AND DIRECT HEARING 
+ 
+ 
+On October 24, 2012, we issued an order instituting proceedings against Stormy L. Dean 
+pursuant to Commission Rule of Practice 102(e)(3)1 that temporarily suspended him from 
+appearing or practicing before the Commission.2 
+The OIP alleges that Dean was the chief financial officer of infoUSA, Inc. from 
+approximately January 2000 through September 2003 and January 2006 through December 
+2008, and in that position certified infoUSA’s Forms 10-K that were filed with the Commission.3 
+                                                           
+1  Rule of Practice 102(e)(3)(i), 17 C.F.R. § 201.102(e)(3)(i), provides: 
+ 
+The Commission, with due regard to the public interest and without preliminary hearing, may, by order, 
+temporarily suspend from appearing or practicing before it any attorney, accountant, engineer, or other 
+professional or expert who has been by name: 
+ 
+(A) Permanently enjoined by any court of competent jurisdiction, by reason of his or her 
+misconduct in an action brought by the Commission, from violating or aiding and abetting the 
+violation of any provision of the Federal securities laws or of the rules and regulations thereunder; 
+or 
+ 
+(B) Found by any court of competent jurisdiction in an action brought by the Commission to 
+which he or she is a party or found by the Commission in any administrative proceeding to which 
+he or she is a party to have violated (unless the violation was found not to have been willful) or 
+aided and abetted the violation of any provision of the Federal securities laws or of the rules and 
+regulations thereunder. 
+2  Stormy L. Dean, Securities Exchange Act Release No. 68097, 2012 WL 5246491 (Oct. 24, 2012). 
+3  Id. at *1. The OIP also alleges that Dean “passed the certified public accountant (‘CPA’) examination in 
+1995 and holds a CPA certificate in the state of Nebraska” but “has never obtained a CPA license.” Id. at *1. 
+ 
+ 
+2 
+ 
+On March 15, 2010, the Commission filed a complaint in the United States District Court for the 
+District of Nebraska alleging that Dean engaged in securities fraud and other violations of the 
+securities laws by preparing and reviewing infoUSA’s Forms 10-K and proxy statements that 
+materially understated and failed to properly disclose perquisite compensation to Vinod Gupta, 
+infoUSA’s former chief executive officer and Chairman of the Board of Directors, and failed to 
+properly disclose related party transactions involving Gupta.4 The complaint also alleged that 
+Dean aided and abetted the filing of infoUSA’s false Forms 10-K. 
+A jury found that Dean violated the antifraud, false proxy statements, false certifications, 
+false statements and omissions to accountants and auditors, and books-and-records provisions of 
+the federal securities laws. A jury also found that Dean aided and abetted infoUSA’s violations 
+of the reporting and record-keeping provisions of the Securities Exchange Act of 1934.5 On May 
+29, 2012, the district court entered a judgment permanently enjoining Dean from future 
+violations, directly or indirectly, of §§ 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and 14(a) 
+of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-14, 13b2-1, 13b2-2, 14a-3, and 14a-9 
+promulgated thereunder.6 The judgment also barred Dean from serving as a director or officer of 
+a publicly traded company for a period of three years, and ordered Dean to pay a civil monetary 
+penalty of $50,000.7 
+In issuing the OIP, we found it “appropriate and in the public interest” that Dean be 
+temporarily suspended from appearing or practicing before the Commission based on the District 
+Court’s final judgment. We stated that the temporary suspension would become permanent 
+unless Dean filed a petition challenging it within thirty days of service of the order, pursuant to 
+Rule of Practice 102(e)(3)(ii). We further advised that, pursuant to Rule of Practice 
+102(e)(3)(iii), upon receipt of such a petition, we would either lift the temporary suspension, set 
+the matter down for hearing, or both. 
+In his petition, Dean requests that the temporary suspension be lifted, arguing that (i) he 
+has appealed the injunction entered against him, and it would be improper and in derogation of 
+his rights “to allow a temporary suspension to become permanent based upon an injunction that 
+may not be upheld on appeal,” (ii) the OIP was filed more than ninety days after final judgment 
+and was therefore untimely under Rule 102(e)(3), (iii) the doctrine of collateral estoppel prevents 
+                                                           
+4 SEC v. Stormy L. Dean, et al., No. 10-CV-00102 LSC (FG3), available at http://www.sec.gov/litigation/ 
+complaints/2010/comp21451-dasanddean.pdf. 
+5 The jury found that Dean violated (i) the antifraud provisions in Exchange Act § 10(b), 15 U.S.C. § 78j(b), 
+and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5; (ii) the false proxy statements provisions of Exchange Act 
+§ 14(a), 15 U.S.C. § 78n(a), and Rules 14a-3 and 14a-9 thereunder, 17 C.F.R. §§ 240.14a-3 and 14a-9; (iii) the false 
+certifications provisions of Exchange Act Rule 13a-14, 17 C.F.R. § 240.13a-14; (iv) the false statements and 
+omissions to accountants and auditors provisions of Exchange Act Rule 13b2-2, 17 C.F.R. § 240.13b2-2; and (v) the 
+books-and-records provisions of Exchange Act § 13(b)(5), 15 U.S.C. § 78m(b)(5), and Rule 13b2-1 thereunder, 17 
+C.F.R. § 240.13b2-1. The jury further found that Dean aided and abetted infoUSA’s violations of (i) the issuer 
+reporting requirements in Exchange Act § 13(a), 15 U.S.C. § 78m(a), and Exchange Act Rules 12b-20 and 13a-1 
+thereunder, 17 C.F.R. §§ 240.12b-20 and 240.13a-1; and (ii) the books-and-records provisions of Exchange Act 
+§ 13(b)(2), 15 U.S.C. § 78m(b)(2). 
+6 SEC v. Stormy L. Dean, et al., Civil Action No. 8:10-cv-00102. 
+7 Id. 
+ 
+ 
+3 
+ 
+the Commission from imposing a permanent suspension based on findings made by the district 
+court, and (iv) the suspension is not in the public interest. The Division of Enforcement has not 
+filed an opposition to Dean’s petition. 
+Rule 102(e)(3)(i)(a) permits the Commission to suspend any accountant or other 
+professional or expert who has been “[p]ermanently enjoined . . . from violating or aiding and 
+abetting the violation of any provision of the Federal securities laws or of the rules and 
+regulations thereunder.”8 Generally, a respondent in a “follow-on” proceeding is precluded from 
+challenging the basis for, or findings in, the underlying injunction action.9 Although Dean is 
+entitled to appeal the underlying case against him, the possibility of an appeal to the court of 
+appeals “does not alter the effect” of the jury’s finding of securities law violations or the court’s 
+imposition of an injunction here.10 
+At this stage it appears that the findings made in the injunctive proceeding and the 
+injunction issued against Dean “justify the continuance of his suspension until it can be 
+determined what, if any, action may be appropriate to protect the Commission’s processes.”11 As 
+provided in Rule 102(e)(3)(iii),12 therefore, we will set the matter down for public hearing. 
+Accordingly, IT IS ORDERED that this proceeding be set down for public hearing before 
+an administrative law judge in accordance with Rule of Practice 110. As specified in Rule of 
+Practice 102(e)(3)(iii), the hearing in this matter shall be expedited in accordance with Rule of 
+Practice 500; it is further 
+ORDERED that the administrative law judge shall issue an initial decision no later than 
+210 days from the date of service of this order; and it is further 
+ORDERED that the temporary suspension of Stormy L. Dean, entered on October 24, 
+2012, remain in effect pending a hearing and decision in this matter. 
+By the Commission. 
+ 
+ 
+      Elizabeth M. Murphy 
+       Secretary 
+                                                           
+8 17 C.F.R. § 201.102 (e)(3)(i)(A). 
+9 See, e.g., Jose P. Zollino, Exchange Act Release No. 55107, 2007 WL 98919, at *4 n.20 (Jan. 16, 2007) 
+(noting that the appropriate forum for respondent’s challenges to underlying litigation is the appellate court).  
+10 Daniel S. Lezak, Exchange Act Release No. 50729, 2004 WL 2721400, at *2 n.16 (Nov. 23, 2004); see also 
+Michael T. Studer, Exchange Act Release No. 50411, 2004 WL 2104496, at *3 (Sept. 20, 2004) (noting that “the 
+fact that Studer is still litigating that action [on appeal] does not affect our statutory authority to conduct this 
+proceeding”), aff’d, 148 F. App’x 58 (2d Cir. 2005). 
+11 Williams D. Shovers, Exchange Act Release No. 59874, 2009 WL 1271170, at *2 (May 6, 2009).  
+12  17 C.F.R. § 201.102 (e)(3)(iii). 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3430.txt b/raw/aaer/2012/AAER-3430.txt
new file mode 100644
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+++ b/raw/aaer/2012/AAER-3430.txt
@@ -0,0 +1,135 @@
+ 
+ 
+1 
+ 
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 68436 / December 14, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3430 / December 14, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15078 
+ 
+ 
+In the Matter of 
+ 
+ RAJNISH K. DAS 
+  
+ 
+ORDER DENYING MOTION 
+TO LIFT TEMPORARY SUSPENSION 
+AND DIRECT HEARING 
+ 
+ 
+On October 24, 2012, we issued an order instituting proceedings against Rajnish K. Das 
+pursuant to Commission Rule of Practice 102(e)(3)1 that temporarily suspended him from 
+appearing or practicing before the Commission.2 
+The OIP alleges that Das was the chief financial officer of infoUSA, Inc. from 
+approximately September 2003 through January 2006, and in that position certified infoUSA’s 
+Forms 10-K that were filed with the Commission.3 On March 15, 2010, the Commission filed a 
+                                                           
+1 Rule of Practice 102(e)(3)(i), 17 C.F.R. § 201.102(e)(3)(i), provides: 
+ 
+The Commission, with due regard to the public interest and without preliminary hearing, may, by order, 
+temporarily suspend from appearing or practicing before it any attorney, accountant, engineer , or other 
+professional or expert who has been by name: 
+ 
+(A)  Permanently enjoined by any court of competent jurisdiction, by reason of his or her 
+misconduct in an action brought by the Commission, from violating or aiding and abetting the 
+violation of any provision of the Federal securities laws or of the rules and regulations thereund er; 
+or 
+ 
+(B)  Found by any court of competent jurisdiction in an action brought by the Commission to 
+which he or she is a party or found by the Commission in any administrative proceeding to which 
+he or she is a party to have violated (unless the violation was found not to have been willful) or 
+aided and abetted the violation of any provision of the Federal securities laws or of the rules and 
+regulations thereunder. 
+2 Rajnish K. Das, Exchange Act Release No. 68096, 2012 WL 5246492 (Oct. 24, 2012). 
+3 Id. at *1. The OIP also alleges that Das “has not passed the certified public accountant (‘CPA’) exam and 
+has not been a licensed CPA.”  Id. at *1. 
+ 
+ 
+2 
+ 
+complaint in the United States District Court for the District of Nebraska alleging that Das 
+engaged in securities fraud and other violations of the securities laws by preparing and reviewing 
+infoUSA’s Forms 10-K and proxy statements that materially understated and failed to properly 
+disclose perquisite compensation to Vinod Gupta, infoUSA’s former chief executive officer and 
+Chairman of the Board of Directors, and failed to properly disclose related party transactions 
+involving Gupta.4 The complaint also alleged that Das aided and abetted the filing of infoUSA’s 
+false Forms 10-K. 
+A jury found that Das violated the antifraud, false proxy statements, false certifications, 
+false statements and omissions to accountants and auditors, and books-and-records provisions of 
+the federal securities laws. It also found that Das aided and abetted infoUSA’s violations of the 
+reporting and record-keeping provisions of the Securities Exchange Act of 1934.5 On May 29, 
+2012, the district court entered a judgment permanently enjoining Das from future violations, 
+directly or indirectly, of §§ 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and 14(a) of the 
+Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, 13b2-2, 14a-3, and  
+14a-9 promulgated thereunder.6 The judgment also barred Das from serving as a director or 
+officer of a publicly traded company for a period of three years, and ordered Das to pay a civil 
+monetary penalty of $50,000.7 
+In issuing the OIP, we found it “appropriate and in the public interest” that Das be 
+temporarily suspended from appearing or practicing before the Commission based on the district 
+court’s final judgment. We stated that the temporary suspension would become permanent unless 
+Das filed a petition challenging it within thirty days of service of the order, pursuant to Rule of 
+Practice 102(e)(3)(ii). We further advised that, pursuant to Rule of Practice 102(e)(3)(iii), upon 
+receipt of such a petition, we would either lift the temporary suspension, set the matter down for 
+hearing, or both. 
+In his petition, Das requests that the temporary suspension be lifted, arguing that (i) he is 
+outside the reach of the suspension provision of Rule of Practice 102(e)(3)(i) because he has 
+never been an accountant or “other professional,” (ii) the OIP was filed more than ninety days 
+after the final judgment and was therefore untimely under Rule 102(e)(3), (iii) the doctrine of 
+collateral estoppel prevents the Commission from imposing a permanent suspension based on 
+                                                           
+4 SEC v. Rajnish K. Das, et al., No. 10-CV-00102 LSC (FG3), available at http://www.sec.gov/litigation/ 
+complaints/2010/comp21451-dasanddean.pdf. 
+5 The jury found that Das violated (i) the antifraud provisions in Exchange Act § 10(b), 15 U.S.C. § 78j(b), 
+and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5; (ii) the false proxy statements provisions of Exchange Act 
+§ 14(a), 15 U.S.C. § 78n(a), and Rules 14a-3 and 14a-9 thereunder, 17 C.F.R. §§ 240.14a-3 and 14a-9; (iii) the false 
+certifications provisions of Exchange Act Rule 13a-14, 17 C.F.R. § 240.13a-14; (iv) the false statements and 
+omissions to accountants and auditors provisions of Exchange Act Rule 13b2-2, 17 C.F.R. § 240.13b2-2; and (v) the 
+books-and-records provisions of Exchange Act § 13(b)(5), 15 U.S.C. § 78m(b)(5), and Rule 13b2-1 thereunder, 17 
+C.F.R. § 240.13b2-1. The jury further found that Das aided and abetted infoUSA’s violations of (i) the issuer 
+reporting requirements in Exchange Act § 13(a), 15 U.S.C. § 78m(a), and Exchange Act Rules 12b-20, 13a-1, 13a-
+13 thereunder, 17 C.F.R. §§ 240.12b-20, 240.13a-1 and 240.13a-13; and (ii) the books-and-records provisions of 
+Exchange Act § 13(b)(2), 15 U.S.C. § 78m(b)(2). 
+6 SEC v. Rajnish K. Das, et al., Civil Action No. 8:10-cv-00102. 
+7 Id. 
+ 
+ 
+3 
+ 
+findings made by the district court, and (iv) the suspension is not in the public interest. The 
+Division of Enforcement has not filed an opposition to Das’s petition. 
+Rule 102(e)(3)(i)(a) permits the Commission to suspend any accountant or other 
+professional or expert who has been “[p]ermanently enjoined . . . from violating or aiding and 
+abetting the violation of any provision of the Federal securities laws or of the rules and 
+regulations thereunder.”8 At this stage it appears that the findings made in the injunctive 
+proceeding and the injunction issued against Das “justify the continuance of his suspension until 
+it can be determined what, if any, action may be appropriate to protect the Commission’s 
+processes.”9 As provided in Rule 102(e)(3)(iii),10 therefore, we will set the matter down for 
+public hearing. 
+Accordingly, IT IS ORDERED that this proceeding be set down for public hearing before 
+an administrative law judge in accordance with Rule of Practice 110. As specified in Rule of 
+Practice 102(e)(3)(iii), the hearing in this matter shall be expedited in accordance with Rule of 
+Practice 500; it is further 
+ORDERED that the administrative law judge shall issue an initial decision no later than 
+210 days from the date of service of this order; and it is further 
+ORDERED that the temporary suspension of Rajnish K. Das, entered on October 24, 
+2012, remain in effect pending a hearing and decision in this matter. 
+By the Commission. 
+ 
+ 
+ 
+      Elizabeth M. Murphy 
+       Secretary 
+                                                           
+8 17 C.F.R. § 201.102(e)(3)(i)(a). 
+9 Williams D. Shovers, Exchange Act Release No. 59874, 2009 WL 1271170, at *2 (May 6, 2009). 
+10 17 C.F.R. § 201.102(e)(3)(iii). 
\ No newline at end of file
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+
+
+ 
+ 
+   
+     
+ 
+ 
+ 
+ 
+ 
+ 
+
+     
+     
+     SEC.gov | TheStreet, Inc., Eric Ashma, and Gregg Alwine and David Barnett 
+     
+     
+     
+     
+     
+     
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+              TheStreet, Inc., Eric Ashma, and Gregg Alwine and David Barnett
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+        TheStreet, Inc., Eric Ashma, and Gregg Alwine and David Barnett
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+                   U.S. SECURITIES AND EXCHANGE COMMISSION 
+ 
+ Litigation Release No. 22575 / December 18, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3432 / December 18, 2012 
+
+
+  Securities and Exchange Commission v. TheStreet, Inc. , Civil Action No. 12-CV-9187 (JGK) (S.D.N.Y. December 18, 2012) 
+  Securities and Exchange Commission v. Eric Ashman , Civil Action No. 12-CV-9189 (S.D.N.Y. December 18, 2012); and  
+  Securities and Exchange Commission v. Gregg Alwine and David Barnett , Civil Action No. 12-CV-9191 (S.D.N.Y. December 18, 2012) 
+
+ SEC Charges TheStreet, Inc. and Former Executives In Connection With Accounting Fraud 
+ 
+ The Securities and Exchange Commission today charged TheStreet, Inc. and three executives in connection with a 2008 accounting fraud at a former subsidiary of TheStreet, Inc.  The fraud allowed TheStreet to report artificially inflated revenue and misstated operating income or loss in each period of 2008.   
+
+ The SEC alleges that throughout 2008, Eric Ashman, TheStreet's former Chief Financial Officer, aided and abetted the fraud by improperly and prematurely recognizing revenue based on several of the former subsidiary's transactions.  According to the complaint, Ashman caused TheStreet to recognize revenue when he knew or recklessly disregarded that there was no basis for revenue recognition.   
+
+ Gregg Alwine and David Barnett, co-presidents of the subsidiary, are alleged to have aided and abetted the fraud by entering into sham transactions, and fabricating and backdating contracts and other documents.  In addition, Barnett is charged with leading TheStreet's auditor to believe that the subsidiary had performed services and thereby earned revenue on a specific transaction when in fact it had not performed those services.  
+
+ For its part, TheStreet is charged with lacking appropriate internal controls over its subsidiary's revenue and with violating books and records and reporting provisions of the securities laws. 
+  
+ The Commission alleges that (1) Ashman violated Section 13(b)(5) of the Exchange Act and Rules 13a-14 and 13b2-1 thereunder and aided and abetted violations by TheStreet.com of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-1 and 13a-13 thereunder; and failed to comply with Section 304(a) of the Sarbanes-Oxley Act of 2002; (2) Alwine and Barnett violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and aided and abetted TSC's violations of Section 10(b)(5), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5(b), 12b-20 and 13a-13 thereunder; and Barnett violated Rule 13b2-2; and (3) TheStreet 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.  
+  
+ Without admitting or denying the Commission's allegations, each of the defendants has agreed to be permanently enjoined from future violations of the federal securities laws.  In addition, Ashman will pay a $125,000 penalty, reimburse TheStreet $34,240.40 pursuant to Section 304 of the Sarbanes-Oxley Act of 2002, and will be barred from acting as a director or officer of a public company for a period of three years.  Alwine and Barnett will pay penalties of $120,000 and $130,000, respectively, and will be barred from serving as officers or directors of a public company for ten years. 
+
+ # # # 
+ 
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+   SEC Complaint - TheStreet, Inc.  
+     SEC Complaint - Eric Ashman  
+  SEC Complaint - Gregg Alwine and David Barnett   -->
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diff --git a/raw/aaer/2012/AAER-3433.txt b/raw/aaer/2012/AAER-3433.txt
new file mode 100644
index 0000000000000000000000000000000000000000..73dfd8d10d88466836967394e1efab1a560005f8
--- /dev/null
+++ b/raw/aaer/2012/AAER-3433.txt
@@ -0,0 +1,128 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 68500 / December 20, 2012 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 3523 / December 20, 2012 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3433 / December 20, 2012 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15148 
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO SECTION 
+  STEVEN A. GOULD CPA,   : 203(f) OF THE INVESTMENT ADVISERS 
+      : ACT OF 1940 AND RULE 102(e) OF THE 
+ Respondent.    : COMMISSION’S RULES OF PRACTICE, 
+      : MAKING FINDINGS, AND   
+      : IMPOSING REMEDIAL SANCTIONS 
+      :  
+____________________________________ :   
+   
+ 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted pursuant to 
+Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 102(e)(3)(i) of 
+the Commission’s Rules of Practice against Steven A. Gould (“Respondent” or “Gould”).
+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 
+ 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.2 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Section 
+203(f) of the Investment Advisers Act of 1940 and Rule 102(e) of the Commission’s Rules of 
+Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+ 1. Gould, age 48, is a certified public accountant currently licensed in New 
+York.  Gould was the chief financial officer of West End Financial Advisors (“West End”) from 
+September 2006 to May 11, 2009.  West End is a New York-based, unregistered investment adviser 
+to a collection of hedge funds (the “West End funds”).  West End is affiliated with Sentinel 
+Investment Management Corporation, which has been registered with the Commission since 1986.   
+Gould’s responsibilities at West End included overseeing West End’s accounting department, 
+maintaining financial records for the West End funds, and preparing monthly account statements 
+sent to West End investors. 
+ 
+ 2. On September 25, 2012, the U.S. District Court for the Southern District of 
+New York entered a final judgment against Gould, permanently enjoining him from future 
+violations, direct or indirect, of Section 17(a) of the Securities Act of 1933, Section 10(b) of the 
+Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 
+206(4) of the Advisers Act and Rule 206(4)-8 thereunder, in the civil action entitled Securities and 
+Exchange Commission v. Landberg, et al., 11-CV-0404 (PKC).  Gould was also ordered to pay a 
+$130,000 civil money penalty. 
+ 
+ 3. The Commission’s amended complaint alleged that between at least January 
+2008 and May 2009 Gould knew, or was reckless in not knowing, that the returns West End funds 
+were generating were not adequate to meet the funds’ obligations.  Account statements that Gould 
+prepared misrepresented the returns of the West End funds.  Gould was aware of the extensive 
+commingling of assets among West End funds.  Gould also facilitated the misuse of funds from a 
+reserve account that was to be maintained on behalf of a lender to a West End fund and devised an 
+accounting mechanism to disguise at least one instance where money was improperly taken from 
+the account.  Gould was also aware that investments were being used in ways that were 
+inconsistent with what had been represented to West End’s investors. 
+                                                                                                                                                             
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 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 Gould’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+(i) pursuant to Section 203(f) of the Advisers Act that Respondent Gould be, and 
+hereby is: 
+ 
+barred from association with any broker, dealer, investment adviser, municipal 
+securities dealer, or transfer agent. 
+ 
+Any reapplication for association by the Respondent will be subject to the applicable laws 
+and regulations governing the reentry process, and reentry may be conditioned upon a number of 
+factors, including, but not limited to, the satisfaction of any or all of the following:  (a) any 
+disgorgement ordered against the Respondent, whether or not the Commission has fully or partially 
+waived payment of such disgorgement; (b) any arbitration award related to the conduct that served 
+as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a 
+customer, whether or not related to the conduct that served as the basis for the Commission order; 
+and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct 
+that served as the basis for the Commission order. 
+ 
+(ii) pursuant to Rule 102(e)(3) of the Commission’s Rules of Practice, Gould is 
+suspended from appearing or practicing before the Commission as an accountant. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Elizabeth M. Murphy 
+       Secretary 
+ 
\ No newline at end of file
diff --git a/raw/aaer/2012/AAER-3480.txt b/raw/aaer/2012/AAER-3480.txt
new file mode 100644
index 0000000000000000000000000000000000000000..4c182c074cfb9cd003d88587ac654fc6973f5d58
--- /dev/null
+++ b/raw/aaer/2012/AAER-3480.txt
@@ -0,0 +1,1382 @@
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+        Sunrise Solar Corporation, Eddie D. Austin, Jr., and Carolyn Austin
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+ Litigation Release No. 22501 / October 1, 2012 
+
+ Accounting and Auditing Enforcement Release No. 3480 / October 1, 2012 
+
+  United States Securities Exchange Commission v. Sunrise Solar Corporation, Eddie D. Austin, Jr., and Carolyn Austin , Civil Action No. 5:12-cv-00918-OLG (W.D. Tx.)(September 28, 2012) 
+
+ SEC Charges Three for Their Roles in Manipulating the Market for Sunrise Solar Corporation Stock 
+
+ On September 28, 2012, the Securities and Exchange Commission charged Texas-based Sunrise Solar Corporation, its former CEO Eddie D. Austin, Jr. (Austin), and his wife Carolyn Austin for their involvement in a fraudulent market manipulation scheme. 
+
+ The SEC's Complaint alleges that between July 25, 2008 and May 26, 2009, Austin drafted, reviewed, and approved numerous false and misleading press releases that portrayed Sunrise as a thriving business operating in the solar power industry. Among other things, these press releases represented that the company had received contracts and was in advanced negotiations to provide solar power to numerous international businesses that, if completed, would generate millions in revenue. The Complaint alleges that these representations were false. In addition, the Complaint alleges that Sunrise filed, and Austin certified, two annual reports that failed to disclose Austin's recent bankruptcy filing. Finally, the Complaint alleges that Carolyn Austin received and sold 300,000 shares of Sunrise stock in transactions that should have been registered with the Commission, receiving $174,471 in improper proceeds. 
+
+ The SEC charges Sunrise with violating Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 12b-20, 13a-1, and 13a-11 thereunder. It further alleges that Austin violated, or aided and abetted violations of, Sections 10(b), 13(a), and 16(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-14, 16a-2, and 16a-3 thereunder; and that Carolyn Austin violated Sections 5(a) and 5(c) of the Securities Act of 1933 (Securities Act). Without admitting or denying the SEC's allegations, both Austins have consented to entry of final judgments permanently enjoining them from these violations. In addition, Austin is barred from acting as an officer or director of a public company and from participating in an offering of penny stock, and must pay a $40,000 civil penalty. Carolyn Austin must pay disgorgement of $174,471, plus prejudgment interest of $22,982. The settlements are subject to the Court's approval. 
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diff --git a/raw/aaer/2012/AAER-3481.txt b/raw/aaer/2012/AAER-3481.txt
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+             
+        China North East Petroleum Holdings Limited, et al.
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+                  U.S. SECURITIES AND EXCHANGE COMMISSION 
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+ Litigation Release No. 22552 / November 30, 2012 
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+ Accounting and Auditing Enforcement Release No. 3481 / November 30, 2012 
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+  Securities and Exchange Commission v. China North East Petroleum Holdings Limited, et al. , Civil Action No. 12-CV-8696 (U.S. District Court for the Southern District of New York) 
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+ SEC FILES FRAUD CHARGES AGAINST CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED; ITS CEO, PRESIDENT AND FORMER CHAIRMAN; ITS FOUNDER AND FORMER DIRECTOR; AND ITS VICE PRESIDENT AND SECRETARY 
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+ 
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+ The Securities and Exchange Commission today announced that, on November 29, 2012, the Commission filed fraud and other related charges against China North East Petroleum Holdings (CNEP); its CEO, President and former Chairman of the Board of Directors, Wang Hongjun (Wang); its founder, former director and Wang's mother, Ju Guizhi (Ju); and its Vice President of Corporate Finance and Secretary, Jiang Chao.  The Commission also named Wang's wife, Sun Jishuang (Sun), and Jiang Chao's father, Jiang Mingfu, as Relief Defendants to recover company monies that they improperly received. 
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+ The Commission alleges that CNEP, Wang, Ju and Jiang Chao diverted offering proceeds to the personal accounts of corporate insiders and their immediate family members, and also engaged in fraudulent conduct in connection with at least 176 undisclosed transactions between the company and its insiders or their immediate family members, otherwise known as related-party transactions. 
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+ The Commission alleges that, in connection with its two public stock offerings in late 2009, CNEP falsely stated to investors in a registration statement and other public filings signed by Wang that the offering proceeds would be used to fund future business expansion and for general working capital purposes.  Instead, consistent with a pre-existing pattern of engaging in undisclosed, related-party transactions, Jiang Chao then diverted over $900,000 of offering proceeds to his father, Jiang Mingfu, and at the direction of Ju, diverted at least $6 million dollars to her and Sun, who is her daughter-in-law and Wang's wife. 
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+ The Commission further alleges that during 2009, CNEP, Wang and Ju engaged in at least 176 undisclosed, related-party transactions.  This fraudulent conduct involved approximately $28 million in transactions from CNEP to Wang or Ju; approximately $11 million purportedly loaned to CNEP or paid to third parties on behalf of CNEP by Wang or Ju; and $20 million of unusual post-year-end adjustments that purported to eliminate the remaining debts owed by Wang and Ju to CNEP.  Together, these transactions totaled approximately $59 million of related-party activity during 2009.  Neither the magnitude nor the volume of these related-party transactions has been fully disclosed to the investing public. 
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+ The Commission alleges that CNEP, Wang, Ju and Jiang Chao violated the antifraud provisions of the securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act of 1934 (Exchange Act) and Rule 10b-5.  The Commission further alleges violations of reporting, recordkeeping and internal controls provisions of the securities laws, Sections 13(a), 13(b)(2)(A) & (B), and 13(b)(5) of the Securities Exchange Act and Rules 13a-1, 13a-11, 13a-13 and 13b2-1.  The Commission is seeking:  (i) permanent injunctive relief to prevent future violations of the federal securities laws, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties from each Defendant; (ii) officer and director bars against Wang, Ju and Jiang Chao; and (iii) disgorgement from the Relief Defendants, Sun and Jiang Mingfu, of improperly received funds. 
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+ The investigation is continuing. 
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