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+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74039 / January 13, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3619 / January 13, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16333 
+       
+      :  
+ :  
+ :   
+In the Matter of  : 
+ : ORDER INSTITUTING PUBLIC  
+ : ADMINISTRATIVE PROCEEDINGS 
+ JAMES T. CRANE, CPA,   : 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 James 
+T. Crane (“Respondent” or “Crane”) 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 
+ 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. Crane, age 38, was a certified public accountant licensed to practice in the 
+Commonwealth of Massachusetts, until his license expired on June 30, 2010.  He served as Chief 
+Financial Officer of Subaye, Inc. (“Subaye”) from October 29, 2007 until March 10, 2011. 
+ 
+ 2. Subaye was, at all relevant times, a Delaware corporation that purported to 
+have its primary operations in the People’s Republic of China.  Subaye claimed to be a leading 
+online services provider for small-to-medium sized businesses in China, but presently it is inactive.  
+Subaye’s common stock was registered with the Commission pursuant to Section 12(b) of 
+Securities Exchange Act of 1934 (“Exchange Act”) and was listed on the NASDAQ Stock Market 
+under the ticker “SBAY” from March 15, 2010 until November 21, 2011.  The NASDAQ Stock 
+Market filed a Form 25 (Notification of Removal from Listing and/or Registration under Section 
+12(b) of the Exchange Act) on November 10, 2011, and Subaye no longer has a class of stock 
+registered pursuant to the Exchange Act.   
+ 
+ 3. On October 20, 2014, a final judgment was entered by consent, against 
+Crane, permanently enjoining him from future violations of Section 10(b) of the Exchange Act and 
+Rules 10b-5, 13a-14, 13b2-1 and 13b2-2 thereunder, and Section 105(c)(7)(B) of the Sarbanes-
+Oxley Act of 2002, and from aiding and abetting any 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, thereunder, in the civil action 
+entitled Securities and Exchange Commission v. Subaye, Inc. and James T. Crane, Civil Action 
+Number 1:13-cv-03114-PKC, in the United States District Court for the Southern District of New 
+York.  Crane also was ordered to pay a civil penalty of $150,000 and was barred from serving as 
+an officer or director of a public company for a period of ten years. 
+ 
+                                                                                                                                                             
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 3 
+   4. The Commission’s complaint contained allegations, which Crane neither 
+admitted nor denied, that, among other things, Crane engaged in a fraudulent scheme that 
+resulted in Subaye’s filing materially false and misleading financial statements in the company’s 
+annual report on Form 10-K for the fiscal year ended September 30, 2010, and a report on Form 
+8-K/A filed on January 26, 2011.  The Complaint alleged that Crane, as Subaye’s Chief 
+Financial Officer, engaged in a number of improper accounting practices, which included 
+circumventing or failing to implement a system of internal accounting controls, falsifying the 
+books, records and accounts of Subaye, providing false documents to Subaye’s independent 
+auditors, signing false management representation letters that were provided to the auditors, 
+making materially false or misleading statements to Subaye’s accountants, and signing a false 
+certification of Subaye’s Form 10-K for 2010.  In addition, the complaint alleged that, after 
+being barred from doing so by the Public Company Accounting Oversight Board (PCAOB) in 
+January 2011, Crane remained associated with Subaye, an issuer of U.S. registered stock, in a 
+financial management or accounting capacity. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Crane’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Crane is suspended from appearing or practicing before the Commission as an 
+accountant. 
+ 
+ B. After ten years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he/she 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 
+ 4 
+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. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2015/AAER-3620.txt

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+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74112 / January 22, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3620 / January 22, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16352 
+ 
+ 
+In the Matter of 
+ 
+Walid Hatoum 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Walid Hatoum (“Hatoum” 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, and except as provided herein in Section V, Respondent 
+consents to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to 
+Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-
+and-Desist Order (“Order”), as set forth below. 
+ 
+ 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary  
+1. These proceedings arise from violations of the Foreign Corrupt Practices Act of 
+1977 (the “FCPA”) [15 U.S.C. 78dd] by Respondent Walid Hatoum concerning offers of 
+payment and other benefits to foreign officials in Qatar in connection with the award of 
+government contracts to PBS&J International, Inc. (“PBSJ&J Int’l”), a wholly-owned subsidiary 
+of PBSJ Corporation (“PBSJ”).   
+    
+Respondent 
+ 
+2. Walid Hatoum (“Hatoum”), age 55, is a United States citizen who initially 
+worked for PBSJ as an engineer from 1986 until 1990.  In February 2009, Hatoum was rehired to 
+join PBS&J Int’l as its Director of International Marketing, even though his prior employment 
+file at PBSJ had been marked “Ineligible for Rehire.” Although Hatoum did not formally join 
+PBS&J Int’l until April 2009, he assisted PBS&J Int’l with identifying projects as early as 
+November 2008.  Hatoum was promoted to President of PBS&J Int’l in mid-June 2009, and 
+became an officer of PBSJ at the same time.   
+Relevant Entities 
+ 
+3. The PBSJ Corporation (“PBSJ”) was an employee-owned engineering and 
+construction firm incorporated in Florida and headquartered in Tampa.  Through the relevant 
+period, PBSJ’s common stock was registered pursuant to Section 12(g) of the Securities 
+Exchange Act of 1934 (“Exchange Act”) and PBSJ filed annual and quarterly reports as required 
+under Section 13(a) of the Exchange Act and Rules thereunder.2   
+4. PBS&J International, Inc. (“PBS&J Int’l”) was a wholly-owned subsidiary of 
+PBSJ headquartered and incorporated in Florida.  PBS&J Int’l was a provider of engineering, 
+                                                 
+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 October 1, 2010, after the conduct at issue, WS Atkins plc (“Atkins”), a public limited engineering and 
+design company based in the United Kingdom and organized under the laws of England and Wales, acquired PBSJ 
+and all of its common stock.  Atkins is traded on the London Stock Exchange under the symbol ATK.L.  That day, 
+PBSJ filed a Form 15 with the Commission, which terminated all offerings of its securitie s and removed all 
+remaining securities from registration under Section 12(g).  Post-acquisition, PBSJ became an indirect wholly-
+owned subsidiary of Atkins.  On April 1, 2011, PBSJ changed its name to The Atkins North America Holdings 
+Corporation. 
+ 
+ 
+ 3 
+architectural and planning services in international markets, including the Middle East.  PBS&J 
+Int’l currently is a subsidiary of Atkins. 
+Facts 
+ 
+5. During 2009, PBS&J Int’l won two multi-million dollar development contracts.  
+One contract was for work in Qatar and the other was for work in Morocco.  Both were 
+competitively solicited and approved by the Qatari Diar Real Estate Investment Company 
+(“Qatari Diar”).  Qatari Diar was established by the Qatari government to coordinate the 
+country’s real estate development.   
+6. PBSJ and PBS&J Int’l, through  Hatoum, offered bribes to the then-Director of 
+International Projects at Qatari Diar (“Foreign Official”), to secure Qatari government contracts 
+by planning to funnel funds to a local company the Foreign Official owned and controlled 
+(“Local Partner”).  Foreign Official, a former business colleague of Hatoum’s at another U.S. 
+engineering firm, worked for Qatari Diar throughout 2009, until his resignation from Qatari Diar 
+on December 21, 2009.  Prior to joining PBSJ, Hatoum and Foreign Official discussed directing 
+business in the Middle East to Local Partner.    
+7. In return, Foreign Official provided PBS&J Int’l with access to confidential 
+sealed-bid information and pricing information on the two government contracts that helped 
+PBS&J Int’l tender bids that had a greater likelihood of being awarded, including a government 
+contract for which the Foreign Official was the project manager.  
+Offers and Promises Made to Foreign Official 
+ 
+LRT Project in Qatar 
+ 
+8. In November and December 2008, Hatoum began discussing potential 
+employment with PBSJ.  Even before he received a formal employment contract, Hatoum met 
+with PBS&J Int’l to discuss opportunities to grow PBS&J Int’l business in the Middle East.  
+Hatoum discussed projects involving Qatari Diar, including a light rail transit project in Qatar 
+(“the LRT Project”).   
+9. In January 2009, Hatoum arranged for Foreign Official’s brother, through Local 
+Partner, to introduce PBS&J Int’l to Qatari Diar senior executives involved in the LRT Project.  
+Soon after that meeting, PBS&J Int’l decided to bid on the LRT Project.  PBS&J Int’l added 
+Foreign Official’s company, Local Partner, on its proposal team as a subcontractor to handle 
+local operations such as hiring local labor, as well as complying with bonding and insurance 
+requirements.  In return, Hatoum and PBS&J Int’l agreed to pay the Foreign Official, through 
+Local Partner, 40% of profits realized from any LRT Project contract as well as reimburse its 
+direct costs.  The remaining profits were to be split between PBS&J Int’l (40%) and another 
+U.S.-based subcontractor (20%), which would perform all of the planning and engineering 
+services for the LRT project.   
+ 
+ 
+ 4 
+10. At that time, Hatoum was the only person at PBS&J Int’l who had any knowledge 
+about Foreign Official’s ownership interest in Local Partner.  Had PBSJ conducted meaningful 
+due diligence at that time, it would have discovered the Foreign Official’s dual role as both 
+government official and third-party owner/operator of Local Partner.   
+11. During the bidding process, Foreign Official gave confidential sealed bid 
+information to PBS&J Int’l to assist it in winning the LRT Project in return for promised 
+payments.  Foreign Official also made strategic and technical decisions on many aspects of the 
+LRT Project that favored PBS&J Int’l with Hatoum’s knowledge. 
+12. Foreign Official used a Local Partner alias to communicate that information to 
+Hatoum and other PBSJ and PBS&J Int’l employees while disguising his involvement on 
+multiple conference calls and in dozens of emails to the United States.  Hatoum was aware that 
+Foreign Official was using the alias in communications with PBSJ employees, officers, and 
+directors and with Qatari Diar.  Hatoum flew to the Middle East to meet with Qatari Diar 
+officials, including Foreign Official, to discuss PBS&J Int’l’s qualifications for the LRT Project.  
+At the meeting, neither Foreign Official nor Hatoum informed Qatari Diar that Foreign Official 
+was working for Local Partner and providing confidential information and other assistance to 
+help PBS&J Int’l win the contracts. 
+13. Following its initial submission, PBS&J Int’l revised its bid, based on information 
+and guidance provided by the Foreign Official, to best position itself to win the LRT Project and 
+to withstand possible challenges from competitors.  On or about August 3, 2009, Qatari Diar 
+awarded the LRT Project contract worth approximately $35.6 million to PBS&J Int’l.   
+14. After the award, PBS&J Int’l opened a joint account with Local Partner that was 
+accessible to Foreign Official’s wife.  PBS&J Int’l  also authorized a four-year letter of credit 
+relating to a bank guarantee in Qatar.  The letter of credit was a precondition for receipt of the 
+first contract payment by Qatari Diar to PBS&J Int’l, an upfront, 10% (approximately $3.6 
+million) payment, which was deposited into the joint account.  
+15. Once the award was received, Hatoum offered Foreign Official an “agency fee” to 
+Local Partner for 1.8% of the LRT Project contract amount (equivalent to approximately 
+$640,000).  Additionally, PBS&J Int’l agreed to pay half of the salary of Foreign Official’s wife, 
+who worked for Local Partner.   
+Design Contract in Morocco 
+ 
+16. In addition to the LRT Project, Qatari Diar opened a Morocco hotel resort 
+development (“Morocco Project”) for competitive bid.  On August 7, 2009, PBS&J Int’l emailed 
+its Statement of Qualifications for the design contract to Foreign Official, the Qatari Diar project 
+manager for the Morocco Project.  
+17. In October 2009, Hatoum offered payment to Foreign Official in the form of an 
+agency fee to Local Partner to secure the Morocco Project.  The Morocco Project was worth 
+ 
+ 
+ 5 
+approximately $25 million to PBSJ Int’l, of which the Foreign Official was offered an agency fee 
+of 3% of the contract amount, which equates to approximately $750,000.  Hatoum instructed a 
+PBS&J Int’l employee to hide the agency fee within the company’s bid proposal by inflating 
+other components of the offer for the Morocco Project.   
+18. Foreign Official attended meetings with PBS&J Int’l employees to discuss the 
+project but neither Foreign Official nor Hatoum told employees that he was working for Local 
+Partner.  At the same time, Foreign Official, using his Local Partner alias, reviewed and made 
+changes to PBS&J Int’l’s original bid offer via email and phone.  He also made key technical and 
+strategic proposal decisions throughout the bidding process and instructed PBS&J Int’l to lower 
+its offer to a specific dollar amount.  By doing so, he ensured PBS&J Int’l’s final bid had a 
+greater likelihood of being approved by Qatari Diar.  On or around October 19, 2009, Qatari Diar 
+informed PBS&J Int’l that it was awarded the Morocco Project.   
+Red Flags 
+ 
+19. PBSJ and PBS&J Int’l officers and employees ignored multiple red flags that 
+should have led them to uncover the payment scheme.  For example, PBS&J Int’l and PBSJ 
+employees knew that Local Partner was providing them with confidential sealed bid information.  
+Hatoum also informed the employees that he was obtaining information from someone that 
+Hatoum described as a “good friend” and “top executive” at Qatari Diar.  Before PBS&J Int’l 
+submitted its bid for the Morocco Project, a PBS&J Int’l officer learned that the husband of one 
+of the Local Partner employees was a government official working on the Morocco Project.  The 
+PBS&J Int’l officer learned of Foreign Official’s role while attending dinner with Hatoum, 
+Foreign Official and the Foreign Official’s wife.  In addition, a PBSJ employee knew that 
+“agency fees” to Local Partner were disguised as legitimate costs within the Morocco Project 
+bid.   
+ 
+Discovery of the Payment Scheme 
+ 
+20. Shortly after PBS&J Int’l was awarded the Morocco Project contract, PBSJ’s 
+former Chief Operating Officer commented to PBSJ’s then-general counsel that PBS&J Int’l was 
+successful in winning two contracts in the Middle East within a fairly short period of time.  
+PBSJ’s then-general counsel asked Hatoum how he was able to win the LRT and Morocco 
+Project contracts over companies with far more international experience.  Hatoum told PBSJ’s 
+then-general counsel PBSJ offered “agency fees” in order to win the projects and, when asked, 
+admitted there “would be a problem” if the agency fees were not paid.  PBSJ’s then-general 
+counsel immediately launched an investigation of this issue.   
+21. Three weeks later, in November 2009, a Qatari government official informed 
+Hatoum and the then-President of PBSJ that Qatari Diar had discovered Foreign Official’s 
+involvement in Local Partner and was rescinding PBS&J Int’l’s contract for the Morocco 
+Project.  Hatoum then secretly made an offer of employment to a second Qatari foreign official 
+in return for influencing Qatari Diar to reinstate the contract.  However, Qatari Diar refused to 
+ 
+ 
+ 6 
+reinstate the contract and did not provide PBS&J Int’l any proceeds for the project.  PBSJ 
+suspended Hatoum in December 2009.  Hatoum also began deleting emails and other records. 
+22. PBS&J Int’l and Qatari Diar negotiated a termination of the LRT Project contract 
+effective December 31, 2009.  In January 2010, Qatari Diar entered into a bridge contract with 
+PBS&J Int’l to continue work on the LRT Project (the “Bridge Contract”) until a replacement 
+company could be found.  Ultimately, the period of performance on the Bridge Contract was 16 
+½ months.  PBS&J Int’l earned $2,892,504 in profits on the Bridge Contract.  PBSJ and Qatari 
+Diar caught Hatoum’s scheme before any of the offered and authorized amounts were paid. 
+Hatoum Caused PBSJ’s Inaccurate Books and Records 
+ 
+23. Hatoum authorized illicit payments to Foreign Official that were not accurately 
+and fairly reflected on PBSJ’s books and records.  Hatoum directed subordinates to conceal some 
+of the payments he offered and authorized to Foreign Official within bids.  Other offers and 
+promises to pay authorized by Hatoum to Foreign Official were improperly described in the 
+books and records as legitimate transaction costs with his knowledge.   
+ 
+Hatoum Caused PBSJ’s Internal Accounting Control Failure 
+ 
+24. On April 22, 2009, Hatoum signed a “Business Conduct Standards” agreement for 
+PBSJ employees in which he agreed that “I will neither accept nor give bribes or kickbacks of 
+any value for services or favorable treatment for contracts.”  As a high level manager at PBS&J 
+Int’l and later as an officer of PBSJ, Hatoum was responsible for maintaining and ensuring 
+compliance with PBSJ’s internal accounting controls at PBS&J Int’l.  Hatoum, however, 
+repeatedly exploited the company’s internal accounting control deficiencies to offer and 
+authorize payments to Foreign Official through Local Partner totaling approximately $1,390,000 
+to secure the LRT and Morocco Projects, plus 40% of any profits realized from the LRT Project 
+and partial salary to Foreign Official’s wife.  Hatoum instructed subordinates to inflate PBS&J 
+Int’l bids by concealing payments to Local Partner intended for Foreign Official.  Hatoum took 
+advantage of PBSJ’s accounting controls system by introducing Local Partner as a “legitimate” 
+potential partner for the LRT Project and authorized a subordinate to execute an agreement to 
+pay Local Partner 40% of the LRT Project profits without subjecting Local Partner or its 
+employees to any meaningful due diligence.  Hatoum also knowingly executed - and caused a 
+PBS&J Int’l employee to send a questionnaire requesting advocacy assistance from the United 
+States Department of Commerce that included false representations about Local Partner and 
+PBS&J Int’l.  Although Hatoum did not participate in PBSJ’s FCPA training until after the 
+scheme was uncovered, Hatoum was aware of the prohibitions of the FCPA from annual FCPA 
+training that he received from his former employer.    
+ 
+Legal Standards and Violations 
+25. Under Section 21C(a) of the Exchange Act, the Commission may impose a cease-
+and-desist order upon any person who is violating, has violated, or is about to violate any 
+ 
+ 
+ 7 
+provision of the Exchange Act or any rule or regulation thereunder, and upon any other person 
+that is, was, or would be a cause of the violation, due to an act or omission the person knew or 
+should have known would contribute to such violation. 
+FCPA Violations 
+ 
+26. As a result of the conduct described above, Hatoum violated Section 30A of the 
+Exchange Act, which prohibits any issuer, officer, director, employee, or agent of such issuer or 
+any stockholder thereof acting on behalf of the issuer, to make use of the mails or any means or 
+instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to 
+pay, or authorization of the payment of any money, or offer, gift, promise to give, or 
+authorization of the giving of anything of value to any foreign official or any person, while 
+knowing that all or a portion of such money or thing of value will be offered, given, or promised, 
+directly or indirectly, to any foreign official for the purposes of (i) influencing any act or 
+decision of such foreign official in his official capacity, (ii) inducing such foreign official to do 
+or omit to do any act in violation of the lawful duty of such official, or (iii) securing any 
+improper advantage in order to assist such issuer in obtaining or retaining business for or with, or 
+directing business to, any person. 
+.  
+27. As a result of the conduct described above, Hatoum caused violations of Section 
+13(b)(2)(A) of the Exchange Act by PBSJ, 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.  
+ 
+28. Lastly, as a result of the conduct described above, Hatoum caused violations of 
+Section 13(b)(2)(B) of the Exchange Act by PBSJ, and violated Section 13(b)(5) and Rule 13b2-
+1 thereunder, which requires all reporting companies to devise and maintain a system of internal 
+accounting controls sufficient to provide reasonable assurances that transactions are recorded as 
+necessary to permit preparation of financial statements in accordance with generally accepted 
+accounting principles; and prohibit persons from knowingly circumventing or knowingly failing 
+to implement a system of internal accounting controls, knowingly falsifying any book, record or 
+account, and directly or indirectly falsifying or causing to be falsified any book, record, or 
+account.  
+ 
+Undertaking 
+ 
+29. Respondent undertakes to do the following:  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 (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 
+undersigned attorney as agent to receive service of such notices and subpoenas; (iv) with respect 
+ 
+ 
+ 8 
+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. 
+ 
+30. 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 Walid Hatoum’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
+committing or causing any violations and any future violations of Sections 13(b)(2)(A), 13(b)(2)(B), 
+13(b)(5), and 30A of the Exchange Act [15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(2)(B), 78m(b)(5), and 
+78dd-1] and Rule 13b2-1 thereunder [17 C.F.R. § 240.13b2-1].   
+ 
+ B. Respondent shall, within fourteen days of the entry of this Order, pay a civil 
+money penalty in the amount of $50,000 to the Securities and Exchange Commission.  If timely 
+payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 3717.  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 
+SEC 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 
+ 
+ 
+ 
+ 9 
+Payments by check or money order must be accompanied by a cover letter identifying Walid 
+Hatoum as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
+the cover letter and check or money order must be sent to Tracy L. Price, Assistant Director , 
+Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 
+20549-5631.   
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9714 / January 28, 2015 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74161 / January 28, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3622 / January 28, 2015  
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16363  
+ 
+ 
+In the Matter of 
+ 
+FIRST NATIONAL COMMUNITY  
+BANCORP INC. AND WILLIAM LANCE,  
+ 
+Respondents. 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 8A OF THE SECURITIES ACT 
+OF 1933 AND SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING A 
+CEASE-AND-DESIST ORDER 
+  
+I. 
+ 
+ The Securities and Exchange Commission (“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 First National Community Bancorp Inc. (“FNCB”) and William Lance (“Lance”).  
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of 
+the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order 
+(“Order”), as set forth below.   
+ 
+ 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds1 that:  
+   
+SUMMARY 
+ 
+1. First National Community Bancorp (“FNCB” or “the Company”), the holding 
+company of First National Community Bank located in Dunmore, Pennsylvania, materially 
+understated the provision for other-than-temporary impairment (“OTTI” or “losses”) for its 
+investment securities portfolio in FNCB’s financial statements filed with its Annual Report on 
+Form 10-K for the year-ended December 31, 2009 (“2009 Annual Report”) and quarterly reports 
+on Form 10-Q for the first and second quarters of 2010.        
+ 
+2. In 2009, FNCB’s investment securities portfolio included certain pooled trust 
+preferred securities, and other securities.  Pursuant to generally accepted accounting principles 
+(“GAAP”), FNCB was required to report in its financial statements filed with the Commission the 
+amount of OTTI on the securities in its investment portfolio.  FNCB’s methodology for 
+determining the amount of OTTI did not comply with GAAP and, as a result, FNCB understated 
+OTTI for the relevant reporting periods.      
+ 
+3. During 2009, FNCB’s former Principal Financial Officer, William Lance, was 
+responsible for establishing and maintaining accounting policies and procedures to ensure that 
+FNCB calculated OTTI in accordance with GAAP.  Lance, however, failed to establish and 
+maintain the necessary policies and procedures and, as a result, he caused FNCB to record 
+materially understated OTTI in its 2009 annual financial statement filed with the Commission.  
+The material understatement of OTTI at year-end 2009 also resulted in FNCB reporting materially 
+misstated OTTI in its quarterly reports for the first and second quarters of 2010.  Lance, however, 
+had resigned from FNCB prior to the preparation and filing of the quarterly reports Form 10-Q for 
+the period ended March 31, 2010 and June 30, 2010.  
+  
+4. On October 27, 2010, FNCB disclosed that the Company’s 2009 Annual Report 
+and the financial statements filed for the quarters-ended March 31, 2010 and June 30, 2010, should 
+no longer be relied upon.  FNCB further disclosed that the previously filed financial statements 
+contained errors relating to, among other things, the accounting for OTTI on certain investment 
+securities.  On December 2, 2011, over a year later, FNCB filed restated financial statements for 
+the year-ended December 31, 2009 (“2009 Restatement”), which provided for additional pre-tax 
+losses of $31.5 million, increasing the originally reported net loss before income taxes of $21.4 
+million to $52.9 million.  FNCB also concluded that its disclosure controls and procedures and 
+internal controls over financial reporting of OTTI losses during the relevant reporting period were 
+materially deficient.     
+ 
+                                                 
+1  The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on 
+any other person or entity in this or any other proceeding.   
+ 
+ 3 
+5. In the 2009 Restatement, FNCB increased OTTI losses by $14.4 million for a 
+reported total of $20.6 million - more than 230 percent over the originally reported $6.2 million 
+OTTI amount.  Approximately $13.6 million of the $14.4 million increase was attributed 
+specifically to the flawed methodology used by FNCB for the original OTTI valuations.  
+ 
+6. In August 2010, approximately two months before FNCB publically announced 
+its intention to restate its financial statements, FNCB sold 100,000 shares of unregistered stock to 
+a private investor.  The subscription agreement used in the sale incorporated by reference the 
+materially misstated financial statements for year-end 2009 and the first quarter of 2010.   
+ 
+7. As a result, FNCB violated several provisions of the federal securities laws, 
+including the reporting, internal controls, and books and records provisions.  Lance was a cause of 
+FNCB’s reporting, internal controls, and books and records violations with regard to the 2009 
+Annual Report. 
+ 
+RESPONDENTS 
+ 
+8. First National Community Bancorp Inc. (“FNCB”), the holding company of First 
+National Community Bank, is located in Dunmore, Pennsylvania.  FNCB’s common stock is 
+registered with the Commission pursuant to Section 12(g) of the Exchange Act, and currently 
+trades under the symbol “FNCB” and is quoted on the OTCQB. 
+ 
+9. William Lance (“Lance”) was the Principal Financial Officer (“PFO”) and 
+Executive Vice President at FNCB in 2009.  Lance resigned from FNCB in February 2010.   
+ 
+FACTS 
+ 
+ A. FNCB’s Assets in 2009 Included a Portfolio of Investment Securities For  
+  Which an Analysis of OTTI was Required Pursuant to GAAP.  
+ 
+10. As of December 31, 2009, FNCB’s investment securities portfolio was valued at 
+$273.6 million.  The portfolio was comprised of pooled trust preferred securities that were 
+marketed as Preferred Term Securities, Ltd.  (“PreTSLs),2 as well as U.S. Government agency 
+securities, tax-exempt obligations of states and political subdivisions, government sponsored 
+agency and private label collateralized mortgage obligations, residential mortgage-backed 
+securities, and corporate debt and equity securities.    
+11. The PreTSLs in FNCB’s investment portfolio were reported as available-for-sale 
+securities (“AFS”).  AFS are reported at fair value with net unrealized gains and losses included 
+                                                 
+2  “PreTSLs” are a proprietary product developed and marketed by two broker-dealers.  They are 
+collateralized debt obligations created by pooling and securitizing trust preferred securities issued by community 
+and regional banks and thrifts, insurance companies, and/or real estate investment subsidiaries. 
+ 
+ 
+ 4 
+in accumulated other comprehensive income, which is a component of shareholders’ equity.3 
+When the fair value of FNCB’s PreTSLs declined below their amortized cost, FNCB was required 
+to assess whether the decline in fair value was other than temporary.  GAAP requires that an OTTI 
+loss be recognized in the statement of operations when the present value of cash flows expected to 
+be collected from a security is below its amortized costs.4  In other words, to determine whether the 
+decline in fair value of its PreTSLs was other-than-temporary, FNCB needed to assess whether 
+these securities had experienced a credit loss as a result of a decrease in expected cash flows to be 
+received on the securities.  To measure credit losses to be recognized in the statement of 
+operations, GAAP requires the holder of a security to estimate expected future cash flows 
+considering all available information relevant to the collectability of the security, including 
+information about past events, current conditions, and reasonable and supportable forecasts.5    
+ 
+12. Banks and other financial institutions may retain consultants to create models to 
+calculate the present value of expected cash flows which are used to estimate the amount of OTTI 
+to be recognized for investment securities.  In order for the models used by valuation experts to 
+measure OTTI in a manner consistent with GAAP, the selection of the assumptions to estimate 
+expected future cash flows must be reasonable and supportable.  The work of a consultant does not 
+relieve a reporting company or its management of the ultimate responsibility for accurately 
+reporting the amount of OTTI for its investment securities.   
+ 
+B. FNCB’s Methodology for Determining OTTI Losses on the PreTSLs Did Not 
+ Comply with GAAP. 
+ 
+13. Lance was responsible for developing and implementing policies and procedures to 
+ensure that FNCB recorded OTTI in accordance with GAAP.  Lance failed to do so.  Lance relied 
+on OTTI calculations that were not based on reasonable and supportable assumptions in preparing 
+the OTTI disclosures in FNCB’s 2009 Annual Report.6  
+                                                 
+3  ASC 320-10-25 and ASC 320-10-35.  In July 2009, the Financial Accounting Standards Board issued the 
+FASB Accounting Standards Codification (“ASC”) as the single source of authoritative nongovernmental U.S. 
+generally accepted accounting principles.  The Codification was effective for annual periods ending after September 
+15, 2009.  All existing accounting standards documents were superseded.   
+ 
+4  ASC 320-10-35-33C.   
+ 
+5  ASC 320-10-35-33G. 
+ 
+6  Both prior to and during the time when Lance was supervising the preparation of FNCB’s 2009 Annual 
+Report, the staff of the Commission’s Division of Corporation Finance questioned FNCB about its OTTI 
+methodology, including the manner in which FNCB chose the assumptions on which it based its OTTI estimates.  In 
+particular, in a letter to FNCB dated September 25, 2009, the staff asked FNCB, among other things, to identify all 
+of the “key assumptions” that it used, including whether it considered “the specific collateral underlying each 
+individual security” (emphasis in the original) and had “different estimates of deferrals and defaults for each 
+security,” and explain how FNCB determined that the assumptions were appropriate and consistent with GAAP.  
+Lance reviewed the comment letter and coordinated the preparation of FNCB’s response.  The Commission staff 
+again wrote to FNCB, in January 2010, prior to Lance’s departure and before FNCB’s 2009 Annual Report had been 
+filed, specifically raising concerns about FNCB’s practice of applying the same deferral and default rate to all of the 
+ 
+ 
+ 5 
+  
+14. During 2009 and as of year-end 2009, FNCB used the services of two private 
+valuation consultants, Valuation Firm A (“VFA”) and Valuation Firm B (“VFB”) to assist it in 
+estimating OTTI on the PreTSLs in its investment portfolio.7 
+ 
+15. VFA was the vendor from whom FNCB had purchased the PreSTL securities.  In 
+2009, VFA offered Lance a selection of pre-determined assumption scenarios for use with its OTTI 
+valuation model, each representing a different combination of outcomes for, among other things, 
+default and deferral rates, loss severity, prepayment speeds, and other factors that are to be taken 
+into account in determining OTTI.  The scenarios ranged from a scenario that resulted in little or 
+no impairment (referred to as “Scenario 6,” which, among other things, assumed the lowest default 
+rate and the highest recovery rate) to a scenario that yielded significant impairment.  However, it 
+was Lance’s responsibility to select for each individual security in FNCB’s portfolio a set of 
+assumptions or factors (whether a pre-determined scenario, such as those developed by VFA, or 
+some other combination of factors that was appropriate to each security) to be used in measuring 
+OTTI for each PreSTL held by FNCB.   
+ 
+ 16. Instead of evaluating what would be reasonable and supportable cash flow 
+assumptions for each security prior to each periodic report by appropriately considering the 
+characteristics of each security, including the underlying collateral, changes in default and 
+deferral rates, and other relevant criteria, Lance chose to apply a single valuation scenario 
+provided by VFA – “Scenario 6” – to all of the PreSTLs held by FNCB.  According to Lance, 
+Scenario 6 projected defaults based on the long-term historical loss rates for FDIC-insured 
+banks, which Lance conceded was “obviously a very low number” and he acknowledged that 
+“[l]osses were occurring at a higher rate at that point.”  Lance chose the scenario that yielded the 
+least amount of impairment, but testified that he did so based on an expectation that bank failures 
+and, therefore, default and deferral rates would not continue at the then-current levels for an 
+extended period of time.  Lance did not document his rationale or why he believed such 
+assumptions were reasonable and supportable.  Scenario 6, the scenario that Lance selected, was 
+applied by VFA to model OTTI for all of the PreTSLs in FNCB’s portfolio as of year-end 2009.    
+ 
+17. VFB also calculated OTTI for the PreTSLs held by FNCB at year-end 2009.  
+VFB’s model relied upon unreasonable assumptions regarding future cash flows and the timing of 
+the liquidation of the collateral related to issuers that had deferred or defaulted.  Lance did not 
+                                                                                                                                                             
+PreTSLs in FNCB’s portfolio, without regard to, among other things, differences in the collateral underlying each 
+PreTSL and other individual characteristics of each security.  In the January 2010 letter, the Commission staff 
+commented, “[W]e believe you must look at the specific collateral of each individual security to develop the credit 
+deferral/default assumptions for your estimated cash flows and that simply using the same credit default assumption 
+. . . for all of your securities is not a reasonable methodology consistent with the guidance.” 
+ 
+7  FNCB had used VFA to model the amount of impairment of the PreTSLs since their purchase.  By mid-
+2009, in response to questions raised by its regulators, FNCB sought the assistance of a second valuation expert to 
+model OTTI impairment for its securities investments.  FNCB considered both models in determining the amount of 
+OTTI to record.  
+   
+ 
+ 6 
+know, and never inquired about, the assumptions that VFB used to model the OTTI for the 
+PreTSLs in FNCB’s investment portfolio and, for that reason, was unable to assess whether the 
+assumptions used by VFB were reasonable in light of the particular circumstances, and the 
+condition of the collateral underlying each, of the securities in question.   
+ 
+18. VFB modelled OTTI for the PreTSLs in FNCB’s portfolio using assumptions that it 
+chose and concluded that there was no material impairment for all but one of the PreTSLs.  VFB, 
+however, calculated a material impairment for the security denominated “PreTSL-XXVIII” and 
+provided Lance with a range of potential impairment for that security from $4.1 million to $1.1 
+million.  Despite having failed to determine whether the assumptions used by VFB were 
+reasonable and supportable, Lance caused FNCB to record the lowest amount of impairment on the 
+range: $1.1 million.    
+ 
+C. FNCB Recorded Materially Misstated OTTI at Year-End 2009    
+  and Lance Was a Cause of That Failure. 
+ 
+19. Lance relied on the analyses provided by VFA and VFB and caused FNCB to 
+record OTTI that had been estimated using models that did not include reasonable and supportable 
+assumptions and therefore did not estimate OTTI credit losses consistent with GAAP, despite the 
+concerns raised by the Commission staff.  As a result, FNCB materially understated OTTI for the 
+PreTSLs in FNCB’s portfolio as of year-end 2009.  In the 2009 Restatement, FNCB re-calculated 
+estimated future cash flows based on revised assumptions consistent with GAAP requirements and 
+as a result recorded an additional OTTI loss of approximately $13.6 million for the PreTSL 
+securities, including an additional loss of approximately $5.9 million for PreTSL-XXVIII.  
+ 
+ 20. Lance resigned from FNCB on or about February 11, 2010, a month before FNCB 
+filed its 2009 Annual Report with the Commission on March 10, 2010.  However, he was 
+primarily responsible for compiling FNCB’s 2009 year-end financial statements that were filed 
+with the Annual Report, including with respect to the methodology and calculation of OTTI.  
+Lance did not participate in the preparation of FNCB’s quarterly reports for the first and second 
+quarters of 2010.   
+ 
+D. FNCB Materially Misstated OTTI in its Quarterly Reports for the First and  
+  Second Quarters of 2010. 
+ 
+21. FNCB materially misstated OTTI in its Form 10-Qs for the quarters ended March 
+31, 2010 and June 30, 2010, as a result of the same accounting errors, including the flawed OTTI 
+methodology, and books and records and internal control deficiencies that affected the 2009 
+Annual Report.  
+ 
+22. For the periods ending March 31 and June 30, 2010, the application of FNCB’s 
+revised OTTI methodology for the PreTSLs resulted in increased impairment losses.  However, 
+FNCB determined that certain of the first quarter losses reflected impairments that had existed as 
+of the fourth quarter of 2009.  Accordingly, in its restatement, FNCB recorded a portion of the 
+increased losses for the first quarter of 2010 in its restated 2009 Annual Report, rather than in the 
+ 
+ 7 
+restated quarterly report for the first quarter of 2010.   Consequently, net OTTI losses for the first 
+quarter of 2010 as restated decreased from $0.9 million to $0.3 million.  For the second quarter of 
+2010, however, net OTTI losses as restated increased from $0.6 million to $2.6 million.    
+ 
+ 23. FNCB also revised its prior financial disclosures regarding internal control over 
+financial reporting to reflect FNCB’s conclusion that internal control over financial reporting were 
+not effective at the time the original financial statements were filed, and that FNCB had failed to 
+keep accurate books and records and implement policies and procedures to enable it to prepare 
+financial statements for these periods that complied with GAAP.   
+ 
+ E. FNCB Provided Materially Misstated Financial Statements to an Investor  
+  Who Purchased FNCB Stock. 
+ 
+24. On August 4, 2010, FNCB sold 100,000 shares of unregistered common stock at 
+$3.60 per share to a private investor for a total purchase price of $360,000.  The subscription 
+agreement for this sale of securities expressly incorporated by reference the materially misstated 
+2009 annual and first quarter 2010 financial statements.   
+  
+VIOLATIONS 
+ 
+ 25. As a result of the conduct described above: 
+ 
+a. FNCB violated Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)], 
+and Rules 12b-20, 13a-1, and 13a-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1, and 
+240.13a-13], which require every issuer of a security registered pursuant to Section 12 of 
+the Exchange Act to file with the Commission information, documents, and annual and 
+quarterly reports as the Commission may require, and mandate that periodic reports 
+contain such further material information as may be necessary to make the required 
+statements not misleading.  
+ 
+b. Lance caused FNCB’s violations of Section 13(a) of the Exchange Act [15 
+U.S.C. § 78m (a)], and Rules 12b-20 and 13a-1 thereunder [17 C.F.R. §§ 240.12b-20 and 
+240.13a-1] by failing to ensure that FNCB’s OTTI estimates were based on reasonable 
+and supportable assumptions and by causing FNCB to record materially understated OTTI 
+for a portion of its investment portfolio in its 2009 Annual Report.  
+  
+c. FNCB also violated Section 13(b)(2)(A) of the Exchange Act [15 U.S.C.  
+§ 78m(b)(2)(A)] 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.  
+ 
+d. Lance caused FNCB’s violation of Section 13(b)(2)(A) of the Exchange 
+Act [15 U.S.C. § 78m(b)(2)(A)] by failing to ensure the FNCB made and kept books, 
+records, and accounts which in reasonable detail accurately and fairly reflected the amount 
+of OTTI to be recorded at year-end 2009.  
+ 
+ 8 
+ 
+e. FNCB also violated Section 13(b)(2)(B) of the Exchange Act [15 U.S.C.                          
+§ 78m(b)(2)(B)], which requires all reporting companies to devise and maintain a system 
+of internal accounting controls sufficient to provide reasonable assurances that 
+transactions are recorded as necessary to permit preparation of financial statements in 
+accordance with generally accepted accounting principles. 
+ 
+f. Lance caused FNCB’s violation of Section 13(b)(2)(B) of the Exchange 
+Act [15 U.S.C. § 78m(b)(2)(B)] by failing to devise and maintain a system of internal 
+accounting controls sufficient to provide reasonable assurances that FNCB’s financial 
+statements, and, in particular its valuation of OTTI, were prepared in accordance with 
+generally accepted accounting principles. 
+ 
+g. With respect to FNCB’s sale of stock, FNCB violated Section 17(a)(2) of 
+the Securities Act of 1933 (the “Securities Act”) [15 U.S.C. § 77q(a)(2)], which makes it 
+unlawful for anyone in the offer or sale of securities, to obtain money or property by 
+means of any untrue statement of a material fact or any omission to state a material fact 
+necessary in order to make the statements made, in the light of the circumstances under 
+which they were made, not misleading. 
+ 
+IV. 
+ 
+UNDERTAKING 
+ 
+ Lance has agreed to the following undertaking: 
+ 
+ Lance shall, within ten (10) days of the entry of the Order, make a payment in the nature of 
+a penalty in the amount of $20,000 to the Securities and Exchange Commission.  If timely payment 
+is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  Such payment shall be 
+made in one of the following ways:   
+ 
+  1. Lance may transmit payment electronically to the Commission, which will 
+ provide detailed ACH transfer/Fedwire instructions upon request; 
+ 
+  2. Lance may make direct payment from a bank account via Pay.gov through 
+ the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+  3. Lance 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 
+ 
+ 9 
+ Oklahoma City, OK 73169. 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Lance as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to: 
+ 
+Antonia Chion, Associate Director 
+Division of Enforcement 
+Securities and Exchange Commission  
+100 F Street, N.E. 
+Washington, DC 20549-5720. 
+ 
+ In determining whether to accept Lance’s Offer, the Commission has considered this 
+undertaking.  Lance agrees that, if he fails to timely comply with this undertaking, the Division of 
+Enforcement may petition the Commission to reopen this matter to determine whether additional 
+sanctions are appropriate. 
+ 
+V. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in the Respondents’ respective Offers of Settlement. 
+ 
+Accordingly, it is hereby ORDERED that: 
+  
+A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 
+FNCB cease and desist from committing or causing any violations and any future violations of 
+Sections 17(a)(2) of the Securities Act and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the 
+Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.   
+ 
+B. Pursuant to Section 21C of the Exchange Act, Lance 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-1 thereunder.  
+ 
+C. FNCB shall, within 10 days of the entry of this Order, pay a civil money penalty in 
+the amount of $175,000 to the Securities and Exchange Commission.  If timely payment is not 
+made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  Payment must be made in one 
+of the following ways:   
+ 
+  1. FNCB may transmit payment electronically to the Commission, which will 
+ provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+  2. FNCB may make direct payment from a bank account via Pay.gov 
+ through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+ 
+ 10 
+  3. FNCB 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 
+FNCB as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to: 
+ 
+Antonia Chion, Associate Director 
+Division of Enforcement 
+Securities and Exchange Commission 
+100 F Street, N.E. 
+Washington, DC 20549-5720.  
+ 
+ 
+By the Commission. 
+ 
+ 
+ 
+     Brent J. Fields 
+     Secretary 
+    

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+              Troy Lyndon and Ronald Zaucha
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+        Troy Lyndon and Ronald Zaucha
+       
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+                        
+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 23181 / January 29, 2015 
+
+ Accounting and Auditing Enforcement Release No. 3623 / January 29, 2015 
+
+          Securities and Exchange Commission v. Troy Lyndon and Ronald Zaucha , Civil Action No. CV13 00486 SOM KSC (D. Haw.) 
+
+         SEC Obtains Final Judgments against CEO of Video Game Company and Purported Consultant in Revenue Inflation Scheme 
+         
+
+         On January 22, 2015, the district court for the District of Hawaii entered a final judgment against Defendant Ronald Zaucha, holding him liable for over $2.6 million in disgorgement, interest and penalties after granting the SEC's motion for summary judgment.  Zaucha was also permanently enjoined from violating the antifraud and securities registration provisions of the federal securities laws, and permanently prohibited from participating in any offering of penny stock. 
+
+         Previously, on August 21, 2014, the district court entered a final judgment against Defendant Troy Lyndon, holding him liable for over $3.6 million in disgorgement, interest and penalties after granting the SEC's motion for summary judgment as to monetary relief.  Lyndon had previously consented to entry of a permanent injunction prohibiting future violations of the antifraud, securities registration, issuer reporting, books and records, internal controls, lying to auditors and false certification provisions of the federal securities laws; an order permanently barring him from acting as an officer or director of a public company; and an order permanently prohibiting him from participating in any offering of penny stock, without admitting or denying the SEC's allegations. 
+
+         On September 24, 2013, the SEC had charged Lyndon, the founder of a religious-themed video game manufacturer, Left Behind Games, Inc. ("LBG"), and his friend Zaucha with scheming to falsely inflate the company's revenue by nearly 1,300 percent in the one-year period ended March 31, 2011 through sham circular transactions.  
+
+         The SEC alleged that Lyndon, who served as the company's CEO and CFO, caused LBG to issue almost two billion shares of stock to Zaucha as purported compensation for consulting services to the California-based company.  In fact, Zaucha provided few, if any, consulting services.  Rather, the true purpose of the arrangement was to enable Zaucha to sell millions of unregistered LBG shares of stock into the market and then kick back a portion of his stock proceeds to the company in order to prop up its revenue at a time when it was in dire need of additional funds.  The company's stock was suspended by the SEC when the SEC filed its complaint against Lyndon and Zaucha, and the registration of LBG's stock was revoked by the SEC on February 24, 2014.   
+
+         Lyndon lives in Honolulu and Zaucha lives in Maui and in Laguna Woods in Orange County, California.   
+
+         
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+         
+          
+         SEC Complaint  -->
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raw/aaer/2015/AAER-3626.txt

@@ -0,0 +1,149 @@
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74208 / February 4, 2015  
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3626 / February 4, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16375 
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  STEVEN NEIL, 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 Steven 
+Neil (“Respondent” or “Neil”) 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.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. Neil, age 62, is and has been a certified public accountant licensed to 
+practice in the State of California.  He served as Chief Financial and Administrative Officer of 
+Diamond Foods, Inc. (“Diamond”), from 2008 until he was placed on administrative leave in 
+February 2012 and terminated from his position in November 2012.  Neil’s California license is 
+currently inactive. 
+ 
+ 2. Diamond was, at all relevant times, a Delaware corporation with its principal 
+place of business in San Francisco, California.  Diamond was engaged in the business of producing 
+and selling packaged foods, including walnuts.  At all relevant times, Diamond’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 January 9, 2014, the Commission filed a complaint against Neil in SEC 
+v. Steven Neil (N.D. Cal. Civil Action No. 14-cv-122).  On February 2, 2015, the court entered an 
+order permanently enjoining Neil, by consent, from future violations of Sections 10(b) and 
+13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 thereunder, and 
+Section 17(a) of the Securities Act of 1933.  Neil was also ordered to pay a $125,000.00 civil 
+money penalty, and prohibited for five years from serving as an officer or director of any entity 
+having a class of securities registered with the Commission pursuant to Section 12 of the Exchange 
+Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act. 
+ 
+ 4. According to the Commission's complaint, Neil directed an effort to 
+fraudulently underreport money paid to walnut growers by delaying the recording of payments into 
+later fiscal periods.  By manipulating walnut costs, Diamond correspondingly reported higher net 
+income and inflated earnings to exceed analysts’ estimates for fiscal quarters in 2010 and 2011. 
+After Diamond restated its financial results in November 2012 to reflect the true costs of acquiring 
+walnuts, the company's stock price slid to just $17 per share from a high of $90 per share in 2011. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Neil’s Offer. 
+ 
+ 
+ 3 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Neil 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.   
+      
+ 4 
+ 
+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. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2015/AAER-3628.txt

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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 23190 / February 6, 2015 
+         Accounting and Auditing Enforcement Release No. AAER-3628 / February 6, 2015 
+          Securities and Exchange Commission v. David Rivard , Civil Action No. 15 Misc 0221 
+		  Securities and Exchange Commission v. David Rivard , Civil Action No. 04 Civ. 1464 
+
+         SEC Charges Accountant with Violating Commission Suspension Order, Seeks Disgorgement of Compensation Received During Suspended Period, and Also Seeks Contempt for Non-Payment of Moneys Owed On Prior Judgment. 
+         
+
+         The Commission today announced that on February 5, 2015, it filed two applications in U.S. District Court for the Eastern District of New York against David Rivard, a former certified public accountant.  The first is an application seeking to enforce a prior Commission order suspending Rivard from practicing accounting before the Commission. Securities and Exchange Commission v. David Rivard, 15 Misc 0221 (E.D.N.Y.). The second seeks an order holding Rivard in contempt of a money judgment entered against him in a prior action. SEC v. Rivard, No. 04 Civ. 1464 (E.D.N.Y. Apr. 8, 2004) (2004 Action).  Rivard is a resident of East Setauket, New York, and had previously been licensed as a certified public accountant by the State of New York from February 1992, until he surrendered his license, effective March 2008. 
+
+         The Commission alleged that Rivard violated an October 27, 2004 Commission Order issued under Rule 102(e)(3)(i) of the Commission's Rules of Practice (2004 Commission Order) that suspended Rivard from appearing or practicing before the Commission as an accountant. In The Matter of David Rivard, CPA, Securities Exchange Act of 1934 Rel. No. 50598, Accounting and Auditing Enforcement Rel. No. 2130, Administrative Proceeding File No. 3-11722 (October 27, 2004).  According to the application, from at least April 2009 to April 2014, Rivard violated the 2004 Commission Order.  Specifically, in April 2009, Rivard became a financial consultant to Verint Systems, Inc. (Verint), a reporting company under the Exchange Act, whose stock is publicly traded on the NASDAQ.  Verint engaged Rivard to help the company restate several years of financial statements.  In that capacity, Rivard participated in Verint's financial reporting process by, among other things:  editing footnotes to financial statements; compiling data in support of those footnotes; reviewing sales contracts for proper categorization under applicable revenue recognition rules and principles; and preparing internal memoranda on certain accounting processes.  
+
+         In the related application in the 2004 Action, the Commission also alleges that from at least April 2009, Rivard hid assets and income and failed to make payments due under a final judgment entered on consent on November 4, 2004 (2004 Final Judgment).  Judge I. Leo Glasser issued the 2004 Final Judgment in a civil injunctive action the Commission filed against Rivard, stemming from his role in the $1.4 billion securities and accounting fraud at Computer Associates.  In that action, the Commission alleged that Rivard, as the head of Sales Accounting and the company's revenue recognition expert, had allowed Computer Associates to record revenue prematurely from software contracts, backdated his signature on contracts, and lied to outside counsel and the company's auditor, and obstructed the company's internal investigation and the Commission's investigation.  Among other things, the 2004 Final Judgment ordered Rivard to pay a total of $158,700.96, comprised of disgorgement ($65,000), prejudgment interest ($18,700.96), and a civil penalty ($75,000).  The Commission's application alleges that despite being paid nearly one million dollars in income since April 2009, Rivard has not willingly made a single payment toward his indebtedness.  In fact, Rivard actively sought to evade paying his debt by setting up a company in his wife's name, to which he diverted his earnings from Verint during the period of his consultancy.  And Rivard made false or misleading statements about his financial and employment situation on sworn financial disclosure forms he submitted to the United States Department of Treasury in connection with his offers to compromise his indebtedness. 
+
+         The Commission seeks an order directing Rivard to comply with both the 2004 Commission Order and 2004 Final Judgment, requiring Rivard to disgorge moneys earned by violating the 2004 Commission order, imposing an asset freeze, directing Rivard to provide an accounting, and imposing a finding of civil contempt that Rivard can cure by demonstrating his satisfaction of the 2004 Final Judgment. 
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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 23192 / February 6, 2015 
+
+ Accounting and Auditing Enforcement Release No. 3630 / February 6, 2015 
+
+          Securities and Exchange Commission v. Steven Neil , Civil Action No. 14-cv-122 WHA (N.D. Cal. filed Jan. 9, 2014) 
+
+         Chief Financial Officer Settles Accounting Fraud Charges 
+         
+ The Securities and Exchange Commission today announced that the United States District Court for the Northern District of California entered a final, settled judgment against defendant Steven Neil.  In 2014, the SEC charged Neil with engaging in financial accounting fraud at Diamond Foods, Inc. ("Diamond"), a California-based snack food company. 
+
+ According to the SEC's complaint, Neil, Diamond's former CFO, directed an effort to fraudulently underreport money paid to walnut growers by delaying the recognition of related expenses into later fiscal periods.  By manipulating walnut costs, Diamond reported higher net income and inflated earnings to exceed analysts' estimates for fiscal quarters in 2010 and 2011.  After Diamond restated its financial results in November 2012 to reflect the true cost of acquiring walnuts, the company's stock price slid to just $17 per share from a high of $90 per share in 2011.  Diamond subsequently restated its financial statements and terminated Neil. 
+
+ Without admitting or denying the SEC's allegations, Neil consented to entry of final judgment, which the court entered on February 2, 2015.  The final judgment orders Neil to pay $125,000 in civil monetary penalties; enjoins him from violating Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder; and bars him from serving as an officer or director of a public company for five years.  As part of the settlement, Neil also agreed to forfeit a legal claim against Diamond related to shares of stock and stock options that the company awarded him in part during the time of the fraudulent financial reporting.  These shares and stock options are worth as much as nearly $1 million at the company's current stock price. 
+
+ In connection with the settlement, Neil also agreed to be barred from practicing as an accountant before the SEC, with a right to reapply after 5 years.  The SEC's related order was issued February 4, 2015. 
+
+ Previous release:   Litigation Release No. 22902  (Jan. 9, 2014). 
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raw/aaer/2015/AAER-3632.txt

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+   UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 74230 / February 6, 2015 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 3632 / February 6, 2015 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-13872 
+ 
+In the Matter of  
+Marlin R. Brinsky, 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 April 28, 2010, Marlin R. Brinsky, CPA (“Brinsky”) 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 Brinsky pursuant to Rule 102(e)(3)(i) of the 
+Commission's Rules of Practice.1  This order is issued in response to Brinsky’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 Brinsky had been permanently enjoined by a United States 
+District Court from future violations of Rule 2-02 of Regulation S-X.  In a complaint filed on 
+April 25, 2005, the Commission alleged, among other things, that Brinsky and others 
+participated in a scheme that resulted in Exotics.com (“Exotics.com”) filing materially false and 
+misleading financial statements in its Commission filings, including, among others, an amended 
+current report on Form 8-K filed on September 24, 2001, a quarterly report on Form 10-QSB for 
+the quarter ended September 30, 2001, and an annual report on Form 10-KSB for the fiscal year 
+ended December 31, 2001. The complaint further alleged that Brinsky and other members of the 
+Merdinger, Fruchter, Rosen & Company, P.C. (“MFRC”) audit staff committed acts and/or 
+omissions that caused them to become non-independent during audits of Exotics.com and caused 
+audit reports issued by MFRC, among other things, to falsely state that the audits had been 
+conducted by an independent auditor and in accordance with generally accepted auditing 
+standards (“GAAS”). The complaint also alleged that Brinsky engaged in a number of improper 
+accounting practices that caused Exotics.com’s financial statements to depart from generally 
+accepted accounting principles (“GAAP”). 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 3130 dated April 28, 2010.  Brinsky was permitted, 
+pursuant to the order, to apply for reinstatement after two 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, Brinsky 
+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.  Brinsky 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, Brinsky’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 Brinsky, it appears that he has complied with the terms of the April 28, 2010 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 Brinsky, 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 
+Marlin R. Brinsky, 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. 
+ 
+ 
+Brent J. Fields 
+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 Commis sion’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). 

raw/aaer/2015/AAER-3639.txt

@@ -0,0 +1,537 @@
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74350 / February 23, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3639 / February 23, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16399 
+ 
+ 
+ 
+In the Matter of 
+ 
+Halpern & Associates LLC 
+and Barbara Halpern, CPA,  
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTIONS 4C AND 21C 
+OF THE SECURITIES EXCHANGE ACT 
+OF 1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE 
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against Halpern & 
+Associates LLC and Barbara Halpern (collectively, “Respondents”) pursuant to Sections 4C
+1 and 
+                                                 
+1  Section 4C provides, in relevant part:  
+ 
+ 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 
+ 
+21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice.2   
+ 
+II. 
+ 
+ The Commission’s public official files disclose that, at all relevant times, Lighthouse 
+Financial Group, LLC (“Lighthouse” or “the firm”) was registered with the Commission as a 
+broker-dealer. 
+ 
+III. 
+ 
+ After an investigation, the Division of Enforcement and the Office of the Chief Accountant  
+allege that: 
+ 
+SUMMARY 
+ 
+            1. These proceedings arise out of Respondents’ improper professional conduct in their 
+audit of Lighthouse’s financial statements for the year ended December 31, 2009.  Those financial 
+statements were materially inaccurate in that they overstated the firm’s assets, because its securities 
+inventory as recorded in its financial statements was based on erroneous, and inflated, figures for 
+the size of its positions in certain securities, and understated the firm’s liabilities by omitting its 
+liabilities to one of the broker-dealers through which it engaged in proprietary trading.  Those errors 
+caused the firm’s reported net capital to be overstated by nearly $5 million, or over 350%.  
+Respondents egregiously failed in several ways to adhere to Generally Accepted Auditing Standards 
+(“GAAS”) and did not detect those errors in their audit of the financial statements.   
+ 
+RESPONDENTS 
+ 
+2.  Halpern & Associates LLC (“H&A”) is an accounting and auditing firm based 
+in Wilton, Connecticut.  H&A was founded in 1982, has been registered with the PCAOB since 
+2004 and has twelve employees.  Barbara Halpern is currently the sole owner and president of 
+H&A.  In 2014, H&A was the independent auditor to twenty-eight broker-dealers.  In addition to 
+serving as an independent auditor to broker-dealers and other entities, H&A provides tax advice 
+and, on a consulting basis, provides broker-dealers with the services of individuals licensed to act 
+                                                                                                                                                             
+ 
+2  Rule 102(e)(1)(ii) 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 
+engaged in unethical or improper professional conduct. 
+ 
+  
+3 
+ 
+as a broker-dealer’s financial and operations principal.  H&A acted as the independent auditor 
+for Lighthouse from 2002 until Lighthouse withdrew its registration as a broker-dealer in August 
+2010. 
+ 
+3.  Barbara Halpern, age 61, of Weston, Connecticut, was the engagement partner 
+on Lighthouse’s 2009 audit.  She is currently the sole owner and president of H&A; during the 
+relevant period she was the 95% owner.  During the relevant period, Barbara Halpern was a 
+certified public accountant licensed to practice in New York and Connecticut.  She is currently 
+licensed in Connecticut.  She has held a Series 27 license since 1998 and a Series 54 license 
+since 1980.     
+ 
+OTHER RELEVANT ENTITY  
+ 
+ 4. Lighthouse was registered with the Commission as a broker-dealer from August 2, 
+2000 until October 23, 2010.  In December 2010, Lighthouse filed a petition for liquidation under 
+the U.S. Bankruptcy Code.  At all relevant times, Lighthouse’s principal place of business was 
+New York, New York.  During the relevant period, Lighthouse acted as an introducing broker for 
+retail and institutional customers, engaged in proprietary trading and market-making, and acted as 
+an underwriter or placement agent for equity and bond issuances.  Lighthouse had clearing 
+arrangements with several clearing brokers, including Penson Financial Services, Inc. (“Penson”), 
+which at all relevant times was a registered broker-dealer with its principal place of business in 
+Dallas, Texas.   
+ 
+FACTUAL ALLEGATIONS 
+ 
+Background 
+ 
+ 5. Section 15(c)(3) of the Exchange Act [15 U.S.C. § 78o(c)(3)] and Rule 15c3-1 
+thereunder [17 CFR 240.15c3-1] require that broker-dealers generally effecting transactions in 
+securities “at all times have and maintain net capital.”  The rule is designed to require a broker-
+dealer to maintain sufficient liquid assets to meet all obligations to customers and counterparties 
+and have adequate additional resources to wind down its business in an orderly manner without the 
+need for a formal proceeding if the firm fails financially.  The net capital rule requires different 
+minimum amounts of net capital based on the nature of a firm’s business and the method a firm 
+uses in computing its net capital.   
+ 
+ 6. To compute its net capital for purposes of Rule 15c3-1, a broker-dealer first 
+calculates its net worth, computed in accordance with generally accepted accounting principles 
+(“GAAP”), deducts the value of certain illiquid assets, and then adds back certain qualifying 
+subordinated loans.  The final step is to deduct certain specified percentages, or haircuts, from the 
+market value of the securities or other inventory it holds in its proprietary accounts.  Rule 15c3-1 
+prescribes differing haircut amounts for a variety of classes of securities and other allowable assets. 
+ 
+4 
+ 
+ 7. Section 17(e) of the Exchange Act and Rule 17a-5 thereunder require registered 
+broker-dealers to file with the Commission annual audited reports containing, among other things, 
+the broker-dealer’s financial statements for the fiscal year, a calculation of its net capital at fiscal 
+year-end, and a report of an independent auditor on the financial statements. 
+ 
+ 8. On February 28, 2010, Lighthouse filed its annual audited report (“Annual Audited 
+Report”), which contained Lighthouse’s financial statements for the year ended December 31, 
+2009 (“2009 financial statements”).  The 2009 Annual Audited Report also contained H&A’s 
+report on the financial statements.     
+ 
+ 9. The 2009 financial statements overstated the firm’s net capital by approximately 
+$4.9 million, or over 350%.  The overstatement was primarily attributable to the following errors: 
+3  
+ 
+a. First, the financial statements overstated Lighthouse’s assets by incorrectly 
+including approximately $2,052,257 in long securities positions in the firm’s 
+proprietary accounts at Penson;4 and 
+ 
+ b.  Second, the financial statements understated Lighthouse’s liabilities by 
+ omitting approximately $2,314,484 owed to Penson.5    
+ 
+Errors That Led to The Overstatement of Lighthouse’s Long Securities Positions and 
+Understatement of its Liabilities to Penson 
+ 
+ 10.  The overstatement of the total market value of Lighthouse’s long securities positions 
+in its accounts at Penson was the result of the firm’s use of erroneous – and overstated – numbers of 
+shares of fifteen securities held in five accounts.  Lighthouse calculated the total market value of its 
+inventory in those accounts to be $3,489,971, whereas based on the actual size of the positions as 
+shown in Penson’s records, the total market value of Lighthouse’s inventory in its Penson accounts 
+was only $1,437,714.  The 2009 financial statements thus overstated the value of Lighthouse’s long 
+securities positions by approximately $2,052,257. 
+ 
+                                                 
+3  The firm’s reported net capital was also overstated as result of the application of erroneous 
+and insufficient haircuts to Lighthouse’s assets.  
+ 
+4  The $2,052,257 figure also takes into account a $251,317 understatement of the value of the 
+firm’s long securities position that resulted from Lighthouse’s failure to include any of the 
+inventory in one of the firm’s proprietary accounts. 
+ 
+5    In addition to the amounts due to Penson discussed at paragraph 11 below, this figure 
+includes a $113,002 understatement of Lighthouse’s exposure on short positions in 
+Penson accounts. 
+  
+5 
+ 
+ 11.  The 2009 financial statements also understated, by approximately $2,314,484, 
+Lighthouse’s payables to brokers as a result of the firm’s failure to include negative balances in a 
+Lighthouse account at Penson.  The account, named “Lighthouse Financial Group F/X Account” 
+(“F/X account”), was one of several Lighthouse administrative accounts at Penson that were used to 
+hold deposits, resolve failed settlement transactions, and pay clearing balances.  Positive balances 
+in those accounts represented amounts due from Penson to Lighthouse while negative balances 
+represented amounts due to Penson from Lighthouse.   
+ 
+The Audit of Lighthouse’s 2009 Financial Statements  
+ 
+ 12. In its Independent Auditors’ report, which was authorized for issuance by Barbara 
+Halpern, H&A stated that it had audited Lighthouse’s 2009 financial statements in accordance with 
+GAAS and expressed its opinion that the financial statements fairly presented, in all material 
+respects, the financial position of Lighthouse as of December 31, 2009.  As the engagement partner 
+on the audit, Barbara Halpern was responsible for supervising the audit and she signed off on all 
+the work papers.  
+     
+ 13. In fact, the audit was not conducted in accordance with GAAS and the financial 
+statements contained in the 2009 Annual Audited Report did not fairly present, in all material 
+respects, the financial position of Lighthouse as of December 31, 2009 because they reflected the 
+errors described above.    
+ 
+ 14. The audit was not conducted in accordance with GAAS because, among other 
+things, Respondents failed to adhere to the most fundamental GAAS requirements:  the 
+requirement to exercise due professional care in planning and performing the audit, which includes 
+the requirements to properly staff and supervise the audit, to obtain sufficient appropriate audit 
+evidence to support the auditor’s opinion, and to exercise professional skepticism in evaluating the 
+audit evidence obtained.  
+  
+ 15. Respondents failed to exercise due care in planning the Lighthouse auditand 
+performing the Lighthouse audit, as the auditing standards require.  AU § 230.01.  The requirement 
+to exercise due professional care includes the requirement to staff the audit appropriately:  
+“Auditors 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.”  AU § 230.06.
+6  
+The individual who was responsible for the testing of Lighthouse’s securities inventory and its 
+balances with banks and brokers – the “senior auditor” – lacked the knowledge necessary to 
+evaluate the audit evidence obtained concerning Lighthouse’s proprietary trading.  At the time of 
+the audit, he had only been with H&A for six months, had only six months of experience doing 
+audit work of any kind, had never audited a broker-dealer, had no understanding of Lighthouse’s 
+                                                 
+6  Citations to “AU” are citations to Statements on Auditing Standards in effect at the time 
+of the audit.  Those statements were issued by the Auditing Standards Board of the 
+American Institute of Certified Public Accountants (“AICPA”). 
+6 
+ 
+proprietary trading, and was not familiar with the professional literature concerning auditing 
+broker-dealers.  By assigning the senior auditor the critical responsibility of testing Lighthouse’s 
+securities inventory and its balances with banks and brokers despite his lack of knowledge in these 
+areas, and by failing to properly supervise him, Respondents failed to exercise due care in planning 
+and performing the audit.   
+ 
+ 16.  Respondents also failed to obtain sufficient appropriate audit evidence concerning 
+Lighthouse’s inventory held at Penson and the firm’s balances with Penson.  The audit team sent 
+Penson an open, i.e. blank, confirmation request seeking “[a]n itemized statement for each of 
+[Lighthouse’s] accounts with you showing security positions and balances as of December 31, 
+2009.”  Penson did not send anything to the audit team concerning the proprietary trading 
+accounts.   Penson did send monthly account statements for the F/X account and the other 
+administrative accounts to the audit team.  Because the monthly statements reported on a 
+settlement date basis and Lighthouse’s financial statements reported on a trade date basis, the audit 
+team did not view them as appropriate audit evidence.   
+ 
+ 17. Having been unable to confirm the firm’s inventory and balances, Respondents 
+should have performed alternative procedures adequate to obtain sufficient appropriate audit 
+evidence to support an unqualified opinion, AU § 330.31(“When the auditor has not received 
+replies to positive confirmation requests, he or she should apply alternative procedures to the 
+nonresponses to obtain the evidence necessary to reduce audit risk to an acceptably low level.”), 
+but they failed to do so.   
+ 
+18.   The alternative procedure chosen by Barbara Halpern was to rely on information 
+provided by Lighthouse, which the audit team mistakenly – and unreasonably – viewed as 
+information obtained from Penson.  Specifically, Barbara Halpern and the senior auditor obtained 
+from Lighthouse schedules of the firm’s December 31, 2009 trade date inventory at Penson and 
+trade date money balances with Penson.  They referred to those schedules – incorrectly – as a 
+“screen print” and a “screen shot” of on-line Penson reports.  
+ 
+19. Respondents failed to exercise due care and professional skepticism in considering 
+the reliability of those client-provided records, and they failed to obtain audit evidence about their 
+accuracy and completeness. 
+ 
+The Audit Procedures Regarding Lighthouse’s Securities Positions 
+ 
+ 20. The purported screen shot of a Penson trade date inventory report provided by 
+Lighthouse was not a confirmation because it was not a communication received directly from a 
+third party.   AU § 330.04 (“Confirmation is the process of obtaining and evaluating a direct 
+communication from a third party in response to a request for information about a particular item 
+affecting financial statement assertions.”) 
+ 
+ 21. The purported screen shot of a Penson inventory report was also not in fact a report 
+obtained from Penson’s website but rather a schedule that Lighthouse personnel had created.  As a 
+7 
+ 
+client-produced record, in order to provide sufficient appropriate audit evidence for the existence 
+of the securities on the balance sheet, the inventory schedule needed to be  –  but was not – 
+subjected to audit procedures.  AU §326.08 (“Audit evidence is more reliable when it is obtained 
+from knowledgeable independent sources outside the entity.”).  Respondents failed to consider the 
+reliability of the information.  AU § 326.09 (“The auditor should consider the reliability of the 
+information to be used as audit evidence, for example, photocopies; facsimiles; or filmed, 
+digitized, or other electronic documents, including consideration of controls over their preparation 
+and maintenance where relevant.” ).  Moreover, Respondents failed to obtain audit evidence about 
+the accuracy and completeness of the client-produced record. AU § 326.10 (“When information 
+produced by the entity is used by the auditor to perform further audit procedures, the auditor 
+should obtain audit evidence about the accuracy and completeness of the information.”).   
+ 
+ 22. Respondents failed to perform adequate procedures to determine whether 
+Lighthouse’s accounts at Penson actually held the securities listed on the inventory schedule, 
+whether the share quantities shown on the schedule were accurate, or whether Lighthouse had 
+additional securities positions at Penson that were not shown on the schedule.  Relatedly, they 
+failed to perform adequate procedures to test their belief that the schedule was in fact a copy of a 
+Penson-created record.  In fact, the schedule was not a copy of a Penson-created record and it 
+overstated the size of fifteen of the firm’s long securities positions in its accounts at Penson, and 
+thus overstated Lighthouse’s assets by approximately $2 million. 
+ 
+23.  Barbara Halpern knew that the purported screen shot of a Penson inventory report 
+had been provided by the client.  She failed to exercise due care and professional skepticism in 
+evaluating the quality of that audit evidence and thus its sufficiency and appropriateness to support 
+the auditor’s opinion.  
+ 
+ The Audit Procedures Regarding Lighthouse’s Balances with Penson  
+ 
+ 24. The 2009 financial statements included among Lighthouse’s assets monies due 
+from Penson to Lighthouse in connection with transactions in five currencies in the F/X account.  
+The financial statements failed to include, however, amounts due to Penson from Lighthouse.  
+Those unreported liabilities totaled $2,314,484.  
+ 
+ 25. The balances in the F/X account appeared on a variety of Penson reports including 
+the December monthly account statements, copies of which Penson had sent directly to 
+Respondents in response to a confirmation request.  Having concluded that the account statements 
+were not sufficient appropriate audit evidence because they reported on a settlement date, rather 
+than trade date, basis, and having been unable to obtain a reconciliation of the statements and 
+Lighthouse’s trade date records, the senior auditor and Barbara Halpen disregarded the account 
+statements in testing Lighthouse’s balances with Penson.  
+ 
+ 26.  To test Lighthouse’s money balances with Penson, Barbara Halpern and the senior  
+auditor relied on a document bearing the title “Penson Money Line,” which they knew had been 
+8 
+ 
+provided by Lighthouse personnel.  The senior auditor labelled the document “screen print” and 
+Respondents treated the document as a screen shot of a report obtained from Penson’s website.  
+ 
+ 27. The purported screen print of a Penson money line report provided by Lighthouse 
+was not a confirmation because it was not a communication directly from a third party.   AU § 
+330.04 (“Confirmation is the process of obtaining and evaluating a direct communication from a 
+third party in response to a request for information about a particular item affecting financial 
+statement assertions.”) 
+ 
+ 28.  The purported screen print of a Penson money line report was also not obtained 
+from Penson’s website, but instead was a schedule prepared by Lighthouse personnel.  As a client-
+produced record, in order to provide sufficient appropriate audit evidence for the accuracy and 
+completeness of Lighthouse’s balances with Penson on the balance sheet, the purported screen 
+print needed to be  – but was not – subjected to audit procedures.  AU §326.08 (“Audit evidence is 
+more reliable when it is obtained from knowledgeable independent sources outside the entity.”); 
+AU § 326.09 (“The auditor should consider the reliability of the information to be used as audit 
+evidence, for example, photocopies; facsimiles; or filmed, digitized, or other electronic documents, 
+including consideration of controls over their preparation and maintenance where relevant.”); AU § 
+326.10 (“When information produced by the entity is used by the auditor to perform further audit 
+procedures, the auditor should obtain audit evidence about the accuracy and completeness of the 
+information.”).   
+ 
+ 29. Barbara Halpern was aware that there were differences between the balances shown 
+on Lighthouse’s records and the balances shown on the December monthly account statements that 
+the audit team had received from Penson.  Lighthouse’s records showed only positive balances, i.e. 
+amounts due to Lighthouse from Penson.  For the F/X account, they showed a total positive trade 
+date balance for the account of $2,284,644, whereas the account statements for the F/X account 
+reported a total value for the account of negative $22,305.
+  The December monthly account 
+statements also showed that, in addition to positive balances, there were negative balances in the 
+F/X account totaling approximately $2.3 million.
+7   
+ 
+ 30. Barbara Halpern assumed that the differences she could not account for were the 
+result of pending trades, i.e. trades that had been executed but had not yet settled.  She did not 
+request a pending trade report from Penson or otherwise attempt to verify this assumption, however.   
+ 
+ 31   Nevertheless, the December account statements for the F/X account – which 
+Respondents had obtained from Penson – reported pending trades.  Specifically, the account 
+statements showed that there was only one trade pending settlement on December 31, 2009 for the 
+                                                 
+7  For the F/X account, there were multiple positive and multiple negative balances because 
+balances were calculated separately for each different currency.  The Penson account 
+statements, like the schedule prepared by Lighthouse, reported the balances in both local 
+currency and U.S. Dollars.  
+9 
+ 
+F/X account: a transaction in Euros at a total cost in U.S. dollars of only $42,838, which would not 
+account for the discrepancies known to Barbara Halpern.   
+ 
+32. After receiving from Lighthouse the purported screen print of a Penson money line 
+report that reflected only positive balances, Barbara Halpern failed to perform, or to have the audit 
+team perform, adequate procedures to test her belief that the client-produced document was in fact 
+a copy of a Penson-created record.   She also failed to perform, or have the audit team perform, 
+adequate procedures to test whether Lighthouse in fact had no negative balances with Penson or 
+that it had positive balances in the amounts shown on the purported screen print.  In fact, the 
+purported screen print she relied upon was not a copy of a Penson-created record and on December 
+31, 2009, Lighthouse had negative balances in the F/X account totaling approximately $2,314,484 
+in addition to the positive balances that appeared on the purported screen shot that had been 
+supplied by the client.    
+ 
+33. Barbara Halpern knew that the purported screen print of a Penson money line report 
+had been provided by the client.  She nevertheless relied upon the document without testing the 
+completeness and accuracy of the information and without understanding what criteria had been 
+used to generate the document.  By relying upon a client-produced record without obtaining audit 
+evidence about its accuracy and completeness, Barbara Halpern failed to exercise due care and 
+professional skepticism in considering the reliability of that information and its sufficiency and 
+appropriateness to support the auditor’s opinion.  
+ 
+LEGAL ANALYSIS 
+ 
+Respondents Engaged in Improper Professional Conduct and Caused Lighthouse’s Violations 
+of Section 17 of the Exchange Act and Rule17a-5(a) thereunder 
+ 
+34. As a result of the conduct described above, Respondents engaged in improper 
+professional conduct.  Regarding accountants, Rule 102(e)(1)(iv)(B) and Section 4C(b) provide 
+that the following two types of negligent conduct may constitute “improper professional 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, or 
+ 
+(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. 
+ 
+“Applicable professional standards” for auditors primarily refers to GAAP, GAAS, the AICPA 
+Code of Professional Conduct, and Commission regulations.  See Amendment to Rule 102(e) of the 
+Commission’s Rules of Practice, Securities Act Release No. 7593 (Oct. 19, 1998) (“Rule 102(e) 
+Release”).  With respect to audits of broker-dealer financial statements, the GAAS in effect during 
+the relevant period is embodied in various Statements on Auditing Standards (“SAS”), as well as 
+10 
+ 
+the Codification of Statements on Auditing Standards, both issued by the Auditing Standards 
+Board of the AICPA.  
+ 
+ 35. Barbara Halpern failed to adhere to the most fundamental auditing standards:  the 
+standards that require an auditor to exercise due professional care in planning and performing an 
+audit, AU § 230.01, by properly staffing and supervising the audit, AU § 230.06, by obtaining 
+sufficient appropriate audit evidence, AU § 326.01, and by maintaining an attitude of professional 
+skepticism, which includes “a questioning mind and a critical assessment of audit evidence[,]” AU 
+§§ 230.07-08.  An auditor must “obtain sufficient appropriate audit evidence by performing audit 
+procedures to afford a reasonable basis for an opinion regarding the financial statements under 
+audit.”  AU § 326.01.  “The auditor should use professional judgment and should exercise 
+professional skepticism in evaluating the quantity and quality of audit evidence, and thus its 
+sufficiency and appropriateness, to support the audit opinion.” AU § 326.13.   
+ 
+ 36. Barbara Halpern also failed to adhere to auditing standards concerning 
+confirmation, AU § 330, the reliability of audit evidence, including audit evidence in the form of 
+electronic documents, AU § 326.09, and audit evidence provided by the client, AU §326.08, and 
+the need to obtain audit evidence about the completeness and accuracy of client-produced 
+information used to perform audit procedures.  AU § 326.10.  
+ 
+37. As a result of the conduct alleged above, Barbara Halpern failed to adhere to GAAS 
+in planning and performing the audit of Lighthouse’s 2009 financial statements and preparing the 
+audit report on those statements.  Moreover, those failures occurred in the most critical areas of the 
+audit – the testing of Lighthouse’s holdings in its proprietary accounts and its liabilities to one of 
+the broker-dealers through which it engaged in proprietary trading.   
+ 
+38. Accordingly, Barbara Halpern engaged in at least a single instance of highly 
+unreasonable or, at a minimum, repeated instances of unreasonable conduct within the meaning of 
+Rule 102(e)(1)(iv)(B).   
+ 
+39. Barbara Halpern’s improper professional conduct may be attributed to H&A.   
+ 
+ 40. Section 17 of the Exchange Act requires registered broker-dealers to make and 
+disseminate certain financial and operational reports.  Rule 17a-5(a) requires that certain broker-
+dealers file an annual audited report that contains the broker-dealer’s year-end financial statements 
+and a report on those statements by an independent auditor.  Implicit in the requirement that a 
+registered broker-dealer file financial reports is the requirement that the information contained in 
+those reports be accurate.  See Nikko Securities Co. International, Inc., Exchange Act Release No. 
+32331 (May 19, 1993).   
+ 
+ 41. As described above, Lighthouse failed to file an accurate annual audited report for 
+the year ended December 31, 2009.   The firm therefore violated Section 17 and Rule 17a-5(a) 
+thereunder. 
+ 
+11 
+ 
+ 42. As a result of the conduct alleged above, Respondents were each a cause of 
+Lighthouse’s violations of Section 17 of the Exchange Act and Rule17a-5(a) thereunder. 
+ 
+IV. 
+ 
+In view of the allegations made by the Division of Enforcement and the Office of the Chief 
+Accountant, the Commission deems it necessary and appropriate that public administrative and 
+cease-and-desist proceedings be instituted to determine: 
+ 
+Whether the allegations set forth in Section III hereof are true and, in connection therewith, 
+to afford Respondents an opportunity to establish any defenses to such allegations;  
+ 
+What, if any, remedial action is necessary and appropriate against Respondents pursuant to 
+Rule 102(e) of the Commission’s Rules of Practice; and 
+ 
+Whether, pursuant to Section 21C of the Exchange Act, Respondents should be ordered to 
+cease and desist from committing or causing violations and any future violations of Section 17 of the 
+Exchange Act and Rule 17a-5 thereunder and whether Respondents should be ordered to pay 
+disgorgement pursuant to Section 21C(e) of the Exchange Act.    
+ 
+V. 
+ 
+IT IS ORDERED that a public hearing for the purpose of taking evidence on the questions 
+set forth in Section IV hereof shall be convened not earlier than 30 days and not later than 60 days 
+from service of this Order at a time and place to be fixed, and before an Administrative Law Judge 
+to be designated by further order as provided by Rule 110 of the Commission’s Rules of Practice, 
+17 C.F.R. § 201.110.   
+ 
+IT IS FURTHER ORDERED that Respondents shall file an Answer to the allegations 
+contained in this Order within twenty (20) days after service of this Order, as provided by Rule 220 
+of the Commission’s Rules of Practice, 17 C.F.R. § 201.220.  
+ 
+If Respondents fail to file the directed answer, or fail to appear at a hearing after being duly 
+notified, they may be deemed in default and the proceedings may be determined against them upon 
+consideration of this Order, the allegations of which may be deemed to be true as provided by Rules 
+155(a), 220(f), 221(f), and 310 of the Commission’s Rules of Practice, 17 C.F.R. §§ 201.155(a), 
+201.220(f), 201.221(f), and 201.310. 
+ 
+This Order shall be served forthwith upon Respondents as provided for in the 
+Commission’s Rules of Practice. 
+ 
+IT IS FURTHER ORDERED that the Administrative Law Judge shall issue an initial 
+decision no later than 300 days from the date of service of this Order, pursuant to Rule 360(a)(2) of 
+the Commission’s Rules of Practice.  
+ 
+12 
+ 
+In the absence of an appropriate waiver, no officer or employee of the Commission engaged 
+in the performance of investigative or prosecuting functions in this or any factually related 
+proceeding will be permitted to participate or advise in the decision of this matter, except as witness  
+or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule making” 
+within the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to 
+the provisions of Section 553 delaying the effective date of any final Commission action. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 
+ 
+ 

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+   
+  
+   
+    
+   
+ UNITED STATES OF AMERICA 
+Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74356 / February 24, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3640 / February 24, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16400 
+ 
+ 
+In the Matter of 
+ 
+THE GOODYEAR TIRE & 
+RUBBER COMPANY,  
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS, PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER  
+ 
+   
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) against The Goodyear Tire & Rubber Company 
+(“Goodyear” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 21C of the Exchange Act, Making Findings, and 
+Imposing a Cease-and-Desist Order (“Order”), as set forth below.    
+ 
+  
+ 2 
+III. 
+  
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+ 
+1. This case involves violations of the books, records, and internal control provisions of 
+the Foreign Corrupt Practices Act (“FCPA”) by Goodyear.  Goodyear, headquartered in Akron, 
+Ohio, is one of the world’s largest tire companies.  From 2007 through 2011, Goodyear 
+subsidiaries in Kenya (Treadsetters Tyres Ltd., or “Treadsetters”) and Angola (Trentyre Angola 
+Lda., or “Trentyre”) routinely paid bribes to employees of government-owned entities and 
+private companies to obtain tire sales.  These same subsidiaries also paid bribes to police, tax, 
+and other local authorities.  In all, between 2007 and 2011, Goodyear subsidiaries in Kenya and 
+Angola made over $3.2 million in illicit payments.     
+ 
+2. All of these bribery payments were falsely recorded as legitimate business expenses 
+in the books and records of these subsidiaries which were consolidated into Goodyear’s books and 
+records.  Goodyear did not prevent or detect these improper payments because it failed to 
+implement adequate FCPA compliance controls at its subsidiaries in sub-Saharan Africa.   
+ 
+Respondent 
+ 
+ 3. Goodyear, an Ohio corporation headquartered in Akron, Ohio, is one of the 
+world’s largest tire manufacturers.  Goodyear has manufacturing facilities in 22 countries and sells 
+tires in most countries around the world.  Goodyear’s common stock is registered with the 
+Commission pursuant to Section 12(b) of the Exchange Act and is listed on The NASDAQ Stock 
+Market. 
+ 
+Other Relevant Entities 
+ 
+ 4. Magister Ltd. (“Magister”) is a wholly-owned subsidiary of Goodyear 
+incorporated in Mauritius, and headquartered in South Africa.  Magister holds the shares and 
+oversees the operations of the Goodyear subsidiaries in sub-Saharan Africa.  During the relevant 
+time period this included Treadsetters in Kenya and Trentyre in Angola. 
+ 
+ 5. Treadsetters is a retail tire distributor incorporated and located in Kenya.  During 
+the relevant time period, Treadsetters was an indirect subsidiary of Goodyear, and had annual 
+revenues of approximately $20 million.  Goodyear divested its ownership interest in Treadsetters 
+in 2013. 
+ 
+ 6. Trentyre is a retail tire distributor incorporated and located in Angola.  Trentyre 
+is a wholly owned subsidiary of Goodyear.  During the relevant time period, Trentyre had 
+annual revenues between $6 million and $20 million.   
+                                                 
+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 
+Improper Payments in Kenya 
+ 
+7. Treadsetters is a retail tire distributor in Kenya.  In 2002, Goodyear acquired a 
+minority ownership interest in Treadsetters.  By 2006, Goodyear had acquired a majority ownership 
+interest in the company, though the day-to-day operations of Treadsetters continued to be run by 
+Treadsetters’ founders and the local general manager.  During the relevant time period, Treadsetters 
+had annual revenues of approximately $20 million. 
+ 
+8. From 2007 through 2011, Treadsetters’ management regularly authorized and paid 
+bribes to employees of government-owned or affiliated entities, and private companies, to obtain 
+business.  The practice was routine and appears to have been in place prior to Goodyear’s 
+acquisition of Treadsetters.  The bribes generally were paid in cash and falsely recorded on 
+Treadsetters’ books as expenses for promotional products. 
+ 
+ 9.  Treadsetters’ general manager and finance director were at the center of the 
+scheme.  They approved payments for phony promotional products, and then directed the finance 
+assistant to write-out the checks to cash.  Treadsetters’ staff then cashed the checks and used the 
+money to make improper payments to employees of customers, which included both government-
+owned entities and private companies. 
+ 
+ 10. Between 2007 and 2011, Treadsetters paid over $1.5 million in bribes in connection 
+with the sale of tires.  This included improper payments to employees of government-owned or 
+affiliated entities including the Kenya Ports Authority, the Armed Forces Canteen Organization, 
+the Nzoia Sugar Company, the Kenyan Air Force, the Ministry of Roads, the Ministry of State for 
+Defense, the East African Portland Cement Co., and Telkom Kenya Ltd.  During that same time 
+period, Treadsetters also made approximately $14,457 in improper payments to local government 
+officials in Kenya, including city council employees, police, and building inspectors. 
+ 
+ 11.  Goodyear did not detect or prevent these improper payments because it failed to 
+conduct adequate due diligence when it acquired Treadsetters, and failed to implement adequate 
+FCPA compliance training and controls after the acquisition.   
+ 
+Improper Payments in Angola 
+ 
+ 12. Trentyre was incorporated in 2007, and is a wholly-owned subsidiary of Goodyear.  
+Trentyre is primarily engaged in selling new tires for mining equipment.  During the relevant time 
+period, Trentyre had annual revenues between $6 million and $20 million.  
+ 
+ 13. From 2007 through 2011, Trentyre paid over $1.6 million in bribes to employees of 
+government-owned or affiliated entities, and private companies, to obtain tire sales.  Trentyre paid 
+approximately $1.4 million of these bribes to employees of government-owned or affiliated 
+entities in Angola, including the Catoca Diamond Mine, UNICARGAS, Engevia Construction 
+and Public Works, the Electric Company of Luanda, National Service of Alfadega, and Sonangol.  
+A majority of these  improper payments were paid to employees of Trentyre’s largest customer at 
+the time, the Catoca Diamond Mine, which is owned by a consortium of mining interests, 
+including Endiama E.P., Angola’s national mining company, and ALROSA, a Russian mining 
+ 4 
+company.  During the same time period, Trentyre also made approximately $64,713 in improper 
+payments to local government officials in Angola, including police and tax authorities. 
+ 
+ 14. The bribery scheme was put in place by Trentyre’s former general manager.  To 
+hide the scheme and generate funds for the improper payments, Trentyre falsely marked-up the 
+costs of its tires by adding to its invoice price phony freight and customs clearing costs.  On a 
+monthly basis, as tires were sold, the phony freight and clearing costs were reclassified to a 
+balance sheet account.  Trentyre made improper payments to employees of customers both in cash 
+and through wire transfers.  As bribes were paid, the amounts were debited from the balance sheet 
+account, and falsely recorded as payments to vendors for freight and clearing costs. 
+ 
+ 15. Goodyear did not prevent or detect these improper payments because it failed to 
+implement adequate FCPA compliance training and controls at this subsidiary.   
+ 
+Legal Standards and Violations 
+ 
+ 16. Under Section 21C(a) of the Exchange Act, the Commission may impose a cease-
+and-desist order upon any person who is violating, has violated, or is about to violate any provision 
+of the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, or 
+would be a cause of the violation, due to an act or omission the person knew or should have known 
+would contribute to such violation. 
+ 
+ 17. Under Section 13(b)(2)(A) of the Exchange Act issuers are required to make and 
+keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the 
+transactions and disposition of the assets of the issuer. [15 U.S.C. §78m(b)(2)(A)]. 
+ 
+ 18. Under Section 13(b)(2)(B) of the Exchange Act issuers are required 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; 
+(ii) transactions are recorded as necessary (I) to permit preparation of financial statements in 
+conformity with generally accepted accounting principles or any other criteria applicable to such 
+statements, and (II) to maintain accountability for assets; (iii) access to assets is permitted only in 
+accordance with management’s general or specific authorization; and (iv) the recorded 
+accountability for assets is compared with the existing assets at reasonable intervals and 
+appropriate action is taken with respect to any differences. [15 U.S.C. §78m(b)(2)(B)]. 
+ 
+ 19. As described above, Goodyear subsidiaries in Kenya and Angola made improper 
+payments to employees of government-owned entities and private companies to obtain business.  
+These improper payments were falsely recorded as legitimate business expenses in the books and 
+records of these subsidiaries which were consolidated into Goodyear’s books and records.  
+Accordingly, Goodyear violated Section 13(b)(2)(A) of the Exchange Act.  As described above, 
+Goodyear also violated Section 13(b)(2)(B) of the Exchange Act by failing to devise and maintain 
+sufficient accounting controls to prevent and detect these improper payments.  
+ 
+ 
+ 
+ 5 
+Goodyear’s Cooperation and Remedial Efforts 
+ 
+ 20. In determining to accept the Offer, the Commission considered remedial acts 
+promptly undertaken by Respondent and cooperation afforded the Commission staff.  After 
+receiving information about the bribes, Goodyear promptly halted the improper payments and 
+reported the matter to Commission staff.  Goodyear also provided significant cooperation with the 
+Commission’s investigation.  This included voluntarily producing documents and reports and other 
+information from the company’s internal investigation, and promptly responding to Commission 
+staff’s requests for information and documents.  These efforts assisted the Commission in efficiently 
+collecting evidence including information that may not have been otherwise available to the staff.   
+ 
+ 21. Goodyear also has undertaken remedial efforts.  In Kenya, Goodyear divested its 
+ownership interest in Treadsetters, and ceased all business dealings with the company.   In Angola, 
+after Goodyear halted the improper payments its subsidiary lost its largest customer.  Goodyear is 
+now in the process of divesting this subsidiary.   
+ 
+ 22. Goodyear also undertook disciplinary action against certain employees, including 
+executives of its Europe, Middle East and Africa region who had oversight responsibility, for 
+failing to ensure adequate FCPA compliance training and controls were in place at the company’s 
+subsidiaries in sub-Saharan Africa.   
+ 
+ 23. Goodyear also implemented improvements to its compliance program, both specific 
+to its operations in sub-Saharan Africa, and globally.  In Africa, the improvements include 
+expanded on-line and in-person anti-corruption training for subsidiary management, sales, and 
+finance personnel;  regular audits, by internal audit, specifically focused on corruption risks; 
+quarterly self-assessment questionnaires required of each subsidiary regarding business with 
+government-affiliated customers; quarterly management certifications from every subsidiary that 
+cover among other things controls over financial reporting; and annual testing of internal controls 
+at each subsidiary.  To increase oversight, Goodyear also put in place a new regional management 
+structure, and added new compliance, accounting, and audit positions.  Goodyear is also making 
+technology improvements, where possible, to electronically link subsidiaries in sub-Saharan 
+Africa to its global network.  At the parent company, Goodyear created a new senior position of 
+Vice President of Compliance and Ethics, which further elevated the compliance function within 
+the company.  Goodyear has also expanded on-line and in-person anti-corruption and ethics 
+training at its other subsidiaries, and implemented a new Integrity Hotline Web Portal, which 
+enhanced users’ ability to file anonymous online reports to its hotline system.  With that system, 
+Goodyear is also implementing a new case management system for legal, compliance and internal 
+audit to document and track complaints, investigations and remediation.  Goodyear also has 
+updated its policies governing third-party agents and vendors, and is in the process of 
+implementing a new third-party due diligence software tool.   
+ 
+ 
+ 
+ 
+ 
+ 
+ 6 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in the Respondent Goodyear’s Offer. 
+ 
+Accordingly, it is hereby ORDERED that: 
+ 
+A. Pursuant to Section 21C of the Exchange Act, Respondent Goodyear cease and  
+  desist from committing or causing any violations and any future violations of  
+  Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. 
+ 
+B. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of   
+  $14,122,525 and prejudgment interest of $2,105,540 to the United States Treasury.   
+  If timely payment is not made, additional interest shall accrue pursuant to SEC Rule  
+  of Practice 600.  Payments must be made in one of the following ways: 
+ 
+1) Respondent may transmit payment electronically to the Commission, which 
+ shall provide detailed ACH transfer/Fedwire instructions upon request; 
+ 
+2) Respondent may make direct payment from a bank account via Pay.gov 
+ through the SEC 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, 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 
+Goodyear as the Respondent in these proceedings, and the file number of these proceedings; a copy 
+of the cover letter and check or money order must be sent to Brian O. Quinn, Assistant Director, 
+Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, 
+DC 20549. 
+ 
+C. Respondent shall report to the Commission staff periodically, at no less than twelve-  
+  month intervals during a three-year term, the status of its remediation and   
+  implementation of compliance measures.  Should respondent discover credible  
+  evidence, not already reported to the Commission staff, that questionable or corrupt  
+  payments or questionable or corrupt transfers of property or interests may have been  
+  offered, promised, paid, or authorized by Respondent entity or person, or any entity  
+  or person while working directly for Respondent, or that related false books and  
+  records have been maintained, Respondent shall promptly report such conduct to the 
+ 7 
+  Commission staff.   During this three-year period, Respondent shall: (1) conduct an  
+  initial review and submit an initial report, and (2) conduct and prepare at least two  
+  (2) follow-up reviews and reports, as described below: 
+ 
+1) Respondent shall submit to the Commission staff a written report within one 
+(1) year of the entry of this Order setting forth a complete description of its 
+FCPA and anti-corruption related remediation efforts to date, its proposals 
+reasonably designed to improve the policies and procedures of Respondent 
+for ensuring compliance with the FCPA and other applicable anti-corruption 
+laws, and the parameters of the subsequent reviews (the “Initial Report”).  
+The Initial Report shall be transmitted to Brian O. Quinn, Assistant Director, 
+Division of Enforcement, Securities and Exchange Commission, 100 F 
+Street, N.E., Washington, DC 20549.  Respondent may extend the time 
+period for issuance of the Initial Report with prior written approval of the 
+Commission staff. 
+ 
+2) Respondent shall undertake at least two (2) follow-up reviews, incorporating 
+any comments provided by the Commission staff on the previous report, to 
+further monitor and assess whether the policies and procedures of 
+Respondent are reasonably designed to detect and prevent violations of the 
+FCPA and other applicable anti-corruption laws (the “Follow-up Reports”). 
+ 
+3) The first Follow-up Report shall be completed by no later than one (1) year 
+after  the Initial Report.  The second Follow-up Report shall be completed by 
+no later than one (1) year after the completion of the first Follow-up Report.  
+Respondent may extend the time period for issuance of the Follow-up 
+Reports with prior written approval of the Commission staff. 
+ 
+4) The periodic reviews and reports submitted by Respondent will likely 
+include proprietary, financial, confidential, and competitive business 
+information.  Public disclosure of the reports could discourage cooperation, 
+impede pending or potential government investigations or undermine the 
+objectives of the reporting requirement.  For these reasons, among others, the 
+reports and the contents thereof are intended to remain and shall remain non-
+public, except (1) pursuant to court order, (2) as agreed by the parties in 
+writing, (3) to the extent that the Commission staff determines in its sole 
+discretion that disclosure would be in furtherance of the Commission’s 
+discharge of its duties and responsibilities, or (4) is otherwise required by 
+law. 
+ 
+D.  Respondent acknowledges that the Commission is not imposing a civil penalty 
+ based upon its cooperation in a Commission investigation and related 
+ enforcement action.  If at any time following the entry of the Order, the Division 
+ of Enforcement (“Division”) obtains information indicating that Respondent 
+ knowingly provided materially false or misleading information or materials to the 
+ Commission or in a related proceeding, the Division may, at its sole discretion 
+ 8 
+ and with prior notice to the Respondent, petition the Commission to reopen this 
+ matter and seek an order directing that the Respondent pay a civil money penalty.  
+ Respondent may contest by way of defense in any resulting administrative 
+ proceeding whether it knowingly provided materially false or misleading 
+ information, but may not: (1) contest the findings in the Order; or (2) assert any 
+ defense to liability or remedy, including, but not limited to any statute of 
+ limitations defense. 
+ 
+ By the Commission 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2015/AAER-3641.txt

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74401 / March 2, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3641 / March 2, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16413 
+ 
+ 
+In the Matter of 
+ 
+ROBERT W. ELLIOT  
+ 
+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 and in the 
+public interest that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 
+21C of the Securities Exchange Act of 1934 (“Exchange Act”), against Robert W. Elliot 
+(“Respondent” or “Elliot”).   
+ 
+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, and except as provided herein in Section V, Respondent consents 
+to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the 
+Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order 
+(“Order”), as set forth below.   
+ 
+ 
+ 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+ 
+Respondent 
+ 
+ 1. Respondent, 51 years old, is a resident of Delmar, MD.  From August 2012 through 
+January 2014, Respondent was the vice president of finance at Michael’s Finer Meats, LLC 
+(“MFM”), a wholly owned subsidiary of The Chefs’ Warehouse, Inc. (“Chefs”).  Respondent is not, 
+and has never been, a certified public accountant.  Respondent is currently employed as a credit 
+manager at a private company in Seaford, Delaware.   
+   
+Relevant Entities 
+ 
+ 2. The Chefs’ Warehouse, Inc., a Delaware corporation with principal offices in 
+Ridgefield, Connecticut, is a distributor of specialty food products.  The company has securities 
+registered under Section 12(b) of the Exchange Act, which trade on the Nasdaq Global Select 
+Market.       
+ 
+ 3. Michael’s Finer Meats, LLC was a private company headquartered in Columbus, 
+Ohio, specializing in the sale of frozen meat and seafood.  On or around August 13, 2012, Chefs 
+acquired MFM.  MFM is now a wholly-owned subsidiary of Chefs. 
+ 
+Background 
+ 
+4. From May 2008 to August 2012, Elliot was the chief financial officer (“CFO”) of 
+MFM.  As the CFO, Elliot had primary responsibility for all accounting functions at MFM, 
+including accounting for the company’s inventory and cost of goods sold.     
+ 
+5. In August 2012, Chefs acquired MFM, and MFM became a wholly-owned 
+subsidiary of Chefs.  Elliot remained with MFM after the acquisition in the role of vice president of 
+finance, and continued to have primary responsibility for MFM’s accounting functions, including 
+accounting for the company’s inventory and cost of goods sold.  As a wholly-owned subsidiary of 
+Chefs, MFM’s books, records, and accounts were incorporated and reported in Chefs’ consolidated 
+financial statements.    
+ 
+6. Both before and after the acquisition, MFM conducted manual counts of its 
+inventory at the end of every quarter.  MFM employees recorded the inventory of products on 
+“count sheets,” which were then provided to Elliot.  Elliot input the information from those count 
+sheets into a spreadsheet that he maintained and controlled.  Both before and after the acquisition, 
+Elliot used the information in this spreadsheet to calculate certain financial results for MFM, 
+including inventory values, cost of goods sold, and profit margins.     
+ 
+                                                 
+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 
+7.   At the end of each quarter, after inputting the inventory information from the count 
+sheets into the spreadsheet, Elliot would compare current profit margins to historical margins.  If a 
+particular product’s profit margin deviated significantly from historical margins, Elliot normally 
+worked with warehouse employees who conducted the inventory counts to determine whether an 
+error had been made.  At times, errors were discovered, and Elliot adjusted the inventory 
+information in the spreadsheet.  Elliot failed to prepare any documentation supporting these 
+adjustments.   
+ 
+8. At other times, Elliot did not investigate or otherwise was unable to identify 
+inventory count errors that explained why profit margins were lower than historical margins.  In 
+these instances, Elliot improperly increased the inventory amounts recorded in the spreadsheet to 
+lower cost of goods sold, and increase profit margins, to a range consistent with historical margins.  
+Elliot knew that these unsupported accounting adjustments were improper.   
+ 
+9. These improper accounting entries resulted in Chefs reporting inaccurate financial 
+statements in its quarterly report filed on Form 10-Q for the third quarter of 2012, its annual report 
+filed on Form 10-K for 2012, its quarterly report filed on Form 10-Q for the first quarter of 2013, 
+its quarterly report filed on Form 10-Q for the second quarter of 2013, and its quarterly report filed 
+on Form 10-Q for the third quarter of 2013.   
+ 
+10. Chefs terminated Elliot in January 2014. 
+ 
+11. On January 27, 2014, Chefs filed a Form 8-K disclosing that unsupported 
+accounting adjustments made by an employee of its MFM subsidiary had resulted in an aggregate 
+overstatement of inventory, and understatement of cost of goods sold, of approximately $905,000.  
+The company further reported that it did not believe the impact of the improper adjustments was 
+material to the company’s consolidated financial statements for any one reporting period, and that 
+it corrected the misstatements by recording a non-cash charge in the fourth quarter of 2013.   
+ 
+Violations 
+ 
+12. As a result of the conduct described above, Elliot violated Section 13(b)(5) of the 
+Exchange Act, which provides that no person shall knowingly circumvent or knowingly fail to 
+implement a system of internal accounting controls or knowingly falsify any book, record, or 
+account, and Rule 13b2-1, which provides that no person shall, directly or indirectly, falsify or 
+cause to be falsified, any book, record or account, and caused a violation of Section 13(b)(2)(A) of 
+the Exchange Act, which requires that every issuer of securities registered pursuant to Section 12 
+of the Exchange Act make and keep books, records, and accounts, which, in reasonable detail, 
+accurately and fairly reflect the transactions and dispositions of the assets of the issuer. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Elliot’s Offer. 
+ 
+ 4 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent Elliot cease and desist 
+from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 
+13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder.   
+ 
+ B. Respondent shall, within seven days of the entry of this Order, pay a civil money 
+penalty in the amount of $25,000 to the Securities and Exchange Commission.  If timely payment 
+is not made, additional interest shall accrue pursuant to 31 U.S.C. 3717.  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 
+SEC 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 
+Robert W. Elliot as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to Scott W. Friestad, Division of 
+Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549-5010.   
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 5 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ By the Commission. 
+        
+       Brent J. Fields 
+       Secretary 

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+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74552 / March 20, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3643 / March 20, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File Nos. 3-14872, 3-15116 
+ 
+ 
+ 
+In the Matter of 
+ 
+BDO CHINA DAHUA CPA CO., LTD., 
+ERNST & YOUNG HUA MING LLP, KPMG 
+HUAZHEN (SPECIAL GENERAL 
+PARTNERSHIP), DELOITTE TOUCHE 
+TOHMATSU CERTIFIED PUBLIC 
+ACCOUNTANTS LTD., and 
+PRICEWATERHOUSECOOPERS ZHONG 
+TIAN CPAS LIMITED  
+ 
+ 
+ORDER GRANTING THE 
+DIVISION OF ENFORCEMENT'S 
+UNOPPOSED MOTION TO 
+WITHDRAW ITS PETITION FOR 
+REVIEW AS TO DAHUA CPA, 
+LTD. AND NOTICE THAT INITIAL 
+DECISION HAS BECOME FINAL 
+AS TO DAHUA CPA, LTD. 
+ 
+ 
+These administrative proceedings were instituted pursuant to Rule of Practice 
+102(e)(1)(iii).1  The law judge's initial decision denied the privilege of appearing or practicing 
+before the Commission to four of the five respondents for a period of six months and it censured 
+the remaining respondent, Dahua CPA, Ltd. (Dahua).2  The Division of Enforcement 
+("Division") sought review of, among other things, "that portion of the Initial Decision" 
+regarding the remedies imposed on Dahua.  Dahua did not file a petition for review.  We granted 
+the Division's petition for review and also determined, on our own initiative, to review what 
+sanctions, if any, were appropriate.3 
+The Division has filed an unopposed motion to withdraw its petition for review as to 
+Dahua, which is accompanied by a Joint Stipulation of Dismissal of Appeal as to Dahua entered 
+into by the Division and by a representative partner of Dahua.  The motion seeks "dismissal of 
+all issues relating specifically to Dahua that have been raised on appeal from the Initial Decision 
+by the Division and/or the Commission ('Dahua-Related Appeal Issues')."  The Division states 
+                                                 
+1  17 C.F.R. § 201.102(e)(1)(iii). 
+2  BDO China Dahua CPA Co., Initial Decision Release No. 553, 2014 WL 242879, at *84 
+(Jan. 22, 2014).  Dahua was formerly affiliated with BDO International Limited and did business 
+as BDO China Dahua CPA Co., Ltd., the entity that appears in the caption. 
+3  BDO China Dahua CPA Co., Exchange Act Release No. 72134, 2014 WL 1871077 (May 
+9, 2014). 
+2 
+ 
+that it does not seek dismissal of any other aspect of the Division's petition for review, including, 
+in particular, issues relating to remedies imposed on the other respondents.   
+The Division argues that the Dahua-Related Appeal Issues should be dismissed because 
+subsequent events, including the Commission's February 6, 2015 settlement with the other four 
+respondents,4 have substantially mitigated the concerns underlying its petition for review as it 
+relates to Dahua.  It further states that, because of the Commission's recent settlement with the 
+other respondents, it is not currently the case that the initial decision's absence of a practice bar 
+against Dahua would risk undermining the remedies imposed on the other respondents.  The 
+Division also asserts that Dahua, at present, is performing little or no audit work for U.S. issuers, 
+thereby minimizing the risk of future harm to the Commission's processes.  Finally, the Division 
+believes that, if future cooperation regarding Dahua's audit work papers becomes necessary, it 
+can seek such cooperation from Dahua and the China Securities Regulatory Commission 
+following the procedures set forth in the settlement order.  For all of these reasons, the Division 
+contends that the changed circumstances weigh against imposition of any additional remedy 
+against Dahua at the current time. 
+The relief sought by the Division appears to be appropriate.   
+ 
+Accordingly, it is ORDERED that the Division's unopposed motion is GRANTED.  The 
+Commission has determined to dismiss the Division's petition for review as it relates to Dahua 
+and dismiss its own review of remedies as it relates to Dahua.  It is further ORDERED that 
+notice is hereby given that the initial decision of the administrative law judge is reinstated and 
+has become the final decision of the Commission as to Dahua.  The order contained in that 
+decision is hereby declared effective as to Dahua.  The initial decision censured Dahua pursuant 
+to Rule 102(e)(1)(iii) of the Commission's Rules of Practice. 
+ 
+It is further ORDERED that the remainder of the Division's petition for review and the 
+Commission's review of sanctions remain stayed in accordance with the Commission's February 
+6 settlement order. 
+ 
+By the Commission. 
+ 
+ 
+      Brent M. Fields 
+            Secretary 
+                                                 
+4  BDO China Dahua CPA Co., Exchange Act Release No. 74217, 2014 WL 7777230 (Feb. 
+6, 2015). 

raw/aaer/2015/AAER-3647.txt

@@ -0,0 +1,226 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74624 / April 1, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3647 / April 1, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16469 
+ 
+In the Matter of 
+ 
+MARC J. MIZE, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, PURSUANT TO SECTION 
+21C OF THE SECURITIES EXCHANGE ACT 
+OF 1934, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST ORDER  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) against Marc J. Mize (“Mize” 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, and except as provided herein in Section V, Respondent consents 
+to the entry of this Order Instituting Cease-And-Desist Proceedings, Pursuant to Section 21C Of 
+The Securities Exchange Act of 1934, Making Findings, And Imposing A Cease-And-Desist Order 
+(“Order”), as set forth below.   
+ 
+ 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that  
+Summary 
+ 
+1. This case involves a fraudulent scheme by the owner (the “CEO”) of four private 
+telecommunications companies (collectively, “TelWorx”) to inflate the value of assets that the 
+companies sold to PCTEL, Inc. (“PCTEL”), a public company, and its wholly owned subsidiary 
+PCTelWorx, Inc. (“PCTelWorx”).  The scheme had two main components:  first, to inflate the value 
+of inventory and to prematurely recognize revenue prior to the sale in order to fraudulently inflate 
+the sale price; and second, to conceal these facts from PCTEL by prematurely recognizing revenue 
+after the asset purchase.  Mize, an employee of TelWorx who joined PCTelWorx after the 
+acquisition, participated in one of the fraudulent transactions – premature revenue recognition to 
+meet a target revenue forecast – that was part of the scheme.     
+Respondent 
+ 
+2. Marc J. Mize, age 43, is a resident of High Point, North Carolina.  From July 2012, 
+until January 2013, he was the Senior Vice President of Sales and Tech Services of PCTelWorx.   
+Other Relevant Entities And Individuals 
+ 
+3. PCTEL, Inc. is a Delaware corporation with its principal place of business in 
+Bloomingdale, Illinois.  The company provides products and services for wireless communication 
+networks.  Its stock is traded on the NASDAQ (ticker symbol PCTI). 
+4. PCTelWorx, Inc. was a wholly owned subsidiary of PCTEL.  PCTEL merged 
+PCTelWorx into PCTEL on June 30, 2014.   
+5. The CEO was the owner and CEO of one of the TelWorx companies.  After July 
+2012, the CEO was the general manager of PCTelWorx, whose responsibilities included its day-to-
+day operations and providing its quarterly revenue forecasts to PCTEL.   
+Background 
+ 
+6. In July of 2012, PCTEL and PCTelWorx acquired the assets of TelWorx.  After the 
+acquisition, the CEO ran PCTelWorx.  Thereafter, PCTelWorx operated similarly to TelWorx.  
+                                                 
+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 
+7. Prior to the acquisition, Mize was a TelWorx employee.  After the acquisition, he 
+became an employee of PCTelWorx.   
+8. In the third and fourth quarter of 2012, PCTEL’s publicly filed, consolidated 
+financial statements included PCTelWorx’s financial results.   
+Revenue Forecasts 
+9. Prior to the acquisition, the CEO provided PCTEL and PCTelWorx with TelWorx’s 
+revenue forecasts for the second quarter of 2012.  Shortly before the acquisition, PCTEL learned 
+that TelWorx did not meet the second quarter 2012 revenue forecast.  This revenue shortfall was 
+due, in part, to a large order that a customer (“Customer A”) had postponed until the third quarter of 
+2012.   
+10. After the acquisition, PCTEL received PCTelWorx’s revenue forecasts from the 
+CEO on a quarterly basis.  PCTelWorx employees, including Mize, knew that it was important to 
+PCTEL’s business that PCTelWorx meet or exceed the quarterly revenue forecasts it provided to 
+PCTEL.   
+PCTelWorx Creates A False Order In The Third Quarter To Conceal Revenue Shortfall 
+11. Towards the end of the third quarter of 2012, PCTelWorx still had not received the 
+large order from Customer A that the CEO forecasted for the third quarter, and the CEO realized 
+that PCTelWorx would not meet its quarterly revenue forecast.   
+12. The CEO decided to improperly use an intermediate purchaser for Customer A’s 
+anticipated order to conceal the revenue forecast shortfall.  The CEO proposed that the intermediate 
+purchaser eventually would resell the products to Customer A at a profit.  The CEO planned to offer 
+the intermediate purchaser extended payment terms so that it could collect the full purchase price 
+from Customer A before having to pay PCTelWorx’s invoice.  The CEO identified a vendor that 
+provided services to – but that had not previously purchased a large order from – PCTelWorx (the 
+“Vendor”) as a potential intermediate purchaser.   
+13. Mize knew that the purpose of this false transaction was to artificially meet 
+PCTelWorx’s forecasted third quarter revenue.  At the CEO’s direction, Mize spoke to the Vendor 
+about the CEO’s proposal and obtained a purchase order with the same terms as the order that 
+PCTelWorx expected eventually to receive from Customer A.   
+14. Using the purchase order obtained by Mize, the CEO instructed a PCTelWorx 
+employee (“the Employee”) to record the Vendor’s order in PCTelWorx’s books and records and to 
+indicate that the order had been shipped to the Vendor and that the Vendor had been invoiced.  
+These actions resulted in improper, premature revenue recognition in PCTelWorx’s books and 
+records during the third quarter.   
+ 
+ 4 
+15. However, PCTelWorx never shipped the products listed on the false order to the 
+Vendor, nor did it send the invoice for the false order to the Vendor.  PCTelWorx’s books and 
+records indicated that the Vendor’s payment for the products was due and unpaid. 
+PCTelWorx Conceals Premature Revenue Recognition By Removing  
+A Legitimate Customer Order From Its Books And Records In the Fourth Quarter 
+16. Midway through the fourth quarter, Customer A still had not placed the order with 
+PCTelWorx expected by the CEO.  In addition, the payment for the false order by the Vendor was 
+overdue.  The CEO became concerned that PCTEL would attempt to collect on the overdue invoice 
+to the Vendor, detect the false order in its books and records and determine that PCTelWorx had 
+recognized revenue prematurely in the third quarter.    
+17. The CEO decided to conceal from PCTEL the false third quarter order from Vendor 
+B by reversing it from PCTelWorx’s books and records and recording a new false transaction that 
+matched an actual purchase order from another PCTelWorx customer (“Customer B”).  According 
+to the CEO’s plan, Customer B’s order would be cancelled on PCTelWorx’s books, but Customer B 
+would pay for the order placed by Vendor B.     
+18. At the CEO’s instruction, Mize contacted the Vendor and obtained a revised, false 
+purchase order that was identical to the order that PCTelWorx had received from Customer B.  
+Mize knew that the purpose of this transaction was to conceal from PCTEL the false third quarter 
+transaction with the Vendor by removing the false transaction from the third quarter from 
+PCTelWorx’s books and records and replacing it with a false transaction that would be paid for by 
+Customer B in the fourth quarter.   
+19. The CEO and Mize, at the CEO’s direction, then instructed the Employee to cancel 
+Customer B’s order and to reverse Vendor A’s false order from the third quarter in PCTelWorx’s 
+books and records.  The CEO and Mize, at the CEO’s direction, also instructed the Employee to 
+enter the Vendor’s revised, false purchase order into PCTelWorx’s books and records.  Ultimately, 
+the items supposedly ordered by the Vendor pursuant to the revised, false purchase order were 
+shipped to – and paid for – by Customer B.   
+20. PCTEL discovered the false entries in PCTelWorx’s books and records.  PCTEL 
+issued a Form 8-K/A on March 13, 2013, disclosing these irregularities but did not restate any 
+financial information it previously reported.   
+Violations 
+21. As a result of the conduct described above, Mize violated Section 13(b)(5) of the 
+Securities Act which prohibits the knowing falsification of any book, record, or account or 
+circumvention of internal controls. 
+22. As a result of the conduct described above, Mize caused PCTEL’s violation of 
+Section 13(b)(2)(A) of the Exchange Act, which requires Section 12 registrants to make and keep 
+ 
+ 5 
+books, records, and accounts that accurately and fairly reflect the transactions and dispositions of 
+their assets.   
+23. As a result of the conduct described above, Mize violated Rule 13b2-1 of the 
+Exchange Act, which prohibits the direct or indirect falsification of any book, record or account 
+subject to Section 13(b)(2)(A) of the Exchange Act. 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+A. Pursuant to Section 21C of the Exchange Act, Mize cease and desist from 
+committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(5) 
+of the Exchange Act and Rule 13b2-1 promulgated thereunder.   
+B. Mize shall pay civil penalties of $25,000 to the Securities and Exchange 
+Commission for transfer to the general fund of the United States Treasury in accordance with 
+Exchange Act Section 21F(g)(3).  Payment shall be made in $5,000 installments within 10, 90, 180, 
+270, and 360 days of the entry of this order.  If any payment is not made by the date the payment is 
+required by this Order, the entire outstanding balance of civil penalties, plus any additional interest 
+accrued pursuant to 31 U.S.C. 3717, shall be due and payable immediately, without further 
+application.  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 SEC 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 
+Marc J. Mize as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to:  Paul Montoya, Assistant 
+ 
+ 6 
+Regional Director, Chicago Regional Office, Securities and Exchange Commission, 175 W. 
+Jackson Blvd., Suite 900, Chicago, Illinois  60604.   
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 

raw/aaer/2015/AAER-3651.txt

@@ -0,0 +1,145 @@
+ 
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9745 / April 9, 2015 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74698 / April 9, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3651 / April 9, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16484 
+ 
+ 
+ 
+In the Matter of 
+ 
+          MICHAEL M. COHEN 
+ 
+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 Michael 
+M. Cohen (“Cohen” 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 . . . [p]ermanently enjoined by any court of competent 
+jurisdiction, by reason of his or her misconduct in an action brought by the Commission, 
+from violating or aiding and abetting the violation of any provision of the Federal 
+securities laws or of the rules and regulations thereunder. 
+ 2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (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 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. Cohen, age 49, is a resident of West Orange, New Jersey.  Beginning in 
+September 2006, Cohen served as the President, Chief Executive Officer (“CEO”), and Chairman 
+of the Board of Directors of Proteonomix, Inc. (“Proteonomix” or the “company”).  In September 
+2010, Cohen also took over the positions of Chief Financial Officer (“CFO”) and Chief Operating 
+Officer.  Cohen has never been licensed as a certified public accountant.  In his capacity as 
+Proteonomix’s CEO and CFO, Cohen signed and certified the accuracy of the company’s reports 
+and financial statements filed with the Commission until, as described below, the company 
+terminated the registration of its common stock with the Commission. 
+ 
+2. Proteonomix is a Delaware corporation with its principal place of business in 
+Paramus, New Jersey.  Proteonomix is a biotechnology company engaged in, among other things, 
+the discovery and development of stem cell therapeutics and cosmeceutical products.  On August 4, 
+2009, Proteonomix filed a Form 10 with the Commission to register a class of common stock 
+pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 
+78l(g)].  Proteonomix filed its first Form 10-Q quarterly report with the Commission on September 
+11, 2009.  The company’s stock traded initially on the OTC Pink Sheets market and, subsequently, 
+on the OTCBB under the symbol “PROT.”  On November 13, 2012, the company filed a Form 15, 
+terminating the registration of its common stock with the Commission. 
+ 
+3. Respondent has entered into a written agreement to plead guilty to criminal 
+conduct relating to the findings in the Order.  Specifically, in United States v. Michael Cohen, 
+Crim. No. 2:15-cr-00091-MCA-1 (D.N.J.), Respondent agreed to plead guilty to a one-count 
+information, which charges him with knowingly certifying false financial statements in violation of 
+18 U.S.C. § 1350. 
+ 
+4. On February 19, 2015, the Commission filed a complaint against Cohen in 
+SEC v. Michael M. Cohen, et al., Case No. 2:15-cv-01292-MCA-JBC (D.N.J.).  On March 6, 2015,  
+the court entered a judgment permanently enjoining Cohen, by consent, from future violations of 
+Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. §§ 77e(a), 
+77e(c), and 77q(a)]; Sections 10(b) and 13(b)(5) of the Exchange Act [15 U.S.C. §§ 78j(b) and 
+78m(b)(5)]; Exchange Act Rules 10b-5, 13a-14, and 13b2-1 [17 C.F.R. §§ 240.10b-5, 240.13a-14, 
+and 240.13b2-1]; and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 
+ 3 
+13(b)(2)(B) of the Exchange Act [15 U.S.C. §§ 78m(a), 78m(b)(2)(A), and 78m(b)(2)(B)], and 
+Exchange Act Rules 12b-20, 13a-1, and 13a-13 [17 C.F.R. §§ 240.12b-20, 240.13a-1, and 
+240.13a-13].  The judgment also, by consent, permanently barred Cohen, pursuant to Section 20(e) 
+of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) of the Exchange Act [15 U.S.C. § 
+78u(d)(2)], 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 [15 U.S.C. § 78l] or that is required to file 
+reports pursuant to Section 15(d) of the Exchange Act [15 U.S.C. 78o(d)]; and permanently barred 
+Cohen, pursuant to Section 20(g) of the Securities Act [15 U.S.C. § 77t(g)] and Section 21(d)(6) of 
+the Exchange Act [15 U.S.C. § 78u(d)(6)], from participating in any offering of a penny stock, 
+including engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or 
+inducing or attempting to induce the purchase or sale of any penny stock.  In addition, by consent, 
+the judgment provided that the court will order disgorgement, prejudgment interest, and a civil 
+penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of 
+the Exchange Act [15 U.S.C. § 78u(d)(3)] upon motion of the Commission.     
+ 
+5. The Commission’s complaint alleged, among other things:  that 
+Proteonomix and Cohen fraudulently issued and transferred millions of Proteonomix shares to 
+entities that Cohen secretly controlled; that Cohen directed the issuance and transfer of 
+Proteonomix shares, and the subsequent sale of those shares into the open market, to generate 
+undisclosed proceeds for his own benefit; that Proteonomix and Cohen falsely recorded share 
+issuances and transfers on Proteonomix’s accounting books and records as repayments of loans 
+that did not exist or payments for consulting services that were not performed; that Proteonomix 
+and Cohen failed to disclose related party transactions in filings with the Commission, as required 
+by Generally Accepted Accounting Principles; that Cohen directed the transfer of shares of 
+Proteonomix stock without restrictive legends under circumstances where the transactions were not 
+registered with the Commission and no exemption from the registration provisions applied; and 
+that Cohen falsely certified the accuracy of reports and statements that Proteonomix filed with the 
+Commission. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that:  Cohen is suspended 
+from appearing or practicing before the Commission as an accountant. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2015/AAER-3653.txt

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+       
+               Litigation Releases 
+           
+       
+              Robert Asti
+           
+     
+ 
+
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+      
+             
+        Robert Asti
+       
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+             
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+                        
+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 23247 / April 27, 2015 
+         Accounting and Auditing Enforcement Release No. AAER-3653 / April 27, 2015 
+          Securities and Exchange Commission v. Robert Asti , Civil Action No. 03-CV-1417 (LDW)(EDNY) 
+
+         Former Symbol Technologies Executive Settles SEC Action Thus Concluding a Long-Running 14-Defendant Accounting Litigation 
+         
+
+ The Honorable Leonard D. Wexler, United States District Judge for the Eastern District of New York, has entered a final consent judgment against Robert Asti, a former executive of Symbol Technologies, Inc. ("Symbol") and the last remaining defendant in the SEC's multiple enforcement actions involving the widespread accounting fraud at Symbol. 
+
+ The Commission's complaint against Asti alleges that from 1999 through March 2001, Asti participated in fraudulent revenue recognition practices, including quarter-end "stuffing" of Symbol's distribution channel to help meet revenue and earnings targets imposed by Symbol's CEO.  The final judgment, to which Asti consented, permanently enjoins him from violating Sections 10(b) and 13b(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, and it permanently bars him from serving as an officer or director of a public company.  The judgment also requires Asti to pay disgorgement and prejudgment interest of $90,952, and it forgoes imposition of a civil monetary penalty based on Asti's early and substantial cooperation with the Commission staff and the criminal authorities, as well as his guilty plea and sentence to three years' probation in a parallel criminal action brought by the United States Attorney's Office for the Eastern District of New York ("USAO"). 
+
+ The Commission has now obtained final judgments against all thirteen former Symbol executives named as defendants in three separate actions filed in connection with the Symbol accounting fraud, including Symbol's chief executive officer, chief financial officer, two chief accounting officers, the company's general counsel and its head of sales.  Symbol also entered into a final consent judgment, pursuant to which the company paid a $37 million civil penalty that was distributed to the victims of the fraud.  SEC v. Symbol Technologies, Inc., et al., 04 CV 2276 (SJF)(EDNY).  The fourteen final judgments obtained by the Commission in the Symbol litigation imposed, in addition to non-monetary sanctions, a total of approximately $131 million in disgorgement, prejudgment interest and civil penalties.  The Commission is now pursuing collection of the final judgment imposed against Symbol's former CEO, Tomo Razmilovic, who remains a fugitive living in Sweden and under indictment by the USAO.  The judgment against Razmilovic, in addition to imposing non-monetary sanctions, requires him to pay disgorgement, prejudgment interest and civil penalties totaling approximately $90 million.  The judgment was affirmed on appeal in nearly all respects by the U.S. Court of Appeals for the Second Circuit, and the Supreme Court denied Razmilovic's petition for a writ of certiorari. 
+
+ The Commission acknowledges the assistance and cooperation of the USAO and the U.S. Postal Inspection Service in this matter. 
+
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raw/aaer/2015/AAER-3656.txt

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9772 / May 15, 2015 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 74976 / May 15, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3656 / May 15, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-15945 
+ 
+ 
+ 
+In the Matter of 
+ 
+THOMAS A. NEELY, JR. 
+ 
+Respondent. 
+ORDER MAKING FINDINGS AND 
+IMPOSING REMEDIAL SANCTIONS, 
+CEASE-AND-DESIST ORDER, AND 
+PENALTIES PURSUANT TO  
+SECTION 8A OF THE SECURITIES ACT OF 
+1933 AND SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934
+ 
+I. 
+ 
+On June 25, 2014, the Securities and Exchange Commission (“Commission”) instituted 
+proceedings pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and Section 
+21C of the Securities Exchange Act of 1934 (“Exchange Act”) against Thomas A. Neely, Jr. 
+(“Neely” or “Respondent”).   
+II. 
+ 
+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 Making Findings and Imposing Remedial Sanctions, Cease-and-Desist Order and 
+Penalties Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities 
+Exchange Act of 1934, as set forth below.
+2 
+ 
+III. 
+ 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+ 
+SUMMARY 
+ 
+This proceeding arises from the misconduct of Thomas A. Neely, Jr., (“Neely”) and others 
+while employed by Regions Bank and its parent holding corporation, Regions Financial Corporation 
+(“Regions”). During the quarter ended March 31, 2009, in accordance with Regions’ policies and 
+procedures, personnel within Regions Bank’s Special Asset Department (“SAD”) initiated the 
+procedures to place approximately $168 million of certain commercial loans (the “Loans”) into non-
+accrual status. In March 2009, Neely and others, without adequate justification and supporting 
+documentation, took steps to keep the Loans in accrual status. Such steps by Neely and others to 
+evade existing policies and procedures prevented Regions from appropriately measuring impairment 
+in accordance with Generally Accepted Accounting Principles (“GAAP”), rendered Regions’ 
+financial statements for the quarter ended March 31, 2009 materially misstated and not prepared in 
+conformity with GAAP, and evidenced a failure by Regions to maintain a system of internal 
+accounting controls sufficient to provide reasonable assurances that the Loans were recorded as 
+necessary to permit the preparation of financial statements in conformity with GAAP. 
+ 
+RESPONDENT 
+ 
+1. Thomas A. Neely, Jr., 54, was formerly an Executive Vice President for Regions’ 
+Risk Management Credit Division where he reported to the Chief Credit Officer.  Beginning in 
+July 2009, Neely also oversaw Regions’ Risk Analytics Group.  Together with the titular head of 
+SAD, Neely functionally controlled Regions’ SAD.  Neely’s employment with Regions concluded 
+on November 30, 2010. 
+ 
+RELATED ENTITY 
+ 
+2. Regions Financial Corporation is a Delaware financial holding corporation 
+headquartered in Birmingham, Alabama.  Regions conducts its banking operations through its 
+subsidiary Regions Bank, which is a member of the Federal Reserve System.  Regions’ common 
+stock is registered with the Commission pursuant to Section 12(b) of the Securities Act and trades 
+on the New York Stock Exchange under the symbol “RF.”  As of December 31, 2013, Regions had 
+approximately $117 billion in assets. 
+  
+                                                           
+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 
+ 
+ 
+FACTS 
+ 
+Regions’ Tracking of Non-Accrual Loans 
+ 
+3. Throughout the relevant time-period, including the quarter ended March 31, 2009, 
+Regions tracked and recorded its non-performing loans (“NPLs”) as part of both internal 
+performance metrics and its regular financial reporting.  NPLs at Regions primarily consisted of 
+loans in a non-accrual status.2 
+ 
+4. Regions’ policies and procedures required that loans be placed on non-accrual status 
+when it was determined that payment of all contractual principal and interest was in doubt, or the 
+loan was past due 90 days or more as to principal and interest, unless the loan was well-secured and 
+in the process of collection. When a loan was placed in non-accrual status, uncollected interest 
+accrued during the current year would be reversed and reduce Regions’ interest income. In addition, 
+placing a loan on non-accrual status served as a trigger for Regions to consider whether the specific 
+loan was impaired and thus how to determine an allowance for loan and lease losses in accordance 
+with GAAP. 
+ 
+5. Regions’ policies and procedures provided that the decision to recommend a loan for 
+non-accrual status was to be made by Relationship Managers (“RMs”) within SAD. RMs were 
+responsible for reviewing loan file details, monitoring payments, and communicating with 
+borrowers. Under Regions’ policies and procedures, RMs typically had the greatest degree of 
+knowledge within SAD of the relevant loan status and a borrower’s ability to make payments of 
+principal and interest. 
+ 
+6. Regions’ policies and procedures required that when RMs initiated an action to 
+place a loan on non-accrual status, they would submit a supporting form to their regional manager 
+that showed their conclusion and justified how they determined a loan should be placed in non- 
+accrual status. Regions’ policies and procedures then provided for the regional manager to conduct a 
+detailed review of the loan with the responsible RM, after which, if appropriate, the approval was 
+granted by the regional manager. 
+ 
+7. Once approval for non-accrual classification was granted by the regional manager, 
+Regions’ policies and procedures specified that any subsequent exception to classifying the loan in 
+non-accrual status was required to be fully documented and justified on an approved 
+“Recommendation to Continue Accrual Status” form. 
+ 
+8. Once the RM and the regional manager recommended that a loan should be moved 
+to non-accrual status, it was then listed by SAD managers in the Asset Quality Forecast report 
+(“AQF”). The AQF identified which loans had been recommended by the RM and the regional 
+manager for being placed on non-accrual status, and it forecasted charge-offs and non-performing 
+assets for the quarter. 
+ 
+                                                           
+2  GAAP does not provide guidance regarding placing loans on a non-accrual status. 
+4 
+ 
+9. The AQF was a principal forecasting tool of SAD that was prepared under the 
+direction of the Respondent and others. The AQF was discussed weekly at meetings regularly 
+conducted and attended by the Respondent, the head of SAD, and the Chief Credit Officer.  
+Respondent and others also regularly discussed the NPL forecast in presentations to Regions’ 
+Executive Council, which consisted of, among others, Regions’ Chief Executive Officer (“CEO”) 
+and Chief Financial Officer (“CFO”), in discussing current trends in NPLs. 
+ 
+10. SAD, under the control of Respondent and others, had authority over the preparation, 
+content, and dissemination of the AQF. Once a loan recommended for non-accrual status by the 
+RMs and regional managers was included on the AQF, the responsible RMs would complete 
+information required for a processing list and submit it to Regions’ Risk Analytics Group. The 
+processing list was designed as an electronic record documenting the specific actions for individual 
+loans to be formally taken by Regions and reflected in Regions’ accounting systems. Following 
+Neely’s approval, his subordinates would submit the processing list for the identified loans to be 
+recorded as non-accrual in Regions’ accounting systems. 
+ 
+Respondent’s Misclassification of Loans and Evasion 
+of Regions’ Policies and Procedures during the Quarter Ended March 31, 2009 
+ 
+11. As of the beginning of March 2009, Regions’ AQF identified NPLs of 
+approximately $1.6 billion.  Neely and others had discussed between themselves the then current 
+AQF and NPLs.  The AQF and related NPLs tracking for the quarter were made available to 
+Regions’ CEO and CFO. 
+ 
+12. On or about March 13, 2009, Neely and others in senior management were 
+informed by a subordinate that an error had resulted in an underreporting of NPLs by an amount 
+approximating $200 million, or 13% of the quarter end NPL target that had been communicated to 
+Regions’ CEO and CFO. 
+ 
+13. On or about March 17, 2009, the Chief Credit Officer was actively tracking and 
+calculating how NPLs could be decreased by approximately $200 million so as to more closely 
+approach the previously identified NPL target. 
+ 
+14. On or about March 17, 2009, Neely suggested to the Chief Credit Officer and the 
+head of SAD that a $6.8 million commercial loan be recorded as an accruing loan despite being 
+recommended for non-accrual status by the assigned RM and regional manager. This loan was 
+prevented by Neely, without objection from the head of SAD and the Chief Credit Officer, from 
+being placed on the AQF or a processing list and was classified by Regions as being in accrual status 
+as of March 31, 2009. Contrary to Regions’ policies and procedures, Neely and others prevented the 
+subject loan from being classified as non-accrual without any documentation or justification. 
+ 
+15. On or about March 18, 2009, Neely and others instructed subordinates to take 
+specific actions to remove from the AQF approximately $150 million of commercial loans that had 
+been recommended by the assigned RMs and regional managers, in accordance with Regions’ 
+policies and procedures, as being classified as non-accrual.  Neely and others issued such 
+instructions to their subordinates without any documentation or justification supporting the 
+5 
+ 
+removal of these loans from the AQF.  The head of SAD thereafter was made aware of and did not 
+object to this action by Neely and others.  The ultimate effect of these instructions was the 
+improper classification of the Loans, representing approximately $168 million, as being in accrual 
+status.  Had Regions classified the relevant loans on non-accrual status in accordance with its 
+policies, it would have prompted a determination that the identified loans were impaired in 
+accordance with GAAP. That determination would have resulted in Regions recording a higher 
+allowance for loan and lease losses. 
+ 
+16. On or about March 23, 2009, the Chief Credit Officer and Neely attended a meeting 
+at which they provided inaccurate information regarding NPLs for the quarter to certain senior 
+executives, including Regions’ CFO. 
+ 
+17. In taking the undocumented and unjustified steps above, Neely and others 
+collectively circumvented Regions’ policies and procedures regarding the classification of loans 
+into non-accrual status.  The actions by Neely and others directly resulted in the improper 
+classification of the Loans pursuant to Regions’ policies, and further prevented Regions from 
+appropriately determining those Loans were impaired in accordance with GAAP at the quarter 
+ended March 31, 2009. 
+ 
+18. In accordance with Regions’ policies and procedures, the Loans were required to 
+have been classified in non-accrual status at the quarter ended March 31, 2009. Had Regions 
+classified the Loans in non-accrual status in compliance with its policies, it would have prompted a 
+determination that the Loans were impaired in accordance with Statement of Financial Accounting 
+Standard No. 114, Accounting by Creditors for Impairment of a Loan (“SFAS No. 114”).3 
+ 
+Impact of Respondent’s Misconduct on Regions’ Financial Statements 
+ 
+19. Respondent circumvented Regions’ internal accounting controls through his 
+recording and reporting of the Loans in a manner that was not in accordance with Regions’ policies 
+and procedures. As a result, Regions failed to maintain a system of internal accounting controls 
+sufficient to provide reasonable assurances that the Loans were recorded as necessary to permit 
+preparation of financial statements in conformity with GAAP. 
+ 
+20. Respondent’s misconduct resulted in Regions’ failing to make and keep books, 
+records and accounts in reasonable detail, which accurately and fairly reflected the Loans.  Further, 
+Regions’ accounts were made inaccurate through the misconduct of the Respondent. 
+ 
+21. The books, records and accounts reflecting the Loans were incorporated into 
+Regions’ consolidated financial statements for the quarter ended March 31, 2009.  As a result of 
+failing to properly account for the Loans in accordance with GAAP, for the quarter ended March 
+31, 2009, Regions’ income before income taxes was overstated by $16 million, its net income 
+applicable to common shareholders was overstated by approximately $11 million, and its earnings 
+                                                           
+3  See SFAS No. 114, which states that “a loan is impaired when, based on current information and 
+events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms 
+of the loan agreement” and it requires lenders to measure impairment based on the present value of expected 
+cash flows or an observable fair value of the collateral (i.e., an appraisal) if the loan is collateral dependent. 
+6 
+ 
+per common share was overstated by approximately $.02 per share. 
+ 
+22. The above misstatements were included in Regions’ April 21, 2009 press release 
+included in its Form 8-K dated April 21, 2009 and filed with the Commission on April 21, 2009, in 
+its exhibits to its Form 8-K dated May 20, 2009 and filed with the Commission on May 20, 2009, 
+in its March 31, 2009 Form 10-Q filed May 11, 2009, and two subsequent amendments to its 
+March 31, 2009 Form 10-Q filed on May 13, 2009 and June 9, 2009, in a Form S-4 filed on May 
+20, 2009 and in three subsequent amendments to this registration statement on May 22, 2009, June 
+4, 2009, and June 9, 2009, and in a Form S-8 filed on August 28, 2009 (collectively, the “Public 
+Filings”). 
+ 
+ 23. The Public Filings did not include other information as was necessary to ensure that 
+the statements made in the Public Filings were not, under the circumstances, materially misleading. 
+ 
+ 24. The Respondent, in a sub-certification letter signed in April 2009 in connection with 
+the preparation of the reports on Form 10-Q above, misled Regions’ Controller and Chief Accounting 
+Officer and its Director of Internal Audit, both accountants, regarding Regions’ books, records, 
+accounts, and internal controls. 
+ 
+VIOLATIONS 
+ 
+25. Section 17(a) of the Securities Act prohibits any person, in the offer or sale of any 
+security, from using the means and instrumentalities of interstate commerce and of the mails, directly 
+or indirectly, to: (a) employ any device, scheme, or artifice to defraud; (b) obtain money or property 
+by means of any untrue statement of a material fact or any omission to state a material fact 
+necessary in order to make the statements made, in light of the circumstances under which they 
+were made, not misleading; or (c) engage in any transaction, practice, or course of business which 
+operates or would operate as a fraud or deceit upon the purchaser. 
+ 
+26. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit fraudulent 
+conduct in connection with the purchase or sale of securities. 
+ 
+27. Section 20(b) of the Exchange Act makes it unlawful for any person, directly or 
+indirectly, to do any act or thing which it would be unlawful for such person to do under the 
+Exchange Act or any rule or regulation thereunder through or by means of any other person. 
+ 
+28. Section 13(a) of the Exchange Act and Rules 13a-11, 13a-13 and 12b-20 thereunder, 
+requires every issuer of a security registered pursuant to Section 12 of the Exchange Act to file 
+with the Commission information, documents, and current and quarterly reports as the 
+Commission may require, and mandate that current and periodic reports contain such further 
+material information as may be necessary to make the required statements not misleading. 
+ 
+29.       Section 13(b)(2)(A) of the Exchange A ct requires reporting companies to make and 
+keep b ooks, recor ds and accounts which, in reasonable detail, accurately and fairly reflect their 
+transactions and dispositions of their assets. 
+ 
+7 
+ 
+30. Section 13(b)(2)(B) of the Exchange Act requires all reporting companies to devise 
+and maintain a system of internal accounting controls sufficient to provide reasonable assurances 
+that transactions are recorded as necessary to permit preparation of financial statements in 
+accordance with GAAP. 
+ 
+31. 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, and from 
+knowingly falsifying any book, record, or account, required under Section 13(b)(2) of the Exchange 
+Act. 
+ 
+32. 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. 
+ 
+33. Rule 13b2-2 of the Exchange Act prohibits, among other things, officers of issuers 
+from directly or indirectly making or causing to be made a materially false or misleading 
+statement, or omitting to state any material fact necessary in order to make statements made, in 
+light of the circumstances under which such statements were made, not misleading to an 
+accountant in connection with any quarterly review or the preparation or filing of any document or 
+report required to be filed with the Commission. 
+ 
+34. As a result of the Respondent’s misclassification of Loans as in accrual status as of 
+the quarter ended March 31, 2009, the Respondent violated Section 17(a) of the Securities Act, 
+which prohibits fraudulent conduct in the offer or sale of securities, and Exchange Act Section 
+10(b) and Rule 10b-5 thereunder, which prohibits fraudulent conduct in connection with the 
+purchase or sale of securities. 
+ 
+35. As a result of the conduct described above, the Respondent acted through Regions to 
+make material misrepresentations in the Public Filings, and as a result, violated Sections 20(b) and 
+10(b) of the Exchange Act, and Rule 10b-5 thereunder. 
+ 
+36. As a result of the conduct described above, the Respondent caused Regions to 
+violate Section 13(a) of the Exchange Act and Rules 13a-11, 13a-13 and 12b-20 thereunder 
+because its financial statements for the quarter ended March 31, 2009, included in current and 
+quarterly reports, failed to record the Loans in conformity with GAAP. 
+ 
+37. As a result of the conduct described above, the Respondent caused Regions to 
+violate Section 13(b)(2)(A) of the Exchange Act because it did not keep books, records or accounts 
+that accurately reflected the Loans. 
+ 
+38. As a result of the conduct described above, the Respondent caused Regions to 
+violate Section 13(b)(2)(B) of the Exchange Act because it failed to maintain a system of internal 
+accounting controls sufficient to provide reasonable assurances that the Loans were recorded as 
+necessary to permit preparation of its financial statements in accordance with GAAP. 
+ 
+8 
+ 
+ 39. As a result of the conduct described above, the Respondent violated Section 
+13(b)(5) of the Exchange Act when he knowingly circumvented Regions’ system of internal 
+accounting controls and knowingly falsified Regions’ books, records, and accounts related to the 
+Loans. 
+ 
+ 40. As a result of the conduct described above, the Respondent violated Rule 13b2-1 of 
+the Exchange Act by directly or indirectly falsifying or causing to be falsified Regions’ books, 
+records and accounts relating to the Loans, which were subject to Section 13(b)(2)(A) of the 
+Exchange Act. 
+ 
+41. As a result of the conduct described above, the Respondent violated Rule 13b2-2 of 
+the Exchange Act when he directly or indirectly made or caused to be made materially false or 
+misleading statements, or omitted to state material facts necessary in order to make statements 
+made, in light of the circumstances under which such statements were made, not misleading to 
+accountants in connection with the preparation or filing of documents and reports which were 
+required to be filed with the Commission. 
+ 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in the Respondent’s Offer. 
+ 
+Accordingly, it is hereby ORDERED that: 
+ 
+A. Respondent Neely 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, including 
+committing or causing any such violations directly or indirectly through or by means of any other 
+person, as prohibited by Section 20(b) of the Exchange Act, and cease and desist from committing 
+or causing any violations and any future violations of Section 17(a) of the Securities Act and 
+Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a- 
+11, 13a-13, 13b2-1, and 13b2-2 thereunder. 
+ 
+B. Respondent Neely be, and hereby is prohibited for a period of five (5) years from 
+entry of this Order, 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 Neely shall pay a civil money penalty in the amount of $100,000 to the 
+Securities and Exchange Commission. Payment shall be made in the following installments: 
+$10,000 is due on the first of the month following entry of this Order, followed by $5,000 within the 
+next 60 day, $5,000 within an additional 60 days, $5,000 within an additional 60 days, and the 
+remaining $75,000 within one year from the issuance of this Order.   If any payment is not made by 
+the date the payment is required by this Order, the entire outstanding balance, plus any additional 
+interest accrued pursuant to 31 U.S.C. § 3717, shall be due and payable immediately, without 
+further application. Payment must be made in one of the following ways: 
+ 
+9 
+ 
+(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 SEC 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 
+Thomas A. Neely, Jr. as a Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to M. Graham 
+Loomis, Division of Enforcement, Securities and Exchange Commission, 950 East Paces Ferry 
+Road, N.E., Atlanta, GA 30326-1382. 
+ 
+ 
+By the Commission. 
+ 
+ 
+ 
+      Brent J. Fields 
+      Secretary 
+ 

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+ 
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75014 / May 20, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3657 / May 20, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16550
+       
+      :  
+ : CORRECTED 
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  RENRUI TANG,   : 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 Renrui 
+Tang (“Respondent” or “Tang”) 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. Tang, age 41, is a Chinese national residing in the People’s Republic of 
+China (“China”).  Tang has served as Chief Financial Officer (“CFO”) for China Valves 
+Technology, Inc. (“CVVT”) since June 2013.  Tang served as CVVT’s Financial Controller from 
+December 2010 through June 2013; interim CFO between February 2009 and July 2009 and 
+between May 2010 and December 2010; CFO from December 2007 through March 2009; and 
+Director from December 2007 through November 2008.  Tang held himself out and acted as CFO 
+and Treasurer of CVVT from at least August 2010 to at least November 2010.  Tang also held a 
+variety of positions related to finance and accounting with CVVT’s subsidiaries between 1994 and 
+2008.  Tang holds himself out as an “International Certified Public Accountant.” 
+ 
+ 2. CVVT was, at all relevant times, a Nevada corporation with its principal 
+place of business in China.  CVVT purports to develop, manufacture, supply, and provide services 
+related to water flow management products.  At all relevant times, CVVT’s common stock was 
+registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 
+(“Exchange Act”).  CVVT’s securities traded on the NASDAQ Global Market until September 21, 
+2012. 
+ 
+ 3. On September 29, 2014, the Commission filed a complaint against Tang in 
+SEC v. China Valves Technology, Inc., Civil Action No. 1:14-cv-01630 (D.D.C.).  On May 13, 
+2015, the court entered an order permanently enjoining Tang, by consent, from future violations of 
+Section 10(b) of the Exchange Act and Rules 10b-5(b) and 13a-14 thereunder, and aiding and 
+abetting violations of Sections 10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Rules 10b-
+5(b), 12b-20, and 13a-13 thereunder.  Tang was also ordered to pay a $40,000 civil money penalty. 
+ 
+   4. The Commission’s complaint alleged, among other things, that Tang 
+signed and certified CVVT’s Form 10-Q filing for the third quarter of 2010, which contained 
+material misstatements and omissions related to CVVT’s acquisition of Watts Valve Changsha 
+Co., Ltd. (“Changsha Valve”).  According to the complaint, the filing misrepresented the nature 
+of the Changsha Valve transaction and related payments, and failed to disclose the role of related 
+ 3 
+parties and the existence of an investigation into potential violations of the Foreign Corrupt 
+Practices Act.  The complaint alleged that Tang knew, or was reckless in not knowing, that the 
+Form 10-Q was inaccurate because he had received information alerting him to the true nature of 
+the transaction.  Further, as CFO and Treasurer of CVVT, he had access to CVVT’s finances and 
+was responsible for the accuracy of CVVT’s books and records. 
+ 
+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. Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Tang is suspended 
+from appearing or practicing before the Commission as an accountant. 
+ 
+ B. After three years from the date of this order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with the Commission.  Such 
+an application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he practices before the 
+Commission in this capacity; and/or 
+      
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in the respondent’s or the firm’s quality control system that would indicate 
+that the respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as 
+Respondent appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but not limited to, all 
+ 4 
+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 as an accountant provided that he is in 
+possession of an accounting license in good standing and he has resolved any disciplinary 
+issues with any applicable licensing authority.  
+However, if the resolution of any disciplinary 
+action by a licensing authority 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. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

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+1 
+ 
+ 
+ 
+UNITED STATES OF AMERICA  
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933  
+Release No. 9799 / June 1, 2015 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75088 / June 1, 2015 
+ 
+ACCOUNTING AND AUDITING 
+ENFORCEMENT  
+Release No. 3659 / June 1, 2015 
+ 
+ADMINISTRATIVE 
+PROCEEDING File No. 3-15815 
+ 
+ORDER MAKING FINDINGS AND 
+In the Matter of     IMPOSING REMEDIAL SANCTIONS AND A 
+       CEASE-AND-DESIST ORDER PURSUANT 
+ DICKSON LEE, CPA    TO SECTION 8A OF THE SECURITIES ACT 
+       OF 1933, SECTIONS 4C AND 21C OF THE 
+Respondent.      SECURITIES EXCHANGE ACT OF 1934, 
+       AND RULE 102(e) OF THE COMMISSION’S 
+       RULES OF PRACTICE   
+ 
+ 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate 
+to enter this Order Making Findings and Imposing Remedial Sanctions and a Cease-and-
+Desist Order Pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), 
+Sections 4C1 and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 
+102(e)(1)(iii) of the Commission’s Rules of Practice2 against Dickson Lee (“Lee” or 
+                                                            
+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)(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 
+2 
+ 
+ 
+ 
+“Respondent”). 
+  II. 
+Following the institution of these proceedings on March 27, 2014, 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 admits the Commission’s 
+jurisdiction over him and the subject matter of these proceedings, and consents to the entry of this 
+Order Making Findings and Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant 
+to Section 8A of the Securities Act of 1933, Sections 4C and 21C of the Securities Exchange Act 
+of 1934 and Rule 102(e) of the Commission’s Rules of Practice (“Order”), as set forth below. 
+ 
+III. 
+ 
+On the basis of this Order and Respondent’s Offer, the Commission finds3: 
+ 
+SUMMARY 
+ 
+This action arises out of a fraudulent scheme by L&L Energy and Dickson Lee to create 
+the appearance that L&L was run by a professional management team and conceal Lee’s control 
+of the company. L&L Energy is a Tukwila, Washington-headquartered coal company with all of 
+its operations in China and Taiwan. At all relevant times, it was led by Dickson Lee, its former 
+Chairman of the Board and Chief Executive Officer. From approximately August 2008 to June 
+2009, L&L and Lee repeatedly and fraudulently misrepresented to the public that it had certain 
+persons serving in critical executive management roles at the company when, in reality, those 
+persons served in no such roles. 
+ 
+First, in its Form 10-K for the fiscal year 2008, L&L falsely represented that Lee’s 
+brother served as the company’s CEO when, in reality, Lee’s brother held the title of CEO in 
+name only while Lee ran the day to day operations of the company. In that same filing, L&L 
+represented that a former company employee (“the purported Acting CFO”) had served as the 
+company’s Acting Chief Financial Officer when, in reality, the purported Acting CFO had 
+emailed Lee prior to the 2008 Form 10-K and rejected the Acting CFO position. In the 
+company’s next three quarterly report filings for 2009, L&L and Lee continued to misrepresent 
+that the purported Acting CFO was in fact the company’s Acting CFO. For example, L&L’s 
+public filings contained certifications required under the Sarbanes-Oxley Act of 2002 
+(“Sarbanes-Oxley) that ostensibly bore the purported Acting CFO’s electronic signature when, 
+in reality, the purported Acting CFO had not signed any L&L public filings during this period; 
+did not provide authorization for her signature to be placed on any L&L public filings; and did 
+not perform any of the reviews necessary to have a basis for any of the attestations contained on 
+                                                                                                                                                                                                
+and abetted the violation of any provision of the Federal securities laws or the rules and 
+regulations thereunder. 
+ 
+3  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+3 
+ 
+ 
+ 
+the Sarbanes-Oxley certifications. 
+ 
+ 
+In approximately May 2009, the purported Acting CFO learned that L&L had been falsely 
+representing her as the company’s Acting CFO and confronted Lee and the chair of L&L’s Audit 
+Committee. In response, Lee separately admitted to the purported Acting CFO and the Audit 
+Committee Chair that the purported Acting CFO had not performed the duties of L&L’s Acting 
+CFO, and then directed the Audit Committee Chair to conceal this fact from both the company’s 
+Board and the public. Lee maintained his fraudulent scheme by continuing to falsely represent to 
+L&L’s Board of Directors that the purported Acting CFO had served as the Acting CFO. Lastly, 
+during the fall of 2009, in connection with an application for L&L to gain listing on NASDAQ, 
+Lee misled NASDAQ by informing it that the company had made all of the required Sarbanes-
+Oxley certifications – including during the period of the purported Acting CFO’s ostensible 
+service. As a result, L&L became listed on the NASDAQ. 
+ 
+RESPONDENT 
+ 
+Dickson Lee, age 66, is the company’s founder and has been L&L’s Chairman of the 
+Board and Chief Executive Officer since August 2008. Lee previously served as CEO from 1995 
+through July 2007 and Chairman at various periods. He previously held CPA licenses in 
+Washington and New York (both licenses have lapsed, with the Washington license lapsing in 
+June 2012) and previously audited public companies. Lee obtained his Series 7 license in 1998 
+and his Series 24 and 27 licenses in 2000. Lee was an associated person with a number of broker 
+dealers until about 2005. 
+ 
+OTHER RELEVANT ENTITIES 
+ 
+L&L is a Tukwila, Washington headquartered coal company with all of its operations in 
+China and Taiwan. The company became public through a reverse merger in August 2001. 
+L&L’s common stock is registered with the Commission pursuant to Exchange Act Section 
+12(b). 
+ 
+FACTS 
+ 
+A.  The Purported Acting CFO Rejects Acting CFO Position 
+ 
+1. In August 2007, L&L publicly announced that Lee had resigned his position as 
+L&L’s Chairman of the Board and CEO.  Lee resigned those positions shortly after he was 
+disciplined by the National Association of Securities Dealers, Inc. (“NASD”) and received a 
+one-year suspension of his license for conducting private placement offerings of L&L securities 
+in which the private placement memoranda contained false statements. Lee believed that, if he 
+was an L&L officer, his suspension would impede L&L from becoming listed on a stock 
+exchange. 
+ 
+2. At that time, Lee convinced L&L’s Board to install his brother as the CEO of 
+L&L (hereinafter “Lee’s brother”). During the one-year period (August 2007 – August 2008) 
+in which Lee’s brother held the title of L&L’s CEO, however, Lee continued to run the 
+4 
+ 
+ 
+ 
+company as he had when he held the title of CEO. 
+ 
+ 
+3. In January 2008, L&L’s stock became quoted on the Over-The-Counter 
+Bulletin Board (“OTCBB”). In order to gain listing on a larger trading venue, such as 
+NASDAQ, Lee sought to hire a Chief Financial Officer (“CFO”). 
+ 
+4. L&L hired a CFO in February 2008, but within two months that person resigned.  
+As L&L sought a replacement CFO, Lee proposed the name of a former employee and L&L 
+director (hereinafter, “the purported Acting CFO”) as a candidate for L&L’s Acting CFO 
+position during the search for a permanent replacement. 
+ 
+5.         In approximately June 2008, Lee discussed engaging a U.S.-based placement 
+agent (the “placement agent”) to assist L&L in raising money from investors. This placement 
+agent encouraged L&L to hire a CFO. In a June 18, 2008 email, Lee referred to the purported 
+Acting CFO as a member of the management team that had been requested by the placement 
+agent. In another June 2008 email, Lee wrote that the purported Acting CFO could become 
+L&L’s Acting CFO in order to meet the placement agent’s “requirement.”  
+ 
+6. On June 23, 2008, members of L&L’s board and Lee held a meeting. At that 
+meeting, Lee communicated that the purported Acting CFO would be appointed as the 
+company’s Acting CFO because the placement agent “suggested that L&L needs to have [an] 
+Acting CFO (a Non-Officer position) as one of the conditions to move L&L’s funding forward.” 
+ 
+7. On that same day, at Lee’s instruction, Lee’s assistant sent the purported 
+Acting CFO an email thanking her for becoming L&L’s Acting CFO. The purported Acting 
+CFO, however, had never accepted the Acting CFO position. 
+ 
+8. On July 14, 2008, the purported Acting CFO forwarded to Lee the June 23, 2008 
+email she received from his assistant regarding the Acting CFO position and informed Lee that 
+she was “unable to become L&L Acting CFO as I don’t have time to make any contribution to 
+L&L. I need to take care of my own job and my kids as well . . . I wish you could find a more 
+suitable CFO soon.” 
+ 
+B.  L&L Falsely Represents Lee’s Brother and the Purported Acting CFO as the 
+Company’s CEO and Acting CFO 
+ 
+9.         On August 12, 2008, L&L filed its Form 10-K with the Commission for its 
+fiscal year ended April 30, 2008 (the “2008 Form 10-K”). Lee reviewed the filing before it 
+was made public. 
+ 
+10. L&L, in its 2008 Form 10-K, falsely represented that Lee’s brother had performed 
+the functions of the company’s CEO when, in reality, Lee continued to perform those functions. 
+ 
+11. Moreover, in that same filing, L&L reported for the first time that the purported 
+Acting CFO had been named as the company’s Acting CFO, disclosing that “she is a CPA with 
+experience of both U.S. and China accounting practices. She was a senior auditing manager for 
+5 
+ 
+ 
+ 
+a New York CPA firm with PCAOB qualification, and conducted US GAAP audits for US 
+public listed companies.” These representations were false because the purported Acting CFO 
+had rejected the Acting CFO position. 
+ 
+12. L&L’s 2008 Form 10-K contained certifications required under Sarbanes-Oxley 
+for the company’s principal executive officer and principal financial officer, namely, its CEO and 
+CFO. These certifications contained the electronic signatures of both Lee’s brother and the 
+purported Acting CFO by which each of them attested to, among other things, the fact that the 
+2008 Form 10-K contained no untrue statements of material fact. 
+ 
+13.       Neither Lee’s brother nor the purported Acting CFO, however, provided any 
+such attestation and neither Lee’s brother nor the purported Acting CFO provided any 
+authorization to have their electronic signatures placed on their respective Sarbanes-Oxley 
+certifications. 
+ 
+14. L&L, in its 2008 Form 10-K, also falsely represented that it had – with the 
+participation of its CEO (Lee’s brother) and CFO (the purported Acting CFO) – evaluated the 
+effectiveness of the design and operation of its disclosure controls and procedures, and based 
+on such evaluation, the company, its CEO (Lee’s brother), and CFO (the purported Acting 
+CFO) concluded that the disclosure controls and procedures were effective. 
+ 
+C.  L&L and Lee Continue their Scheme to Falsely Represent the Purported Acting CFO 
+as the Acting CFO 
+ 
+15. On August 25, 2008, after his one-year NASD suspension was over, Lee officially 
+returned to the position of L&L’s CEO and Chairman of the Board. 
+ 
+16. On September 15, 2008, L&L filed with the Commission its Form 10-Q for the 
+period ended July 31, 2009 (the “First Quarter 2009 Form 10-Q”). Lee signed the filing. Like the 
+2008 Form 10-K, the First Quarter 2009 Form 10-Q contained a Sarbanes-Oxley certification that 
+was ostensibly electronically signed by the purported Acting CFO. Moreover, the First Quarter 
+2009 Form 10-Q also contained the representation that the CEO (Lee) and the purported Acting 
+CFO had evaluated the effectiveness of the design and operation of the company’s disclosure 
+controls and procedures and those controls and procedures were effective. 
+ 
+17. The purported Acting CFO, however, did not serve as the company’s Acting CFO 
+in any capacity; did not authorize her electronic signature to be placed on the Sarbanes-Oxley 
+certifications; did not perform any of the reviews or functions enumerated on the Sarbanes-Oxley 
+certifications; and did not evaluate the effectiveness of the company’s disclosure controls and 
+procedures. 
+ 
+18. The First Quarter 2009 Form 10-Q also contained a Sarbanes-Oxley certification 
+for Lee. In his Sarbanes-Oxley certification, Lee falsely certified that, to his knowledge, L&L’s 
+First Quarter 2009 Form 10-Q contained no untrue statements of material fact. 
+ 
+19. In approximately December 2008, L&L retained a U.S.-based investment 
+research firm to write a research report concerning L&L. In late December 2008, the research 
+6 
+ 
+ 
+ 
+firm emailed Lee a draft research report for his review. The research report contained a 
+prominent section on L&L’s management team, listed the purported Acting CFO as the 
+company’s CFO and stated that the purported Acting CFO “coordinates all accounting for L&L.” 
+Lee caused a revised version of the research report to be sent to the research firm with some 
+“minor changes,” but did not correct the false statements regarding the purported Acting CFO. 
+This report was published in approximately April 2009 and included the false statements 
+regarding the role of the purported Acting CFO. 
+ 
+20. On December 22, 2008, L&L filed with the Commission its Form 10-Q for the 
+period ended October 31, 2008, and on March 23, 2009, L&L filed with the Commission its 
+Form 10-Q for the period ended January 31, 2009. Lee signed both of these filings. These two 
+public filings again contained false, electronically signed, Sarbanes-Oxley certifications by the 
+purported Acting CFO. Moreover, these two filings contained the false statements concerning 
+the purported Acting CFO’s evaluation of the effectiveness of the company’s disclosure controls 
+and procedures. 
+ 
+21. These two public filings also contained Lee’s own Sarbanes-Oxley certification 
+in which he again falsely certified that, to his knowledge, the Form 10-Qs contained no untrue 
+statements of material fact. 
+ 
+22. As noted above, L&L placed electronic signatures on the public filings to reflect 
+that the purported Acting CFO had signed the requisite Sarbanes-Oxley certifications. The 
+Commission staff requested from L&L, but never received, the actual signature pages bearing the 
+purported Acting CFO’s signature for each of the requisite Sarbanes-Oxley certifications. 
+ 
+23. On August 12, 2009, L&L filed its 2009 Form 10-K, which contained Lee’s 
+Sarbanes-Oxley certification that, based on his and the CFO’s most recent evaluation of the 
+company’s internal control over financial reporting, all fraud involving management had been 
+disclosed to the company’s auditors and to the company’s Audit Committee. This certification 
+was false because Lee had not disclosed to the company’s external auditors or the company’s 
+entire Audit Committee that the purported Acting CFO was misrepresented in L&L’s previous 
+filings as its Acting CFO. 
+ 
+D.  Lee Admits to Purported Acting CFO that She Did Not Perform the Work of the 
+Acting CFO 
+ 
+24. In approximately May 2009, the purported Acting CFO became aware that L&L 
+had falsely represented her as the company’s Acting CFO in the company’s public filings and, on 
+May 6, 2009, sent Lee an email that included her July 14, 2008 email in which she rejected the 
+Acting CFO position. In the email, the purported Acting CFO wrote that she “clearly indicated that 
+[she] would not accept the offer of being the Acting CFO of L&L,” and asked Lee for an immediate 
+explanation. 
+ 
+25. On May 13, 2009, Lee emailed the purported Acting CFO and wrote, “[t]here is a 
+misunderstanding of the Acting CFO role . . .  Based on your input, your name is removed to 
+please you.” The purported Acting CFO replied that – just because she and Lee had known each 
+7 
+ 
+ 
+ 
+other for ten years – it did not mean “that you could use my name, without authorisation, to the 
+file 10K to the U.S. SEC.” In response, on May 19, 2009, Lee emailed the purported Acting CFO 
+and separately admitted, “[y]ou did not actually conduct the work as Acting [CFO].” 
+ 
+ 
+E.  Lee Admits to L&L’s Audit Committee Chair That Purported Acting CFO Did Not 
+Serve as Acting CFO 
+ 
+26. On May 21, 2009, the purported Acting CFO emailed Shirley Kiang, who was 
+then the Chair of L&L’s Audit Committee and member of its Board of Directors. In the email, 
+the purported Acting CFO told Kiang that she had a “serious and urgent” matter related to 
+L&L’s public information made without her knowledge and asked Kiang to investigate. 
+ 
+27. Kiang subsequently contacted Lee and asked whether the purported Acting CFO 
+had actually served as the company’s Acting CFO. Lee initially informed Kiang that the 
+purported Acting CFO had served as the company’s Acting CFO and was making false 
+allegations in an attempt to obtain money from the company. 
+ 
+28. Kiang asked Lee for evidence to support his assertion that the purported Acting 
+CFO had served as the company’s Acting CFO. In response, Lee provided Kiang with a letter that 
+appeared to be addressed to the purported Acting CFO, dated May 28, 2008, and purported to be 
+signed by Lee’s brother as the company’s CEO. The letter asked the purported Acting CFO to 
+confirm that she had agreed to accept the Acting CFO position and stated that if the company did 
+not receive a response to the letter within ten days, the company would treat her lack of response 
+as her acceptance of the position. 
+ 
+29. This letter, however, was not created on May 28, 2008; was not signed by Lee’s 
+brother; and was never sent to the purported Acting CFO. Rather, this letter was created on May 26, 
+2009 – almost one year after the purported Acting CFO had rejected the Acting CFO position – and 
+was stored in Lee’s L&L computer network folder. 
+ 
+30. On June 4, 2009 – after receiving no response from Kiang – the purported 
+Acting CFO emailed Kiang again. The purported Acting CFO again asked Kiang to investigate 
+her allegations, specifically that she was misrepresented in L&L’s filings as the company’s 
+Acting CFO, and included her July 14, 2008 email to Dickson Lee rejecting the Acting CFO 
+position. 
+ 
+31.       After receiving the June 4 email, Kiang again asked Dickson Lee for an 
+explanation. Lee then admitted to Kiang that the purported Acting CFO had not actually served as 
+the company’s Acting CFO and that he had used the purported Acting CFO’s name on L&L’s 
+public filings without the purported Acting CFO’s permission.  Lee directed Kiang to not disclose 
+this information to anyone, including the company’s Board of Directors or the public, and told her 
+that if this information became publicly known, L&L’s stock price would drop. 
+ 
+32. After this, Lee continued to falsely represent to the company’s Board of Directors 
+that the purported Acting CFO had served as the company’s Acting CFO.   
+ 
+8 
+ 
+ 
+ 
+33. During the nearly one-year period in which the purported Acting CFO was 
+falsely represented as the company’s Acting CFO, L&L raised approximately $750,000 from 
+investors using stock purchase agreements in which L&L expressly attested to the accuracy of 
+its public filings and private placement documents that referred the investor to publicly 
+available additional information about the company. 
+ 
+F.  L&L Makes Materially False and Misleading Statements on NASDAQ Application to 
+Gain NASDAQ Listing 
+ 
+34. In approximately September 2009, L&L completed an application to become listed 
+on the NASDAQ. As part of the application process, NASDAQ requested a variety of 
+information, including confirmation that the company had made all of the required Sarbanes-
+Oxley certifications. 
+ 
+35. L&L, in a communication from Lee, confirmed that the company had made all of 
+the required Sarbanes-Oxley certifications. L&L misled NASDAQ in this communication because 
+it did not inform NASDAQ that its required CFO Sarbanes-Oxley certifications for its 2008 Form 
+10-K or its three 2009 Form 10-Qs were false. As a result, L&L gained listing on NASDAQ in 
+February 2010  
+ 
+VIOLATIONS 
+ 
+36. By engaging in the conduct described above, Lee willfully violated Section 10(b) 
+of the Exchange Act and Rule 10b-5 thereunder, which prohibits fraudulent conduct in 
+connection with the purchase or sale of securities. Also, by engaging in the conduct described 
+above, Lee willfully aided and abetted and caused violations of Section 10(b) of the Exchange 
+Act and Rule 10b-5(b) thereunder. 
+ 
+37. By engaging in the conduct described above, Lee willfully violated Section 17(a) 
+of the Securities Act, which prohibits fraudulent conduct in the offer or sale of securities. 
+ 
+38. By engaging in the conduct described above, Lee willfully aided and abetted and 
+caused violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder, 
+which require issuers of registered securities to file factually accurate annual and quarterly 
+reports. Also, Lee willfully aided and abetted and caused violations of Rule 12b-20 of the 
+Exchange Act, which requires the addition to such reports of further material information 
+necessary to make the required report statements not misleading. 
+ 
+39. By engaging in the conduct described above, Lee willfully violated, and willfully 
+aided and abetted and caused violations of Rule 13a-14 of the Exchange Act, which requires, 
+among other things, that principal executive and financial officers certify that based on their 
+knowledge, the issuer’s financial statements are accurate, and that, based on the principal 
+executive and financial officer’s most recent evaluation of the company’s internal control over 
+financial reporting, they have disclosed all fraud, whether or not material, involving management 
+to the company’s auditors and Audit Committee. 
+ 
+ 
+9 
+ 
+ 
+ 
+40. By engaging in the conduct described above, Lee willfully aided and abetted and 
+caused violations of Rule 13a-15 of the Exchange Act, which requires each issuer’s management, 
+with the participation of the company’s principal executive officer and principal accounting 
+officer, or persons performing similar functions, to evaluate the effectiveness of the company’s 
+disclosure controls and procedures on a quarterly basis. 
+ 
+41. By engaging in the conduct described above, Lee willfully aided and abetted and 
+caused violations of Section 302 of Regulation S-T of the Exchange Act, which requires that (i) 
+a signatory to an electronic filing actually sign the signature page before or at the time of the 
+electronic filing; (ii) the filer retain the original executed document for five years; and (iii) that 
+the filer provide the Commission staff with a copy of the document upon request. 
+ 
+IV.  
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent Lee’s Offer. 
+ 
+Accordingly, pursuant to Section 8A of the Securities Act, Sections 4C and 21C of 
+the Exchange Act, and Rule 102(e) of the Commission’s Rules of Practice, it is hereby 
+ORDERED that: 
+ 
+A. Respondent Lee cease and desist from committing or causing any violations and any 
+future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange 
+Act and Rule 10b-5 thereunder, Section 13(a) of the Exchange Act and Rules 12b-20, 
+13a-1 and 13a-13 thereunder, Rules 13a-14 and 13a-15 of the Exchange Act, and 
+Section 302 of Regulation S-T of the Exchange Act. 
+ 
+B. Respondent Lee be, and hereby is: 
+ 
+a.   barred from acting as an officer or director of any issuer that has a class of 
+securities registered pursuant to Section 12 of the Exchange Act, or that is 
+required to file reports pursuant to Section 15(d) of the Exchange Act. 
+ 
+b.   denied the privilege of appearing or practicing before the Commission pursuant           
+to Rule 102(e)(1)(iii) of the Commission’s Rules of Practice. 
+ 
+By the Commission. 
+ 
+ 
+ 
+ 
+Brent J. Fields 
+Secretary 
+ 

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75086 / June 1, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3660 / June 1, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16569 
+ 
+ 
+In the Matter of 
+ 
+FIRST BANCORP,  ANNA 
+HOLLERS, AND TERESA 
+NIXON 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+CORRECTED 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 deems it appropriate that cease-and-desist 
+proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act 
+of 1934 against First Bancorp, Anna Hollers and Teresa Nixon (“Respondents”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 
+these proceedings, which are admitted, and except as provided herein in Section V, Respondents 
+consent to the entry of this Order, as set forth below.    
+ 
+ 
+ 
+2 
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds1: 
+ 
+Summary 
+ 
+ Over a three year period, First Bancorp failed to disclose related party transactions involving 
+family members of the company’s former Chief Operating Officer Anna Hollers, former Chief Loan 
+Officer Teresa Nixon, and a member of its Board of Directors – specifically, Ms. Hollers’ husband, 
+Ms. Nixon’s daughter and son-in-law, and the Board member’s brother.   By failing to make these 
+disclosures in its Forms 10-K for fiscal years 2009, 2010 and 2011, First Bancorp violated SEC 
+disclosure rules requiring public companies to disclose such relationships if the amounts involved 
+exceeded $120,000.  First Bancorp also failed to have controls and procedures designed to ensure 
+the company disclosed related party transactions as required.   
+ 
+ Hollers caused certain of First Bancorp’s violations.  As COO, she oversaw the process for 
+identifying related party transactions.  First Bancorp used a Director and Officer Questionnaire 
+(“D&O Questionnaire”) as part of its related party disclosure process that required directors and 
+executive officers to report transactions with family members in which the amounts involved 
+exceeded $120,000 during the prior fiscal year.  Hollers was responsible for reviewing the D&O 
+Questionnaires and informing the company’s Chief Financial Officer of issues that may require 
+disclosure.  Hollers was also a member of First Bancorp’s Disclosure Committee.  Despite her 
+disclosure responsibilities, Hollers did not adequately familiarize herself with the disclosure rules 
+regarding related party transactions sufficient to ensure that First Bancorp met its disclosure 
+obligations.  Moreover, though First Bancorp had paid her husband’s law firm over $200,000 in 
+fiscal year 2009 and over $400,000 in fiscal year 2010, Hollers failed to disclose these facts, either 
+in her D&O Questionnaire or otherwise, in connection with the company’s preparation of its Forms 
+10-K for those periods.   
+ 
+ Nixon, who was also a member of First Bancorp’s Disclosure Committee, caused certain of 
+First Bancorp’s reporting violations.  Though she knew about company transactions involving her 
+daughter and son-in-law, she failed to report these on her D&O Questionnaires or otherwise 
+disclose them in connection with the company’s preparation of its periodic filings.  
+ 
+Respondents 
+ 
+1. First Bancorp, a bank holding company, is incorporated in North Carolina and 
+trades on the Nasdaq Global Select Market.  First Bancorp owns and operates First Bank, a state-
+chartered bank with its main office in Southern Pines, North Carolina.   
+ 
+                                                           
+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 
+2. Anna Hollers, age 64, resides in Candor, North Carolina.  From 2005 until she 
+retired from First Bancorp in April 2014, Hollers was the Chief Operating Officer of First 
+Bancorp and First Bank.  Hollers served as Corporate Secretary of both entities from 1987 until 
+she retired in 2014.  During the relevant period, Hollers was a member of First Bancorp’s 
+Disclosure Committee.   
+ 
+3. Teresa Nixon, age 57, resides in Sanford, North Carolina.  From 1997 until she 
+left First Bancorp in March 2012, Nixon was First Bancorp’s Chief Loan Officer.  Among other 
+responsibilities, Nixon oversaw the process for the sale, management, and disposition of 
+foreclosed properties acquired from the FDIC through First Bancorp’s acquisition of failed 
+banks’ assets.  During the relevant time period, Nixon was a member of First Bancorp’s 
+Disclosure Committee.   
+ 
+FACTS 
+ 
+First Bancorp’s Related Party Transaction Disclosure Process 
+ 
+4. Item 404(a) of Regulation S-K requires issuers to describe in their Forms 10-K any 
+transaction exceeding $120,000 in which the registrant was or is to be a participant and in which 
+any related person had or will have a direct or indirect material interest.  The instructions to Item 
+404(a) define related person to include any director or executive officer of a registrant and any 
+immediate family members of a director or executive officer, such as spouses, children, certain in-
+laws, and siblings.   
+ 
+5. Similarly, Accounting Standards Codification (“ASC”) Topic 850, Related Party 
+Disclosures, requires companies to include in their financial statements disclosures of material 
+related party transactions.  ASC Topic 850-10-05-3 provides that related party transactions include 
+transactions between an entity and its management or members of their immediate families. 
+ 
+6. During the relevant period, First Bancorp directors and executive officers reported 
+related party transactions either by disclosing the transactions to the company’s Board of 
+Directors or through the company’s annual D&O Questionnaire.  Among other things, the D&O 
+Questionnaire asked First Bancorp directors and executive officers to: 
+ 
+Describe any transaction, or series of transactions … or any currently proposed 
+transaction or series of similar transactions, to which the Company … was, or is, 
+to be a participant in which the amount involved exceeds $120,000 and in which 
+you or any member of your Immediate Family had, or will have, a direct or 
+indirect interest.2 
+ 
+                                                           
+2  Emphasis in original.  The D&O Questionnaire also had an appendix of definitions that defined “Immediate 
+Family” to include “your spouse, parents, stepparents, children, stepchildren, siblings, mothers and fathers -in-law, 
+sons and daughters-in-law, brothers and sisters-in-law and any other person sharing your household (other tenants or 
+employees).” 
+ 
+ 
+4 
+7. Hollers oversaw the process for identifying related party transactions.  She 
+distributed the D&O Questionnaires to the company’s directors and executive officers.  After the 
+directors and executive officers completed the D&O Questionnaires, they sent them to Hollers, 
+who was responsible for reviewing them to assess whether there were any notable conflicts, 
+issues or transactions.  If so, she was responsible for reporting them to First Bancorp’s CFO.  
+First Bancorp’s CFO would then prepare any required disclosures of related party transactions 
+that Hollers had identified for the company’s filings with the Commission.   
+ 
+8. Although First Bancorp relied on Hollers to identify related party transactions, 
+Hollers did not adequately familiarize herself with the disclosure rules regarding related party 
+transactions sufficient to ensure that First Bancorp met its disclosure obligations in its filings with 
+the Securities and Exchange Commission.  No one other than Hollers at First Bancorp reviewed 
+the D&O Questionnaires to determine whether the company needed to make related party 
+disclosures.  First Bancorp’s CFO relied on Hollers to inform him of related party transactions 
+that may have required disclosure so that he could ensure the company complied with its 
+disclosure obligations. 
+   
+First Bancorp Failed to Report Six Related Party Transactions in  
+its Forms 10-K for Fiscal Years 2009, 2010 and 2011 
+ 
+A. First Bancorp Failed to Disclose Payments to the Law Firm of Hollers’ Husband 
+ 
+9. Hollers’ husband was a partner at a law firm that had performed legal work for 
+First Bancorp for over thirty years.  First Bancorp typically paid the firm less than $15,000 in 
+fees annually for this work.  Each year, First Bancorp’s Board approved the company’s hiring of 
+the law firm.  The Board knew Hollers was married to a partner in the firm.   
+ 
+10. In 2008, First Bancorp began to pay the law firm larger amounts for an increased 
+amount of legal work and trustee work related to foreclosure proceedings.   These amounts 
+included reimbursed costs related to the trustee work.  In fiscal year 2009, First Bancorp paid the 
+law firm a total of $214,754, consisting of $109,745 in fees and $105,009 in reimbursed costs.  
+In fiscal year 2010, First Bancorp paid the firm $407,087, consisting of $195,030 in fees and 
+$212,057 in reimbursed costs.   
+ 
+11. Though Hollers disclosed on her D&O Questionnaires for fiscal years 2009 and 
+2010 that her husband’s law firm did work for First Bancorp, she did not disclose the amount it 
+had received in fees and reimbursed costs, nor did she otherwise inform First Bancorp’s Board or 
+CFO that the combined amounts exceeded $120,000.  No one other than Hollers reviewed her 
+D&O Questionnaires for the years in question.  As a consequence, First Bancorp did not disclose 
+the related party transactions involving Hollers in its Forms 10-K for fiscal years 2009 and 2010 
+as required by Regulation S-K Item 404(a). 
+ 
+ 
+ 
+ 
+ 
+5 
+ 
+ 
+B. First Bancorp’s Failures to Disclose Related Party Transactions Involving Nixon 
+ 
+First Bancorp Failed to Disclose Payments to  
+Nixon’s Daughter and Son-in-Law for Landscaping Services 
+ 
+12. During fiscal year 2010, First Bancorp paid Southland Landscaping, a company 
+owned and operated by Nixon’s daughter and son-in-law, $225,970 for landscaping services on 
+First Bancorp’s foreclosed properties.  Nixon, who knew that her daughter and son-in-law owned 
+Southland and that it was performing services for First Bancorp, did not disclose this relationship 
+in her D&O Questionnaire or otherwise.  Accordingly, First Bancorp did not disclose this related 
+party transaction in its Form 10-K for fiscal year 2010 as required by Regulation S-K Item 
+404(a). 
+ 
+First Bancorp Failed to Disclose a Home  
+Sale Agreement with Nixon’s Daughter and Son-in-Law 
+ 
+13. In its fiscal year 2010 Form 10-K, First Bancorp failed to disclose that it had 
+agreed to sell property to Nixon’s daughter and son-in-law.  In November 2010, Nixon approved 
+a sales agreement between First Bancorp and her daughter and son-in-law whereby the company 
+contracted to sell them a foreclosed property for $250,000.   Nixon did not disclose this 
+agreement in her D&O Questionnaire for fiscal year 2010 or otherwise.  Accordingly, First 
+Bancorp did not disclose this related party transaction in its Form 10-K for that year as required 
+by Regulation S-K Item 404(a). 
+ 
+First Bancorp Failed to Disclose a   
+Loan to Nixon’s Daughter and Son-in-Law 
+ 
+14. To finance the home purchase described above, First Bancorp loaned $241,000 to 
+Nixon’s daughter and son-in-law in May 2011.  This loan was required to be separately disclosed 
+as a related-party transaction because it was not made on the same terms as those available to the 
+general public.  The loan documents reflected an inaccurate loan-to-value percentage, which, 
+under First Bancorp’s policy at the time, should have been based on the property’s sale price.  
+The loan underwriting documentation instead used the property’s appraisal price.  In addition, 
+the loan underwriting documentation failed to disclose the family’s prior bankruptcy.  The First 
+Bank Regional Executive who approved the loan would not have done so if the loan documents 
+had been factually correct. Nixon did not disclose this loan in her D&O Questionnaire for fiscal 
+year 2011 or otherwise.  Although other First Bancorp management learned of the loan to 
+Nixon’s daughter and son-in-law as part of its own internal investigation prior to filing its Proxy 
+Statement for fiscal year 2011, the company treated the loan as one in the ordinary course of 
+business and thus failed to adequately disclose this related party transaction in its Form 10-K for 
+fiscal year 2011 as required by Regulation S-K Item 404(a). 
+ 
+ 
+ 
+6 
+ 
+ 
+C. First Bancorp Failed to Disclose Payments Made to the Brother of One of its Directors 
+ 
+15. First Bancorp also failed to disclose in its Form 10-K for fiscal year 2010 that it 
+had paid a brother of one of First Bancorp’s Directors (the “Director”) over $120,000.   
+ 
+16. In September 2009, First Bancorp hired the Director’s brother as the real estate 
+agent and property manager for a portfolio of foreclosed properties that First Bancorp obtained 
+as a result of its FDIC acquisition of Cooperative Bank’s assets in June 2009.  In fiscal year 
+2010, First Bancorp paid the Director’s brother $317,686 in commissions for property sales 
+services and reimbursed him $389,000 for out-of-pocket expenses for property management 
+services.  At 4.7% of First Bancorp’s net income in fiscal year 2010, these combined payments 
+to the Director’s brother, which were legitimate business expenses, were material.   The 
+payments made to the Director’s brother in fiscal year 2010 were required to be disclosed in First 
+Bancorp’s Form 10-K because of the sibling relationship between the two individuals. 
+ 
+17. Though he did not know the amounts involved, the Director disclosed that his 
+brother had a relationship with the company in his D&O Questionnaire for fiscal year 2010, and 
+First Bancorp’s Board discussed that the Director’s brother was performing work for the 
+company during a February 2011 Board meeting.  However, First Bancorp did not determine the 
+amounts it paid the Director’s brother before it filed its Form 10-K for fiscal year 2010.  First 
+Bancorp did not disclose this related party transaction in this filing as required by Regulation S-
+K Item 404(a) and ASC 850. 
+ 
+Violations 
+ 
+18. As a result of the conduct described above, First Bancorp violated and Nixon and 
+Hollers caused First Bancorp’s violations of Exchange Act Section 13(a) and Rule 13a-1 
+thereunder, which require that issuers of securities registered pursuant to Exchange Act Section 
+12 file with the Commission, among other things, current and accurate information in annual 
+reports. 
+  
+19. As a result of the conduct described above, First Bancorp violated and Hollers 
+caused First Bancorp’s violation of Exchange Act Rule 13a-15(a), which provides that every 
+issuer of a security registered pursuant to Exchange Act Section 12 must maintain disclosure 
+controls and procedures.3   
+                                                           
+3  Rule 13a-15(e) defines “disclosure controls and procedures” as “controls and other procedures of an issuer 
+that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or 
+submits under the [Exchange] Act … is recorded, processed, summarized and reported, within the time periods 
+specified in the Commission’s rules and forms.  Disclosure controls and procedures include, without l imitation, 
+controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that 
+it files or submits under the [Exchange] Act is accumulated and communicated to the issuer’s management, 
+including its principal executive and principal financial officers, or persons performing similar functions, as 
+appropriate to allow timely decisions regarding required disclosures.” 
+ 
+7 
+ 
+20. As a result of the conduct described above, First Bancorp violated Exchange Act 
+Section 13(b)(2)(B), which requires all reporting companies to devise and maintain a system of 
+internal accounting controls sufficient to provide reasonable assurances that transactions are 
+recorded as necessary to permit preparation of financial statements in accordance with GAAP. 
+ 
+First Bancorp’s Remedial Efforts 
+In determining to accept First Bancorp’s Offer, the Commission considered remedial acts 
+promptly undertaken by First Bancorp and cooperation afforded the Commission staff.  
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+ Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED that: 
+ 
+A. First Bancorp cease and desist from committing or causing any violations 
+and any future violations of Sections 13(a) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 
+and 13a-15 thereunder. 
+ 
+B. Anna Hollers cease and desist from committing or causing any violations 
+and any future violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-15 
+thereunder.  
+ 
+C. Teresa Nixon cease and desist from committing or causing any violations 
+and any future violations of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder.  
+ 
+D. Within seven days of entry of this Order, First Bancorp shall pay a civil 
+money penalty of $275,000; Hollers shall pay a civil monetary penalty of $15,000; and Nixon shall 
+pay a civil monetary penalty of $20,000 to the Securities and Exchange Commission for transfer to 
+the general fund of the United States Treasury in accordance with Exchange Act Section 21F(g)(3).  
+If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.  
+Payment must be made in one of the following ways:   
+ 
+(1) Respondents may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondents may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondents 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:  
+ 
+8 
+ 
+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 the 
+Respondent in these proceedings, and the file number of these proceedings; a copy of the cover 
+letter and check or money order must be sent to Stephen L. Cohen, Associate Director, Division 
+of Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549.  
+  
+E. Amounts ordered to be paid as civil money penalties pursuant to this Order 
+shall be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor 
+Action, they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction of 
+any award of compensatory damages by the amount of any part of Respondents’ payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondents agree that they shall, within 30 days after entry of a final order 
+granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of 
+the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
+means a private damages action brought against any of the Respondents by or on behalf of one or 
+more investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+ 
+V. 
+IT IS FURTHER ORDERED that, solely for purposes of exceptions to discharge set forth 
+in Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and 
+admitted by Respondents, and further, any debt for disgorgement, prejudgment interest, civil 
+penalty or other amounts due by Respondents under this Order or any other judgment, order, 
+consent order, decree or settlement agreement entered in connection with this proceeding, is a debt 
+for the violations by Respondents of the federal securities laws or any regulation or order issued 
+under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

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@@ -0,0 +1,93 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 4120 / June 17, 2015  
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3664 / June 17, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16600 
+ 
+ 
+In the Matter of 
+ 
+GEORGE JOSEPH 
+PALATHINKAL, CPA 
+ 
+Respondent. 
+ 
+ORDER INSTITUTING  
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 203(f) OF THE 
+INVESTMENT ADVISERS ACT OF 1940, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+ 
+ 
+ 
+ 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted pursuant to 
+Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”) against George Joseph 
+Palathinkal (“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, Respondent admits the Commission’s 
+jurisdiction over him and the subject matter of these proceedings , and the findings contained in 
+Sections III.2 below, and consents to the entry of this Order Instituting Administrative Proceedings 
+Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing 
+Remedial Sanctions (“Order”), as set forth below. 
+ 
+ 
+ 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that  
+ 
+1. Palathinkal, 53 years old, is a citizen of Singapore.  Palathinkal was, from March 1, 
+2013 through approximately June 1, 2014, a General Partner, Chief Financial Officer, and Chief 
+Compliance Officer of Aphelion Fund Management, LLC (“Aphelion”), an unregistered investment 
+adviser.  
+ 
+2. On March 13, 2015, Palathinkal pled guilty to one count of perjury in violation of 
+Title 18 United States Code, Section 1621 before the United States District Court for the District of 
+Columbia, in United States v. George Palathinkal, Crim. Information No. 1:15-cr-00024-RMC. 
+ 
+ 3. The criminal information to which Palathinkal pled guilty alleged that in March 
+2014, he took an oath that he would testify truthfully in investigative testimony before the 
+Commission, and that during such testimony, he gave false testimony that earlier versions or drafts 
+of a certain promissory note between Palathinkal and Aphelion existed, when in fact there were no 
+earlier versions or drafts.  In May 2014, the Commission filed a lawsuit against Palathinkal and 
+others.  In July and August 2014, Palathinkal voluntarily met with Commission attorneys and 
+acknowledged the false testimony he had previously provided. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent Palathinkal’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED pursuant to Section 203(f) of the Advisers Act, that 
+Respondent Palathinkal be, and hereby is barred from association with any broker, dealer, 
+investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally 
+recognized statistical rating organization. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

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+ 
+  
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75298 / June 25, 2015 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 4130 / June 25, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3665 / June 25, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16652 
+ 
+ 
+ 
+In the Matter of 
+ 
+MICHAEL S. WILSON, CPA 
+and COTTERMAN-WILSON 
+CPAs, INC.,  
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+SECTION 203(k) OF THE INVESTMENT 
+ADVISERS ACT OF 1940, AND RULE 
+102(e) OF THE COMMISSION’S RULES 
+OF PRACTICE, MAKING FINDINGS, 
+AND IMPOSING REMEDIAL 
+SANCTIONS AND A CEASE-AND-
+DESIST ORDER 
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against Michael S. 
+Wilson, CPA (“Wilson”) and Cotterman-Wilson CPAs, Inc. (the “Firm”) (collectively, 
+ 
+2 
+ 
+“Respondents”) pursuant to Section 4C1 of the Securities Exchange Act of 1934 (“Exchange Act”), 
+Section 203(k) of the Investment Advisers Act of 1940 (“Advisers Act”), and Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice.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, which are admitted, and except as provided herein in Section V, Respondents consent 
+to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings 
+Pursuant to Section 4C of the Securities Exchange Act of 1934, Section 203(k) of the Investment 
+Advisers Act  of 1940, and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, 
+and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds3 that:  
+ 
+SUMMARY 
+ 
+1. This proceeding arises out of Respondents’ failure to complete surprise 
+examinations pursuant to Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder (the 
+                                                 
+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 . . . have engaged in . . . 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 . . . 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 
+ 
+“Custody Rule”) in 2009, 2010, and 2011.4  Professional Investment Management, Inc. (“PIM”), a 
+registered investment adviser, had custody of client assets held in three omnibus accounts at all 
+relevant times and was required by the Custody Rule to engage an independent public accountant 
+to conduct annual surprise examinations to verify those assets.  PIM engaged the Firm to perform 
+these required annual surprise examinations from 1999 to 2011.  Respondents completed the 
+surprise examinations on an annual basis from 1999 to 2008.  However, Respondents failed to 
+complete the surprise examinations (i.e., conduct fieldwork, prepare and issue a surprise 
+examination report, and file Form ADV-E with the Commission) or withdraw from the surprise 
+examinations in 2009, 2010, and 2011, and, thus, caused PIM to violate the Prior Custody Rule or 
+the Custody Rule, as applicable, for each of those years.  In addition, Wilson engaged in improper 
+professional conduct, within the meaning of Section 4C of the Exchange Act and Rule 102(e)(1)(ii) 
+of the Commission’s Rules of Practice, in connection with the surprise examinations from 2009 
+through 2011. 
+ 
+RESPONDENTS 
+ 
+2. Michael S. Wilson, age 61, has been a certified public accountant (“CPA”) 
+licensed by the Ohio Board of Accountancy since June 9, 1980.  Wilson is a 50% shareholder of 
+the Firm, and, at all times relevant to this proceeding, was the engagement partner for the services 
+that the Firm performed for PIM, which included, as relevant to this proceeding, annual surprise 
+examinations required by the Prior Custody Rule and the Custody Rule.  Wilson has never been 
+subjected to any disciplinary or regulatory proceedings. 
+ 
+3. Cotterman-Wilson CPAs, Inc. is a Columbus, Ohio-based accounting firm 
+established in 1997 that has five full-time employees: two CPAs who each are 50% shareholders of 
+the Firm, a CPA who is not a shareholder of the Firm, and two administrative personnel.  The Firm 
+primarily provides accounting and tax services to individuals and private entities.  The Firm has 
+never been registered with the Public Company Accounting Oversight Board, and has never been 
+subjected to any disciplinary or regulatory proceedings.   
+ 
+OTHER RELEVANT ENTITIES 
+ 
+4. Professional Investment Management, Inc. is an Ohio corporation with its 
+principal place of business in Columbus, Ohio.  At all times relevant to this proceeding, PIM was 
+                                                 
+4 On December 30, 2009, the Commission adopted amendments to the Custody Rule, which became 
+effective March 12, 2010.  See Custody of Funds or Securities of Clients by Investment Advisers, Release 
+No. IA-2968 (Dec. 30, 2009).  Respondents’ conduct in 2009 was governed by the Custody Rule in effect 
+before the December 30, 2009 amendments (the “Prior Custody Rule”).  See Custody of Funds or 
+Securities of Clients by Investment Advisers, Release No. IA-2176 (Sept. 25, 2003).  The significant 
+differences between the Custody Rule and the Prior Custody Rule, as relevant to this specific proceeding, 
+are described below in Paragraph 11. 
+ 
+ 
+4 
+ 
+owned by Douglas E. Cowgill (“Cowgill”), Owner A, and Owner B.  PIM was registered with the 
+Commission as an investment adviser from 1978 through September 30, 2013, and from June 24, 
+2014 to today.  PIM provides third-party administration services and investment advisory services 
+to approximately fifteen retirement plan clients (which consist of approximately 325 participants 
+who, in turn, own approximately 425 individual retirement accounts that PIM advises), and also 
+provides investment advisory services to approximately twenty-five individual clients for their own 
+(non-retirement plan) accounts.  PIM has approximately $120 million of regulatory assets under 
+management, and has custody of client assets through three omnibus accounts.  PIM is the only 
+SEC registrant that the Firm or Wilson has ever had as a client. 
+ 
+FACTS 
+  
+5. The Commission filed suit against Cowgill and PIM in the United States District 
+Court for the Southern District of Ohio on April 29, 2014 alleging that Cowgill and PIM violated 
+the antifraud provisions of the U.S. securities laws, and that PIM violated, and Cowgill aided and 
+abetted and caused PIM’s violations of, the registration provisions of the Advisers Act, the Prior 
+Custody Rule, and the Custody Rule.  The Commission filed an Amended Complaint on August 7, 
+2014 that included additional counts against Cowgill and PIM, and the Court entered a Judgment 
+by Consent against Cowgill on August 21, 2014 as to all counts asserted in the Amended 
+Complaint.  The Commission alleged that PIM and Cowgill hid a shortfall of more than $700,000 
+in client assets by sending false account statements to clients. 
+ 
+6. At all relevant times, PIM maintained client funds in an omnibus checking account 
+held on an agency basis at Custodian 1, and client securities in two omnibus accounts held on an 
+agency basis at Custodian 2 and Custodian 3.  All client funds were initially deposited into the 
+omnibus checking account held at Custodian 1, and then were transferred for investment to various 
+firms, including Custodians 2 and 3. 
+ 
+7. PIM maintained records for the omnibus accounts held at Custodians 1, 2, and 3 on 
+a client level (i.e., PIM kept track of the assets in these accounts on a client-by-client basis), and 
+sent directly to its clients periodic (typically quarterly) account statements that it generated based 
+upon its own internal records.  
+ 
+8. However, neither Custodian 1, Custodian 2, nor Custodian 3 maintained records for 
+the omnibus accounts on a client level (indeed, none of these custodians was privy to PIM’s client 
+information), and neither Custodian 1, Custodian 2, nor Custodian 3 sent quarterly account 
+statements to any of PIM’s clients. 
+ 
+9. The Custody Rule requires, and the Prior Custody Rule required, registered 
+investment advisers with custody of client funds or securities, like PIM, to implement certain 
+controls designed to protect those client assets from loss, misappropriation, misuse, or the adviser’s 
+insolvency. 
+ 
+ 
+5 
+ 
+10. Specifically, the Prior Custody Rule required registered investment advisers to 
+either: (i) have a reasonable basis for believing that a “qualified custodian,” such as a bank or 
+broker-dealer, was sending quarterly account statements to each of the clients for which they 
+maintained funds or securities; or (ii) send the quarterly account statements themselves and obtain 
+an annual surprise examination by an independent public accountant to verify all of the client funds 
+and securities.   
+ 
+11. The Custody Rule amended the Prior Custody Rule by, among other things, 
+requiring all registered investment advisers with custody of client funds or securities  to undergo an 
+annual surprise examination by an independent public accountant to verify all of the client funds 
+and securities, regardless of whether such advisers had a reasonable basis for believing that a 
+“qualified custodian,” such as a bank or broker-dealer, was sending quarterly account statements to 
+each of the clients for which they maintained funds or securities.5 
+ 
+12. PIM thus was obligated in 2009 under the Prior Custody Rule to have the client 
+assets held in omnibus accounts at Custodians 1, 2, and 3 verified through surprise examination 
+by an independent public accountant because none of these custodians sent quarterly account 
+statements directly to PIM’s clients (and PIM did not have a reasonable basis for believing that they 
+did so), and also was obligated in 2010 and 2011 under the Custody Rule to have the client assets 
+held in omnibus accounts at Custodians 1, 2, and 3 verified through surprise examination by an 
+independent public accountant because PIM had custody of those assets. 
+ 
+PIM Engaged the Firm to Perform the 
+2009, 2010, and 2011 Surprise Examinations 
+ 
+13. PIM engaged the Firm to complete PIM’s surprise examinations for the periods of 
+time ending April 30, 2009 (the “2009 Exam”), April 30, 2010 (the “2010 Exam”), and May 31, 
+2011 (the “2011 Exam”). 
+ 
+                                                 
+5 As reflected in Rule 206(4)-2(a)(4), the Custody Rule also amended the Prior Custody Rule to require 
+all surprise examinations be conducted pursuant to a written agreement between the adviser and the 
+accountant that explicitly requires the accountant to: (i) file Form ADV-E with the Commission within 
+120 days of the time chosen by the accountant stating that it has examined the client funds and securities 
+and describing the nature and extent of the examination; (ii) notify the Commission within one business 
+day of its finding any material discrepancies; and (iii) file Form ADV-E within four business days of 
+resignation or dismissal from, or other termination of the engagement, along with a statement that 
+includes, among other things, the date of such resignation, dismissal, removal, or other termination, and 
+an explanation of any problems that contributed to such resignation, dismissal, removal, or other 
+termination.  The Custody Rule thus established a new contractual reporting obligation for accountants 
+regarding their resignation or dismissal from, or other termination of the engagement, and established a 
+120-day deadline by which surprise examinations must be completed. 
+ 
+6 
+ 
+14. Owner A, on behalf of PIM, engaged the Firm on or about May 28, 2009 to 
+perform the 2009 Exam by signing a three-page letter in which the Firm represented, among other 
+things, that: 
+ 
+We will examine management’s assertion, included in the 
+Management Statement Regarding Compliance with Certain 
+Provisions of the Investment Advisers Act of 1940 (the Act), that 
+Professional Investment Management, Inc. (the Company) 
+complied with certain provisions of rules 204-2(b) and 206(4)-2 of 
+the Investment Advisers Act of 1940 as of April 30, 2009 and 
+during the period June 1, 2008 to April 30, 2009.  The Company is 
+responsible for compliance with the requirements of the [A]ct.  
+Our responsibility is to express an opinion on management’s 
+assertion about the Company’s compliance based on our 
+examination. 
+ 
+Our examination will be conducted in accordance with attestation 
+standards established by the American Institute of Certified Public 
+Accountants [(“AICPA”)]. . . . .6 
+ 
+15. PIM also engaged the Firm to perform the 2010 and 2011 Exams.   
+ 
+16. Wilson was the sole CPA on each of the 2009, 2010, and 2011 Exams, and was 
+solely responsible for completing the planning and fieldwork, supervising the two non-CPAs 
+who performed largely ministerial work on these exams, issuing a report or choosing to withdraw 
+from the engagement, and ensuring that Form ADV-E was filed with the Commission for each of 
+the years for which the Firm was engaged by PIM to perform a surprise examination. 
+ 
+Respondents’ 2009 Exam Report Lacks Reasonable Basis 
+ 
+17. Respondents performed field work in connection with the 2009 Exam.  Indeed, the 
+Firm sent invoices to PIM reflecting the work it had performed, and PIM paid each of these 
+invoices in full. 
+ 
+                                                 
+6 The AICPA attestation standards applicable to surprise examinations performed pursuant to the Prior 
+Custody Rule and the Custody Rule are set forth in AT Section 101, “Attest Engagements” and AT 
+Section 601, “Compliance Attestation.”  See, e.g., Commission Guidance Regarding Independent Public 
+Accountant Engagements Performed Pursuant to Rule 206(4)-2 Under the Investment Advisers Act of 
+1940, Release No. IA-2969 (Dec. 30, 2009).  This December 30, 2009 interpretative guidance had not 
+been published at the time that PIM engaged the Firm to perform the 2009 Exam, but was published prior 
+to both the date that the Firm issued its report for the 2009 Exam and the dates that PIM engaged the Firm 
+to perform the 2010 and 2011 Exams. 
+ 
+7 
+ 
+18. Respondents signed a final report for the 2009 Exam on or about July 27, 2010, 
+which provides the following opinion: 
+ 
+We have examined management’s assertion, included in the 
+accompanying Management Statement Regarding Compliance with 
+Certain Provisions of the Investment Advisers Act of 1940, that [PIM] 
+complied with certain provisions of rules 204-2(b) and 206(4)-2 of the 
+Investment Advisers Act of 1940 as of and during the period ended April 
+30, 2009. 
+ 
+*  *  * 
+ 
+In our opinion, management’s assertion that [PIM] complied with the 
+requirement of subparagraphs (1) of rule 206(4)-2(a) under the Investment 
+Advisers Act of 1940 as of April 30, 2009, and has complied with rule 
+204-2(b) and the requirements of subparagraphs (2) and (3) of rule 206(4)-
+2(a) under the Investment Advisers Act of 1940 as of and during the 
+period from June 1, 2008 through April 30, 2009, is fairly stated, in all 
+material respects. 
+ 
+19. Respondents’ opinion lacks reasonable basis for two reasons: 
+ 
+a. First, AT Section 601.11 requires an accountant to obtain a written assertion as 
+part of engagement performance.  Respondents, however, did not obtain a 
+management assertion upon which their opinion is purportedly based.  Wilson 
+knew that AT Section 101 requires a conclusion that a scope limitation exists 
+if the accountant fails to obtain a written assertion, 7and necessitates a 
+decision to provide a qualified opinion, to disclaim an opinion, or to 
+withdraw.8  
+ 
+b. Second, Respondents identified material variances, as of April 30, 2009, in the 
+records of certain of PIM’s client securities-holding accounts.  Wilson sent a 
+fax to Cowgill on May 12, 2010 that identified these variances and directed 
+Cowgill to call Wilson to discuss, but Respondents’ workpapers do not show 
+that Respondents obtained evidence to explain these variances or otherwise 
+reconcile these variances.  Respondents thus lacked sufficient evidence to 
+provide a reasonable basis for issuing a report containing an opinion that 
+                                                 
+7 See AT Section 101.58 (“When the practitioner’s client is the responsible party, a failure to obtain a 
+written assertion should result in the practitioner concluding that a scope limitation exists.”). 
+ 
+8 See AT Section 101.73-74. 
+ 
+8 
+ 
+management’s assertion that PIM complied with the Prior Custody Rule was 
+fairly stated, in all material respects.  See AT Section 101.51.   
+ 
+Respondents Failed To File Form ADV-E With The Commission 
+In Connection With The 2009 Exam 
+ 
+20. Respondents failed to file Form ADV-E with the Commission in connection with 
+the 2009 Exam.  The Prior Custody Rule obligated the adviser to require the accountant to file with 
+the Commission Form ADV-E within 30 days of completing the surprise examination in order for 
+the adviser to comply with the Prior Custody Rule.  Respondents never filed Form ADV-E in 
+connection with the 2009 Exam. 
+ 
+Respondents Failed To Complete The 2010 and 2011 Exams,  
+Did Not Timely Withdraw From These Engagements, and 
+Never Filed Form ADV-E With The Commission In Connection With These Exams 
+  
+21. Respondents were aware at the time that PIM engaged them to perform the 2010 
+Exam that the Prior Custody Rule had been amended by the Custody Rule, and understood that 
+the Custody Rule obligated the adviser to require the accountant to file Form ADV-E with the 
+Commission within 120 days from the date that the accountant had begun the surprise 
+examination in order for the adviser to comply with the Custody Rule. 
+ 
+22. Respondents had never completed a surprise examination for PIM in less than 120 
+days.  For instance, the surprise examination reports prepared in 2005, 2006, 2007, 2008, and 
+2009 were prepared 391, 414, 213, 247, and 453 days after the commencement of each 
+respective surprise examination. 
+ 
+23. Nevertheless, Respondents accepted the engagement for the 2010 Exam.  
+ 
+24. By all accounts, Respondents performed field work in connection with the 2010 
+Exam.  PIM did not cooperate with Respondents’ requests for information in connection with the 
+2010 Exam, but Respondents did not terminate the engagement.  Instead, Respondents sent 
+periodic invoices to PIM reflecting the work they had performed.  PIM paid each of these 
+invoices in full. 
+ 
+25. Sometime in 2011 Wilson informed at least one PIM owner that Respondents 
+would be unable to complete the 2010 Exam within 120 days from the date that they had begun 
+the 2010 Exam.  In response, a PIM owner proposed that Respondents begin the 2011 Exam, 
+complete the fieldwork that was necessary to complete both the 2010 and 2011 Exams, and then 
+simultaneously file Form ADV-E with the Commission for the 2010 and 2011 Exams. 
+ 
+ 
+9 
+ 
+26. Respondents agreed to this proposal, accepted the engagement for the 2011 Exam, 
+and began simultaneously performing field work in connection with both the 2010 and 2011 
+Exams. 
+ 
+27. PIM did not cooperate with Respondents’ requests for information in connection 
+with the 2010 and 2011 Exams, but Respondents did not terminate the engagement for either of 
+these examinations.  Instead, the Firm sent invoices to PIM reflecting the work it had performed 
+in connection with these examinations, sending the last of such invoices to PIM on or about 
+October 30, 2011.  PIM paid each of these invoices in full. 
+ 
+28. Respondents never issued a report for either the 2010 or 2011 Exam, did not 
+timely withdraw from the engagements to conduct these examinations and notify PIM of their 
+decision to withdraw, and never filed Form ADV-E with the Commission in connection with 
+either of these examinations.  See AT Section 101.64 (“The practitioner who accepts an attest 
+engagement should issue a report on the subject matter or the assertion or withdraw from the attest 
+engagement.”); AT Section 101.39 (requiring accountant to exercise “due professional care” in the 
+planning and performance of the engagement and the preparation of the report); AT Section 601.38 
+(requiring accountant to exercise “due care” in planning and performing an examination 
+engagement). 
+ 
+29. It was not until January 11, 2013, more than 15 months after submitting their last 
+invoice to PIM in connection with the 2010 and 2011 Exams, that Respondents notified PIM that 
+they did not intend to perform any additional services for PIM. 
+ 
+30. Months later, Owner A and Owner B asked Respondents to resume performing 
+surprise examinations for PIM.  Respondents declined this request. 
+ 
+Respondents Caused PIM’s Violations of the Custody Rule and the Prior Custody Rule 
+ 
+31. Respondents caused PIM’s violation of Section 206(4) of the Advisers Act and 
+Rule 206(4)-2 thereunder. 
+ 
+32. Wilson was the engagement partner for the 2009, 2010, and 2011 Exams, and was 
+the only CPA to perform work in connection with these exams.  Respondents agreed to perform 
+the 2009, 2010, and 2011 Exams, and understood that PIM had engaged them to: (i) conduct the 
+2009, 2010, and 2011 Exams; (ii) verify funds and securities through actual examination; and 
+(iii) file with the Commission Form ADV-E within the time periods required by the Prior 
+Custody Rule and the Custody Rule. 
+ 
+ 
+ 
+ 
+ 
+ 
+10 
+ 
+33. With respect to the 2009 Exam, Respondents failed to: 
+ 
+a. obtain a reasonable basis for issuing a report containing an opinion that 
+management’s assertion that PIM complied with the Prior Custody Rule was 
+fairly stated, in all material respects, because they failed to obtain: 
+ 
+i. a management assertion; and 
+ 
+ii. sufficient evidence to support such an opinion; and 
+ 
+b. file Form ADV-E with the Commission. 
+ 
+34. With respect to the 2010 Exam, Respondents failed to: 
+ 
+a. complete the examination or withdraw from the engagement and notify PIM 
+of such withdrawal on a timely basis; and 
+ 
+b. file Form ADV-E with the Commission. 
+ 
+35. With respect to the 2011 Exam, Respondents failed to: 
+ 
+a. complete the examination or withdraw from the engagement and notify PIM 
+of such withdrawal on a timely basis; and 
+ 
+b. file Form ADV-E with the Commission. 
+ 
+Respondents Engaged in Improper Professional Conduct 
+ 
+36. Section 4C of the Exchange Act and Rule 102(e)(1)(ii) provide that the 
+Commission may censure or 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.”  Rule 102(e)(1)(iv) and Section 4C(b) 
+define “improper professional conduct” to include: (1) “intentional or knowing conduct, 
+including reckless conduct, that results in a violation of applicable professional standards”9; or 
+(2) negligent conduct in the form of: (i) “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”; or (ii) “repeated 
+                                                 
+9 The Commission defines recklessness under Rule 102(e) to be the same as recklessness under the 
+antifraud provisions of the federal securities laws: conduct which is an extreme departure from the 
+standards of ordinary care.  See Amendment to Rule 102(e) of the Commission’s Rules of Practice, 63 Fed. 
+Reg. 57164, 57167 (Oct. 26, 1998). 
+ 
+11 
+ 
+instances of unreasonable conduct, each resulting in a violation of applicable professional 
+standards, that indicate a lack of competence to practice before the Commission.”10 
+ 
+37. During the 2009, 2010, and 2011 Exams, Respondents engaged in the following 
+improper professional conduct: 
+ 
+a. Respondents failed to file Form ADV-E with the Commission in connection 
+with the 2009, 2010, and 2011 Exams.  See AT Section 101.39 (requiring 
+accountant to exercise “due professional care” in performing engagement); 
+AT Section 601.38 (requiring accountant to exercise “due care” in performing  
+engagement). 
+ 
+b. Respondents failed to complete the 2010 and 2011 Exams or withdraw from 
+these engagements and notify PIM of such withdrawals on a timely basis.  See 
+AT Section 101.64 (“The practitioner who accepts an attest engagement 
+should issue a report . . . or withdraw from the attest engagement.”). 
+ 
+c. Respondents issued a report containing an unqualified opinion in connection 
+with the 2009 Exam in contravention of AT Section 101’s and AT Section 
+601’s requirements that they obtain a management assertion from PIM in 
+order to do so.  See AT Section 101.58 (“When the practitioner’s client is the 
+responsible party, a failure to obtain a written assertion should result in the 
+practitioner concluding that a scope limitation exists.”); AT Section 601.11 
+(“[T]he practitioner should obtain from the responsible party a written 
+assertion . . . .”). 
+ 
+d. Respondents lacked a reasonable basis to conclude in their 2009 Exam report 
+that management’s assertion that PIM complied with the Prior Custody Rule 
+was fairly stated, in all material respects, because they identified material 
+variances in the records of certain of PIM’s client securities-holding accounts, 
+but did not obtain evidence to explain these variances or otherwise reconcile 
+these variances.  See AT Section 101.51. 
+ 
+38. Findings 
+ 
+  a. Based on the foregoing, the Commission finds that Respondents caused 
+violations of Section 206(4) of the Advisers Act and Rule 206(4)-2 
+thereunder by Professional Investment Management, Inc. 
+                                                 
+10 Rule 102(e)(1)(iv) describes improper professional conduct with respect to persons licensed as 
+accountants; Section 4C(b) describes improper professional conduct with respect to any registered public 
+accounting firm or associated person. 
+ 
+12 
+ 
+ 
+  b. Based on the foregoing, the Commission finds that Respondents engaged in 
+improper professional conduct pursuant to Section 4C(a)(2) of the 
+Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+ Accordingly, it is hereby ORDERED pursuant to Section 4C of the Exchange Act, Section 
+203(k) of the Advisers Act, and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice effective 
+immediately, that: 
+ A. Respondents shall cease and desist from committing or causing any violations and 
+any future violations of Section 206(4) of the Advisers Act and Rule 206(4)-2 promulgated 
+thereunder.  
+ 
+ Wilson  
+  
+ B. Respondent Wilson is denied the privilege of appearing or practicing before the 
+Commission as an accountant.   
+ 
+ C. Respondent Wilson shall, within ten (10) days of the entry of this Order, pay a civil 
+money penalty in the amount of $50,000 to the Securities and Exchange Commission .  If timely 
+payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  Payment must 
+be made in one of the following ways:   
+ 
+ (1)  Respondent Wilson may transmit payment electronically to the 
+Commission, which will provide detailed ACH transfer/Fedwire 
+instructions upon request;  
+ 
+ (2)  Respondent Wilson may make direct payment from a bank account via 
+Pay.gov through the SEC website at 
+http://www.sec.gov/about/offices/ofm.htm; or  
+  
+ (3)  Respondent Wilson 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 
+ 
+13 
+ 
+  6500 South MacArthur Boulevard 
+  Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Respondent Wilson as a Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to Paul Montoya, 
+Associate Director, Division of Enforcement, Securities and Exchange Commission, Chicago 
+Regional Office, 175 West Jackson Boulevard, Suite 900, Chicago, IL 60604-2908.   
+ 
+ The Firm 
+ 
+ D. Respondent Firm is denied the privilege of appearing or practicing before the 
+Commission as an accountant.   
+ 
+ E. After three years from the date of this order, Respondent Firm may request that 
+the Commission consider its reinstatement by submitting an application (attention: Office of 
+the Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or a 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 Firm’s work in its practice before the Commission will be 
+reviewed either by the independent audit committee of the public company 
+for which it works or in some other acceptable manner, as long as it 
+practices before the Commission in this capacity; and/or 
+ 
+  2.    an independent accountant.  Such an application must satisfy the 
+Commission that: 
+      
+           (a) Respondent Firm, or the public accounting firm with which it 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 Firm, or the registered public accounting firm with 
+which it 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 
+ 
+14 
+ 
+imposed by the Board (other than reinstatement by the 
+Commission); and 
+ 
+   (d) Respondent acknowledges his/her responsibility, as long as 
+Respondent appears or practices before the Commission as an 
+independent accountant, to comply with all requirements of the 
+Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring 
+partner reviews and quality control standards.   
+ 
+F. The Commission will consider an application by Respondent Firm to resume 
+appearing or practicing before the Commission provided that its state CPA license is current and 
+it 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 Firm’s character, integrity, professional conduct, or qualifications to appear or 
+practice before the Commission. 
+ 
+ G. Respondent Firm shall, within ten (10) days of the entry of this Order,  pay to the 
+Securities and Exchange Commission: (i) a civil money penalty in the amount of $ 25,000; (ii) 
+disgorgement in the amount of $10,868, which represents profits gained as a result of the conduct 
+described herein ; and (iii) prejudgment interest of $ 1,029.  If timely payment is not made, 
+additional interest shall accrue pursuant to 31 U.S.C. § 3717 and SEC 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 SEC 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 
+ 
+ 
+15 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Respondent Firm as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to Paul Montoya, Associate 
+Director, Division of Enforcement, Securities and Exchange Commission, Chicago Regional 
+Office, 175 West Jackson Boulevard, Suite 900, Chicago, IL 60604-2908.   
+ 
+ I.  Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair 
+Fund is created for the disgorgement, interest and penalties referenced in paragraphs IV.C and 
+IV.G, above.  Regardless of whether any such Fair Fund distribution is made, amounts ordered to 
+be paid as civil money penalties pursuant to this Order shall be treated as penalties paid to the 
+government for all purposes, including all tax purposes.  To preserve the deterrent effect of the 
+civil penalty, Respondents agree that in any Related Investor Action, they shall not argue that they 
+are entitled to, nor shall they benefit by, offset or reduction of any award of compensatory damages 
+by the amount of any part of Respondents’ payment of a civil penalty in this action (“Penalty 
+Offset”).  If the court in any Related Investor Action grants such a Penalty Offset, Respondents 
+agree that they shall, within 30 days after entry of a final order granting the Penalty Offset, notify 
+the Commission’s counsel in this action and pay the amount of the Penalty Offset to the Securities 
+and Exchange Commission.  Such a payment shall not be deemed an additional civil penalty and 
+shall not be deemed to change the amount of the civil penalty imposed in this proceeding.  For 
+purposes of this paragraph, a “Related Investor Action” means a private damages action brought 
+against any or both of the Respondents by or on behalf of one or more investors based on 
+substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+  
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and admitted by 
+Respondents, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondents under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondents of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. § 523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 

raw/aaer/2015/AAER-3669.txt

@@ -0,0 +1,118 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  75382 / July 7, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3669 / July 7, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-15877 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+BRYCE WALKER, CA and 
+SPENCE WALKER, CA, CPA 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER AMENDING 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS PURSUANT 
+TO SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+  
+ 
+I. 
+ 
+ On May 20, 2014, the Securities and Exchange Commission (“Commission”) issued an 
+order instituting public administrative and cease-and-desist proceedings 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 (the “2014 Order”) against Bryce Walker, CA, and Spence 
+Walker, CA, CPA (“Respondents”). 
+ 
+II. 
+ 
+ Respondents consented to the entry of the 2014 Order.  Among other things, the 2014 
+Order required Respondents to pay, jointly and severally, $128,000 in disgorgement and 
+prejudgment interest of $10,954.   
+ 
+  
+ 2 
+III. 
+ 
+ Respondents have submitted an Amended Offer of Settlement (the “Offer”) proposing to 
+amend the sum of disgorgement ordered paid in the 2014 Order.  Solely for the purpose of these 
+proceedings, and any other proceedings brought by or on behalf of the Commission, and to 
+which the Commission is a party, and without admitting or denying the findings in the 2014 
+Order, 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 Amending 
+Order Instituting Public Administrative Cease-and-Desist Proceedings 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, Making Findings, and Imposing Remedial Sanctions and a Cease-
+and-Desist Order, as set forth below. 
+ 
+IV. 
+ 
+ The Commission deems it appropriate and in the public interest to amend the 2014 Order 
+as agreed to in Respondent’s Offer. 
+ 
+ Accordingly, IT IS HEREBY ORDERED that: 
+ 
+A. Section IV.H. of the 2014 Order is amended as follows to order: 
+ 
+Respondents Bryce Walker and Spence Walker, jointly and severally, shall, within sixty 
+(60) days of the entry of this Order, pay disgorgement of $93,135.16 and prejudgment 
+interest of $11,233.05 to the Securities and Exchange Commission.  If timely payment is 
+not made, additional interest shall accrue pursuant to SEC Rule of Practice 600.  Payment 
+must be made in one of the following ways: 
+ 
+ (1)  Respondents may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request;  
+ 
+ (2)  Respondents may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+ (3)  Respondents 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 
+ 
+ 3 
+ Payments by check or money order must be accompanied by a cover letter identifying 
+Spence Walker or Bryce Walker as a Respondent in these proceedings, and the file number of 
+these proceedings; a copy of the cover letter and check or money order must be sent to John T. 
+Dugan, Division of Enforcement, Securities and Exchange Commission, 33 Arch Street, 23rd 
+Floor, Boston, MA 02110. 
+ 
+B. All other provisions of the 2014 Order remain in effect: 
+ 
+ 
+ By the Commission. 
+ 
+ 
+        
+       Brent J. Fields 
+       Secretary 

raw/aaer/2015/AAER-3670.txt

@@ -0,0 +1,871 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75401 / July 8, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  3670 / July 8, 2015 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 4138 / July 8, 2015 
+ 
+INVESTMENT COMPANY ACT OF 1940 
+Release No. 31710 / July 8, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16328 
+ 
+ 
+In the Matter of 
+ 
+VERO CAPITAL 
+MANAGEMENT, LLC,  
+ROBERT GEIGER, 
+GEORGE BARBARESI, ESQ, 
+and STEVEN DOWNEY, CPA 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER MAKING FINDINGS AND 
+IMPOSING REMEDIAL SANCTIONS 
+AND A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTIONS 203(e), 
+203(f), AND 203(k) OF THE 
+INVESTMENT ADVISERS ACT OF 
+1940, SECTION 9(b) OF THE 
+INVESTMENT COMPANY ACT OF 
+1940 AS TO ALL RESPONDENTS, 
+AND PURSUANT TO RULE 102(e) OF 
+THE COMMISSION’S RULES OF 
+PRACTICE AS TO STEVEN 
+DOWNEY, AND INSTITUTING 
+PUBLIC ADMINISTRATIVE 
+PROCEEDINGS, MAKING FINDINGS, 
+AND IMPOSING SANCTIONS 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 
+1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF 
+PRACTICE AS TO GEORGE 
+BARBARESI 
+  
+I. 
+ 
+ On December 29, 2014, the Securities and Exchange Commission (“Commission”) 
+instituted public administrative and cease-and-desist proceedings against VERO Capital 
+ 2 
+Management, LLC (“VERO Capital”), Robert Geiger (“Geiger”), George Barbaresi 
+(“Barbaresi”), and Steven Downey (“Downey,” and collectively, “Respondents”) pursuant 
+to Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act of 1940 (“Advisers 
+Act”) and Section 9(b) of the Investment Company Act of 1940 (“Investment Company 
+Act”) and against Downey pursuant to Rule 102(e)(1) of the Commission’s Rules of 
+Practice (“Rules of Practice”).  In addition, the Commission deems it appropriate that 
+public administrative and cease-and-desist proceedings be, and hereby are, instituted 
+against Barbaresi pursuant to Section 4C1 of the Securities Exchange Act of 1934 
+(“Exchange Act”) and Rule 102(e)(1)(iii) of the Rules of Practice.2 
+ 
+II. 
+ 
+ In response to the institution of these proceedings, Respondents have submitted 
+Offers of Settlement (“Offers”), which the Commission has determined to accept.  Solely for 
+the purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over them and the subject matter 
+of these proceedings, which are admitted, and except as provided herein in Section V, 
+Respondents consent to the entry of this Order Making Findings and Imposing Remedial 
+Sanctions and a Cease-and-Desist Order Pursuant to Sections 203(e), 203(f), and 203(k) of 
+the Investment Advisers Act of 1940, Section 9(b) of the Investment Company Act of 1940 
+as to all Respondents, and Pursuant to Rule 102(e) of the Commission’s Rules of Practice 
+as to Steven Downey, and Instituting Public Administrative Proceedings, Making Findings, 
+and Imposing Sanctions Pursuant to Section 4C of the Securities Exchange Act of 1934 and 
+Rule 102(e) of the Commission’s Rules of Practice as to George Barbaresi (“Order”), as set 
+forth below. 
+                                                 
+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)(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. 
+ 
+ 3 
+ 
+III. 
+ 
+On the basis of this Order and Respondents’ Offers, the Commission finds that: 
+ 
+ A. SUMMARY 
+ 
+1. These proceedings arise out of Respondents’ investment management 
+activities on behalf of VERO Capital’s advisory clients, the VERO Distressed ABS 
+Opportunity Fund, B.V. (“Distressed Fund”) and the VERO Distressed ABS Opportunity 
+Master Fund, B.V. (the “Master Fund” and, collectively with the Distressed Fund, the 
+“Funds”).   
+ 
+2. Between late 2010 and 2011, Respondents caused the Funds to purchase 
+three notes, with a total principal value of $7 million, from VERO Asset Management, 
+LLC (“VERO Asset”), an affiliate of VERO Capital.  Because the Funds were purchasing 
+the notes from a VERO Capital affiliate, the transactions constituted principal transactions 
+under Section 206(3) of the Advisers Act, which require written notice and consent of the 
+client before the completion of the transaction.  The client’s consent was not obtained 
+before the completion of each individual transaction. 
+ 
+3. Thereafter, from 2012 to 2013, Respondents improperly diverted 
+approximately $2.8 million from the Funds for VERO Capital’s wholly-owned subsidiary 
+(the “VERO affiliate”), by causing the Funds to make a series of undocumented, 
+undisclosed bridge loans to the VERO affiliate.  At the same time Respondents were 
+transferring the Funds’ assets to the VERO affiliate, they were telling the Distressed Fund’s 
+investors and the Funds’ director that they were winding down the Funds and actively 
+working to liquidate their remaining investments for redemption.  None of the Respondents 
+disclosed the bridge loans to the Funds or any of their investors.   
+ 
+ B. RESPONDENTS 
+ 
+4. VERO Capital is a Delaware limited liability company formed in 2003 
+with its principal place of business in New York, New York.  It has been registered with 
+the Commission as an investment adviser since 2008.  VERO Capital is the investment 
+manager to the Distressed Fund.  Respondents Geiger, Downey, and Barbaresi are part 
+owners of, and are associated with,3 VERO Capital..  VERO Capital has several wholly-
+owned subsidiaries, which included the VERO affiliate at all times relevant to the activities 
+detailed herein. 
+ 
+                                                 
+3  A “person associated with” an investment adviser means “any partner, officer, or 
+director of such investment adviser (or any person performing similar functions), or any 
+person directly or indirectly controlling or controlled by such investment adviser, 
+including any employee of such investment adviser . . . .”  See Advisers Act § 202(a)(17).  
+ 4 
+5. Geiger, age 55, resides in Wainscott, New York.  Geiger is a co-owner of 
+VERO Capital, and through it, the VERO affiliate, and has served as VERO Capital’s 
+managing member since 2003.  From at least 2010 through December 2013 (the “Relevant 
+Period”), Geiger served on VERO Capital’s Investment Committee.  Geiger was the VERO 
+affiliate’s managing member at all times relevant to the activities detailed herein as well.  
+Geiger has previously held Series 3, 7, and 63 licenses, but he is not currently registered 
+with the Commission in any capacity. 
+ 
+6. Barbaresi, age 59, resides in Dayton, Ohio.  Barbaresi is a co-owner of 
+VERO Capital, and through it, the VERO affiliate, and has served as VERO Capital’s 
+general counsel since December 2003.  During the Relevant Period, Barbaresi served on 
+VERO Capital’s Investment Committee.  Barbaresi is the VERO affiliate’s general counsel 
+as well.  Barbaresi is an attorney in good standing licensed to practice in New York, 
+Connecticut, and the District of Columbia   
+ 
+7. Downey, age 57, resides in Prospect, Kentucky.  Downey is a co-owner of 
+VERO Capital, and through it, the VERO affiliate, and has served as VERO Capital’s chief 
+financial officer since August 2004.  During the Relevant Period, Downey served on 
+VERO Capital’s Investment Committee.  Downey is the VERO affiliate’s chief financial 
+officer as well.  Downey has been a certified public accountant licensed to practice in 
+Florida and Alabama, although his license is not currently active in any jurisdiction and he 
+does not hold himself out as a CPA. 
+ 
+ C. OTHER RELEVANT ENTITIES 
+ 
+8. The VERO affiliate is a Delaware limited liability company formed in 
+2008 with its principal place of business in New York, New York.  During the Relevant 
+Period, the VERO affiliate was a wholly-owned subsidiary of VERO Capital.  The VERO 
+affiliate’s officers and its marketing materials describe the company as a risk analytics 
+business.  
+9. The Distressed Fund is a private company with limited liability 
+incorporated under the laws of the Netherlands in 2008.  The Distressed Fund is 100% 
+owned by Stichting VERO Distressed ABS Opportunity Fund, a foundation established 
+under the laws of the Netherlands, and incorporated by TMF Management, B.V. (“TMF 
+Management”), a Dutch corporate services provider.  The Distressed Fund aimed to 
+achieve returns by investing in the affiliated Master Fund, which made investments in 
+various securities. 
+10. The Master Fund is a private company with limited liability incorporated 
+under the laws of the Netherlands in 2007.  The Master Fund is 100% owned by Stichting 
+VERO Distressed ABS Opportunity Master Fund, a foundation established under the laws 
+of the Netherlands, and incorporated by TMF Management.  The Master Fund’s primary 
+stated investment objective was to maximize returns by investing in a diverse portfolio of 
+mortgage-related structured finance securities, whole mortgage loans and other fixed-
+income instruments. 
+ 5 
+11. VERO Asset is a Delaware limited liability company formed in 2003 with 
+its principal place of business in New York, New York.  During the Relevant Period, 
+VERO Asset was a wholly-owned subsidiary of VERO Capital that made certain loans, 
+including one to Cayden Holdings, LLC (“Cayden”), a VERO Capital affiliate, that the 
+Funds later purchased. 
+12. VERO Realty Advisors, LLC (“VERO Realty”) is a Delaware limited 
+liability company formed in 2012 with its principal place of business in New York, New 
+York.  During the Relevant Period, VERO Realty was a wholly-owned subsidiary of 
+VERO Capital.  Certain funds that VERO Capital diverted from the Funds to the VERO 
+affiliate in 2013 were initially transferred to a bank account held in the name of VERO 
+Realty. 
+13. Cayden is a Delaware limited liability company formed in 2007 with its 
+principal place of business in Baltimore, Maryland.  During the Relevant Period, Cayden 
+was a wholly-owned subsidiary of VERO Asset.  The Funds purchased a note from VERO 
+Asset in November 2010 that evidenced a $3 million loan that VERO Asset had made to 
+Cayden (the “Cayden Note”).  VERO Capital ultimately diverted to the VERO affiliate a 
+portion of the money that was due to the Funds to repay the $3 million loan. 
+14. TMF Management is a Dutch private company with limited liability 
+headquartered in Amsterdam, The Netherlands.  TMF Management served as director for 
+the Distressed Fund and the Master Fund and provided management, corporate and 
+administrative services to the Funds, with the exception of investment management 
+services, which VERO Capital provided. 
+D. FACTS 
+Background  
+15. The Distressed Fund and the Master Fund are structured in a master-feeder 
+relationship.  The Distressed Fund is the feeder fund and aimed to generate returns by 
+investing substantially all of its cash (raised from issuing notes to investors) in notes issued 
+by the Master Fund.  The Master Fund then used those proceeds to invest in mortgage-
+related finance securities and other distressed investments, as described below.  Both the 
+Distressed and Master Funds are Dutch companies each of whose shares are entirely owned 
+by separate Dutch foundations, or “stichtings.”  The stichtings were incorporated by TMF 
+Management, a Dutch corporate services provider, which serves as the director for both 
+Funds.  The stichtings are legal entities without shareholders whose object is to hold the 
+shares of the Funds and have overall control over the Funds’ management.  However, the 
+Funds, through TMF Management, delegated to VERO Capital the exclusive power and 
+authority to manage the Funds’ investments on a discretionary basis. 
+16. VERO Capital marketed the Distressed Fund to three foreign investors in 
+2008, raising approximately $75 million by selling them participating notes issued by the 
+Fund, with the vast majority coming from two of the three investors.  According to the 
+Distressed Fund’s private placement memorandum (“PPM”), its principal investment 
+ 6 
+objective was to achieve returns by investing through the Master Fund in a diverse 
+portfolio of mortgage-related finance securities, whole mortgage loans and other fixed 
+income instruments, including rated or unrated and performing or distressed securities 
+issued by issuers of collateralized debt obligations, and special situation investments.  The 
+Distressed Fund could invest in a broad array of assets, but the Distressed Fund’s PPM 
+stated that “[i]t is intended that the portfolio will consist of approximately 80% U.S. RMBS 
+Securities and there will be no . . . corporate credit risk.”  The Distressed Fund’s two 
+biggest investors understood that the Fund’s primary purpose was to invest in mortgage-
+backed securities. 
+17. With respect to transactions involving affiliates of VERO Capital, the PPM 
+stated that VERO Capital may purchase loans originated or syndicated by any affiliate of 
+VERO Capital or otherwise engage in affiliated transactions on behalf of the Fund.  
+However, to do so, VERO Capital was required to obtain the prior written consent of a 
+committee comprised of VERO Capital’s investment professionals (the “Investment 
+Committee”).  At all times relevant to this action, Geiger, Barbaresi, and Downey were 
+members of the Investment Committee.  No person independent of VERO Capital served 
+on the Investment Committee. 
+Purchase of the Cayden Note 
+18. After their inception, the Funds invested primarily in residential and then 
+commercial mortgage-backed securities (“RMBS” and “CMBS”).  They undertook other 
+investments as well.  Specifically, in November 2010, the Investment Committee, on which 
+Geiger, Downey, and Barbaresi sat, approved a transaction in which the Distressed Fund 
+was to purchase the $3 million Cayden Note from VERO Asset.4  Under the terms of the 
+Cayden Note, VERO Asset loaned $3 million to another VERO Capital affiliate, Cayden.  
+The Cayden Note paid 15% interest per annum due in monthly installments, with the entire 
+principal due on December 1, 2013.  The interest rate increased to 19% per annum in the 
+event of a default.  The Cayden Note also provided that its holder could accelerate the 
+payment of the Note’s principal in the event of a default. 
+19. This affiliated investment was documented by a written authorization by the 
+Investment Committee; however, the investment was not disclosed prior to its completion 
+to TMF Management or to any Distressed Fund investor; nor was consent for the 
+investment obtained from any party outside VERO Capital. 
+20. The consent authorizing the purchase of the Cayden Note made clear that 
+the purpose for the loan was for Cayden to make certain trades involving Government 
+                                                 
+4  In fact, the Master Fund purchased the Cayden Note according to the 2010 audited 
+financial statements.  The PPM disclosed that the Distressed Fund and the Master Fund 
+would be treated interchangeably:  “Unless specified otherwise, references herein to the 
+Fund’s investments and investment program include references to the Master Fund’s 
+investments and investment program, to the extent that the Fund invests through the 
+Master Fund.”  Geiger, Downey and Barbaresi made little effort to distinguish among 
+them. 
+ 7 
+National Mortgage Association (“GNMA”) mortgage-backed securities.  Cayden’s 
+business plan was to enter into agreements to fund Federal Housing Administration backed 
+fixed-rate construction loan commitments.  Draws funded under the loan commitments 
+were guaranteed as to the principal by GNMA, and therefore once the loans were made, 
+they were securitized and Cayden sold the GNMA securities into the aftermarket (the 
+“GNMA trading strategy”).  The GNMA trading strategy generated profits for Cayden 
+through 2011 and 2012.   
+21. VERO Capital disclosed the Master Fund’s purchase of the Cayden Note 
+and Cayden’s GNMA trading strategy in the notes to the Master Fund’s year-end 2010 
+audited financial statements, which were sent to the Distressed Fund’s investors in April 
+2011.  Cayden made interest payments on the Cayden Note to the Master Fund until 
+February 2013 at which point Cayden defaulted.  Although Cayden’s failure to pay interest 
+when due permitted the Master Fund to accelerate the maturity of the Cayden Note, VERO 
+Capital made no effort to collect on the Cayden Note on the Funds’ behalf, as described 
+below.   
+Purchase of the Envo and Tallas Notes 
+22. In December 2011, the Investment Committee approved the Distressed 
+Fund’s purchase of two additional promissory notes from VERO Asset.5  Under the terms 
+of the notes, VERO Asset loaned $2 million each to two unaffiliated issuers, Envo 
+Properties, LLC (“Envo”) and Tallas Properties, LLC (“Tallas”).  The loans’ purpose was 
+for Envo and Tallas to make real-estate related investments.  The notes (hereinafter the 
+“Envo and Tallas Notes”) paid 12% interest per annum.  The Envo and Tallas Notes were 
+guaranteed by an individual and were due to mature January 31, 2013.   
+23. On December 12, 2011, approximately one week after VERO Asset 
+originated the Envo and Tallas Notes and the Master Fund purchased them, the 
+Commission charged the guarantor and others with operating a Ponzi scheme.  See SEC v. 
+Management Solutions, Inc., No. 2:11-cv-01165-BSJ (D. Utah).  Simultaneously with the 
+filing of its lawsuit, the Commission obtained a court order freezing the guarantor’s assets 
+and the assets of entities under his control.  Like the purchase of the Cayden Note, the 
+Investment Committee approved the purchase of the Envo and Tallas Notes, but the 
+investments were not disclosed prior to their being completed to TMF Management or to 
+any Distressed Fund investor; nor was consent for the investments obtained from any party 
+outside VERO Capital. 
+24. In early 2012, Barbaresi and Downey took steps to recoup the principal on 
+the Envo and Tallas Notes.  As a result of those efforts, in July 2012, VERO Capital 
+recouped approximately $2.1 million of the principal on the Envo and Tallas Notes.  Of this 
+amount, VERO Capital returned $1.5 million to the Master Fund in September 2012.  As 
+                                                 
+5  As was true with the purchase of the Cayden Note, the 2011 audited financial 
+statements indicate that it was the Master Fund, not the Distressed Fund, that purchased 
+the Envo and Tallas Notes. 
+ 8 
+described further below, VERO Capital diverted the remaining approximately $600,000 for 
+the VERO affiliate, which drew down on it over time.   
+25. VERO Capital disclosed the purchase of the Envo and Tallas Notes in the 
+notes to the Funds’ audited financial statements for year-end 2011.  In addition, in April 
+2012, VERO Capital sent a letter to the Distressed Fund’s investors, enclosing the audited 
+2011 financial statements for the Funds, that described the situation with the Envo and 
+Tallas Notes.  In the letter, VERO Capital stated that it was placing the Envo and Tallas 
+loans on “non-accrual status” and “after much deliberation” was adjusting the fair value of 
+the notes to approximately $1.8 million for each note to “reflect a liquidity discount.”  
+Respondents Communicate that the Funds Are Winding Down and  
+Investors Will Be Redeemed 
+26. By the fall of 2011, VERO Capital began returning principal to the 
+Distressed Fund’s investors.  In a June 2012 email, a representative of one of the investors 
+sought information from Geiger about the timing of the wind down and return of 
+investment:  “My understanding was the [sic] VERO should have been redeemed in full by 
+now.  As it’s not, do you have a liquidity schedule for the remaining part?”  Geiger 
+responded that VERO Capital had been returning principal “since last Fall” and that VERO 
+Capital was “seeking to make three more distributions before the end of the year, returning 
+the remainder by year end, with a potential tail in January” 2013.  After the same investor 
+representative asked for an update at the beginning of September 2012, Downey drafted an 
+email response ultimately sent by Barbaresi stating that VERO Capital remained 
+committed to making another distribution in October 2012.  Barbaresi added: “As we 
+continue to sell assets and raise cash, we will be able to obtain greater clarity around the 
+liquidity in the market.  We should know by early December if the third distribution will be 
+in December or later as we continue to gain clarity and finish the wind up of the fund.” 
+27. In 2013, the Distressed Fund’s two major investors continued to ask about 
+the status of the Fund’s wind-down and the return of their principal.  For example, in April 
+2013, a representative of one of these investors asked for another update on the Distressed 
+Fund’s wind-down, noting that “[b]ack in Jun/12 the fund was estimated to be fully 
+distributed before end of 2012, with a potential tail into Jan/13.”  Barbaresi responded later 
+in the month:  “We have been actively liquidating the fund’s assets and the remaining 
+assets are very illiquid. . . . We hope to have the remaining assets sold by the second half of 
+the year and will keep you updated on ongoing asset sales and distributions.”  
+Subsequently, in May, Barbaresi told another investor representative that “[w]e really can’t 
+accurately predict when the final liquidation of the fund will occur, as we discussed, we are 
+looking at options to put the last of the illiquid assets into a structure that will not incur 
+administrative fees.”   
+28. In June 2013, Downey, in response to questions by TMF Management 
+about when it could expect the Funds’ 2012 audit reports, notified TMF Management that 
+VERO Capital had begun to wind down the Fund, and that an audit would be conducted 
+together with the wind-down audit.  Prior to that time, none of the Respondents notified 
+TMF Management of VERO Capital’s intentions to liquidate the Funds, and the only notice 
+ 9 
+TMF Management received of the Funds’ return of principal to investors was a line item in 
+the 2011 audited financial statements that TMF Management received some time in or after 
+April 2012. 
+The Undisclosed Loans from the Funds to Finance the VERO Affiliate 
+29. Beginning in at least 2008, while it was serving as investment manager to 
+the Funds, VERO Capital was also developing the VERO affiliate as a risk management 
+business or financial services technology company.  The VERO affiliate’s business plan 
+was to provide large financial institutions with a platform to assist them with modeling the 
+valuation of various pieces of their portfolios in different economic scenarios.  VERO 
+Capital anticipated that the demand for this type of service would increase following the 
+financial crisis in 2008 and the passage of the Dodd-Frank Act, with its requirements that 
+large financial institutions perform “stress tests” on their portfolios.   
+30. During all times relevant to this action, the VERO affiliate was a wholly-
+owned subsidiary of VERO Capital.  Because they were co-owners of VERO Capital, 
+Geiger, Barbaresi, and Downey were also co-owners of the VERO affiliate.  In 
+approximately 2010, Downey began treating the VERO affiliate as a separate entity for 
+accounting purposes, booking revenues and expenses of the VERO affiliate separately from 
+VERO Capital.  Beginning in 2010, most VERO Capital employees became employees of 
+the VERO affiliate.   
+31. Beginning in at least February 2012 and continuing through October 2013, 
+when Commission examination staff commenced an examination of VERO Capital, 
+Geiger, Barbaresi, and Downey, through VERO Capital, improperly diverted 
+approximately $2.8 million in assets of the Funds for purposes of financing the VERO 
+affiliate’s operations.  While informing the Distressed Fund’s investors that the Funds were 
+being wound down, Respondents at the same time transferred the money from the Funds 
+through purported bridge loans to the VERO affiliate.  These loans were never 
+documented, nor were any of them disclosed to the Funds or their investors until after the 
+Division of Enforcement (“Division”) had commenced its investigation.  In making the 
+bridge loans to the VERO affiliate, Geiger, Barbaresi, and Downey did not follow the 
+procedures for affiliated transactions set forth in the PPM.  Nor were any of the bridge 
+loans to the VERO affiliate reduced to writing, although they were recorded in the Master 
+Fund’s general ledger. 
+32. VERO Capital accomplished the transfers from the Funds to the VERO 
+affiliate in multiple transactions.  First, as the money invested through the Cayden Note in 
+the GNMA trades was returned to Cayden as those trades were closed out throughout 2012, 
+Geiger, Downey, and Barbaresi used at least $1.4 million to benefit the VERO affiliate, 
+rather than returning it to the Funds.  Downey arranged the transfer of the $1.4 million over 
+time from accounts associated with Cayden to accounts associated with VERO Capital, 
+VERO Asset, or the VERO affiliate, ultimately for the VERO affiliate’s benefit.  None of 
+the Respondents prepared any documentation concerning the transfers to indicate whether 
+they were loans or investments by Cayden in the VERO affiliate. 
+ 10 
+33. Second, in July 2012, VERO Capital secured the return of $2.1 million of 
+the Envo and Tallas Notes’ principal.  While VERO Capital transferred $1.5 million of that 
+amount back to the Funds, Geiger, Barbaresi, and Downey used the remaining $600,000 
+for the benefit of the VERO affiliate from December 2012 through February 2013.  As 
+VERO Capital and the VERO affiliate’s CFO, Downey was primarily responsible for 
+disbursing money on their behalf, and Geiger and Barbaresi were aware, or should have 
+been aware, that Downey was using returned Envo and Tallas Note principal to benefit the 
+VERO affiliate. 
+34. Finally, in August and September 2013, as the VERO affiliate’s bank 
+account was nearly depleted, and after VERO Capital had notified TMF Management that 
+the Funds were being liquidated, Downey orchestrated two transfers, of $500,000 and 
+$300,000, respectively, from the Master Fund’s custodial bank account for the benefit of 
+the VERO affiliate.  Downey directed the August and September 2013 transfers from the 
+Master Fund’s account at U.S. Bank to VERO Realty, another VERO Capital affiliate. 
+35. Because U.S. Bank also served as the Funds’ administrator and therefore 
+maintained their books and records, Downey had to provide a reason to U.S. Bank for the 
+two disbursements so that U.S. Bank could document what the money was being used for.   
+36. In an August 1, 2013 email to U.S. Bank, Downey, copying Barbaresi, 
+advised the bank that VERO Capital (through its affiliate, VERO Realty) would invest the 
+$500,000 that he requested in a property related to the Master Fund’s Tallas Note in order 
+to recoup additional principal on the Tallas Note.  Downey and Barbaresi were aware, or 
+should have been aware, that the $500,000 would not be used to invest in a property related 
+to the Tallas Note, but would instead be transferred to pay VERO Capital’s and the VERO 
+affiliate’s expenses.   
+ 
+37. The same day, U.S. Bank wired $500,000 to the VERO Realty account.  
+Immediately thereafter, also on August 1, Downey transferred $80,000 of the $500,000 
+from the VERO Realty account to a VERO Capital account and used the money to pay for 
+the VERO affiliate’s expenses.  On August 2, Downey made two transfers of $50,000 and 
+$20,000 from the VERO Realty account to the VERO Capital account, and then 
+subsequently transferred that money to a VERO affiliate account.   
+ 
+38. By September 12, 2013, Downey had transferred all of the $500,000 from 
+the VERO Realty account for the benefit of the VERO affiliate.  Geiger was aware, or 
+should have been aware, that Downey and Barbaresi obtained the $500,000 from the 
+Master Fund’s account and used the money for the VERO affiliate. 
+39. Again, on September 26, 2013, Downey emailed U.S. Bank, this time 
+copying Barbaresi and Geiger, requesting another transfer to VERO Realty for expenses 
+related to the Tallas properties, again ostensibly for the purposes of recouping additional 
+principal related to the Tallas Note.  As part of his September 26, 2013 email, Downey 
+forwarded the previous request for $500,000 that he made on August 1.  Downey, 
+Barbaresi, and Geiger were aware, or should have been aware, that the September 26, 2013 
+ 11 
+transfer from the Master Fund account would not be used for expenses related to the Tallas 
+properties. 
+40. U.S. Bank wired $300,000 to the VERO Realty account on September 26, 
+and Downey began drawing down the account the next day.  By October 23, 2013, 
+Downey had used the entirety of the $300,000 for the benefit of the VERO affiliate.   
+41. The $500,000 and $300,000 transferred from the Master Fund account on 
+August 1, 2013 and September 26, 2013, respectively, were not approved or documented 
+by the Fund’s Investment Committee.  Neither Downey, Barbaresi nor Geiger ever advised 
+TMF Management, U.S. Bank, or Distressed Fund investors that the Master Fund’s money 
+had been used for the benefit of the VERO affiliate until after the commencement of the 
+Division’s investigation. 
+ 
+ Respondents’ Nondisclosure of the Transfers to the VERO Affiliate 
+ 
+42. The Respondents took no action to disclose the transfers from the Funds to 
+the VERO affiliate.  The Funds’ bridge loans to the VERO affiliate were not timely 
+disclosed to the Distressed Fund’s investors or TMF Management.  During the period when 
+the Funds’ assets were being used to finance the VERO affiliate, Downey, Geiger and 
+Barbaresi each prepared and/or reviewed periodic (monthly, then quarterly) newsletters to 
+the Distressed Fund’s investors in which the nature and amount of the Fund’s investments 
+were purportedly described to them.  None of those newsletters disclosed the existence of 
+the transfers to the VERO affiliate.  None of the loans to the VERO affiliate was properly 
+documented in any loan agreements.  Downey only directed that they be recorded as entries 
+in VERO Capital’s general ledger.  At no time did anyone prepare any promissory note or 
+other document evidencing the VERO affiliate’s debt to the Funds as a result of the 
+approximately $2.8 million in ostensible loans that the Funds provided.   
+ 
+43. Cayden first defaulted on interest payments due to the Funds under the 
+Cayden Note in February 2013.  Cayden defaulted on the interest payments even though 
+Cayden’s original investment strategy, the GNMA trading strategy, had been profitable.  
+When Cayden stopped paying interest, under the terms of the Cayden Note, the Funds 
+could have called the loan and accelerated the due date for the return of the principal 
+(which was December 1, 2013).  No one associated with VERO Capital took any action to 
+call the loan on the Funds’ behalf.     
+ 
+44. In addition, Downey, who was responsible for valuation of certain of the 
+Funds’ assets, did not mark down the value of the Cayden Note on either Fund’s balance 
+sheet after Cayden defaulted on its interest payments on the Note.  This stood in sharp 
+contrast to his decision to mark down the Envo and Tallas Notes in April 2012.  Nor did 
+Downey or anyone else at VERO Capital inform U.S. Bank, the Funds’ administrator, that 
+Cayden had defaulted on the Cayden Note until December 2013.  As a result of 
+Respondents’ failure to mark down the value of the Cayden Note, the Funds’ assets under 
+management were overstated and their losses understated in quarterly investor statements 
+issued in March 2013 and later.   
+ 
+ 12 
+ Geiger, Barbaresi, and Downey Benefit from the Transfers to the VERO Affiliate 
+ 
+45. Geiger, Barbaresi, and Downey benefited from the transfers from the Funds.  
+For example, from August to October 2013, when the $800,000 from the Master Fund 
+account was the primary source of money for VERO Capital, Downey paid himself more 
+than $125,000 in purported salary and expenses, purportedly earned as a result of work he 
+had performed for the VERO affiliate.  Downey also directed $48,000 to Geiger to pay bills 
+on his behalf, including business expenses due from the VERO affiliate, and wired another 
+$40,000 to Barbaresi, all also representing purported compensation or reimbursement due 
+from the VERO affiliate.   
+ 
+46. In addition, at the time the VERO affiliate was a wholly-owned subsidiary 
+of VERO Capital, which was co-owned by Geiger, Barbaresi, and Downey, among others.  
+The utilization of cash from the Funds to finance the VERO affiliate’s ongoing 
+development and operations in 2012 and 2013 thus inured to the benefit of Geiger, 
+Barbaresi, and Downey, as they stood to gain from any profits that the VERO affiliate 
+ultimately generated.   
+ 
+VERO Capital Failed to Comply with the Custody Rule in 2012 and 2013 
+ 
+47. As investment adviser to the Funds, VERO Capital held custody of Fund 
+assets because it was authorized or permitted to withdraw money from the Master Fund’s 
+custodial account.  Because VERO Capital had custody of client assets, Advisers Act Rule 
+206(4)-2 required VERO Capital to, among other things, provide notice to investors in the 
+Funds upon opening the account with U.S. Bank on their behalf, establish a reasonable 
+belief upon due inquiry that U.S. Bank was delivering account statements to investors in 
+the Fund at least quarterly, and undergo an annual surprise examination by an independent 
+public accountant.  Alternatively, VERO Capital could have had the Funds audited 
+annually by an independent public accountant that was registered with and subject to 
+regular inspection by the Public Company Accounting Oversight Board and distribute 
+audited financial statements prepared in accordance with Generally Accepted Accounting 
+Principles to the investors in the Funds within 120 days of the Funds fiscal year end.  
+VERO Capital did neither in 2012 and 2013.   
+ 
+E. VIOLATIONS 
+ 
+48. As a result of the conduct described above, VERO Capital, Geiger, 
+Barbaresi, and Downey willfully6 violated Sections 206(2) and 206(4) of the Advisers Act 
+and Rule 206(4)-8 promulgated thereunder, which prohibit conduct by an investment 
+adviser that operates as a fraud.  
+ 
+                                                 
+6  A willful violation of the securities laws means merely “‘that the person charged with 
+the duty knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 
+2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)). 
+ 13 
+49. As a result of the conduct described above, VERO Capital willfully violated 
+Section 206(3) of the Advisers Act, which prohibits an investment adviser from, directly or 
+indirectly, “acting as principal for his own account, knowingly to sell any security or to 
+purchase any security from a client . . . without disclosing to such client in writing before 
+the completion of such transaction the capacity in which he is acting and obtaining the 
+consent of the client to such transaction.” 
+ 
+50. As a result of the conduct described above, VERO Capital willfully violated 
+Section 206(4) of the Advisers Act and Rule 206(4)-2 promulgated thereunder, which 
+requires that an investment adviser maintain each client’s funds in bank accounts 
+containing only those client funds, notify its clients about the place and manner in which 
+their funds are maintained, and have client funds and securities verified by an independent 
+public accountant at least once a year without prior notice to the investment adviser. 
+ 
+51. As a result of the conduct described above, Geiger, Barbaresi, and Downey 
+willfully aided and abetted and caused VERO Capital’s violations of Sections 206(2), 
+206(3), and 206(4) of the Advisers Act and Rules 206(4)-2 and 206(4)-8 promulgated 
+thereunder. 
+ 
+F. UNDERTAKINGS 
+ 
+ 52. Respondent VERO Capital has undertaken to cease investment advisory 
+operations and deregister as an investment adviser within 180 days of entry of this Order.  
+The 180 day limit shall not apply to VERO Capital’s role as a named plaintiff in the 
+lawsuits captioned VERO Distressed ABS Opportunity Fund, B.V. et al. v. BC Warner 
+Investments, L.C. et al., Civ. No. 149915059 (3rd Judicial Dist., Salt Lake Cty, Utah) and 
+VERO Distressed ABS Opportunity Fund, B.V. et al. v. Jacobson et al., (3rd Judicial Dist., 
+Salt Lake Cty, Utah (expected)) (collectively, the “Fund Lawsuits”). 
+ 
+53. Respondent VERO Capital has undertaken to certify, in writing, compliance 
+with the undertaking set forth above.  The certification shall identify the undertaking, 
+provide written evidence of compliance in the form of a narrative, and be supported by 
+exhibits sufficient to demonstrate compliance.  The Commission staff may make 
+reasonable requests for further evidence of compliance, and VERO Capital agrees to 
+provide such evidence.  The certification and supporting material shall be submitted to 
+Thomas P. Smith, Jr., Assistant Regional Director, with a copy to the Office of Chief 
+Counsel of the Enforcement Division, no later than sixty days from the date of the 
+completion of the undertakings. 
+ 
+54. In determining whether to accept VERO Capital’s Offer, the Commission 
+has considered these undertakings. 
+ 
+ 
+ 
+ 
+ 14 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public 
+interest to impose the sanctions agreed to in the Offers of Respondents VERO Capital, 
+Geiger, Barbaresi, and Downey. 
+ 
+ Accordingly, pursuant to Section 4C of the Exchange Act, Sections 203(e), 203(f), 
+and 203(k) of the Advisers Act, Section 9(b) of the Investment Company Act, and Rule 
+102(e)(1) of the Rules of Practice, it is hereby ORDERED that: 
+ 
+A. Respondents VERO Capital, Geiger, Barbaresi and Downey shall cease and 
+desist from committing or causing any violations and any future violations of 
+Sections 206(2), 206(3), and 206(4) of the Advisers Act and Rules 206(4)-2 and 206(4)-8 
+thereunder. 
+ 
+B. Respondents Geiger, Barbaresi, and Downey be, and hereby are: 
+ 
+barred from association with any broker, dealer, investment adviser, municipal 
+securities dealer, municipal advisor, transfer agent, or nationally recognized 
+statistical rating organization; provided however, that for a period of up to 180 days 
+from the entry of this Order, Respondents Geiger, Barbaresi, and Downey may, 
+solely for the purposes of completing the wind down of the Funds, making final 
+payments and distributions to investors in those Funds, and preserving value for 
+those investors in the interim, (1) participate in advisory activities and (2) continue 
+to be associated with VERO Capital while VERO Capital acts as an investment 
+adviser.  The 180 day limit shall not apply to Respondents’ supervision of the Fund 
+Lawsuits.; and 
+ 
+prohibited from serving or acting as an employee, officer, director, member of an 
+advisory board, investment adviser or depositor of, or principal underwriter for, a 
+registered investment company or affiliated person of such investment adviser, 
+depositor, or principal underwriter; 
+ 
+with the right to apply for reentry after three (3) years to the appropriate self-
+regulatory organization, or if there is none, to the Commission. 
+ 
+C. Any reapplication for association by any 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. 
+ 15 
+ 
+ D. Respondent VERO Capital is censured. 
+ 
+ E. Respondent Downey is denied the privilege of appearing or practicing 
+before the Commission as an accountant.   
+ 
+ F. After three years from the date of this Order, Respondent Downey 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/her 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/her responsibility, as long as 
+Respondent appears or practices before the Commission as 
+an independent accountant, to comply with all requirements 
+of the Commission and the Board, including, but not 
+limited to, all requirements relating to registration, 
+ 16 
+inspections, concurring partner reviews and quality control 
+standards.   
+ 
+G. The Commission will consider an application by Respondent Downey 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. 
+ 
+ H. Respondent Barbaresi is denied the privilege of appearing or practicing 
+before the Commission as an attorney for three years from the date of the Order.   
+ 
+ I. After three years from the date of the Order, Respondent Barbaresi may 
+request that the Commission consider his application to resume appearing and practicing 
+before the Commission as an attorney.  The application should be sent to the attention of 
+the Office of the General Counsel. 
+ 
+1. In support of such an application, Respondent must provide a 
+certificate of good standing from each state bar where Respondent is 
+a member.  
+  
+2. In support of such an application, Respondent must also submit an 
+affidavit truthfully stating, under penalty of perjury:  
+ 
+   a. that Respondent has complied with the Order; 
+ 
+   b. that Respondent:  
+ 
+    i. is not currently suspended or disbarred as an attorney 
+ by a court of the United States (or any agency of the 
+ United States) or the bar or court of any state, 
+ territory, district, commonwealth, or possession; and  
+ 
+    ii. since the entry of the Order, has not been suspended 
+ as an attorney for an offense involving moral 
+ turpitude by a court of the United States (or any 
+ agency of the United States) or the bar or court of 
+ any state, territory, district, commonwealth, or 
+ possession, except for any suspension concerning the 
+ conduct that was the basis for the Order; 
+ 
+   c. that Respondent, since the entry of the Order, has not 
+ been convicted of a felony or misdemeanor involving 
+ 17 
+ moral turpitude as set forth in Rule 102(e)(2) of the 
+ Commission’s Rules of Practice; and  
+ 
+   d. that Respondent, since the entry of the Order: 
+ 
+    i. has not been found by the Commission or a 
+ court of the United States to have committed 
+ a violation of the federal securities laws, 
+ except for any finding concerning the 
+ conduct that was the basis for the Order; 
+ 
+    ii. has not been charged by the Commission or 
+ the United States with a violation of the 
+ federal securities laws, except for any charge 
+ concerning the conduct that was the basis for 
+ the Order;   
+ 
+    iii. has not been found by a court of the United 
+ States (or any agency of the United States) or 
+ any state, territory, district, commonwealth, 
+ or possession, or any bar thereof, to have  
+ committed an offense involving moral 
+ turpitude, except for any finding concerning 
+ the conduct that was the basis for the Order; 
+ and 
+ 
+    iv. has not been charged by the United States (or 
+ any agency of the United States) or any state, 
+ territory, district, commonwealth, or 
+ possession, or any bar thereof, with having 
+ committed an offense involving moral 
+ turpitude, except for any charge concerning 
+ the conduct that was the basis for the Order. 
+ 
+ J. If Respondent Barbaresi provides the documentation required in Paragraph 
+I, and the Commission determines that he truthfully attested to each of the items required in 
+his affidavit, he shall by Commission order be permitted to resume appearing and 
+practicing before the Commission as an attorney.   
+  
+ K. If Respondent Barbaresi is not able to truthfully attest to the statements 
+required in Subparagraphs I(2)(b)(ii) or I(2)(d), Respondent shall provide an explanation as 
+to the facts and circumstances pertaining to the matter and the Commission may hold a 
+hearing to determine whether there is good cause to permit him to resume appearing and 
+practicing before the Commission as an attorney. 
+ 
+ 18 
+ L. Respondents VERO Capital, Geiger, Barbaresi, and Downey, jointly and 
+severally, shall pay disgorgement of $2,879,623, and prejudgment interest of $189,083.35, 
+for a total of $3,068,706.35, to the Securities and Exchange Commission.  Payment shall be 
+made in the following installments:  $1,534,353.18 within 180 days of the entry of the 
+Order; and $1,534,353.17 within 360 days of the entry of the Order.  If any payment is not 
+made by the date the payment is required by this Order, the entire outstanding balance of 
+disgorgement, prejudgment interest, and civil penalties, plus any additional interest accrued 
+pursuant to SEC Rule of Practice 600 shall be due and payable immediately, without 
+further application.  Payment must be made in one of the following ways:   
+ 
+ 1.  Respondents may transmit payment electronically to the 
+Commission, which will provide detailed ACH transfer/Fedwire 
+instructions upon request;  
+ 
+ 2.  Respondents may make direct payment from a bank account via 
+Pay.gov through the SEC website at 
+http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+ 3.  Respondents 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 VERO Capital, Geiger, Barbaresi, or Downey as a Respondent in these 
+proceedings, and the file number of these proceedings; a copy of the cover letter and check 
+or money order must be sent to Amelia A. Cottrell, Division of Enforcement, Securities and 
+Exchange Commission, 200 Vesey Street, Suite 400, New York, NY 10281.     
+ 
+ M. Respondents VERO Capital, Geiger, Barbaresi, and Downey shall each pay 
+a civil money penalty in the amount of $300,000 to the Securities and Exchange 
+Commission.  Payment shall be made in the following installments:  each shall make a 
+payment of $150,000 within 180 days of the entry of the Order; and each shall make a 
+payment of $150,000 within 360 days of the entry of the Order.  If any payment is not 
+made by the date the payment is required by this Order, the entire outstanding balance of 
+disgorgement, prejudgment interest, and civil penalties, plus any additional interest accrued 
+pursuant to SEC Rule of Practice 600 or pursuant to 31 U.S.C. 3717, shall be due and 
+payable immediately, without further application.  Payment must be made in one of the 
+following ways:   
+ 
+ 19 
+  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 SEC 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 VERO Capital, Geiger, Barbaresi, or Downey as a Respondent in these 
+proceedings, and the file number of these proceedings; a copy of the cover letter and check 
+or money order must be sent to Amelia A. Cottrell, Division of Enforcement, Securities and 
+Exchange Commission, 200 Vesey Street, Suite 400, New York, NY 10281. 
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in 
+Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true 
+and admitted by Respondents Geiger, Barbaresi, and Downey, and further, any debt for 
+disgorgement, prejudgment interest, civil penalty or other amounts due by Respondents 
+Geiger, Barbaresi, and Downey under this Order or any other judgment, order, consent 
+order, decree or settlement agreement entered in connection with this proceeding, is a debt 
+for the violation by Respondents Geiger, Barbaresi, and Downey of the federal securities 
+laws or any regulation or order issued under such laws, as set forth in Section 523(a)(19) of 
+the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 
+ 
+ 
+ 

raw/aaer/2015/AAER-3672.txt

@@ -0,0 +1,158 @@
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75563 / July 30, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3672 / July 30, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16709
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  Christopher Edwards, CA, : 102(e) OF THE COMMISSION’S RULES OF 
+      : PRACTICE, MAKING FINDINGS, AND 
+  Respondent.   : IMPOSING REMEDIAL SANCTIONS 
+      :  
+      :  
+____________________________________ :   
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against 
+Christopher Edwards (“Respondent” or “Edwards”) 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 . . . permanentl y 
+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. Christopher Edwards, 32, a citizen and resident of the United Kingdom, 
+was a Finance Manager in Computer Science Corporation’s Nordic region from December 2008 
+to June 2010.  He left the company in October 2010.  Edwards is a Chartered Accountant in the 
+United Kingdom.   
+ 
+2. Computer Sciences Corporation (“CSC”), a Nevada corporation 
+headquartered in Falls Church, Virginia, sells information technology services.  At all relevant 
+times, CSC’s common stock traded on the New York Stock Exchange. 
+ 
+ 3. On June 5, 2015, the Commission filed a complaint in the United States 
+District Court for the Southern District of New York against Edwards in Securities and Exchange 
+Commission v. Christopher Edwards, Civil Action Number 15-cv-4339 (RA).  On July 24, 2015, 
+the court entered an order permanently enjoining Edwards, by consent, from future violations of 
+Sections 17(a)(1) and (3) 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(a) and (c) and 
+13b2-1 promulgated thereunder, and from aiding and abetting future violations of Sections 13(a), 
+13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 promulgated 
+thereunder.  Edwards was also barred from acting as an officer or director of any public company 
+pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act for a 
+period of four years. 
+ 
+   4. The Commission’s complaint alleged that Edwards fraudulently inflated 
+CSC’s earnings in its fiscal year 2010.  Edwards recorded and maintained large amounts of 
+“prepaid assets” on CSC’s balance sheet that the company was instead required to record as 
+expenses on its income statement.  By doing so, Edwards artificially and materially overstated 
+CSC’s earnings.  As a Finance Manager, Edwards was responsible for ensuring that the company 
+recorded these expenses consistent with Generally Accepted Accounting Principles (“GAAP”).  
+Instead, Edwards’s actions resulted in CSC fraudulently overstating its consolidated operating 
+ 3 
+income by 5% for the first quarter of fiscal year 2010, and in the company materially overstating 
+the operating income of one of its reportable segments in each quarter of that fiscal year. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Edwards’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Edwards is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ B. After four 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 
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his practicing license is 
+current and he has resolved all other disciplinary issues with the Association of Certified 
+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 Respondent’s character, integrity, professional conduct, 
+or qualifications to appear or practice before the Commission. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 

raw/aaer/2015/AAER-3674.txt

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75627 / August 6, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3674 / August 6, 2015 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 4162 / August 6, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-16731 
+ 
+ 
+In the Matter of 
+ 
+WESLEY N. STARK, CPA and 
+STARKSCHENKEIN, LLP, 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING 
+ADMINISTRATIVE AND 
+CEASE-AND-DESIST 
+PROCEEDINGS PURSUANT 
+TO SECTION 4C OF THE 
+SECURITIES EXCHANGE 
+ACT OF 1934, SECTION 
+203(k) OF THE INVESTMENT 
+ADVISERS ACT OF 1940, 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF 
+PRACTICE, MAKING 
+FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+AND A CEASE-AND-DESIST 
+ORDER 
+  
+I. 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to 
+Section 4C1 of the Securities Exchange Act of 1934 (“Exchange Act”), Section 203(k) of the 
+                                                 
+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 
+ 
+ 2 
+Investment Advisers Act of 1940 (“Advisers Act”), and Rule 102(e)(1)(ii) of the Commission’s 
+Rules of Practice,2 against Wesley N. Stark, CPA (“Stark”) and StarkSchenkein, LLP 
+(“StarkSchenkein”) (collectively, “Respondents”). 
+II. 
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offers”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, and except as provided herein in Section V, Respondents consent 
+to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to 
+Section 4C of the Securities Exchange Act of 1934, Section 203(k) of the Investment Advisers Act 
+of 1940, and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing 
+Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.  
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds3 that: 
+Summary 
+1. This matter involves violations by Respondents in failing to adequately 
+complete requisite surprise examinations pursuant to Section 206(4) of the Advisers Act and Rule 
+206(4)-2 thereunder.  The Planning Group of Scottsdale, LLC (“TPGS”), a former registered 
+investment adviser, and its founder, sole owner, president, managing director, and chief 
+compliance officer, Reid S. Johnson (“Johnson”), had custody of client funds and securities and 
+was required by the Custody Rule to have an independent public accountant conduct annual 
+surprise examinations to verify those funds and securities.  For 2010, 2011 and 2012, TPGS 
+retained StarkSchenkein LLP to perform the surprise examinations.  Stark and StarkSchenkein 
+accepted the TPGS engagements despite lacking the necessary knowledge of, and experience with, 
+                                                                                                                                                             
+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. 
+ 
+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 
+the Custody Rule.  By failing to complete the 2010 and 2011 surprise examinations adequately, 
+and by failing to complete the 2012 surprise examination or withdraw therefrom, Stark and 
+StarkSchenkein caused TPGS’s Custody Rule violations and engaged in improper professional 
+conduct under Section 4C of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules 
+of Practice. 
+Respondents 
+2. Wesley N. Stark, CPA (“Stark”), age 77, resides in Denver, Colorado.  
+Stark is a founding partner and former owner of public accounting firm StarkSchenkein, LLP.  
+Although Stark sold his 60% ownership interest effective July 1, 2012, he remained a partner of the 
+firm and continued to work part-time.  Stark holds a Series 28 securities license.  Stark has active 
+CPA licenses in Colorado and New Mexico and inactive CPA licenses in Washington, Idaho, 
+Missouri and New York.  Stark was the engagement partner for the surprise examinations that 
+StarkSchenkein performed for TPGS for 2010, 2011, and 2012.   
+3. StarkSchenkein, LLP (“StarkSchenkein”) is a Colorado limited liability 
+partnership headquartered in Denver, Colorado.  StarkSchenkein was a full service public 
+accounting firm that provided auditing and accounting, tax, business valuation and legal and 
+business consulting services to a variety of clients including broker-dealers and public companies.  
+StarkSchenkein had four partners, three of whom were CPAs, and Stark was one of two audit 
+partners.  StarkSchenkein registered with the PCAOB in 2003.  StarkSchenkein was engaged to 
+perform surprise examinations for TPGS for 2010, 2011 and 2012.   
+Other Relevant Entities 
+4. Reid S. Johnson resides in Scottsdale, Arizona.  Johnson was the founder, 
+sole owner, president, and managing director of TPGS, and the president and sole owner of former 
+registered broker-dealer Meridian United Capital, LLC (“MUC”).  Johnson also served as TPGS’s 
+chief compliance officer in 2010, 2011 (excluding a period of approximately seven months during 
+which another employee held this position) and 2012.  Johnson holds Series 7, 24, 63 and 65 
+licenses.  In October 2013, Johnson received a 45-day suspension from FINRA in connection with 
+a private placement offering for which MUC acted as placement agent, where he was suspended 
+for withdrawing $300,000 from escrow before MUC had satisfied the minimum sales contingency 
+for the offering. 
+5. TPGS is an Arizona limited liability company with its principal place of 
+business at 8800 North Gainey Center Drive, Suite 176, Scottsdale, Arizona.  It was founded by 
+and is 100% owned by Johnson.  TPGS registered with the Commission as an investment adviser 
+in July 2006.  In June 2012, Johnson sold TPGS’s investment advisory business with respect to 
+individual clients.  TPGS filed a Form ADV-W to withdraw its registration with the Commission 
+on March 28, 2013. 
+6. MUC is an Arizona limited liability company with its principal place of 
+business at 8800 North Gainey Center Drive, Suite 176, Scottsdale, Arizona.  MUC registered with 
+the Commission as a broker-dealer in July 2002 under a different name; Johnson and a partner 
+purchased the broker-dealer in June 2003 and renamed it MUC.  Johnson became the sole owner of 
+ 4 
+MUC in December 2011.  MUC withdrew its registration with the Commission effective 
+December 15, 2012.  
+7. Insured Private Equity I, LLC (“IPE”) was founded by Johnson to make 
+investments in microcap and start-up companies and to acquire certain single premium immediate 
+annuities and life insurance policies.  IPE’s managing member is Oak Canyon Capital, Inc. 
+(“Oak Canyon”), which is solely owned by Johnson and operates out of the office at 8800 North 
+Gainey Center Drive.  From approximately June 2010 to June 2011, units of IPE were sold by 
+MUC in a private placement offering.  Fourteen of the fifteen investors in IPE – 93% – were TPGS 
+advisory clients. 
+8. Eagle Creek Fund, LLC (“Eagle Creek Fund”) was founded by Johnson to 
+acquire Series A Preferred Stock in another company located in India.  Eagle Creek Fund’s 
+managing member is Eagle Creek Management, LLC (“Eagle Creek Management”), which is 
+owned by another entity, Strategic Global Partners, LLC, which is in turn co-owned and co-
+controlled by Johnson and one other individual.  Eagle Creek Management operates out of the 
+office at 8800 North Gainey Center Drive.  From approximately July 2008 to January 2010, units 
+of Eagle Creek Fund were sold by MUC in a private placement offering.  All 97 investors in Eagle 
+Creek Fund – 100% – were TPGS advisory clients.   
+9. The “Guaranteed Income Strategy” or “GIS3 Programs” were created by 
+Johnson, and employed an insurance arbitrage strategy involving the purchase of a single premium 
+immediate annuity (“SPIA”) and a life insurance policy.  The GIS3 Programs were securitized so 
+that investors (besides the insured) could purchase units in an LLC pooled investment vehicle 
+holding the SPIA and life insurance policy.  At least twelve of the GIS3 Programs were in turn 
+structured so that the LLC did not purchase the SPIA and life insurance policy directly, but 
+purchased 100% ownership in a family limited liability limited partnership (LLLP) that held the 
+SPIA and life insurance policy.  The GIS3-LLLP Programs had as their managing member either 
+Oak Canyon or Meridian Services, LLC (“Meridian Services”), another entity owned solely by 
+Johnson that operates out of the office at 8800 North Gainey Center Drive.  At least 118 of the 123 
+investors in the GIS3-LLLP Programs – 96% – were TPGS advisory clients.   
+10. The Investor A Trust dated January 6, 2009 (the “Investor A Trust”) was a 
+family trust for a TPGS client.  Johnson served as trustee of the Investor A Trust until at least 
+April 4, 2011.  The Investor A Trust invested in Eagle Creek Fund and other pooled investment 
+vehicles as well as publicly-traded securities.   
+Background 
+11. TPGS had custody over funds and securities of its advisory clients, IPE, 
+Eagle Creek Fund, and the GIS3-LLLP Programs. 
+12. Paper stock certificates for some securities purchased by IPE were kept in a 
+lockbox, which was in turn kept for a time in a locked file cabinet set aside for IPE at the office at 
+8800 North Gainey Center Drive.  In or around August 2012, Johnson moved the lockbox to his 
+personal residence.  Johnson is the only person with a key to the lockbox. 
+ 5 
+13. The stock certificates Eagle Creek Fund received for its investments in an 
+Indian company were kept in a locked storage facility in Scottsdale, Arizona where office 
+documents for TPGS were stored.  Johnson is the only person with a key to the storage facility. 
+14. The funds raised in each GIS3-LLLP Program were held in an account 
+specific to each Program at a bank.  Johnson, in his capacity as owner and manager of Oak Canyon 
+or Meridian Services, had authority to obtain possession of the funds in each such account.  These 
+funds were used to acquire the ownership interest of family partnership LLLPs that held SPIAs and 
+life insurance policies. 
+15. The Investor A Trust held funds and securities in a brokerage account at a 
+third party registered broker-dealer.  The Investor A Trust was an advisory client of TPGS.  
+Johnson, in his capacity as trustee for the Investor A Trust, had authority to obtain possession of 
+the money and securities in the brokerage account. 
+16. As the engagement partner and accounting firm retained to perform TPGS’s 
+surprise examinations in 2010-2012, Stark and StarkSchenkein caused TPGS’s violations of the 
+Custody Rule.  Stark and StarkSchenkein knew or should have known that their conduct would 
+contribute to TPGS’s violations of the Custody Rule. 
+Respondent Stark Failed to Complete the 2010, 2011 and 2012 Surprise Examinations in 
+Accordance with Applicable Standards 
+17. Stark’s conduct of TPGS’s 2010-2012 surprise examinations violated the 
+professional standards for certified public accountants set forth in AICPA’s Attestation Standards 
+Section 101 and Compliance Attest Procedures Section 601.   
+18. Prior to the 2010 surprise examination it performed for TPGS, 
+StarkSchenkein had never performed a surprise examination for a registered investment adviser.   
+19. The engagement team assigned to the 2010 surprise examination had no 
+prior experience performing surprise examinations for registered investment advisers, including 
+Stark, who served as engagement partner for all three surprise examinations and was responsible 
+for supervising the work performed in connection with those engagements.   
+20. Although the engagement letter for the 2010 surprise examination was dated 
+December 30, 2010, StarkSchenkein was not actually retained to perform that examination until 
+2011, and work on that surprise examination was performed in 2011 rather than 2010.   
+21. For both the 2010 and 2011 surprise examinations, StarkSchenkein filed a 
+Form ADV-E and Report of Independent Registered Accountant certifying that TPGS was in 
+compliance with paragraph (a)(4) of the Custody Rule when in fact it was not.  The Form ADV-E 
+for the 2011 surprise examination was filed more than 120 days after the commencement of that 
+surprise examination.   
+22. For the 2012 surprise examination, StarkSchenkein did not complete its 
+work and never filed any report or other document relating to that examination; nor did it file a 
+Form ADV-E within four business days after termination of work on that surprise examination. 
+ 6 
+23. Stark deferred to TPGS’s determinations as to what securities it had custody 
+over and requested documents and information from TPGS in accordance with those 
+determinations.  Neither Stark nor anyone from StarkSchenkein inspected the paper stock 
+certificates for the securities held by IPE or Eagle Creek Fund. 
+24. StarkSchenkein’s engagement letters for the 2010, 2011 and 2012 surprise 
+examinations, which were drafted by StarkSchenkein and reviewed and signed by Stark, lacked the 
+required language concerning StarkSchenkein’s obligation to file a Certificate on Form ADV-E 
+within 120 days of the commencement of the surprise examination, to notify the Commission 
+within one business day of any material discrepancies found during the surprise examination, and 
+to file a Form ADV-E and statement within four business days after termination of work on the 
+surprise examination.  The engagement letters for the 2010 and 2011 surprise examinations also 
+improperly disclosed the date that StarkSchenkein intended to commence the surprise examination, 
+which the Custody Rule required to be chosen without prior notice or announcement to TPGS.   
+25. Stark allowed the 2010 surprise examination engagement letter to be dated 
+December 30, 2010, and allowed a Form ADV-E to be filed that stated that the 2010 surprise 
+examination commenced on December 31, 2010, even though StarkSchenkein was not actually 
+retained to perform the examination until 2011 and performed the work on that examination in 
+2011 rather than 2010. 
+26. Although StarkSchenkein’s written quality control procedures required 
+engagement quality control review for attest engagements, Stark failed to obtain any engagement 
+quality control review for the 2010 and 2011 surprise examinations. 
+27. Stark failed to obtain sufficient evidence to support the conclusion in the 
+surprise examination reports for the 2010 and 2011 surprise examinations that TPGS was in 
+compliance with the Custody Rule, because:  (1) StarkSchenkein did not receive any documents 
+from sources other than TPGS in connection with the 2010 and 2011 surprise examinations; (2) 
+although the reports for the 2010 and 2011 surprise examinations state that confirmation 
+procedures were performed, the working papers for these surprise examinations do not include any 
+confirmations; (3) the working papers for the 2010 surprise examination indicate that no alternative 
+procedures were performed in lieu of confirmations for IPE, Eagle Creek Fund, or three of the 
+GIS3-LLLP Programs; (4) although the working papers for the 2010 surprise examination indicate 
+that alternative procedures were performed for nine of the GIS3-LLLP Programs, the working 
+papers show that these procedures relied exclusively upon bank statements provided by TPGS; and 
+(5) while the working papers for the 2011 surprise examination indicate that alternative procedures 
+were performed in lieu of confirmations for IPE, Eagle Creek Fund, and all of the GIS3-LLLP 
+Programs, the working papers lack documents, such as updated account statements, that would 
+have been required for the performance of alternative procedures. 
+28. Although Stark obtained a signed, written statement from TPGS entitled 
+“Management Statement Regarding Compliance With Certain Provisions of the Investment 
+Advisers Act of 1940” for both the 2010 and 2011 surprise examinations, these Management 
+Statements lacked representations that TPGS had made available all documentation related to 
+compliance with the Custody Rule. 
+ 7 
+29. Stark had no basis to opine that TPGS was in compliance with the Custody 
+Rule in the surprise examination reports for the 2010 and 2011 surprise examinations because (1) 
+he lacked the necessary knowledge and understanding of, and training and proficiency in, Custody 
+Rule compliance requirements; and (2) he failed to obtain sufficient evidence to support that 
+conclusion. 
+30. Stark failed to modify the surprise examination reports for the 2010 and 
+2011 surprise examinations, which state that confirmation procedures were performed even though 
+the working papers for these surprise examinations do not include any confirmations, and the 
+working papers for the 2010 surprise examinations further indicate that no alternative procedures 
+were performed in lieu of obtaining confirmations for IPE, Eagle Creek Fund, and at least three of 
+the GIS3-LLLP Programs.  Stark also failed to modify the surprise examination reports for the 
+2010 and 2011 surprise examinations to reflect TPGS’s noncompliance with the Custody Rule. 
+31. For the 2010, 2011 and 2012 surprise examinations, Stark violated AICPA 
+Attestation Standards §§ 101.19-20 (practitioner must have adequate technical training and 
+proficiency), §§ 101.21-22 (practitioner must have adequate knowledge of the subject matter), and 
+Compliance Attest Procedure § 601.40 (practitioner should obtain an understanding of specified 
+compliance requirements). 
+32. For the 2010, 2011 and 2012 surprise examinations, Stark violated 
+Attestation Standards §§ 101.39-41 (practitioner must exercise due professional care in planning 
+and performance, which requires critical review at every level of supervision and judgment, 
+including preparation of report) and Compliance Attest Procedures §§ 601.38-39 (practitioner 
+should exercise due care in planning, performing, and evaluating the results of his or her 
+examination procedures and the proper degree of professional skepticism to achieve reasonable 
+assurance that material noncompliance will be detected). 
+33. For the 2010, 2011 and 2012 surprise examinations, Stark violated 
+Attestation Standards §§101.42-50 (practitioner must adequately plan the work and must properly 
+supervise any assistants, and should establish an understanding with the client regarding the 
+services to be performed for each engagement) and Compliance Attest Procedure §601.41 
+(planning an engagement). 
+34. For the 2010 and 2011 surprise examinations, Stark violated Attestation 
+Standards §§101.51-58 (practitioner must obtain sufficient evidence to provide a reasonable basis 
+for the conclusion expressed in the report) and Compliance Attest Procedures §§601.48-49 
+(practitioner should apply procedures to provide reasonable assurance of detecting material 
+noncompliance). 
+35. For the 2010 and 2011 surprise examinations, Stark violated Attestation 
+Standards §§101.59-62 and Compliance Attest Procedure §601.68 (practitioner should obtain from 
+the client or other responsible party certain written representations regarding compliance, including 
+representation that client has made available all documentation related to compliance with the 
+specified requirements). 
+ 8 
+36. For the 2010 and 2011 surprise examinations, Stark violated Attestation 
+Standards §§101.66-67 (practitioner should modify the report if there are material misstatements in 
+the same), §§101.71-77 (practitioner must state significant reservations about the engagement, the 
+subject matter, and, if applicable, the assertion related thereto in the report), and Compliance Attest 
+Procedures §§601.63-67 (practitioner should modify the standard report when examination 
+discloses material noncompliance or restriction on the scope of the engagement).  
+37. For the 2010 and 2011 surprise examinations, Stark violated Attestation 
+Standards §§101.100-103 (practitioner should prepare and maintain adequate attest 
+documentation). 
+38. For the 2012 surprise examination, Stark violated Attestation Standard 
+§101.64 (practitioner should issue a report or withdraw from the attest engagement). 
+Respondent StarkSchenkein Failed to Complete the 2010, 2011 and 2012 Surprise 
+Examinations in Accordance with Applicable Standards 
+39. StarkSchenkein’s conduct of TPGS’s 2010-2012 surprise examinations 
+further violated the professional quality control standards set forth in AICPA Quality Control 
+Standards Sections 10.27, 10.35-36, and 10.38-45 (formerly Sections 10.57, 10.60, 10.80-10.99).4 
+40. From approximately March 2011 to December 2012, StarkSchenkein had in 
+place a quality control manual entitled “StarkSchenkein, LLP Quality Control Accounting and 
+Auditing Policies and Procedures Manual” (the “Quality Control Manual”).   
+41. Although StarkSchenkein’s Quality Control Manual had a section entitled 
+“Acceptance and Continuance of Clients and Specific Engagements,” this section lacked a specific 
+protocol for the firm to assess its competency and capacity for compliance in the context of a 
+specific engagement.   
+42. The Quality Control Manual failed to include any discussion regarding who 
+was responsible for determining that the firm was competent to perform an engagement, and 
+capable of complying with the relevant legal and ethical requirements; nor did the Quality Control 
+Manual include any discussion regarding how those determinations would be made.   
+43. StarkSchenkein accepted the engagements for TPGS’s surprise 
+examinations, even though StarkSchenkein lacked experience with surprise examinations for 
+registered investment advisers and Stark lacked the knowledge or understanding of, or training and 
+proficiency in, Custody Rule compliance requirements that would have enabled StarkSchenkein to 
+competently perform the engagements and comply with the applicable legal requirements.   
+44. StarkSchenkein’s Quality Control Manual included a subsection entitled 
+“Engagement Quality Control Review” that provided that engagement quality control review, also 
+described as “a concurring review by an independent partner,” was required on attest engagements, 
+                                                 
+4 The AICPA Quality Control Standards (SQCS 7) were revised effective January 1, 2012 
+(SQCS 8).  The revision changed the numbering of some of the Standards. 
+ 9 
+and “must be completed before the report is released.”  This subsection failed to provide any 
+mechanism for the assignment of engagement quality control reviewers with suitable experience.   
+45. The Quality Control Manual also failed to provide for any documentation or 
+other mechanism to ensure that engagement quality control review was actually performed and 
+completed for an attest engagement before the corresponding report was released. 
+46. StarkSchenkein failed to obtain engagement quality control review for the 
+completed 2010 and 2011 surprise examinations at any time before or after the reports for those 
+surprise examinations were issued. 
+Violations 
+47. As a result of the conduct described above, Stark and StarkSchenkein 
+caused TPGS’s violation of Section 206(4) of the Advisers Act and Rule 206(4)-2 promulgated 
+thereunder, which make it a fraudulent, deceptive or manipulative act for any registered investment 
+adviser to have custody of clients’ funds or securities unless the adviser:  (1) maintains client funds 
+and securities with a qualified custodian; (2) notifies clients of certain information regarding the 
+qualified custodian and accounts; (3) has a reasonable basis, after due inquiry, for believing that a 
+qualified custodian is providing at least quarterly account statements to clients; and (4) obtains an 
+annual surprise examination.5 
+48. As a result of the conduct described above, Stark and StarkSchenkein 
+engaged in improper professional conduct within the meaning of Section 4C of the Exchange Act 
+and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+ Accordingly, pursuant to Section 4C of the Exchange Act, Section 203(k) of the Advisers 
+Act, and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice, it is hereby ORDERED, 
+effective immediately, that: 
+ 
+ A. Respondent Stark cease and desist from committing or causing any violations and 
+any future violations Section 206(4) of the Advisers Act and Rule 206(4)-2 promulgated thereunder. 
+ 
+B. Respondent StarkSchenkein cease and desist from committing or causing any 
+violations and any future violations Section 206(4) of the Advisers Act and Rule 206(4)-2 
+promulgated thereunder. 
+ 
+                                                 
+5 Proof of scienter is not required to establish a violation of Section 206(4) of the 
+Advisers Act and Rule 206(4)-2  thereunder; a showing of negligence is adequate.  See SEC v. 
+Steadman, 967 F.2d 636, 647 (D.C. Cir. 1992). 
+ 10 
+C. Respondent Stark is denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+ 
+ D. After three years from the date of this Order, Respondent Stark 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 Stark’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 Stark, 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 Stark, 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 
+his or the firm’s quality control system that would indicate that he 
+will not receive appropriate supervision; 
+ 
+ (c) Respondent Stark 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 Stark 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. 
+ 
+E. The Commission will consider an application by Respondent Stark 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 Stark’s 
+ 11 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ 
+ F. Respondent StarkSchenkein is denied the privilege of appearing or practicing 
+before the Commission as an accountant. 
+ 
+ G. After one year from the date of this Order, Respondent StarkSchenkein may request 
+that the Commission consider its reinstatement by submitting an application (attention: Office of 
+the Chief Accountant) to resume appearing or practicing before the Commission as: 
+ 
+  1. a preparer or reviewer, or a 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 StarkSchenkein’s work in its practice before the Commission 
+will be reviewed either by the independent audit committee of the public 
+company for which it works or in some other acceptable manner, as long as 
+it practices before the Commission in this capacity; and/or   
+ 
+  2. an independent accountant.  Such an application must satisfy the  
+   Commission that: 
+ 
+ (a) Respondent StarkSchenkein is registered with the Board in  
+accordance with the Sarbanes-Oxley Act of 2002, and such 
+registration continues to be effective; however, if registration with 
+the Board is dependent upon reinstatement by the Commission, the 
+Commission will consider the application on its other merits; 
+ 
+(b) Respondent StarkSchenkein has hired an independent CPA 
+consultant (“consultant”), who is not unacceptable to the staff of 
+the Commission and is affiliated with a public accounting firm 
+registered with the Board, that has conducted a review of 
+StarkSchenkein’s quality control system and submitted to the staff 
+of the Commission a report that describes the review conducted 
+and procedures performed, and represents that the review did not 
+identify any criticisms of or potential defects in the firm’s quality 
+control system.  StarkSchenkein agrees to require the consultant, if 
+and when retained, to enter into an agreement that provides that for 
+the period of review and for a period of two years from completion 
+of the review, the consultant shall not enter into any employment, 
+consultant, attorney-client, auditing or other professional 
+relationship with StarkSchenkein, or any of its present or former 
+affiliates, directors, officers, employees, or agents acting in their 
+capacity.  The agreement will also provide that the consultant will 
+require that any firm with which he/she is affiliated or of which 
+he/she is a member, and any person engaged to assist the 
+consultant in performance of his/her duties under this Order shall 
+ 12 
+not, without prior written consent of the staff, enter into any 
+employment, consultant, attorney-client, auditing or other 
+professional relationship with StarkSchenkein, or any of its present 
+or former affiliates, directors, officers, employees, or agents acting 
+in their capacity as such for the period of the review and for a 
+period of two years after the review; 
+ 
+ (c) Respondent StarkSchenkein 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 StarkSchenkein acknowledges its responsibility, as long  
+as it appears or practices before the Commission as an independent 
+accountant, to comply with all requirements of the Commission and 
+the Board, including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality 
+control standards. 
+ 
+ H. The Commission will consider an application by Respondent StarkSchenkein to 
+resume appearing or practicing before the Commission provided that its state CPA license is 
+current and it 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 StarkSchenkein’s character, integrity, professional conduct, or qualifications to appear 
+or practice before the Commission. 
+  
+I. Respondent Stark shall pay a civil money penalty in the amount of $15,000 to the 
+Securities and Exchange Commission for transfer to the general fund of the United States 
+Treasury, subject to Exchange Act Section 21F(g)(3).  Payment shall be made in the following 
+installments:  (1) $3,000 within 10 days of entry of the Order; (2) $3,000 within 90 days of entry of 
+the Order; (3) $3,000 within 180 days of entry of the Order; (4) $3,000 within 270 days of entry of 
+the Order; and (5) $3,000 within 360 days of entry of the Order.  If any payment is not made by the 
+date the payment is required by this Order, the entire outstanding balance of civil penalties, plus 
+any additional interest accrued pursuant to 31 U.S.C. 3717, shall be due and payable immediately, 
+without further application.  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 SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+ 13 
+(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 
+Stark as a Respondent in these proceedings, and the file number of these proceedings; a copy of the 
+cover letter and check or money order must be sent to Victoria Levin, Assistant Regional Director, 
+Enforcement, Securities and Exchange Commission, Los Angeles Regional Office, 444 South 
+Flower St., Suite 900, Los Angeles, CA  90071. 
+ 
+ J. Respondent StarkSchenkein shall pay disgorgement of $12,750, which represents 
+profits gained as a result of the conduct described herein, prejudgment interest of $1,353 and 
+civil penalties of $15,000 to the Securities and Exchange Commission for transfer to the general 
+fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  Payment shall be 
+made in the following installments:  (1) $5,820.60 within 10 days of entry of the Order; (2) 
+$5,820.60 within 90 days of entry of the Order; (3) $5,820.60 within 180 days of entry of the 
+Order; (4) $5,820.60 within 270 days of entry of the Order; and (5) $5,820.60 within 360 days of 
+entry of the Order.  If any payment is not made by the date the payment is required by this Order, 
+the entire outstanding balance of disgorgement, prejudgment interest, and civil penalties, plus any 
+additional interest accrued pursuant to SEC Rule of Practice 600 or pursuant to 31 U.S.C. 3717, 
+shall be due and payable immediately, without further application.  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 SEC 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 
+ 
+ 14 
+Payments by check or money order must be accompanied by a cover letter identifying 
+StarkSchenkein as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to Victoria Levin, Assistant 
+Regional Director, Enforcement, Securities and Exchange Commission, Los Angeles Regional 
+Office, 444 South Flower St., Suite 900, Los Angeles, CA 90071. 
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent Stark, and further, any debt for disgorgement, prejudgment interest, civil penalty or 
+other amounts due by Respondent Stark under this Order or any other judgment, order, consent 
+order, decree or settlement agreement entered in connection with this proceeding, is a debt for the 
+violation by Respondent Stark of the federal securities laws or any regulation or order issued under 
+such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2015/AAER-3677.txt

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75667 / August 11, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3677 / August 11, 2015 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 4167 / August 11, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-16740 
+ 
+ 
+In the Matter of 
+ 
+VINEET KALUCHA, CA,   
+ 
+Respondent. 
+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 
+ 
+ 
+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 Vineet 
+Kalucha, CA (“Kalucha” or “Respondent”) 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.1 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+                                                 
+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 
+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”), as set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+ 
+1. Kalucha, age 51, is a citizen of India and a permanent resident alien of the United 
+States residing in Washington, D.C.  Kalucha was the founder, “Managing Partner,” and Chief 
+Investment Officer of Aphelion Fund Management, LLC (“Aphelion”), an unregistered investment 
+adviser.   
+ 
+2.  Kalucha is a Chartered Accountant licensed by the Institute of Chartered 
+Accountants of India, and has practiced as an accountant at the New Delhi, India office of a global 
+accounting firm whose accountants regularly appear and practice before the Commission. 
+ 
+3. On July 30, 2015, a final judgment was entered by consent against Kalucha, 
+permanently restraining and enjoining him from future violations of Section 10(b) of the Securities 
+Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, 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. Vineet Kalucha, et al., Civil Action 
+Number 1:14-cv-03247-RMB, in the United States District Court for the Southern District of New 
+York.  
+4. The Commission’s complaint alleged, among other things, that Kalucha 
+fraudulently altered an outside accounting firm’s report, that Kalucha distributed this altered report 
+to prospective investors in funds managed by Aphelion, and that Kalucha misused proceeds raised 
+from investors in Aphelion to pay for his personal expenses. 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 203(f) of the Advisers Act, Respondent Kalucha is barred from 
+association with any broker, dealer, investment adviser, municipal securities dealer, municipal 
+advisor, transfer agent, or nationally recognized statistical rating organization. 
+ 
+B. Any reapplication for association by the Respondent Kalucha will be subject to the 
+applicable laws and regulations governing the reentry process, and reentry may be conditioned 
+ 3 
+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. 
+ 
+C. Pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of Practice, Respondent 
+Kalucha is suspended from appearing or practicing before the Commission as an accountant. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2015/AAER-3680.txt

@@ -0,0 +1,655 @@
+UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75795 / August 31, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3680 / August 31, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No.  3-16773 
+ 
+ 
+ 
+In the Matter of 
+ 
+JOHNSON LAMBERT LLP, and 
+BRADLEY SCOTT DIERICX, CPA 
+ 
+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 Johnson Lambert LLP (“Johnson 
+Lambert”) and Bradley Scott Diericx, CPA (“Diericx”) (collectively, the “Respondents”), pursuant 
+to Sections 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 violations of, any provisions of the 
+securities laws or the rules and regulations thereunder. 
+ 
+2  Rule 102(e)(1)(ii) provides, in relevant part, that: 
+The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have 
+engaged in unethical or improper professional conduct. 
+2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+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 Johnson Lambert’s and Diericx’s improper 
+professional conduct in their audits of the financial statements of Maven Assurance Limited 
+(“Maven Assurance”) and Maven Life International Limited (“Maven Life”) (collectively, the 
+“Maven Entities”) for the years ended December 31, 2009 and December 31, 2010.  The audits 
+failed to comply with Generally Accepted Auditing Standards (“GAAS”) in many critical 
+respects, which resulted in the issuance of audit reports containing unqualified opinions that were 
+not supported by sufficient appropriate audit evidence.  Specifically, Johnson Lambert and 
+Diericx failed to exercise due professional care, failed to adequately staff the Maven audits, 
+failed to obtain sufficient appropriate audit evidence regarding the existence and valuation of the 
+Maven Entities’ purported investments in hedge funds and alternative investments managed by 
+Nikolai Battoo, and failed to exercise professional skepticism by overlooking red flags and other 
+warnings.  Due to these audit failures, Johnson Lambert and Diericx failed to detect that the 
+Maven Entities’ purported investments with Battoo either did not exist or had lost virtually all of 
+their value.   
+ 
+2. Johnson Lambert and Diericx were aware that the Maven Entities’ prior auditor 
+had issued a qualified opinion in the prior year due to its inability to obtain sufficient audit 
+evidence regarding the existence and valuation of the investments with Battoo, which constituted 
+the majority of the Maven Entities’ assets.  They were also aware that the Maven Entities did not 
+have processes in place to value the investments with Battoo.  Nevertheless, Johnson Lambert 
+assembled an audit engagement team that lacked experience auditing alternative investments, 
+and the engagement team failed to perform adequate substantive procedures to address these 
+risks.   
+ 
+                                                           
+3  The findings are made pursuant to Respondents’ Offers of Settlement and are not binding 
+on any other person or entity in this or any other proceeding. 
+3 
+B. RESPONDENTS 
+ 
+3. Johnson Lambert LLP is an accounting firm headquartered in Falls Church, 
+Virginia.  Johnson Lambert provides services to public companies registered with the Commission 
+and has been registered with the Public Company Accounting Oversight Board (“PCAOB”) since 
+2003.  Johnson Lambert conducted audits of the financial statements of the Maven Entities for the 
+years ended December 31, 2009 and December 31, 2010.  
+ 
+4. Bradley Diericx (“Diericx”), age 42, is a resident of Wheaton, Illinois and a 
+certified public accountant (“CPA”) licensed in the state of Illinois.  From June 2009 to September 
+2012, Diericx was a partner at Johnson Lambert and was the engagement partner for Johnson 
+Lambert’s audits of the Maven Entities’ financial statements for the years ending December 31, 
+2009 and December 31, 2010.   
+C. OTHER RELEVANT ENTITIES/PERSONS 
+ 
+5. Nikolai Simon Battoo was an alternative investment manager who managed assets 
+using a variety of vehicles and entities.  From 2004 through 2012, Battoo raised more than $400 
+million from investors who directed their funds to his PIWM investment program and several 
+hedge funds he controlled.  Battoo acted as investment adviser to investors in his Private 
+International Wealth Management (“PIWM”) investment program through two entities that he 
+controlled:  BC Capital Group, S.A. (Panama) (“BC Panama”) and BC Capital Group Ltd. (Hong 
+Kong) (“BC Hong Kong”) (collectively the “BC Capital entities”).  In September 2012, the 
+Commission filed an emergency enforcement action in district court against Battoo and the BC 
+Capital entities, alleging that they defrauded investors located worldwide in violation of the 
+antifraud provisions of the federal securities laws and acted as unregistered broker-dealers (the 
+“SEC Battoo Lawsuit”).  On September 30, 2014, the district court entered a default judgment 
+against Battoo and the BC Capital entities, which included permanent injunctions and 
+disgorgement, prejudgment interest, and civil penalties totaling $358,129,196.86. 
+6. Maven Assurance Ltd. and Maven Life International Ltd. were insurance 
+companies formed under the laws of Anguilla in 2006.  Maven Assurance offered investment 
+products in the form of a so-called “captive insurance” program to high-net-worth individuals 
+and small business owners.  Maven Life offered variable annuities.  The bulk of the funds that 
+investors directed to the Maven Entities were placed with Battoo’s PIWM investment program.  
+At the time the Commission filed the SEC Battoo Lawsuit, the Maven Entities’ clients believed 
+they had $95 million invested with Battoo’s PIWM.  In reality, Battoo lost or stole nearly all of 
+the Maven Entities’ funds.  The Maven Entities, which are now defunct, were never registered 
+with the Commission and had no disciplinary history. 
+7. Alliance Investment Management Limited (“AIM”) is a Bahamas-based company 
+that is registered as a broker-dealer with the Securities Commission of the Bahamas.  AIM is a 
+wholly-owned subsidiary of Benchmark Bahamas Limited, a publicly traded investment 
+company listed on the Bahamas International Securities Exchange.  AIM has never been 
+registered in any capacity with the Commission.  On August 8, 2014, the Commission filed 
+charges against AIM and its President Julian Brown, alleging that they engaged in fraud and 
+aided and abetted Battoo’s fraud.   
+4 
+D. FACTS 
+The Maven Entities’ Background 
+8. The Maven Entities offered insurance-linked investment options to U.S.-based 
+investors, mainly high net worth individuals and profitable small businesses.  Maven Life sold 
+variable annuities.  Maven Assurance purported to offer “captive insurance” products in which 
+the vast majority of the premium was invested at the direction of the investor.  The Maven 
+Entities touted their products as means of obtaining tax-deferred gains.  The Maven Entities were 
+based in Anguilla, but run by individuals located in the greater Chicago area. 
+ 
+9. In 2006, the Maven Entities entered into investment management agreements with 
+BC Hong Kong, an entity managed and controlled by investment manager Nikolai Battoo.  The 
+agreements gave BC Hong Kong discretion to manage the Maven Entities’ assets.  Since 2006, BC 
+Hong Kong purported to invest the majority of the Maven Assurance’s assets into shares of hedge 
+funds (some controlled by Battoo) and in Battoo’s PIWM investment program, a private 
+investment program that purported to invest primarily in alternative investments.  Maven Life 
+invested in PIWM beginning 2008.   
+Battoo’s Fraud and its Impact on the Maven Entities 
+10. Battoo oversaw a massive fraud that caused investors worldwide to lose hundreds 
+of millions of dollars.  Battoo touted himself as a highly successful alternative asset manager 
+who achieved exceptional risk-adjusted returns.  He concealed major losses in his hedge funds 
+and in his PIWM investment program and misappropriated PIWM investors’ assets for personal 
+use.     
+11. In 2008, Battoo’s hedge funds suffered major losses in several areas.  Battoo’s 
+hedge funds had made large, leveraged investments in Madoff feeder funds that suffered total 
+losses as a result of the Madoff Ponzi scheme.  In addition, Battoo’s hedge funds were invested 
+heavily in fund-linked certificates whose performance was linked to Phi R Squared, a hedge fund 
+managed by Battoo.  Phi R Squared suffered substantial losses in 2008 based on impairments 
+caused by the financial crisis.  As a result, the fund-linked certificates lost approximately 85% of 
+their value.  Battoo’s PIWM investment program also suffered substantial losses in 2008 due to 
+its high concentration of exposure to Battoo’s hedge funds.  Rather than disclose the losses to 
+existing and prospective PIWM investors, Battoo concealed the losses by reporting fictitious 
+strong investment returns in investment reports and marketing materials.  He created fictitious 
+account statements and verification reports on the letterhead of AIM, a Bahamas-based broker-
+dealer.  AIM acted as PIWM’s custodian.  At Battoo’s behest, AIM sent account statements and 
+verification reports to investors and their agents.  Battoo exacerbated the PIWM investor losses 
+by stealing investor funds to support his extravagant lifestyle.   
+12. On September 6, 2012, the Commission filed an emergency injunctive action in 
+U.S. district court against Battoo and the entities he controlled.  The Commission’s complaint 
+alleged violations of: Section 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; and Section 206(4) of the 
+Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8 thereunder.  On September 
+5 
+30, 2014, the district court entered a default judgment permanently enjoining Battoo and his BC 
+Capital companies from violating Section 17(a) of the Securities Act; Sections 10(b) and 15(a) of 
+the Exchange Act and Rule 10b-5 thereunder; and Section 206(4) of the Advisers Act and Rule 
+206(4)-8 thereunder.  The district court also ordered Battoo and his two BC Capital entities to 
+pay disgorgement, prejudgment interest, and penalty, imposed jointly and severally, totaling 
+$358,129,196.86.  
+13. The Maven Entities collectively invested nearly $95 million with Battoo.  The 
+Battoo investments represented approximately 78% of the Maven Entities’ assets.  From 2006 
+until the Commission filed the SEC Battoo Lawsuit in September 2012, the Maven Entities 
+believed that Battoo had their assets custodied at AIM.  In fact, the Maven Entities’ AIM 
+accounts held a small fraction of the assets reported to the Maven Entities on their account 
+statements.  
+Audits of the Maven Entities 
+14. The Maven Entities hired independent auditors to perform annual audits of their 
+financial statements.  Audit Firm A audited the Maven Entities’ 2006 financial statements, while 
+Audit Firm B audited the Maven Entities’ 2007 and 2008 financial statements.  Audit Firm A 
+issued a qualified opinion on Maven Assurance’s 2006 financial statements because the firm did 
+not have the necessary information to perform valuation procedures on Maven Assurance’s 
+investments in the PIWM program, which constituted approximately 60% of Maven Assurance’s 
+assets.  Likewise, Audit Firm B, who conducted the 2007 and 2008 audits of the Maven Entities, 
+issued qualified opinions for the 2007 and 2008 Maven Assurance audits due to its inability to 
+obtain reliable audit evidence regarding the existence and valuation of the investments with Battoo. 
+15. The Maven Entities decided to switch auditors yet again for the 2009 audit.  The 
+Maven Entities retained Johnson Lambert to audit the Maven Entities’ 2009 financial statements. 
+16. Diericx served as the engagement partner for the audits.  Diericx lacked 
+experience dealing with issues that were prevalent in the audits.  Before Johnson Lambert 
+accepted the engagement, Diericx emailed Johnson Lambert’s managing partner and a Johnson 
+Lambert tax partner about the engagement.  In the email’s subject line, Diericx simply wrote 
+“Help.”  He noted that Maven Assurance’s prior financials had “a qualified opinion and other 
+problematic things.”  In the email, Diericx acknowledged that he had never dealt with valuations of 
+foreign hedge funds or the “[r]amifications/tax risks on what this thing is.”  He asked for their 
+opinion on whether Johnson Lambert should accept the engagement.  The managing partner 
+responded, noting that the prior auditor’s qualified opinion was based on its inability to get audited 
+financial statements for a hedge fund investment and audit evidence to support the existence and 
+value of another investment.  The managing partner said that unless something has changed in 
+available evidence, Johnson Lambert would have the same opinion issue.   
+17. Johnson Lambert accepted the engagement.  It assigned Diericx as engagement 
+partner, despite his lack of experience dealing with the very issues that were the cause of the prior 
+auditor’s qualified opinion – that is, the valuation of foreign hedge funds.  To attempt to 
+compensate for Diericx’s inexperience, Johnson Lambert’s partner responsible for quality control 
+over accounting and auditing practice sent Diericx a link to the American Institute of Certified 
+6 
+Public Accountants’ (“AICPA”) Practice Guide to Auditing Alternative Investments4 and assigned 
+engagement quality control reviewers that the firm believed had expertise in audits involving 
+alternative investments.   
+18. In fact, no one on the engagement team had experience dealing with these types of 
+investments.  No one made the engagement quality control reviewers aware of the engagement 
+team’s lack of experience, the risks associated with the engagement, or the problems with the prior 
+audits that led to reports with qualified opinions, nor did anyone instruct the engagement quality 
+control reviewers to devote more effort to the review given the circumstances. 
+19. Diericx completed both the 2009 and 2010 audits of the Maven Entities.  Johnson 
+Lambert issued audit reports with unqualified opinions for each entity in both years.  The 2009 
+and 2010 audit reports for Maven Assurance and Maven Life stated that Johnson Lambert 
+audited the Maven Entities’ financial statements in accordance with GAAS and expressed its 
+opinion that the financial statements presented fairly, in all material respects, the financial 
+position of the Maven Entities as of December 31, 2009 and December 31, 2010, in accordance 
+with U.S. generally accepted accounting principles (“GAAP”).  The investments in Battoo’s 
+alternative investment program constituted approximately 79% of the Maven Entities’ total 
+assets according to their 2009 and 2010 financial statements. 
+Johnson Lambert’s and Diericx’s improper professional conduct 
+20. Contrary to the representations in the audit reports, Johnson Lambert’s audits 
+were not conducted in accordance with GAAS.  Johnson Lambert and Diericx deviated from 
+GAAS in many critical respects that resulted in the issuance of audit reports with unqualified 
+opinions that were not supported by sufficient appropriate audit evidence.   
+Johnson Lambert and Diericx failed to exercise due professional care and to adequately staff the 
+Maven Entity audits. 
+21. GAAS requires auditors to exercise due professional care in the planning and 
+performance of the audit and the preparation of the report.  AU § 230.01-02.5  Auditors 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.  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.  
+Auditors must have adequate technical training and proficiency to perform the audit, and the firm 
+                                                           
+4  In 2006, the AICPA’s Alternative Investment Task Force developed and issued a practice 
+aid for auditors titled “Alternative Investments – Audit Considerations” (“AICPA Alternative 
+Investment Aid”).  As noted in the publication, the information in it “is intended to provide 
+guidance to auditors” and “may help the auditor understand and apply the Statements on 
+Auditing Standards.”  According to Johnson Lambert personnel, they considered this practice aid 
+to be the best source of audit guidance on alternative investments.   
+ 
+5  Citations to “AU” are citations to Statements on Auditing Standards issued by the AICPA 
+in effect at the time of the relevant conduct. 
+7 
+should consider in accepting or continuing the client engagement whether it has sufficient 
+personnel with the necessary capabilities and competence.  AU § 210.01; QC § 10.31.6  Auditors 
+should consider whether specialized skills are needed to perform the audit and seek the 
+assistance of a professional possessing such skills.  AU § 311.22. 
+22. Diericx and Johnson Lambert lacked an understanding of applicable U.S. 
+professional auditing standards for staffing and planning the Maven audits.  Johnson Lambert 
+failed to staff the Maven Entities’ audits with audit staff with adequate competence and 
+experience to perform the audits, and otherwise failed to compensate for the audit staff’s lack of 
+competence through other means.  Though alternative investments constituted most of the 
+Maven Entities’ assets, Diericx lacked adequate professional training to audit the existence and 
+value of such assets.   
+23. The only steps Johnson Lambert took to attempt to compensate for Diericx’s lack 
+of competence and experience with alternative investments was to provide Diericx with the 
+AICPA Alternative Investment Aid and to appoint engagement quality control reviewers with 
+alternative investment experience.  However, the assigned reviewers were not members of the 
+engagement team and, consistent with AICPA standards, they did not participate in the planning 
+or performance of the Maven Entities’ audits or in the gathering of audit evidence.  QC § 10.94-
+95; see also QC §10.82 (“the engagement partner [is] responsible for the engagement and its 
+performance, notwithstanding involvement of the engagement quality control reviewer”).  In 
+fact, Johnson Lambert’s policies and procedures prohibited the engagement quality control 
+reviewer from participating in the performance of the engagement, and provided that significant 
+consultation between the engagement team and the engagement quality control reviewer during 
+the audit could necessitate assignment of a new engagement quality control reviewer.  Because 
+the engagement quality control reviewers had no substantive involvement in the Maven Entities’ 
+audits, they did little to compensate for Diericx’s incompetence and inexperience.  Johnson 
+Lambert did not take any steps to assess whether the engagement team was consulting with 
+others with the necessary expertise, or to ensure that the engagement quality control reviewers 
+devoted more effort to their review in light of Diericx’s lack of experience. 
+Johnson Lambert and Diericx failed to obtain sufficient appropriate audit evidence to support its 
+audit opinion on the Maven Entities’ financial statements. 
+24. Auditors “must obtain sufficient appropriate audit evidence by performing audit 
+procedures to afford a reasonable basis for an opinion regarding the financial statements under 
+audit.”  AU § 326.01.  Johnson Lambert and Diericx failed to plan and perform sufficient 
+substantive audit procedures to obtain sufficient appropriate audit evidence of the existence and 
+valuation of the Maven Entities’ investments with Battoo, and otherwise failed to properly evaluate 
+the reliability of third-party information concerning those investments. 
+25. Once an audit team identifies risks of material misstatement at the financial 
+statement level, “the auditor should plan and perform substantive procedures to be responsive to 
+the related assessment of the risk of material misstatement.”  AU § 318.50.  “The auditor should 
+                                                           
+6  Citations to “QC” are citations to Statements on Quality Control Standards issued by the 
+AICPA in effect at the time of the relevant conduct. 
+8 
+design tests of details responsive to the assessed risk with the objective of obtaining sufficient 
+appropriate audit evidence to achieve the planned level of assurance at the relevant assertion 
+level.”  AU § 318.56.   
+26. With respect to auditing investments in securities, auditors should use the 
+assessed levels of inherent risk and control risk for assertions about the securities to determine 
+the nature, timing, and extent of the substantive procedures to be performed to detect material 
+misstatements of the financial statement assertions.  AU § 332.19.  Substantive procedures to test 
+existence of securities may include confirmation with the issuer of the security, physical 
+inspection of the security, and reading or inspecting underlying agreements or other forms of 
+supporting documentation.  AU § 332.21.  Auditors should also obtain evidence supporting 
+management’s assertions about the fair value of securities measured or disclosed at fair value.  
+AU § 332.35.
+7  When the valuation of investments in securities is based on fair value, the auditor 
+should test the entity’s fair value measurements and disclosures, which may involve, among 
+other things, testing management’s significant assumptions, the valuation model, and the 
+underlying data, or developing independent fair value estimates for corroborative purposes.  AU 
+§ 328.23.  “In circumstances in which the auditor determines that the nature and extent of 
+auditing procedures should include verifying the existence and testing the measurement of 
+investments in securities, simply receiving a confirmation from a third party, either in aggregate 
+or on a security-by-security basis, does not in and of itself constitute adequate audit evidence 
+with respect to the valuation assertion in section 332.”  AU § 9332.02.  Furthermore, receiving 
+confirmation from a third party for investments in aggregate does not constitute adequate audit 
+evidence with respect to the existence assertion.  Id. 
+27. Johnson Lambert and Diericx identified certain risks with respect to the existence 
+and value of the Maven Entities’ investments even before they accepted the engagement.  They 
+knew that the previous auditor’s inability to obtain audit evidence of the existence and value of 
+the Maven Entities’ alternative investments resulted in the issuance of reports with qualified 
+opinions.  Nevertheless, they accepted and completed the engagements without planning or 
+performing sufficient substantive procedures to address the existence assertion and the valuation 
+assertion regarding these investments.  
+28. According to Maven Assurance’s financial statements and account statements 
+provided by AIM and PIWM, Maven Assurance purportedly had more than $75 million invested 
+in Battoo’s PIWM program during 2009 and 2010, or 78% of its total assets, which consisted 
+primarily of hedge funds as well as other “managed accounts” comprised of alternative 
+investments.  Likewise, Maven Life purportedly had more than $5 million invested in PIWM’s 
+alternative investment strategies in 2009 and more than $10 million in 2010, representing more 
+than 80% of its total assets.   
+29. Although the investments in Battoo’s PIWM program constituted the majority of 
+the Maven Entities’ assets, Johnson Lambert and Diericx never attempted to contact the 
+managers of the underlying hedge fund investments in PIWM to confirm the Maven Entities’ 
+                                                           
+7  Generally accepted accounting principles may require that a security be valued based on 
+cost, the investee’s financial results, or fair value.  AU § 332.26.  The Maven Entities’ financial 
+statements purported to present investments at fair value. 
+9 
+interests in the funds or to assess the reasonableness of the valuations in the Maven Entities’ 
+financial statements.  Instead, Johnson Lambert and Diericx took at face value confirmations 
+received from AIM, the purported custodian of the assets, and PIWM, the investment program 
+operated by Battoo.  They did so even though the confirmations provided little information about 
+the specific investments purportedly owned by the Maven Entities.   
+30. Had Johnson Lambert or Diericx contacted the hedge funds identified on the AIM 
+account statements, they may have discovered that the Maven Entities’ investments in those 
+hedge funds did not come close to matching the investments reflected on the AIM account 
+statements.  Indeed, in most cases, the Maven Entities did not own any interest in the hedge 
+funds listed on the AIM account statements. 
+31. The AIM account statements and audit confirmations contained virtually no 
+information about the purported investments held by the Maven Entities in “managed accounts.”  
+The confirmations merely identified the name and purported strategy of the account (e.g., 
+“Alliance – PIWM-I: Multi-Strategy Managed Futures & Commodities”), and the dollar value of 
+each managed account.  Johnson Lambert did not attempt to determine what the underlying 
+investments were that constituted the managed accounts or the value of those investments.  The 
+AIM confirmations also included date discrepancies on their face (one AIM portfolio 
+confirmation for December 31, 2010 stated that it was “as of 2/9/2010” with “12/31/2010 
+prices”), which no one at Johnson Lambert recognized during the audits. 
+32. Rather than perform any additional substantive testing of the existence and value 
+of the Maven Entities’ purported investments listed in the AIM audit confirmations, Johnson 
+Lambert and Diericx relied on representations by Julian Brown, AIM’s President, regarding the 
+existence and value of the investments.  They did so even though Brown acknowledged that AIM 
+did not monitor net asset values of the investments and directed Johnson Lambert to contact 
+advisors, sub-custodians, and fund managers with specific questions relating to the 
+confirmations.  Johnson Lambert and Diericx failed to acknowledge or follow-up on these red 
+flags. 
+33. The failure to perform adequate substantive audit procedures to test the existence 
+and value of the majority of the Maven Entities’ assets was particularly problematic in light of 
+Johnson Lambert’s and Diericx’s identification of internal control weaknesses in this area.  
+Management is responsible for making the fair value measurements and disclosures included in 
+the financial statements, which includes establishing an accounting and financial reporting 
+process for determining the fair value measurements and disclosures, selecting appropriate 
+valuation methods, identifying and adequately supporting any significant assumptions used, 
+preparing the valuation, and ensuring that the presentation and disclosure of the fair value 
+measurements are in accordance with GAAP.  AU § 328.04.  In November, 2010, Johnson 
+Lambert issued a letter to the Maven Entities’ Board of Directors, which identified “significant 
+deficiencies” in the Maven Entities’ internal controls relating to their investments.  Johnson 
+Lambert noted that the Maven Entities did not have a process in place to independently evaluate 
+the fair value measurement procedures performed by its fund managers.  Yet the auditors still 
+failed to design substantive procedures to test the valuations of the investments provided by third 
+parties or the assumptions underlying those valuations.  AU §§ 332.19, 35, 38-39, 41, 43.  
+Johnson Lambert and Diericx relied entirely on valuations provided by PIWM and AIM without 
+10 
+any support for how those valuations were being calculated and without any information from 
+underlying hedge fund managers.   
+Johnson Lambert and Diericx failed to exercise professional skepticism by overlooking “red-
+flags.” 
+34. Due professional care requires an auditor to exercise professional skepticism, 
+which “includes a questioning mind and a critical assessment of audit evidence.”  AU § 230.07.  
+In addition, the auditor should “consider the competency and sufficiency of the evidence.  Since 
+evidence is gathered and evaluated throughout the audit, professional skepticism should be 
+exercised throughout the audit process.”  AU § 230.08.  Auditors should also place emphasis on 
+testing material transactions with parties he/she knows are related to the reporting entity.  AU § 
+334.07. 
+35. Johnson Lambert and Diericx failed to exercise such skepticism.  They overlooked 
+red flags and other warnings in the course of the Maven audits.  For example, the audit 
+confirmations Johnson Lambert and Diericx sent to PIWM and AIM (the only procedure around 
+the existence and valuation assertions performed by Johnson Lambert and Diericx) were 
+addressed to the same P.O. Box in Nassau, Bahamas.  Yet Johnson Lambert and Diericx 
+accepted the confirmation results without question at face value and without performing any 
+additional procedures related to the information contained in those confirmations.  See AU § 
+330.27 (in the confirmation process, “[i]f information about the respondent's . . . objectivity and 
+freedom from bias with respect to the audited entity comes to the auditor's attention, the auditor 
+should consider the effects of such information on . . . evaluating the results, including 
+determining whether other procedures are necessary;” where respondent is custodian of material 
+amount of audited entity’s assets, auditor should exercise heightened degree of professional 
+skepticism); AU § 330.04 (confirmation process should include “[e]valuating the information … 
+provided by the third party … including the reliability of that information.”). 
+36. Johnson Lambert’s internal workpapers disclosed that the custodian of the Maven 
+Entities’ investments was BC Hong Kong (not AIM), which was controlled by Battoo, and that 
+BC Hong Kong used AIM as a “sub-custodian.”  BC Hong Kong and BC Panama were 
+controlled by Battoo and closely related to AIM through Julian Brown, President of AIM, who 
+was on the Executive Board of BC Panama.  Further, the workpapers reflected that until May 
+2009, Maven and BC Hong Kong shared a common director.  These related party relationships 
+necessitated heightened professional skepticism and scrutiny by Johnson Lambert and Diericx.  
+In fact, Johnson Lambert and Diericx ignored these issues.   
+37. There were numerous other factors that should have caused Johnson Lambert and 
+Diericx to conduct their audits with a heightened degree of professional skepticism and consider 
+whether additional procedures or audit evidence was required, including: 
+a. The Maven Entities’ prior auditor told Diericx that it had issued reports 
+with qualified opinions, in part, because it was unable to obtain adequate 
+audit evidence of the existence of or the valuation of the Maven Entities’ 
+managed accounts allegedly held at AIM.   
+11 
+b. The Maven Entities had no process in place to independently evaluate the 
+fair value measurement procedures performed by the funds purportedly 
+holding their assets. 
+c. The account statements Johnson Lambert received from AIM, the 
+purported custodian of the Maven Entities’ investments, contained “as of” 
+dates that did not match the year end date (e.g., for the 2010 audit, AIM 
+sent Johnson Lambert statements for “12/31/2010 prices” but which were 
+“as of 2/9/2010”).  Johnson Lambert and Diericx made no additional 
+inquiries regarding the “as of” date discrepancies on the AIM account 
+statements. 
+E. FINDINGS 
+38. Based on the foregoing, the Commission finds that Johnson Lambert and Diericx 
+engaged in improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.
+8   
+ 
+F. UNDERTAKINGS 
+ 
+39. Review of Written Policies and Procedures.  Johnson Lambert shall, within sixty 
+(60) days after the entry of this Order, evaluate its existing written policies and procedures and 
+shall make such revisions as may be necessary in order to adopt, implement, and enforce written 
+policies and procedures to provide reasonable assurance that Johnson Lambert’s audits are 
+conducted in compliance with (a) the relevant Commission regulations and (b) audit and attest 
+standards relevant to appearing and practicing before the Commission.  Johnson Lambert shall 
+review and revise as necessary its written policies and procedures in the following areas:  (i) client 
+and engagement acceptance; (ii) the staffing of engagements; (iii) contact with and requests for 
+information from prior auditors; (iv) performing proper risk assessment; (v) obtaining sufficient 
+appropriate audit evidence relating to investments in securities; (vi) testing for valuation and 
+existence of investments in securities; (vii) auditing of alternative investments; (viii) third-party 
+confirmations; (ix) work paper review and signoff by engagement quality control reviewers; and 
+(x) related-party transactions and relationships.  
+ 
+40. Retention of an Independent Consultant.  Johnson Lambert shall retain, within sixty 
+(60) days after the entry of this Order, an independent consultant (“Independent Consultant”), not 
+unacceptable to the Commission staff.  Johnson Lambert will require the Independent Consultant 
+to review and evaluate the audit and interim review policies and procedures of Johnson Lambert 
+regarding (i) client and engagement acceptance; (ii) the staffing of engagements; (iii) contact 
+                                                           
+8  Section 4C(b) and Rule 102(e)(1)(iv) define improper professional conduct with respect 
+to persons licensed to practice as accountants.  Pursuant to these provisions, “improper 
+professional conduct” includes two types of negligent conduct:  (1) a single instance of highly 
+unreasonable conduct that results in a violation of professional standards in circumstances where 
+heightened scrutiny is warranted; or (2) repeated instances of unreasonable conduct, each 
+resulting in violations of professional standards, that indicate a lack of competence. 
+12 
+with and requests for information from prior auditors; (iv) performing proper risk assessment; (v) 
+obtaining sufficient appropriate audit evidence relating to investments in securities; (vi) testing 
+for valuation and existence of investments in securities; (vii) auditing of alternative investments; 
+(viii) third-party confirmations; (ix) work paper review and signoff by engagement quality 
+control reviewers; and (x) related-party transactions and relationships.  Johnson Lambert will 
+require that the Independent Consultant’s review and evaluation assess the foregoing areas to 
+determine whether Johnson Lambert’s policies and procedures are adequate and sufficient to 
+ensure compliance with (a) the relevant Commission regulations and (b) audit and attest 
+standards relevant to appearing and practicing before the Commission.  Johnson Lambert will 
+cooperate fully with the Independent Consultant and will provide reasonable access to firm 
+personnel, information, and records as the Independent Consultant may reasonably request for 
+the Independent Consultant’s reviews and evaluations.  Johnson Lambert will provide the 
+Commission staff a copy of the engagement letter detailing the scope of the Independent 
+Consultant’s responsibilities. 
+ 
+41. Within ninety (90) days of being retained, Johnson Lambert will require the 
+Independent Consultant to issue a report (“Report”) to Johnson Lambert: (a) summarizing the 
+Independent Consultant’s review and evaluation; and (b) making recommendations, where 
+appropriate, reasonably designed to ensure that audits conducted by Johnson Lambert comply 
+with Commission regulations and relevant audit and attest standards.  At Johnson Lambert’s 
+direction, the Independent Consultant will provide a copy of the Report to the Commission staff 
+when the Report is issued. 
+ 
+42. Johnson Lambert will adopt, as soon as practicable, the recommendations of the 
+Independent Consultant in the Report.  Provided, however, that within thirty (30) days of issuance 
+of the Report, Johnson Lambert may advise the Independent Consultant in writing of any 
+recommendation that it considers to be unnecessary, unduly burdensome, or impractical.  
+Johnson Lambert need not adopt any such recommendation at that time, but instead may propose 
+in writing to the Independent Consultant and the Commission staff an alternative policy or 
+procedure designed to achieve the same objective or purpose.  Johnson Lambert and the 
+Independent Consultant will engage in good-faith negotiations in an effort to reach agreement on 
+any recommendations objected to by Johnson Lambert. 
+ 
+43. In the event that the Independent Consultant and Johnson Lambert are unable to 
+agree on an alternative proposal within thirty (30) days, Johnson Lambert will abide by the 
+determinations of the Independent Consultant. 
+ 
+44. Within sixty (60) days of issuance of the Report, Johnson Lambert will certify to 
+the Staff in writing that it has adopted and has implemented or will implement all 
+recommendations of the Independent Consultant (“Certification of Compliance”).   
+ 
+45. Johnson Lambert will 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 Johnson Lambert, or 
+any of its present or former affiliates, directors, officers, employees, or agents acting in their 
+13 
+capacity.  The agreement will also provide that the Independent Consultant will require that any 
+firm with which he/she is affiliated or of which he/she is a member, and any person engaged to 
+assist the Independent Consultant in performance of his/her duties under this Order shall not, 
+without prior written consent of the Commission’s Chicago Regional Office, enter into any 
+employment, consultant, attorney-client, auditing or other professional relationship with Johnson 
+Lambert, 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. 
+ 
+46. Johnson Lambert’s Acceptance of New Public Company Audit Clients.  Johnson 
+Lambert shall not accept engagements for new clients for public company audits prior to the later 
+of one (1) year from the date of entry of this Order, or the date of issuance of the Certification of 
+Compliance.  A public company audit is defined as an engagement to audit the financial statements 
+of an “issuer” as that term is defined in Section 2(a)(7) of the Sarbanes-Oxley Act of 2002.  In 
+addition, Johnson Lambert shall not accept audit engagements for new clients pursuant to the 
+Exchange Act, the Securities Act, the Advisers Act, or the Investment Company Act of 1940, prior 
+to the later of one (1) year from the date of entry of this Order, or the date of issuance of the 
+Certification of Compliance. 
+ 
+47. Training and Professional Development.  Johnson Lambert shall establish, 
+implement, and enforce policies and procedures designed to provide reasonable assurances that 
+Johnson Lambert’s professionals participate in professional development activities in accordance 
+with firm guidelines, in subjects that are relevant to their responsibilities, and will contribute to 
+their technical training and proficiency as auditors.  Johnson Lambert shall require each audit 
+professional to undergo a minimum of eight (8) hours of audit-related training on topics 
+including, but not limited to: (i) exercising due professional care and professional skepticism; (ii) 
+evaluating third party confirmations involving investments in securities; (iii) audit planning, 
+including but not limited to the staffing of engagements, contact with and requests for 
+information from prior auditors, and performing proper risk assessment; (iv) obtaining sufficient 
+appropriate audit evidence; (v) auditing of alternative investments; (vi) related party transactions 
+and relationships; and (vii) adequate audit documentation relating to the above. 
+ 
+48. Certification of Compliance.  Johnson Lambert shall certify, in writing, 
+compliance with the undertakings set forth above.  The certification shall identify the 
+undertakings, provide written evidence of compliance in the form of a narrative, and be 
+supported by exhibits sufficient to demonstrate compliance.  The Commission staff may make 
+reasonable requests for further evidence of compliance, and Respondent agrees to provide such 
+evidence.  The certification and supporting material shall be submitted to Jeffrey A. Shank, 
+Assistant Regional Director, Chicago Regional Office, 175 W. Jackson Boulevard, Suite 900, 
+Chicago, IL 60604, with a copy to the Office of Chief Counsel of the Enforcement Division, 100 
+F Street, N.E., Washington DC 20549, no later than sixty (60) days from the date of the 
+completion of the undertaking(s).   
+ 
+49. Cooperation with the Commission’s Investigation and Related Litigation.  Johnson 
+Lambert (including its partners, principals, officers, agents, and employees) and Diericx shall 
+cooperate fully with the Commission in any and all investigations, litigations, administrative and 
+14 
+other proceedings commenced by the Commission or to which the Commission is a party relating 
+to or arising from the matters described in this Order.  In connection with such investigation, 
+litigation, administrative or other proceedings, Respondents agree to the following: (i) to produce, 
+without service of a notice or subpoena, any and all documents and other materials and information 
+as requested by the Commission; (ii) to appear and testify without service of a notice or subpoena 
+in such investigations, interviews, depositions, hearings, and trials, at such times and places as 
+reasonably requested by the Commission; and (iii) to respond promptly to all inquiries from the 
+Commission.  The foregoing obligations are subject to Johnson Lambert’s and Diericx’s rights:  (i) 
+to claim that documents or information requested is subject to attorney-client privilege or attorney 
+work product protection; and (ii) to seek entry of a confidentiality order as to (aa) sensitive 
+business documents or information, (bb) sensitive personnel documents or information, or (cc) 
+confidential information pertaining to clients other than the Maven Entities. 
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Johnson Lambert’s and Diericx’s Offer. 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+A. Johnson Lambert is hereby censured. 
+B. Johnson Lambert shall comply with the undertakings enumerated in Section III, 
+paragraphs 39 to 49 above. 
+C. Diericx is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+D. After three years from the date of this order, Diericx 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/her practice before the Commission will be 
+reviewed either by the independent audit committee of the public company 
+for which he/she works or in some other acceptable manner, as long as 
+he/she practices before the Commission in this capacity; and/or 
+2. an independent accountant.  Such an application must satisfy the 
+Commission that: 
+(a) Diericx, or the public accounting firm with which he is associated, 
+is registered with the PCAOB in accordance with the Sarbanes-
+Oxley Act of 2002, and such registration continues to be effective; 
+15 
+(b) Diericx, or the registered public accounting firm with which he is 
+associated, has been inspected by the PCAOB and that inspection 
+did not identify any criticisms of or potential defects in the 
+respondent’s or the firm’s quality control system that would 
+indicate that the respondent will not receive appropriate 
+supervision; 
+(c) Diericx has resolved all disciplinary issues with the PCAOB, and 
+has complied with all terms and conditions of any sanctions 
+imposed by the PCAOB (other than reinstatement by the 
+Commission); and 
+(d) Diericx acknowledges his responsibility, as long as Diericx appears 
+or practices before the Commission as an independent accountant, 
+to comply with all requirements of the Commission and the 
+PCAOB, including, but not limited to, all requirements relating to 
+registration, inspections, engagement quality control reviewer 
+procedures and quality control standards.   
+E. The Commission will consider an application by Diericx 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 Diericx’s character, integrity, 
+professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ 
+ By the Commission. 
+ 
+ 
+Brent J. Fields 
+Secretary 

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+                                                                               
+ 
+SECURITIES AND EXCHANGE COMMISSION 
+Washington, D.C. 
+ 
+      
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75844 / September 4, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3682 / September 4, 2015 
+ 
+Admin. Proc. File No. 3-15659 
+ 
+ 
+In the Matter of 
+ 
+THOMAS D. MELVIN, CPA 
+ 
+ 
+ 
+OPINION OF THE COMMISSION 
+ 
+RULE 102(e)(3) PROCEEDING 
+ 
+Grounds for Remedial Action 
+ 
+ Civil Injunction 
+ 
+Certified public accountant was permanently enjoined from violating antifraud provisions 
+of the federal securities laws.  Held, it is in the public interest to permanently disqualify 
+respondent from appearing or practicing before the Commission.  
+ 
+APPEARANCES: 
+ 
+C. Brian Jarrard, C. Brian Jarrard, LLC, for Thomas D. Melvin.  
+ 
+Joshua A. Mayes, for the Division of Enforcement. 
+ 
+Appeal filed: October 14, 2014 
+Last brief received: March 3, 2015 
+  
+2 
+ 
+ 
+ 
+ Thomas D. Melvin, a certified public accountant and a principal in the accounting firm of 
+Melvin, Rooks, and Howell in Griffith, Georgia, appeals from an initial decision permanently 
+disqualifying him from practicing before the Commission, based on his having been enjoined 
+from violating antifraud provisions of the federal securities laws and rules thereunder.1  We base 
+our findings on an independent review of the record, except with respect to those findings not 
+challenged on appeal.  
+ 
+I. BACKGROUND 
+ A. Melvin consented to the entry of an injunction in federal district court. 
+ On April 10, 2013, Melvin settled civil proceedings by consenting to the entry of a final 
+judgment (the "Injunctive Order") that permanently enjoined him from violating Exchange Act 
+Sections 10(b) and 14(e) and Exchange Act Rules 10b-5 and 14e-3.2  As part of that settlement, 
+he agreed that, "in any disciplinary proceeding before the Commission based on the entry of the 
+injunction in this action, Melvin understands that he shall not be permitted to contest the factual 
+allegations of the complaint in this action."  
+ 
+ The complaint in the civil proceeding (the "Complaint") alleged that, in December 2009, 
+Melvin learned about a pending tender offer involving the stock of Chattem, Inc., a Tennessee-
+based distributor of over-the-counter pharmaceutical products.  Melvin learned of the tender 
+offer from a longtime accounting client, who was a Chattem director and who consulted Melvin 
+to "mitigat[e] the personal tax liability that would accompany [the] tender offer and forced 
+exchange of" Chattem stock options the director held.  But, according to the Complaint, the 
+client "made clear," and Melvin understood, that the tender offer information was confidential 
+and disclosed "solely for the purpose of obtaining tax advice."  Nonetheless, within an hour of 
+discussing the tender offer with this client, Melvin called a longstanding client of his accounting 
+practice and told him of the pending offer, including the information that Chattem was to be 
+acquired in the near future and that the purchase price for Chattem would be approximately $90 
+per share.  Over the next few days, Melvin made similar disclosures to two other long-time 
+accounting clients and a partner in his accounting practice.3  Each of the four tippees who 
+learned of the tender offer from Melvin traded in Chattem stock, the price of which rose 
+                                                 
+1 Thomas D. Melvin, CPA, Initial Decision Release No. 673, 2014 WL 4678751 (Sept. 22, 
+2014). 
+2 15 U.S.C. §§ 78j(b), 78n(e); 17 C.F.R. §§ 240.10b-5, 240.14e-3.  Melvin also agreed to 
+disgorge approximately $61,328 in profits and $6,995 in prejudgment interest (for which he was 
+jointly and severally liable with other persons involved in the misconduct), and to pay a civil 
+penalty of $108,930.05.   
+ Melvin signed a second consent on June 28, 2013.  There is no material difference 
+between the two consents with respect to the issues on appeal.  
+3 Two of the accounting clients were also close friends of Melvin.  
+3 
+ 
+ 
+ 
+substantially on the day the tender offer was announced.4  Moreover, Melvin's four tippees told 
+five other people about the Chattem tender offer; these five tippees also traded in the stock, and 
+one of them tipped two additional people, who also traded.  Eventually, according to the 
+Complaint, at least ten individuals (not including Melvin) traded the stock based on inside 
+information obtained directly or indirectly from Melvin, profiting by more than $550,000.5  
+  
+ The Georgia Board of Accountancy Code of Professional Conduct (the "Code") expressly 
+provided that a Georgia-licensed CPA, such as Melvin, could not, without the consent of his 
+client, disclose any confidential information pertaining to the client that the CPA obtained in the 
+course of performing professional services.  The Complaint alleged that Melvin "[d]isregard[ed] 
+the duty of confidentiality owed to his client and imposed on him by the [Code,] misappropriated 
+the material non-public information . . . and disclosed" that information to others.  His 
+misappropriation and disclosures were alleged to have provided him a benefit in the form of 
+furthering his professional and personal relationships.   
+ 
+ B. An administrative law judge permanently disqualified Melvin from 
+practicing before the Commission. 
+ On December 20, 2013, we issued an Order Instituting Proceedings ("OIP"), based on the 
+Injunctive Order and pursuant to Rule of Practice 102(e)(3)(i),6 and temporarily suspended 
+Melvin from appearing or practicing before the Commission.7  In doing so, we found that 
+suspending Melvin was "appropriate and in the public interest."8  Melvin filed a timely petition 
+to lift the temporary suspension,9 which we denied.10  We also directed that a hearing be held 
+before a law judge to "determine[] what, if any, action may be appropriate to protect the 
+                                                 
+4 The acquisition price represented a roughly 33% premium over the closing price for 
+Chattem stock on the day preceding announcement of the merger.  
+5 The Complaint alleges that Melvin's four tippees "and six others" traded in the securities 
+of Chattem based on the material non-public information that Melvin disclosed, but it 
+enumerates a total of eleven traders:  Melvin's four tippees, their five tippees, and two more 
+remote tippees.  Our determination that Melvin's permanent disqualification from appearing or 
+practicing before the Commission is an appropriate sanction would be the same whether there 
+were ten or eleven tippees.  
+6 17 C.F.R. § 201.102(e)(3)(i). 
+7 Thomas D. Melvin, CPA, Exchange Act Release No. 71161, 2013 WL 6705182 (Dec. 20, 
+2013).  
+8 Id. at *1. 
+9 See Rule of Practice 102(e)(3)(ii), 17 C.F.R. § 201.102(e)(3)(ii) (providing that a 
+temporary suspension imposed under Rule 102(e)(3)(i) will become permanent unless a petition 
+to lift it is filed within thirty days after service of the order imposing the temporary suspension). 
+10 Thomas D. Melvin, CPA, Exchange Act Release No. 71761, 2014 WL 1091679, at *2 
+(Mar. 20, 2014). 
+4 
+ 
+ 
+ 
+Commission's processes" in light of the Injunctive Order.11  On September 22, 2014, the law 
+judge issued an initial decision permanently disqualifying Melvin from practicing before the 
+Commission.12  This appeal followed.13 
+ 
+II. Analysis  
+ A. Burden of Proof and Standard of Review 
+ The Division introduced evidence, and it is undisputed, that Melvin was permanently 
+enjoined from violating "provision[s] of the Federal securities laws."14  As a result, under our 
+rules, "the burden" passed to Melvin "to show cause" why he should not be censured or 
+disqualified from appearing and practicing before us.  In determining whether that burden has 
+been met and assessing an appropriate sanction, we are guided by the strong and clear public 
+interest in ensuring the integrity of our processes.15  That assessment is, in turn, informed by our 
+consideration of public interest factors we traditionally consider in other types of administrative 
+proceedings, including 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 of future violations.16  Our application of these factors is flexible 
+                                                 
+11 Id. at *2.  See Rule 102(e)(3)(iii), 17 C.F.R. § 201.102(e)(3)(iii) (providing for 
+Commission action in response to petition filed pursuant to Rule 102(e)(3)(ii)). 
+12 Thomas D. Melvin, CPA, 2014 WL 4678751, at *9.   
+13 The Initial Decision allowed twenty-one days after service of the Initial Decision for 
+filing petitions of review, citing Rule of Practice 360, 17 C.F.R. § 201.360.  But Rule of Practice 
+540, 17 C.F.R. § 201.540, requires that a petition for review of an initial decision as to whether a 
+temporary sanction shall be made permanent must be filed within ten days after service of the 
+initial decision.  The Initial Decision was served on Melvin on September 22, 2014, and Melvin 
+filed his petition for review of October 14, 2014.  Although the petition was not timely filed in 
+accordance with Rule 540, we have determined, in an exercise of our discretion, to grant review 
+in this instance given the longer period specified in the Initial Decision. 
+14 Rules 102(e)(3)(i)(A), 102(e)(3)(iv); 17 C.F.R. §§ 201.102(e)(3)(i)(A), 102(e)(3)(iv). 
+15 See, e.g., Michael C. Pattison, CPA, Exchange Act Release No. 67900, 2012 WL 
+4320146, at *5 (Sept. 20, 2012) ("Rule of Practice 102(e) has been the primary tool available to 
+the Commission to preserve the integrity of its processes . . . .") (citing additional authority).  
+16 See, e.g., id. at *8 (102(e)(3) proceeding; citing Steadman v. SEC, 603 F.2d 1126, 1140 
+(5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981)); Chris G. Gunderson, Esq., 
+Exchange Act Release No. 61234, 2009 WL 4981617, at *5 (Dec. 23, 2009) (same).   
+5 
+ 
+ 
+ 
+and no single factor is dispositive. 17  We also consider the extent to which a sanction may have a 
+deterrent effect.18 
+ 
+Applying these factors, and based on our consideration of all the circumstances 
+surrounding Melvin's misconduct, we find that he represents such a significant threat to the 
+integrity of our processes that he must be permanently disqualified from appearing or practicing 
+before us.  Beginning almost immediately after receiving what he understood to be confidential 
+information, Melvin, acting with scienter,19 directly tipped three clients and his partner in 
+separate conversations, abusing his position of trust to enhance professional relationships that 
+could yield him pecuniary gain.  By misappropriating the information and disclosing it for 
+personal benefit, Melvin defrauded the client whose information he misused, "feigning fidelity to 
+the source of [the misappropriated] information" and thus engaging in "fraud akin to 
+embezzlement."20  Melvin's four tippees continued to pass along the misappropriated 
+information, such that Melvin's misconduct ultimately led to trading by at least ten individuals.  
+Moreover, Melvin's disclosures were particularly serious because the non-public information 
+related to a tender offer,21 and the specific details he passed along about the imminence of the 
+tender offer and the anticipated share price enhanced the tippees' ability to profit from the 
+misappropriated information.  We have stated that conduct that violates the antifraud provisions 
+of the federal securities laws, including insider trading, is "especially serious"22 and warrants 
+"'the severest of sanctions.'"23  And we have held that "'[f]idelity to the public interest' requires a 
+severe sanction when a respondent's misconduct involves fraud because the 'securities business is 
+                                                 
+17 Pattison, 2012 WL 4320146, at *8 (citing David Henry Disraeli, Exchange Act Release 
+No. 57027, 2007 WL 4481515, at *4 (Dec. 21, 2007), petition denied, 334 F. App'x 334 (D.C. 
+Cir. 2009)). 
+18 Id. (citing additional authority). 
+19 "Scienter is a mental state consisting of an intent to deceive, manipulate, or defraud, and 
+includes recklessness, commonly defined as 'an extreme departure from the standards of ordinary 
+care . . . to the extent that the danger was either known to the [respondent] or so obvious that the 
+[respondent] must have been aware of it."  Toby G. Scammell, Investment Advisers Act Release 
+No. 3961, 2014 WL 5493265, at *6 n.41 (Oct. 29, 2014) (quoting Johnny Clifton, Exchange Act 
+Release No. 69982, 2013 WL 3487076, at *10 n.67) (July 12, 2013)).   
+20 See United States v. O'Hagan, 521 U.S. 642, 654-55 (1997) (finding such deception 
+"essential to the misappropriation theory" of insider trading). 
+21 See Tender Offers, Exchange Act Release No. 17120, 1980 WL 20869, at *4-5 (Sept. 4, 
+1980) ("The abuses which result from trading in securities by persons in possession of material, 
+nonpublic information are particularly troublesome in the context of tender offers. . . .  This 
+practice results in unfair disparities in market information and market disruption."). 
+22 Peter Siris, Exchange Act Release No. 71068, 2013 WL 6528874, at * 6 (Dec. 12, 2013) 
+(quoting Vladimir Boris Bugarski, Exchange Act Release No. 66842, 2012 WL 1377357, at *5 
+(Apr. 20, 2012)), petition denied, 773 F.3d 89 (D.C. Cir. 2014). 
+23 Toby G. Scammell, 2014 WL 5493265, at *5 (quoting Gunderson, 2009 WL 4981617, at 
+*5). 
+6 
+ 
+ 
+ 
+one in which opportunities for dishonesty recur constantly.'"24  Further, we have recognized the 
+applicability in disciplinary proceedings under Rule 102(e) of the general rule that "an antifraud 
+injunction 'ordinarily' warrants barring participation in the securities industry."25 
+ 
+Melvin violated explicit professional conduct standards and betrayed the trust placed in 
+him by a longtime client seeking tax accounting advice.  As we previously stated in the 
+analogous context of an investment banker who disclosed a client's confidential information in 
+order to favor his own interest in establishing a collegial relationship,  
+ 
+[t]he ability to credibly assure a client that [obviously confidential] information 
+will be used solely to advance the client's own interests is central to any securities 
+professional's ability to provide informed advice to clients.  Disclosure of such 
+information jeopardizes the foundation of trust and confidence crucial to any 
+professional advising relationship.26 
+Melvin's unethical and illegal actions were, in our view, clearly egregious.  The betrayal of trust, 
+the rapidity with which he shared the confidential information, the details he passed on about the 
+tender offer, and the tipping of multiple business associates all contribute to our assessment of 
+the gravity of his misconduct.  Although Melvin's violation involved one misappropriation of 
+client information, it was not an 'isolated' infraction, as he passed the information along to four 
+people at four different times.  Thus, Melvin chose to breach his client's trust on four different 
+occasions, each giving him a chance to reflect on his actions.  We see little recognition by 
+Melvin of the wrongfulness of his actions and find that, given those actions, he constitutes an 
+unacceptable threat to our processes.  We further find that Melvin's permanent disqualification 
+serves important deterrent objectives, both for him and other securities industry professionals.27 
+  
+                                                 
+24 Id. (quoting Gunderson, 2009 WL 4981617, at *5). 
+25 Gunderson, 2009 WL 4981617, at *5 (quoting Justin F. Ficken, Investment Advisers Act 
+Release No. 2803, 2008 WL 4610345, at *3 (Oct. 17, 2008)). 
+26 Thomas W. Heath, III, Exchange Act Release No. 59223, 2009 WL 56755, at *10 (Jan. 9, 
+2009), petition denied, 586 F.3d 122 (2d Cir. 2009). 
+27 Cf. Steadman, 603 F.2d at 1140 (stating that a compelling reason supporting a bar would 
+be that "the nature of the conduct mandates permanent debarment as a deterrent to others in the 
+industry"). 
+7 
+ 
+ 
+ 
+  Melvin does not dispute the allegations that form the basis for the Injunctive Order,28 but 
+argues that they do not justify his permanent disqualification.  In support, he asserts that he did 
+not personally trade on the information or benefit financially from his actions.  According to 
+Melvin, the misappropriation was an "isolated event in an otherwise law-abiding and productive 
+life."  He further claims that he has recognized his misconduct by agreeing to settle the matter 
+and timely pay the amounts agreed to in the settlement.  Rather than permanent disqualification, 
+Melvin argues that "[i]t is appropriate to impose a three year bar" which is consistent, he asserts, 
+with settlement discussions he had with Division counsel.29  Although he acknowledges that the 
+Commission is not bound by such discussions, he asserts that it should nevertheless consider 
+what "the SEC employee most familiar with" the case believes would be "appropriate given all 
+that [the employee] knew of the case."    
+ 
+We are unpersuaded by Melvin's effort to minimize the seriousness of his misconduct.  
+His argument that his conduct was not so bad because he was "only a tipper" fails to 
+acknowledge how destructive that conduct was.  Melvin's misconduct created substantial losses, 
+or the risk of substantial losses, to other persons:  he defrauded Chattem of the exclusive use of 
+the tender offer information, conduct that the Supreme Court has likened to embezzlement,30 and 
+he undermined the integrity of the negotiating process for the tender offer, thus creating the risk 
+of substantial losses to both the target company and the potential acquirer.31  Moreover, the 
+                                                 
+28 As noted, Melvin agreed that he would not challenge allegations supporting the 
+Injunctive Order in a related Commission disciplinary proceeding.  See Rule of Practice 
+101(a)(3), 17 C.F.R. § 201.101(a)(3) (defining "disciplinary proceeding" to mean "an action 
+pursuant to Rule 102(e)").  Melvin is therefore precluded from contesting the Complaint's 
+allegations here, and we may consider them in determining an appropriate sanction.  See, e.g., 
+Siris v. SEC, 773 F.3d 89, 96 (D.C. Cir. 2014) (holding that the Commission "was entitled to rely 
+on the allegations of the complaint" in deciding whether to impose a permanent bar in a follow-
+on proceeding based on a consent judgment, where the terms of the consent judgment 
+"unambiguously barred Siris from making any future challenge to the allegations in the 
+complaint") (citations omitted); Toby G. Scammell, 2014 WL 5493265, at *3, 7 (refusing to 
+consider "claims that impermissibly contradict the allegations of the complaint" in determining 
+sanctions in follow-on proceeding based on injunction entered by consent, where Scammell had 
+"specifically agreed [in the consent agreement] that he would not contest the factual allegations 
+of the complaint in any administrative proceeding before the Commission"). 
+29 Melvin asserts in his pleadings that he and Division staff agreed, in connection with 
+discussions regarding settlement of the civil proceedings, that he also would "not be banned from 
+practicing before the Commission . . . in excess of three years."  He further asserts that he first 
+learned that the Commission was "not honoring the agreement" several months later, after the 
+OIP was issued.  Nevertheless, Melvin concedes in his brief that "the Commission itself is not 
+bound by the commitments of its [D]ivision counsel."   
+30 See O'Hagan, 521 U.S. at 652-54. 
+31 See Litton Indus., Inc. v. Lehman Bros. Kuhn Loeb Inc., 967 F.2d 742, 747-51 (2d Cir. 
+1992) (finding that insider trading in advance of a tender offer can artificially inflate the price the 
+acquirer must pay for the acquisition, resulting in overpayment by the acquirer and its 
+(continued…) 
+8 
+ 
+ 
+ 
+substantial gains by all of the tippees who benefited from the confidential information passed 
+along by Melvin are attributable to Melvin, even if Melvin did not personally trade.32  Melvin's 
+tipping his clients and partner in the expectation that they would trade is equivalent to Melvin's 
+trading himself and then giving the trading profits to those individuals.33  Had Melvin not 
+misappropriated the confidential client information and passed it along, the ensuing improper 
+trading, which resulted in illegal profits of more than half a million dollars, would not have 
+happened, making Melvin's conduct in some respects more "directly culpable" than that of the 
+tippees who personally traded.34  And, as discussed above, Melvin is not permitted to contest the 
+fact that he personally benefitted from his unlawful disclosures by furthering personal and 
+professional relationships.35  Despite Melvin's attempt to minimize the benefits he received, they 
+apparently were sufficient to motivate the multiple instances of misconduct at issue here, 
+providing reason to believe that they could do so again.  His actions reveal a highly troubling 
+willingness to ignore a fundamental professional obligation to respect and protect client 
+confidence along with a willingness to instigate and facilitate fraudulent stock trading activity.36  
+As we have held,  
+ 
+[t]he prohibitions against insider trading [in our securities laws] play an essential 
+role in maintaining the fairness, health, and integrity of our markets.  We have 
+long recognized that the fundamental unfairness of insider trading harms not only 
+                                                 
+(…continued) 
+shareholders); SEC v. Gaspar, No. 83 Civ. 3037, 1985 WL 521, at *15-17 (S.D.N.Y. Apr. 16, 
+1985) (escalation in share price resulting from insider trading decreased attractiveness of 
+premium offered, contributing to collapse of tender offer). 
+32 See, e.g., SEC v. Warde, 151 F.3d 42, 49-50 (2d Cir. 1998) ("A tippee's gains are 
+attributable to the tipper, regardless [of] whether benefit accrues to the tipper.").  
+33 See Dirks v. SEC, 463 U.S. 646, 659, 663-64 (1983) (citing Exchange Act Section 20(b), 
+15 U.S.C. § 78t(b), which "mak[es] it unlawful to do indirectly 'by means of any other person' 
+any act made unlawful by the federal securities laws," and finding that when a person "makes a 
+gift of confidential information to a trading relative or friend," that is equivalent to "trading by 
+the [person] himself followed by a gift of the proceeds to the recipient"). 
+34 Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 312-13 & n.23 (1985). 
+35  See Dirks, 463 U.S. at 663-64 (recognizing that a breach of fiduciary duty and 
+exploitation of nonpublic information for insider trading purposes may be shown when a tipper 
+receives a "direct or indirect personal benefit from the disclosure," such as when the tipper 
+"makes a gift of confidential information to a trading relative or friend"). 
+36 See, e.g., Thomas W. Heath, III, 2009 WL 56755, at *4 (finding that investment banker 
+who disclosed confidential client information "violated one of the most fundamental ethical 
+standards in the securities industry"). 
+9 
+ 
+ 
+ 
+individual investors, but also the very foundations of our markets, by undermining 
+investor confidence in the integrity of our markets.37 
+Our view that conduct like Melvin's merits significant sanctions is evident from a similar case in 
+which we found that a bar was an appropriate sanction for insider trading even though the tipper 
+was not charged with trading and received no direct economic benefit for the tip he provided.38   
+Nor do we consider it significant that, as Melvin claims, he discussed a possible 
+settlement with our staff that would have resulted in his disqualification for a number of years 
+                                                 
+37 Toby G. Scammell, 2014 WL 5493265, at *6 (quoting Selective Disclosure & Insider 
+Trading, Exchange Act Release No. 42259, 1999 WL 1217849, at *17 (Dec. 20, 1999), and 
+citing H.R. Rep. No. 98-355, at 2 (1984), reprinted in 1984 U.S.C.C.A.N. 2274, 2275, 1983 WL 
+25397, at *2 (finding that insider trading destroys the integrity of the marketplace "by 
+undermining the public's expectations of honest and fair securities markets where all participants 
+play by the same rules")). 
+38 See Robert Bruce Lohmann, Exchange Act Release No. 48092, 2003 WL 21468604, at 
+*4-5 (June 26, 2003).  Cf. SEC v. Gupta, No. 11 Civ. 7566, 2013 WL 3784138, at *4 (S.D.N.Y. 
+July 17, 2013) (permanently enjoining Gupta from further violations of the securities laws and 
+imposing officer-director and associational bars "notwithstanding the fact that Gupta's long-term 
+pecuniary gain from the insider trading conspiracy was speculative").   
+ 
+Melvin does not raise any argument challenging the factual premises that underlie his 
+liability as a tipper under Exchange Act Section 10(b) or 14(e) and Exchange Act Rules 10b-5 
+and 14e-3.  Nor can he, because as part of settling the civil proceeding he agreed not to contest 
+the factual allegations of the Complaint in this disciplinary proceeding.  Accordingly, we 
+understand Melvin's argument that he did not personally trade as an attempt to establish a 
+mitigating factor regarding relief, not as a challenge to his underlying liability.  In any event, 
+there would be no merit to such a challenge to his liability.  The Complaint alleged that Melvin's 
+misappropriation and disclosures were alleged to have provided him a benefit in the form of 
+furthering both his personal and professional relationships.  See Dirks, 463 U.S. at 663-64 
+("reputational benefit that will translate into future earnings" is sufficient); SEC v. Yun, 327 F.3d 
+1263, 1280 (11th Cir. 2003) (sufficient personal benefit where tipper and tippee worked closely 
+together and were frequently partners in real estate deals); SEC v. Sergeant, 229 F.3d 68, 77 (1st 
+Cir. 2000) (tipping "to maintain a useful networking contact" is sufficient personal benefit); 
+United States v. Newman, 773 F.3d 438, 452-53 (2d Cir. 2014) (tipping that "could yield future 
+pecuniary gain," including a "referr[al]" or monetary "commission," is sufficient).  The 
+allegation that Melvin had a close personal relationship with his tippees independently supports 
+the sufficiency of his personal benefit.  See Dirks, 463 U.S. at 663-64; Lohmann, 2003 WL 
+21468604, at *4; Yun, 327 F.3d at 1275; Sargent, 229 F.3d at 77; SEC v. Obus, 693 F.3d 276, 
+285 (2d Cir. 2012).  Finally, a breach of fiduciary duty for personal benefit is not an element of 
+liability under Exchange Act Section 14(e) and Rule 14e-3.  See O'Hagan, 521 U.S. at 676; 
+Tender Offers, 1980 WL 20869, at *5-13 (Sept. 4, 1980). 
+  
+10 
+ 
+ 
+ 
+rather than permanently.  As he acknowledges, we are not bound by such discussions,39 and we 
+have repeatedly held that sanctions imposed in connection with settlements are frequently less 
+severe than those that result from litigation.40  There is no suggestion that Melvin was in any way 
+prevented from identifying the circumstances that, according to him, led a member of our staff to 
+conclude (or that otherwise support his position) that disqualification for a term of years is 
+sufficient.41  We have carefully considered the evidence he has presented and his arguments in 
+mitigation, but conclude that they do not justify any leniency.   
+ 
+Although Melvin asserts that he "has recognized the wrongful nature of what transpired," 
+his arguments on appeal support a contrary conclusion.  His contention that although his conduct 
+was bad, the conduct of his partner, who also engaged in fraudulent misconduct related to the  
+Chattem tender offer, was worse, indicates that he does not appreciate the seriousness of his 
+misconduct.42  
+                                                 
+39 See, e.g., CFTC v. Field, 249 F.3d 592, 594 (7th Cir. 2001) ("[A] settlement on behalf of 
+the United States may be enforced only if the person who entered into the settlement had actual 
+authority to settle the litigation.").  See also SEC Division of Enforcement, Enforcement Manual, 
+available at http://www.sec.gov/divisions/enforce/enforcementmanual.pdf, Section 2.5.1 (noting 
+that "most settlements of previously authorized enforcement actions . . . require Commission 
+authorization" and describing procedure for obtaining such authorization); Eric J. Brown, 
+Exchange Act Release No. 66469, 2012 WL 625874, at *19 & n.67 (Feb. 27, 2012) ("[O]ur rules 
+are clear on this point:  an offer to settle is binding only if formally submitted to, and approved 
+by, the Commission . . . ." (citing Rule of Practice 240, 17 C.F.R. § 201.240 ("Final acceptance 
+of any offer of settlement will occur only upon the issuance of findings and an order by the 
+Commission.")), aff'd on other grounds sub nom., Collins v. SEC, 736 F.3d 521 (D.C. Cir. 2013). 
+40 See, e.g., Pattison, 2012 WL 4320146, at *11 ("[R]espondents who offer to settle may 
+properly receive lesser sanctions than they otherwise might have," because in settling cases "'we 
+take into account pragmatic considerations such as the avoidance of time-and-manpower-
+consuming adversary proceedings.'") (quoting Nassar & Co., 47 S.E.C. 20, 26 & n.3 (1978), 
+aff'd, 600 F.2d 280 (D.C. Cir. 1979)).   
+41 Cf., e.g., Jose P. Zollino, Exchange Act Release No. 55107, 2007 WL 98919, at *4 (Jan. 
+16, 2007) (although respondent in a follow-on proceeding may not challenge the allegations that 
+provide the basis for the underlying injunctive order, he or she is "free to introduce evidence 
+regarding the 'circumstances surrounding those allegations as a means of addressing 'whether 
+sanctions should be imposed in the public interest'") (quoting Schield Mgmt. Co., Exchange Act 
+Release No. 53201, 2006 WL 231642, at *6 (Jan. 31, 2006)).  
+42 Melvin asserts that his partner "admitted to misappropriating" confidential information 
+about the Chattem tender offer, but cites nothing to support this assertion.  We are unaware of 
+any allegations that the partner misappropriated confidential information, as opposed to trading 
+on the basis of confidential information that Melvin disclosed to him.  Based on the premise that 
+the partner's conduct was worse than his, Melvin argues that any sanction imposed on him 
+should be less serious than the permanent suspension from appearing or practicing as an 
+accountant imposed on his partner. 
+(continued…) 
+11 
+ 
+ 
+ 
+ C. The proceeding was timely instituted. 
+ 
+ Melvin also challenges his disqualification on procedural grounds, arguing that "these 
+proceedings were untimely under clearly established federal law," because the order of 
+temporary suspension (which was included in the OIP) was not issued until December 20, 2013, 
+more than 90 days after entry of the Injunctive Order.  Under Rule of Practice 102(e)(3), the 
+temporary suspension order had to be issued no "more than 90 days after the date on which the 
+final judgment has become effective, whether upon completion of review or appeal procedures or 
+because further review or appeal procedures are no longer available."43  Melvin does not dispute 
+that, under the Federal Rules of Appellate Procedure, he had 60 days to file a notice of appeal of 
+the Injunctive Order, but he contends that because he waived his right to appeal the Injunctive 
+Order, "appeal procedures [were] no longer available" within the terms of Rule 102(e)(3) from 
+the time the Injunctive Order was entered, and that Rule 102(e)(3)'s 90-day limit therefore 
+expired on November 12, 2013.  The Division responds that, though "he was almost certain to 
+fail, Melvin was free to file a notice of appeal and challenge the judgment" and that, therefore, 
+the temporary suspension order was timely because it was issued within 90 days of when 
+Melvin's period for filing an appeal expired on October 13, 2013. 
+ 
+The parties cite to no authority interpreting this aspect of the Rule.  The relevant statutory 
+language does not address the issue, nor do the related proposing or adopting releases.44  Thus, 
+we must interpret the language without any such guidance. 
+                                                 
+(…continued) 
+ We reject this argument.  Both the partner and Melvin were enjoined from antifraud 
+violations, which, as we noted above, ordinarily warrants permanent exclusion from participation 
+in the securities industry.  Their misconduct was serious for many of the same reasons, and the 
+fact that some particulars differed—Melvin misappropriated but didn't trade, his partner traded 
+but didn't misappropriate, Melvin tipped four people, his partner tipped one person—does not 
+mean that the public interest would mandate that they receive different sanctions.   
+ We further find that Melvin deserves no special credit for making the payments he agreed 
+to.  Cf., e.g., Howard Braff, Exchange Act Release No. 66467, 2012 WL 601003, at *7 (Feb. 24, 
+2012) (for those who agreed to abide by FINRA's rules, compliance with obligations under those 
+rules is not a mitigating factor in determining sanctions); Kevin M. Glodek, Exchange Act 
+Release No. 80937, 2009 WL 3652429, at *8 (Nov. 4, 2009) (same), petition denied, 416 F. 
+App'x 95 (2d Cir. 2011). 
+43 17 C.F.R. § 201.102(e)(3). 
+44  When the Commission adopted the amendment to then-Rule 2(e) that made "a 
+permanent injunction against securities-laws violations or a finding of securities-laws 
+violations . . . a basis upon which the Commission may initiate proceedings to censure or 
+temporarily or permanently disqualify an attorney, accountant, engineer, or other professional or 
+expert from appearing and practicing before the Commission," the amendment contained the 
+language currently found in Rule 102(e)(3) that looks to whether "further review or appeal 
+procedures are no longer available," among other factors, in determining whether the 
+Commission's entry of an order of temporary suspension was timely.  Suspension or Disbarment 
+(continued…) 
+12 
+ 
+ 
+ 
+ 
+For purposes of Rule 102(e)(3), we interpret the phrase "further review or appeal 
+procedures are no longer available" to mean that the party is foreclosed from pursuing further 
+review or appeal of his or her case because the time for appeal has expired.  We recognize that 
+the application of the language of the rule may be ambiguous where, as here, a party has waived 
+the right to an appeal.  Review is arguably "no longer available" in light of a waiver.  But we 
+believe the phrase "appeal procedures are no longer available" is better interpreted to refer to the 
+procedural availability of the means for bringing an appeal under the federal rules, rather than to 
+the viability of any substantive claim that is brought. 
+ 
+We do not believe it is correct to say that "appeal procedures are no longer available" 
+simply because a person has waived the right to appeal in a consent agreement.  Even where such 
+a waiver is enforced and an appellate court dismisses the appeal because of the waiver, "appeal 
+procedures" are still "available" in the sense that a person is entitled to file the appeal within the 
+time provided by the federal rules and to obtain a ruling of some kind from the appellate court.  
+Moreover, there are some very limited instances in which an appellate court may decide to reject 
+a waiver and hear an appeal on the merits.45  For these reasons, we construe the phrase "appeal 
+procedures are no longer available" to mean that the period allotted by rule for filing a notice of 
+appeal has expired, without regard to whether the right to appeal has been waived in a particular 
+case or to the validity of any such waiver.  Applying this interpretation, we find that Federal Rule 
+of Appellate Procedure 4(a)(1)(B) allows 60 days for filing an appeal from a district court's final 
+judgment in which the United States or an agency is a party, and therefore, for purposes of Rule 
+102(e)(3), appeal procedures were "available" to Melvin with respect to the Injunctive Order 
+within the terms of the rule until that period ended.46 
+                                                 
+(…continued) 
+from Appearance or Practice Before the Commission, Securities Act Release No. 5147, 1971 
+WL 126066, at *2, 4 (May 10, 1971).  There is no discussion of the phrase, "no longer 
+available," and subsequent amendments to Rule 102(e) have not clarified the meaning of that 
+language.   
+45 Appeal waivers will generally be enforced, absent exceptional circumstances such as the 
+lack of actual consent, fraud in obtaining consent, or mistake.  See, e.g., Van v. Barnhart, 483 
+F.3d 600, 609 & n.5 (9th Cir. 2007) (noting general rule and citing cases that recognize 
+exceptions); Mock v. T.G. & Y. Stores Co., 971 F.2d 522, 526-27 (10th Cir. 1992) (affirming 
+judgments of district court in favor of defendants where plaintiffs consented to judgment and did 
+not reserve the right to appeal).  Where a party has consented to a valid settlement, as Melvin did 
+here, courts do not hesitate to enforce provisions expressly waiving the right to appeal.  E.g., 
+SEC v. Adair, 549 F. App'x 699 (9th Cir. 2013) (dismissing appeal where litigant had expressly, 
+voluntarily, and knowingly waived the right to appeal the district court's order); cf. Throne v. 
+Citicorp Inv. Servs., Inc., 378 F. App'x 629, 631-32 (9th Cir. 2010) (affirming district court 
+awarding attorneys' fees and costs for appeal where appeal was filed in contravention of express 
+waiver). 
+46 While this interpretation works to Melvin's detriment in that it allows the proceeding 
+against him to continue, Melvin cannot credibly argue that his conduct would have been any 
+different if he had known when he consented to the settlement of the civil proceeding that we 
+(continued…) 
+13 
+ 
+ 
+ 
+ Melvin argues that the majority of federal courts do not generally consider the merits of 
+appeals from consent judgments, and that no applicable exception to this general rule applies in 
+this case.  We agree with both of those assertions.47  But, as explained above, this does not mean 
+that "appeal procedures [were] no longer available" to Melvin; it simply means that the use of 
+those procedures would very likely have proved unsuccessful. 
+ 
+Our interpretation of Rule 102(e)(3) is also supported by policy considerations.  We find 
+it preferable for reasons of efficiency, clarity, and ease of administration, to adopt a bright-line 
+rule that bases the timeliness of temporary suspension orders in Rule 102(e)(3) disciplinary 
+proceedings on the time for filing a notice of appeal.  Federal Rule of Appellate Procedure 
+4(a)(1)(B) clearly sets forth such a deadline, making it easy to determine when a disciplinary 
+proceeding must be brought.  By contrast, Melvin's proposed interpretation of the phrase "no 
+longer available" would require a case-by-case analysis as to whether a particular appeal or 
+review proceeding would be futile or unsuccessful for reasons other than lack of timeliness.  That 
+approach would create uncertainty over the application of our deadlines in particular cases.  The 
+time for filing an appeal is a more certain and uniform starting point to gauge the running of our 
+90-day period.  
+ 
+Our approach is also supported by the approach taken by the United States Court of 
+Appeals for the District of Columbia Circuit in Adams v. SEC. 48  The court there adopted a 
+similar bright-line rule that a final disposition of an administrative proceeding became 
+"unappealable" for the purpose of determining the timeliness of fee applications under the Equal 
+Access to Justice Act only when the statutory period allowed for appeals from such dispositions 
+had expired.  The court rejected a rule like the one advanced by Melvin here that would have 
+                                                 
+(…continued) 
+would apply Rule 102(e)(3) in this way.  The consent Melvin signed specifically alluded to the 
+possibility of a "disciplinary proceeding before the Commission based on the entry" of the 
+Injunctive Order.  Moreover, his argument that Division counsel had discussed the possibility of 
+a three-year suspension from practice with him demonstrates that he understood that a 102(e) 
+proceeding could follow.  Thus, this is not a situation where a respondent was deprived of fair 
+notice of our interpretation of a rule governing the respondent's conduct in a way that impacts the 
+fairness of a proceeding.  See, e.g., Marrie v. SEC, 374 F.3d 1196, 1208 (D.C. Cir. 2004) 
+(finding that Commission impermissibly applied interpretation to Rule 102(e) retroactively, in 
+part because accountants "did not have fair notice [when they engaged in conduct at issue] that 
+they could be sanctioned for improper professional conduct even if they had been acting in good 
+faith); KPMG, LLC v. SEC, 289 F.3d 109, 116, 126 (D.C. Cir. 2002) (reversing finding that 
+"success" fee/royalty arrangement violated AICPA Rule 302 because KPMG "lacked fair notice" 
+that the Commission would interpret the rule so as to deem that arrangement to be a prohibited 
+contingent fee).  To the contrary, adopting the interpretation Melvin urges would effectively give 
+him a windfall, by relieving him of the need to participate in a proceeding that he knew to be a 
+likely outcome of his actions.    
+47 See supra note 45. 
+48 287 F.3d 183, 184, 191 (D.C. Cir. 2002).   
+14 
+ 
+ 
+ 
+analyzed whether a particular disposition was specifically appealable based on the standing or 
+lack of standing of the litigant.  The court recognized that adopting this bright-line rule, which 
+was "discernible by looking at the category of order in question," "eliminate[d] the high potential 
+for confusion" that would have resulted from determining appealability on a case-by-case basis.49  
+  
+ Melvin also argues that most federal courts hold that a consent judgment is "effective" 
+immediately upon entry, and that we should interpret Rule 102(e)(3) the same way.50  We 
+understand him to be using "effective" here to mean something like "binding on the party subject 
+to the judgment."  Indeed, "effective" is used that way elsewhere in Rule 102(e)(3), when the 
+rule states that "[a]n order of temporary suspension shall become effective upon service on the 
+respondent."51  In the case before us, though, the question is not whether Melvin was bound by 
+the injunction as soon as it was entered, but rather when the time for entering an order of 
+temporary suspension started to run.  The Rule 102(e)(3) language we must interpret measures 
+the time for entering an order of temporary suspension from "the date on which the final 
+judgment or order entered in a judicial or administrative proceeding described in paragraph 
+(e)(3)(i)(A) or (e)(3)(i)(B) of this section has become effective, whether upon completion of 
+review or appeal procedures or because further review or appeal procedures are no longer 
+available."  In this context, "effective" means that review or appeal procedures have been 
+completed or that further review or appeal procedures are no longer available.52    
+                                                 
+49 Id.  Several other federal courts of appeals have also adopted a bright-line rule in similar 
+circumstances.  See, e.g., Impresa v. Construzioni Geom. Domenica Garufi v. United States, 531 
+F.3d 1367, 1372 (Fed. Cir. 2008) (adopting a uniform rule for EAJA petitions in the Court of 
+Federal Claims in holding that the period for filing an EAJA application started on expiration of 
+the period for filing a petition for certiorari from the final judgment of the Federal Circuit 
+because "a clear rule better serves the interests of litigants and the court"); Van, 483 F.3d at 612 
+(adopting bright-line rule whereby "EAJA's 30-day filing period does not begin to run until after 
+the 60-day appeal period in Rule 4(a) has expired," even when a claimant has obtained a 
+judgment as to which the Commissioner of the Social Security Administration has consented, in 
+part because the possibility that consent judgments can be appealed otherwise could create 
+uncertainty and confusion).   
+50 Melvin cites no authority to support this contention.   
+51 17 C.F.R. § 201.102(e)(3). 
+52 This does not mean, however, that an order or judgment is not effective or binding until 
+all appeals have been resolved or the period for filing appeals has run. As we have repeatedly 
+held, for example, the pendency of an appeal of a civil or criminal proceeding does not justify 
+any delay in related "follow-on" administrative proceedings.  See, e.g., Ran H. Furman, 
+Exchange Act Release No. 65680, 2011 WL 5231425, at *2 (Nov. 3, 2011) ("Although Furman 
+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.") (quoting Daniel S. Lezak, Exchange Act Release No. 50729, 
+2004 WL 2721400, at *2 & n.16 (Nov. 23, 2004)); Gunderson, 2009 WL 4981617, at *4 ("'[I]t is 
+well established that the existence of an appeal of the district court's decision does not affect the 
+[permanent] injunction's status as a basis for administrative action.'") (quoting Conrad P. 
+(continued…) 
+15 
+ 
+ 
+ 
+ 
+* * * 
+Melvin engaged in serious misconduct.  He betrayed a longtime client by 
+misappropriating sensitive and valuable information that he knew was confidential and sharing it 
+with business associates.  Although he did not personally trade on the information, his 
+disclosures furthered his professional and personal relationships and led to fraudulent and 
+profitable insider trading by at least ten individuals.  Moreover, Melvin does not appear fully to 
+appreciate the wrongfulness of his actions, which heightens our concerns about the possibility of 
+future misconduct.  In sum, Melvin's actions demonstrate that he poses a threat to the integrity of  
+our processes and amply justify his permanent disqualification from appearing or practicing 
+before us.  
+An appropriate order will issue.53 
+By the Commission (Chair WHITE and Commissioners AGUILAR, GALLAGHER, 
+STEIN, and PIWOWAR). 
+ 
+ 
+ 
+   Brent J. Fields 
+      Secretary 
+ 
+                                                 
+(…continued) 
+Seghers, Investment Advisers Act Release No. 2656, 2007 WL 2790633, at *3 & n.12 (Sept. 26, 
+2007), and citing additional authority). 
+53 We have considered all 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. 
+                                                                               
+ 
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75844 / September 4, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Rel. No. 3682 / September 4, 2015 
+ 
+Admin. Proc. File No. 3-15659 
+ 
+ 
+In the Matter of 
+ 
+THOMAS D. MELVIN, CPA 
+ 
+ 
+ 
+ORDER IMPOSING REMEDIAL SANCTIONS 
+ 
+On the basis of the Commission's Opinion issued this day, it is 
+ 
+ORDERED that Thomas D. Melvin, CPA, is hereby permanently disqualified from 
+appearing or practicing before the Commission. 
+ 
+By the Commission. 
+ 
+ 
+ 
+   Brent J. Fields 
+       Secretary 
+ 
+ 
+ 
+ 

raw/aaer/2015/AAER-3684.txt

@@ -0,0 +1,586 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9902 / September 8, 2015 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75850 / September 8, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3684 / September 8, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16787 
+ 
+ 
+ 
+In the Matter of 
+ 
+HYUNJIN LERNER, CPA,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933, SECTIONS 
+4C AND 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, AND RULE 
+102(e) OF THE COMMISSION’S RULES 
+OF PRACTICE, MAKING FINDINGS, 
+AND IMPOSING REMEDIAL 
+SANCTIONS AND A CEASE-AND-
+DESIST ORDER 
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against Hyunjin 
+Lerner (“Respondent” or “Lerner”) pursuant to Section 8A of the Securities Act of 1933 
+(“Securities Act”), Sections 4C1 and 21C of the Securities Exchange Act of 1934 (“Exchange 
+Act”) and Rule 102(e)(1)(iii) 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 
+ 
+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 and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 
+1933, Sections 4C and 21C of the Securities Exchange Act of 1934, and Rule 102(e) of the 
+Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-
+and-Desist Order (“Order”), as set forth below.    
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that: 
+ 
+SUMMARY 
+ 
+This proceeding results from Bankrate, Inc., through its chief financial officer, Edward 
+DiMaria, vice president and director of accounting, Matthew Gamsey, and vice president of 
+finance, Hyunjin Lerner, intentionally manipulating its financial results for the second quarter of 
+2012 in order to meet and/or exceed analyst consensus estimates for key financial metrics.  As a 
+result of this manipulation, Bankrate materially overstated its financial results for the second 
+quarter of 2012.   
+ 
+                                                                                                                                                             
+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)(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. 
+ 
+ 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.   
+3 
+ 
+After reviewing Bankrate’s preliminary financial results for the second quarter 2012, which 
+fell short of analyst estimates for certain key metrics, DiMaria arbitrarily decided to increase 
+Bankrate’s revenue following the end of the quarter in order to meet those metrics.  As a result, 
+DiMaria, through Lerner, improperly directed two Bankrate divisions, the Insurance and Credit 
+Cards divisions, to book additional revenue of $300,000 and $500,000, respectively, without any 
+support or analysis.   
+ 
+The Insurance division immediately booked the $300,000 of revenue directed by DiMaria 
+to a dormant customer account, with no intention of justifying the revenue until the company’s 
+outside auditor asked for additional information about it five days later.  In response to the 
+auditor’s inquiry, the Insurance division quickly devised a purported justification for the 
+improperly booked revenue – a justification that changed shortly thereafter.  These purported 
+justifications were not, however, provided to Bankrate’s auditor.  Instead, Lerner sent a misleading, 
+generic explanation to the auditor – an explanation that was reviewed and approved by DiMaria 
+and Gamsey.  Further, although the Insurance division’s ultimate justification was reviewed and 
+approved by Lerner and others, Lerner knew, or was reckless in not knowing, that the purported 
+justification did not support the recognition of revenue under Generally Accepted Accounting 
+Principles (“GAAP”).  
+ 
+The accountants from the Credit Cards division were only willing to record $176,000 of the 
+$500,000 in revenue directed by DiMaria, thereby infuriating DiMaria.  Refusing to accept the 
+Credit Cards division’s unwillingness to record the full $500,000 of revenue he had directed, 
+DiMaria insisted that the approximate difference be recorded as revenue on the books of 
+Bankrate’s mortgage business, Bankrate Core.  As a result, Bankrate recorded an additional 
+$305,000 of unsupported revenue to two arbitrary Bankrate Core customers.  Bankrate’s recording 
+of both the $176,000 and the $305,000 in revenue was contrary to GAAP. 
+Further manipulating Bankrate’s financial results for the second quarter, DiMaria, without 
+any support or analysis, improperly directed a Bankrate Core accountant to reduce the accrual for 
+certain marketing expenses by $400,000, which was known to Lerner.  Bankrate, through DiMaria 
+and with Lerner’s knowledge, had been allowing this marketing accrual account to accrue as a 
+“cushion” account for more than a year, and then selectively decided to reduce the accrual in the 
+second quarter of 2012 in order to improve the company’s financial results.  In the second quarter 
+2012, DiMaria improperly reversed $400,000 of the accrual amount, thereby reducing second 
+quarter expenses, to help Bankrate meet analyst estimates.  Finally, as part of its effort to 
+artificially inflate its financial results to meet or exceed analyst estimates for the second quarter 
+2012, Bankrate, through Lerner and others, intentionally failed to book approximately $99,000 in 
+known accounting expenses that had been incurred in the second quarter.   
+As a result of these improper accounting entries, entries that the company reversed as part 
+of a broader restatement, Bankrate’s second quarter 2012 earnings release and associated Form 8-
+K, filed on July 31, 2012, reported adjusted earnings before interest, taxes, depreciation, and 
+amortization (“Adjusted EBITDA”) of $37.5 million, exceeding analyst consensus estimates by 
+4 
+ 
+approximately $300,000, and adjusted earnings per share (“Adjusted EPS”) of $0.18, thereby 
+meeting analyst consensus estimates.4  Further, due to these improper accounting entries, Bankrate 
+materially overstated its second quarter 2012 net income reported in its Form 10-Q filed on August 
+13, 2012.  During the two week period following the issuance of Bankrate’s second quarter 2012 
+earnings release, DiMaria and Lerner each sold Bankrate stock, thereby profiting from a stock 
+price that had been artificially inflated by the company’s materially overstated financial results.   
+RESPONDENT 
+ 
+1. Hyunjin Lerner, age 46, is a resident of Stuart, Florida.  During the relevant 
+period, Lerner was Bankrate’s vice president of finance.  Lerner obtained his certified public 
+accountant license in California in 1996, but his license is currently delinquent.  Lerner, whose 
+employment was terminated by Bankrate due to the improper accounting practices described 
+herein, sold $30,045 worth of Bankrate stock on August 6, 2012, six days after Bankrate issued its 
+materially false second quarter 2012 earnings release. 
+ 
+OTHER RELEVANT ENTITY 
+ 
+2. Bankrate, Inc. is a Delaware corporation based in North Palm Beach, Florida, that 
+owns and operates an Internet-based consumer banking and personal finance network.  Bankrate’s 
+common stock is registered with the Commission pursuant to Exchange Act Section 12(b) and 
+trades on the New York Stock Exchange (ticker: RATE).  Bankrate files periodic reports, including 
+Forms 10-K, 10-Q, and 8-K, with the Commission pursuant to Section 13(a) of the Exchange Act 
+and the related rules thereunder.  On June 17, 2011, Bankrate filed an S-8 registration statement for 
+an offering relating to its equity compensation plan.  This offering, which was ongoing at the time 
+of the misconduct described herein, incorporated future company filings with the Commission, 
+including the Form 8-K containing the company’s materially false second quarter 2012 earnings 
+release and the second quarter 2012 Form 10-Q that materially overstated the company’s net 
+income. 
+ 
+FACTS 
+ 
+Bankrate’s Business And Structure. 
+ 
+3. Bankrate is engaged in the business of providing consumers with personal finance 
+information across multiple vertical categories including mortgages, deposits, insurance, credit 
+cards, and other categories, such as retirement, automobile loans, and taxes.  Bankrate also 
+aggregates rate information from over 4,800 institutions on more than 300 financial products.  Its 
+principal platform is its Bankrate.com Internet website.  
+                                                 
+4 Bankrate defines Adjusted EBITDA as earnings before interest, taxes, depreciation and 
+amortization, excluding stock based compensation expense and IPO and deal related expenses, 
+and defines Adjusted EPS as earnings per fully diluted share, excluding stock based 
+compensation expense, amortization, IPO and deal related expenses.   
+5 
+ 
+4. During the relevant period, Bankrate had three primary divisions:  (1) Bankrate 
+Core, the original mortgage information business; (2) Bankrate Insurance, comprised of 
+numerous insurance information companies acquired by Bankrate; and (3) Bankrate Credit 
+Cards, comprised of a number of credit card information companies acquired by Bankrate.   
+5. Bankrate generates revenue by selling consumer information (“leads”) gleaned 
+from users of its websites in the insurance and credit cards vertical categories.  Its other sources 
+of revenue include display advertising, performance-based advertising, distribution 
+arrangements, and traditional media avenues, such as syndication of editorial content and 
+subscriptions.  Some of its customers pay Bankrate each time that a consumer clicks through a 
+link on Bankrate’s website to the customer’s website.   
+Bankrate’s Manipulation Of Second Quarter 2012 Revenue And Expenses.  
+6. On July 6, 2012, after being provided with preliminary second quarter financial 
+results for Bankrate Core and Credit Cards (the Insurance division’s financial results had not yet 
+been added to the consolidated numbers), DiMaria, unwilling to accept the company’s second 
+quarter 2012 financial results, informed Lerner that Adjusted EBITDA needed to be $37 million 
+for the quarter.   
+7. On July 7, 2012, the first version of Bankrate’s consolidated financial results was 
+circulated to DiMaria, Lerner, and Gamsey, as well as others on the accounting team, reflecting 
+current Adjusted EBITDA for the second quarter of $36,144,000, which DiMaria knew was 
+below analyst consensus estimates.  
+8. Three days later, after realizing it had double-counted $286,000 of revenue, the 
+Credit Cards division submitted revised financials for consolidation.  The next day, DiMaria was 
+informed that Bankrate’s second quarter revenue had decreased by $286,000 due to the 
+correction for the Credit Cards division’s double-counting of revenue, further jeopardizing the 
+company’s prospects of meeting its metrics.  Shortly thereafter, at DiMaria’s instruction, Lerner 
+emailed the Insurance and Credit Cards divisions directing them to book additional revenue of 
+$300,000 and $500,000, respectively.  Lerner’s July 11, 2012 email instructions to both Credit 
+Cards and Insurance, which were copied to DiMaria, did not specify a legitimate justification for 
+the revenue, but rather contained an ambiguous description of what the revenue purportedly 
+related to, and did not identify any specific customers with which it was associated.  
+9. Within a few minutes of sending these email instructions, Lerner forwarded the 
+emails (and subsequent related emails) to Gamsey.  In emails between themselves using strong 
+expletives, Lerner and Gamsey expressed serious concerns about the validity of the revenue the 
+divisions had just been directed to book and commiserated about the improper accounting entries 
+directed by DiMaria.  Their emails also stated that DiMaria’s improper accounting entries would 
+have to be reversed in the third quarter, thereby creating an even larger revenue shortfall and a 
+need to record additional improper revenue in the third quarter.     
+ 
+6 
+ 
+Bankrate Insurance Records $300,000 in Baseless Revenue.  
+10. Without any support or analysis, the Insurance division immediately recorded the 
+$300,000 of additional revenue directed by DiMaria, booking the revenue to a dormant customer 
+account.  Although the Insurance division did not have any intention of justifying the $300,000 
+of additional revenue, on July 16, 2012, five days after the revenue was booked, Bankrate’s 
+auditors asked for an explanation for the $300,000 as part of its accounts receivable variance 
+review, thereby prompting Bankrate to quickly create a purported explanation for this revenue.     
+11. Within twenty-four hours of Bankrate’s auditors asking about the $300,000 entry, 
+the Insurance division, with the knowledge and/or involvement of DiMaria, Lerner, Gamsey, and 
+others, prepared a draft chart purportedly supporting the $300,000 in revenue – a chart that was 
+changed shortly thereafter.  Tellingly, although this second chart changed the amounts of 
+revenue assigned to certain categories and replaced certain initial explanations for the revenue 
+with new purported explanations for the revenue, the second chart still totaled the $300,000 in 
+revenue that DiMaria and Lerner had directed the Insurance division to book.   
+12. The purported explanations for the $300,000 in revenue were baseless.  For 
+example, in the second purported explanation for the $300,000 in revenue, $179,000 related to 
+estimated June 2012 revenue from a brand new bonus provision with a customer of the Insurance 
+division.  However, as DiMaria, Gamsey, and Lerner knew, at the time this revenue was 
+recognized, the Insurance division did not have any actual data from the customer indicating that 
+a June bonus had been earned.  In addition, both Gamsey and Lerner knew that the Insurance 
+division was not performing at a level that would have triggered a bonus in the months leading 
+up to June 2012.  Indeed, the Insurance division employee who prepared the high-level, 
+conclusory “support” for the bonus revenue advised Lerner at the time that she was not 
+comfortable with the Insurance division recognizing revenue on the basis of this type of analysis 
+in the future.  When the actual data on which a potential bonus was based were later reported to 
+the Insurance division, the Insurance division’s performance did not qualify for a bonus.  In fact, 
+the Insurance division missed the bonus under the two applicable bonus formulas by 
+approximately 50% and 200%, respectively.     
+13. For these reasons, among others, Bankrate’s recognition of the $300,000 in 
+revenue was contrary to GAAP.5 
+                                                 
+5 The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 
+(“ASC”) Topic 605-10-25-1 provides that revenue may be properly recognized only when it is 
+both a) realized or realizable and b) earned.  See also Staff Accounting Bulletin Topic 13, 
+Revenue Recognition, as codified in ASC 605-10-S99, which provides that revenue is generally 
+realized or realizable and earned when all of the following criteria are met: 1) persuasive 
+evidence of an arrangement exists; 2) delivery has occurred or services have been rendered; 3) 
+the seller’s price to the buyer is fixed or determinable; and 4) collectability is reasonably assured. 
+7 
+ 
+14. In addition, Bankrate did not share either of the purported explanations for the 
+$300,000 in revenue with its auditor, despite the auditor specifically asking for information about 
+the $300,000.  Rather, at approximately the same time the initial chart attempting to explain the 
+$300,000 entry was being circulated internally, Lerner sent a misleading, generic explanation 
+that had been reviewed and approved by DiMaria and Gamsey to the auditor, implicitly 
+affirming that the revenue was associated with the single customer account to which it was 
+booked.  Moreover, Bankrate did not forward either chart to its auditor, nor did Bankrate update 
+its misleading, generic explanation for the $300,000 in revenue.  
+Credit Cards Does not Fully Comply with the Directive to Book Baseless Revenue, Causing 
+Bankrate to Immediately and Arbitrarily Record Revenue to A Different Business Unit.  
+15. Unlike Insurance, the Credit Cards accountants initially refused to book the 
+$500,000 of unsupported revenue directed by DiMaria.  Unwilling to accept, and angered by, the 
+Credit Cards accountants’ reaction to his improper directive, DiMaria told other Bankrate 
+personnel that he was “going to rip [the Credit Cards CEO’s] f[***]ing head off” and fire the 
+Credit Cards accountants if they “f[***] up the accounting.”     
+16. Credit Cards personnel eventually recorded an additional $176,000 in revenue to 
+the second quarter 2012, revenue that was contrary to Bankrate’s revenue recognition policy. On 
+July 12, 2012, upon learning that Credit Cards had only booked $176,000 of the $500,000 in 
+additional revenue he had directed, DiMaria informed Lerner that the difference should be 
+booked to Bankrate Core.  Thirty-five minutes later, Lerner instructed the Bankrate Core 
+accounting personnel to book $305,000 in additional revenue.  Conveniently using two of the 
+Core customers on a revenue spreadsheet that had legitimate revenue listed as $234,000 and 
+$71,000, Bankrate Core simply doubled the revenue attributable to these customers without any 
+basis to arrive at the $305,000 of additional revenue, a fact that soon became known to DiMaria, 
+Lerner, and Gamsey.   
+17. By adding this improper revenue directly to the revenue spreadsheet rather than 
+through a manual journal entry, Bankrate avoided the questions that its auditors typically 
+directed toward post-quarter manual journal entries.  This manner of booking the $305,000 also 
+circumvented Bankrate’s accounting controls, as the revenue spreadsheet had already been 
+approved for entry into the general ledger and did not require additional approvals.      
+18. For these reasons, among others, the recognition of both the $176,000 in revenue 
+booked with the Credit Cards division and the $305,000 in revenue booked with Bankrate Core 
+was contrary to GAAP.      
+Bankrate Makes Additional Baseless Reductions In Marketing Expense Accrual.  
+19. On July 13, 2012, the day after Bankrate improperly recorded $305,000 of 
+additional revenue on Bankrate Core’s books, a revised version of Bankrate’s consolidated 
+financial results for the second quarter 2012 was circulated to DiMaria, Lerner, and Gamsey that 
+reflected Adjusted EBITDA of $36,656,000.   
+8 
+ 
+20. Shortly after the circulation of the revised financial results, results that continued 
+to fall short of the $37 million in Adjusted EBITDA dictated by DiMaria one week earlier, 
+DiMaria directed a Core accountant to reduce a marketing accrual account for Search Engine 
+Marketing (known as “SEM”) by $400,000.  Reducing the SEM accrual (a balance sheet 
+account) led to a corresponding reduction in the SEM expense (an income statement account), 
+thereby artificially increasing Bankrate’s quarterly earnings.   
+21. DiMaria’s email instruction to the Core accountant did not reference or contain 
+any support for the accounting entry.  Similarly, the manual journal entry executing DiMaria’s 
+instruction to reduce the SEM marketing accrual by $400,000 did not have any support beyond 
+DiMaria’s email instruction.  
+22. Upon learning of this $400,000 reduction in the SEM accrual, Gamsey questioned 
+Lerner as to whether there was any basis for DiMaria’s reduction in the SEM accrual, or whether 
+DiMaria directed this entry instead of additional unsupported revenue entries.    
+23. In fact, Bankrate, through DiMaria and Lerner, had been using the SEM accrual 
+account as one of its “cushion” or “cookie jar reserve” accounts (i.e., an account known to have 
+excess accruals that could be selectively used to boost the financial results of particular quarters) 
+since at least early 2011.  It was inappropriate for Bankrate to use the SEM account as a 
+“cushion” account, and to reduce the SEM accrual without a proper basis, in order to meet the 
+Adjusted EBITDA number being dictated by DiMaria. 
+24. Given these circumstances, Lerner knew, or was reckless in not knowing, that the 
+$400,000 SEM adjustment was improper.       
+25. Following the booking of this $400,000 reduction in the SEM accrual, a revised 
+version of Bankrate’s second quarter 2012 financial results was circulated to DiMaria, Lerner, 
+and Gamsey, reflecting Adjusted EBITDA of $37,056,000.   
+Bankrate Fails to Book Additional Second Quarter Expenses. 
+26. The baseless accounting entries detailed above were not the only steps in 
+Bankrate’s scheme to meet analyst estimates.  On July 6, 2012 – indeed, within a few hours of 
+being told by DiMaria that second quarter Adjusted EBITDA needed to be $37 million – Lerner 
+instructed Bankrate Core to reverse certain second quarter accounting fees associated with 
+Bankrate’s Sarbanes-Oxley compliance provider.  This instruction was made without any basis. 
+27. After realizing that accounting fees incurred in the second quarter had not yet 
+been recorded, Lerner, instead of reversing these fees, decided not to record the proper amount of 
+fees to the second quarter, but to instead record those fees to the third quarter.  As a result, 
+Bankrate improperly failed to book at least $99,000 in known accounting fees that were incurred 
+during the second quarter. 
+9 
+ 
+Lerner, Together with DiMaria and Gamsey, Made Material Misrepresentations and 
+Omissions to Bankrate’s Auditor Concerning the Improper Accounting Entries in the 
+Second Quarter 2012. 
+28. As set forth in paragraph 14 above, Lerner, after receiving approval from DiMaria 
+and Gamsey, provided Bankrate’s auditor with a generic and misleading explanation for the 
+$300,000 in improper revenue booked by the Insurance division, and took no steps to advise the 
+auditor that Bankrate’s explanation for this revenue later changed significantly.   
+29. In addition, Lerner and others again made material misrepresentations and 
+omissions to Bankrate’s auditor in the August 13, 2012 management representation letter that he 
+(and others) signed for the second quarter 2012.  Although Lerner knew about the improper 
+accounting practices taking place at the company, he falsely represented to the company’s auditor 
+that:  1) the company’s financial statements had been prepared and were fairly presented in 
+conformity with GAAP; 2) there were no material transactions that had not been properly recorded 
+in the company’s accounting records; and 3) he had no knowledge of fraud or suspected fraud 
+affecting the company involving management, employees with significant internal control roles, or 
+others where the fraud could materially affect the company’s financial statements.  
+  
+Bankrate’s Reported Financial Results Met And/Or Exceeded Analyst Consensus 
+Estimates.  
+30. As a result of its improper entries as described above, Bankrate released 
+artificially inflated financial results on July 31, 2012, and just met analyst targets.  Analyst 
+consensus estimates for Bankrate’s second quarter 2012 financial results were $37.2 million for 
+Adjusted EBITDA and $0.18 for Adjusted EPS.  In its July 31, 2012 earnings release, which was 
+incorporated in a Form 8-K filed by Bankrate on the same date, Bankrate reported second quarter 
+2012 Adjusted EBITDA of $37.5 million and Adjusted EPS of $0.18.  The above-described 
+improper entries were therefore material, as they allowed Bankrate to meet and/or exceed analyst 
+consensus estimates for these key financial metrics.  Due to the improper entries, Bankrate also 
+materially misstated its reported net income in its second quarter 2012 Form 10-Q, filed on 
+August 13, 2012.   
+31. The day after Bankrate’s announcement of its financial results for the second 
+quarter 2012 on July 31, 2012, Bankrate’s stock price rose from $15.95 to $17.57 per share.  
+Lerner sold Bankrate stock during a one-week period following the announcement of Bankrate’s 
+second quarter 2012 financial results, a period during which Bankrate’s stock price was 
+artificially inflated as a result of Bankrate’s scheme to inflate its financial results.   
+32. At the time Lerner sold Bankrate stock on August 6, 2012, he was in possession 
+of material, nonpublic information concerning Bankrate’s reported second quarter financial 
+results (i.e., that Bankrate had overstated  its financial results as a result of the improper 
+accounting entries described herein).  As a result of these stock sales, Lerner improperly 
+benefited by as much as $30,045.  
+10 
+ 
+VIOLATIONS 
+ 
+33. As a result of the conduct described above, Lerner willfully6 violated Section 
+17(a) of the Securities Act, which prohibits fraudulent conduct in the offer or sale of securities, 
+and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent 
+conduct in connection with the purchase or sale of securities.   
+34. As a result of the conduct described above, Lerner also willfully violated Section 
+13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, which prohibit persons from 
+knowingly circumventing or knowingly failing to implement a system of internal accounting 
+controls, knowingly falsifying any book, record or account, and directly or indirectly falsifying 
+or causing to be falsified any book, record, or account. 
+35. In addition, as a result of the conduct described above, Lerner willfully violated 
+Rule 13b2-2 of the Exchange Act, which prohibits an officer or director of an issuer from, 
+directly or indirectly:  (1) making or causing to be made a materially false or misleading 
+statement to an accountant or (2) omitting to state, or causing another person to omit to state, any 
+material fact necessary in order to make statements made, in light of the circumstances under 
+which such statements were made, not misleading, to an accountant in connection with, among 
+other things, a required audit, review or examination of the issuer’s financial statements or the 
+preparation or filing of any document or report required to be filed with the Commission.   
+36. Also as a result of the conduct described above, Lerner willfully aided and abetted 
+and caused Bankrate’s violation of Section 13(a) of the Exchange Act and Rules 13a-11, 13a-13, 
+and 12b-20 thereunder, which require that every issuer of a security registered pursuant to 
+Section 12 of the Exchange Act file with the Commission, among other things, information, 
+documents, quarterly reports, and current reports as the Commission may require, and mandate 
+that periodic reports contain such further material information as may be necessary to make the 
+required statements not misleading.   
+37. Because Bankrate improperly recorded its revenue, expenses, and accruals, its 
+books, records, and accounts did not, in reasonable detail, accurately and fairly reflect its 
+transactions and dispositions of assets. 
+38. In addition, Bankrate failed to implement internal accounting controls relating to 
+its revenue, expense, and accrual accounts which were sufficient to provide reasonable 
+assurances that these accounts were accurately stated in accordance with GAAP. 
+39. As a result of the conduct described above, Lerner willfully aided and abetted and 
+caused Bankrate’s violation of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, which 
+                                                 
+6 A willful violation of the securities laws means merely “‘that the person charged with the duty 
+knows what he is doing.’” Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting 
+Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).   
+11 
+ 
+require reporting companies to make and keep books, records and accounts which, in reasonable 
+detail, accurately and fairly reflect their transactions and dispositions of their assets, and to 
+devise and maintain a system of internal accounting controls sufficient to provide reasonable 
+assurances that transactions are recorded as necessary to permit preparation of financial 
+statements in accordance with GAAP.  
+40. Exchange Act Section 4C(a)(3) and Rule 102(e)(1)(iii) of the Commission’s 
+Rules of Practice provide, in pertinent part, that “[t]he Commission may censure a person or 
+deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to 
+any person who is found . . . [t]o have willfully violated, or willfully aided and abetted the 
+violation of, any provision of the Federal securities laws or the rules and regulations 
+thereunder.”  17 C.F.R. § 201.102(e)(1)(iii).  As a result of the conduct described above, Lerner 
+willfully violated, and willfully aided and abetted the violation of, the aforementioned provisions 
+of the Securities Act and Exchange Act within the meaning of Section 4C(a)(3) and Rule 
+102(e)(1)(iii). 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Lerner’s Offer. 
+ 
+ Accordingly, pursuant to Section 8A of the Securities Act, Sections 4C and 21C of the 
+Exchange Act, and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice it is hereby 
+ORDERED that: 
+ 
+ A. Respondent Lerner cease and desist from committing or causing any violations and 
+any future violations of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A), 
+13(b)(2)(B), and 13(b)(5) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-11, 13a-13, 13b2-1, 
+and 13b2-2 thereunder.   
+ 
+B.  Respondent Lerner is denied the privilege of appearing or practicing before the 
+Commission as an accountant.    
+ 
+ C.  After 5 years from the date of this Order, Respondent may request that the 
+Commission consider his reinstatement by submitting an application (Attention: Office of the 
+Chief Accountant) to resume appearing or practicing before the Commission as: 
+      
+       1. a preparer or reviewer, or a person responsible for the preparation or 
+review, of any public company’s financial statements that are filed with 
+the Commission.  Such an application must satisfy the Commission that 
+Respondent’s work in his practice before the Commission will be 
+reviewed either by the independent audit committee of the public company 
+for which he works or in some other acceptable manner, as long as he 
+practices before the Commission in this capacity; and/or 
+ 
+12 
+ 
+  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.   
+ 
+D. The Commission will consider an application by Respondent to resume appearing 
+or practicing before the Commission provided that his state CPA license is current and he has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, 
+if state licensure is dependent on reinstatement by the Commission, the Commission will 
+consider an application on its other merits.  The Commission’s review may include consideration 
+of, in addition to the matters referenced above, any other matters relating to Respondent’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ 
+ E. Respondent Lerner is prohibited for a period of 5 years from the date of this 
+Order 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.  
+ 
+F. Respondent Lerner shall, within 14 days of the entry of this Order, pay a civil 
+money penalty in the amount of $150,000 and disgorgement of $30,045 and prejudgment interest 
+of $2,571 to the Securities and Exchange Commission.  The Commission will hold funds paid 
+pursuant to this paragraph in an account at the United States Treasury pending a decision whether 
+13 
+ 
+the Commission, in its discretion, will seek to distribute funds or, subject to Section 21F(g)(3), 
+transfer them to the general fund of the United States Treasury.  The Commission may distribute 
+civil money penalties collected in this proceeding if, in its discretion, the Commission orders the 
+establishment of a Fair Fund pursuant to 15 U.S.C. § 7246, Section 308(a) of the Sarbanes-Oxley 
+Act of 2002, as amended.  If timely payment is not made, additional interest shall accrue pursuant 
+to Rule 600 of the Commission’s Rules of Practice or 31 U.S.C. §3717, as applicable.  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 
+SEC 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 
+Lerner as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
+the cover letter and check or money order must be sent to Ian Karpel, Assistant Regional Director, 
+Division of Enforcement, Securities and Exchange Commission, 1961 Stout Street, Denver, CO 
+80294-1961.     
+ 
+ G.  Regardless of whether the Commission in its discretion orders the creation of a Fair 
+Fund for the penalties ordered in this proceeding, amounts ordered to be paid as civil money 
+penalties pursuant to this Order shall be treated as penalties paid to the government for all 
+purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, 
+Respondent agrees that in any Related Investor Action, he shall not argue that he is entitled to, nor 
+shall he benefit by, offset or reduction of any award of compensatory damages by the amount of 
+any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  If the court 
+in any Related Investor Action grants such a Penalty Offset, Respondent agrees that he shall, 
+within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's 
+counsel in this action and pay the amount of the Penalty Offset to the Securities and Exchange 
+Commission.  Such a payment shall not be deemed an additional civil penalty and shall not be 
+deemed to change the amount of the civil penalty imposed in this proceeding.  For purposes of this 
+paragraph, a “Related Investor Action” means a private damages action brought against 
+14 
+ 
+Respondent by or on behalf of one or more investors based on substantially the same facts as 
+alleged in the Order instituted by the Commission in this proceeding. 
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9906 / September 8, 2015 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75854 / September 8, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3686 / September 8, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16791 
+ 
+ 
+ 
+In the Matter of 
+ 
+L. Gary Davis, CPA,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933, SECTIONS 
+4C AND 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, AND RULE 
+102(e) OF THE COMMISSION’S RULES 
+OF PRACTICE, MAKING FINDINGS, 
+AND IMPOSING REMEDIAL 
+SANCTIONS AND A CEASE-AND-
+DESIST ORDER 
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against L. Gary 
+Davis, CPA (“Respondent” or “Davis”) pursuant to Section 8A of the Securities Act of 1933 
+(“Securities Act”), Sections 4C1 and 21C of the Securities Exchange Act of 1934 (“Exchange 
+Act”), and Rule 102(e)(1)(iii) 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 
+ 
+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, and except as provided herein in Section V, Respondent consents 
+to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings 
+Pursuant to Section 8A of the Securities Act of 1933, Sections 4C and 21C of the Securities 
+Exchange Act of 1934, and Rule 102(e) of the Commission’s Rules of Practice, Making Findings, 
+and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that:  
+ 
+Summary 
+Davis served as the chief financial officer (“CFO”) of the MusclePharm Corporation 
+(“MSLP”) from July 3, 2012 until April 15, 2014.  MSLP is a Denver-based sports nutrition 
+company that develops, manufactures, and markets sports nutrition products.  When Davis became 
+CFO of MSLP, he discovered that MSLP had almost no internal controls, policies or procedures.  
+Davis worked to bring MSLP’s accounting and disclosures in compliance with generally accepted 
+accounting principles (“GAAP”) and the Commission’s reporting requirements.  During his tenure 
+as CFO, however, Davis failed to ensure sufficient internal controls were enacted and proper books 
+and records were kept.  Additionally, Davis became aware of issues regarding undisclosed 
+perquisites and undisclosed related parties, yet continued to sign MSLP Commission filings with 
+misstatements and omissions.  As a result, between July 2012 and April 2014, when Davis ceased 
+being CFO, MSLP had a series of accounting and disclosure failures that resulted in the company 
+                                                                                                                                                             
+violated, or willfully aided and abetted the violation of, any provision of the 
+securities laws or the rules and regulations thereunder. 
+ 
+2 Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found…to have 
+willfully violated, or willfully aided and abetted the violation of any provision of 
+the Federal securities laws or the rules and regulations thereunder. 
+ 
+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.   
+3 
+ 
+filing materially false and misleading filings with the Commission.  Specifically, as described 
+further below, MSLP failed to disclose perquisite compensation to its executive officers, failed to 
+disclose related party transactions, and failed to properly disclose manufacturing concentration, 
+rent expense, and international sales in the financial statements in Commission filings that Davis 
+reviewed, approved, and signed.   
+Respondent 
+1. L. Gary Davis, CPA, was the CFO of MSLP from July 3, 2012 through April 15, 
+2014.  Davis continued to be employed by MSLP in a special projects role until December 31, 
+2014.  Davis has been licensed as a CPA in Ohio since 1985 and licensed in Idaho since 1992.   
+ 
+Relevant Entity 
+ 
+2. MSLP is a Nevada corporation, based in Denver, Colorado, that manufactures and 
+markets sports nutrition products.  From 2010 to present, MSLP’s common stock was registered 
+with the Commission pursuant to Section 12(g) of the Exchange Act and was quoted on the OTC 
+Bulletin Board. 
+ 
+MSLP’s Failure to Disclose Perquisites from 2012 through 2014 
+ 
+3. From 2012 through April 2014, MSLP materially understated its disclosed 
+perquisites by approximately $285,000 or 66% in Forms 10-K and Forms S-1 filed with the 
+Commission.  Davis reviewed, approved, and signed Forms 10-K and Forms S-1 while CFO.  
+MSLP understated its disclosed perquisites in 2012 by approximately $214,000 or 93% and in 
+2013 by approximately $71,000 or 35%.  From 2012 through 2013, MSLP’s chief executive 
+officer (“CEO”) received approximately $152,000 of undisclosed perquisites.  The perquisites 
+included perquisites related to meals, autos, apparel, and two golf club memberships. 
+4. In July 2012, MSLP hired Davis as the CFO.  Davis realized that MSLP had almost 
+no internal controls or policies or procedures.  Davis focused on maintaining MSLP’s daily 
+operations and focused on developing the accounting department by hiring additional accounting 
+staff with CPAs.  Soon after starting, however, Davis received information that MSLP was 
+reimbursing executives for expenses, including a golf club membership and executive auto use, 
+which were not disclosed as perquisites. 
+5. In October 2012, Davis received a draft Form S-1, which included a summary 
+compensation table that for the first time included disclosure amounts under the “All Other 
+Compensation” column for 2009, 2010, and 2011.   A few weeks later, on October 26, MSLP filed 
+the final Form S-1, which had removed items from the draft and failed to list several undisclosed 
+perquisites.  Davis reviewed, approved, and signed the Form S-1. 
+6. Beginning in November 2012, Davis began to implement travel and expense 
+policies, which required MSLP employees to provide original receipts for their expenses.  Davis, 
+however, did not implement any formal policies or procedures to ensure perquisites were being 
+4 
+ 
+properly identified and disclosed.  Executives continued to submit reimbursement forms and make 
+charges on company credit cards for personal items without providing original receipts.  MSLP 
+continued paying for these items without properly identifying them as perquisites.  As a result, 
+MSLP filed several Commission filings through April 2014, which failed to include complete 
+disclosure of the perquisites.   
+7. By summer 2013, Davis had begun conducting an internal review to determine the 
+amount of undisclosed perquisites paid by MSLP to its executives since 2010.  In July 2013, Davis 
+identified at least $100,000 of undisclosed perquisites.  Despite the perquisite review not being 
+complete, MSLP filed a Form S-1 in August 2013 with incorrect perquisite disclosures that were 
+identical to amounts previously disclosed before the internal review began.  Davis reviewed, 
+approved, and signed the Form S-1. 
+ 
+8. On March 31, 2014, MSLP filed its 2013 Form 10-K, which was reviewed, 
+approved, and signed by Davis.  In the summary compensation table, MSLP set forth previously 
+undisclosed perquisites for 2011 and 2012 totaling approximately $189,000 (previously 
+undisclosed perquisites of $74,000 for 2011 and $115,000 for 2012).  The table also disclosed 
+approximately $134,000 of perquisites in 2013.  These disclosures, however, still understated 
+perquisites paid to MSLP executives.   
+ 
+9. After Davis was no longer working for MSLP, on October 31, 2014, MSLP filed 
+amended Forms 10-K for the years ended 2012 and 2013.  In total, MSLP failed to report 
+perquisites totaling approximately $285,000 from 2012-2013. 
+ 
+MSLP’s Failure to Disclose Related Party Transactions with a  
+Major Customer 
+ 
+10. From August 2012 through the end of the year, MSLP failed to disclose material 
+related party transactions with a major customer in Commission filings that were reviewed, 
+approved, and signed by Davis. 
+ 
+11. In May 2011, MSLP had hired a new chief marketing officer (“CMO”).  The CMO 
+was a former executive and co-founder of a major customer of MSLP.  Davis knew that the 
+CMO’s brother remained the CEO of the major customer.  The CMO’s brother was also a greater 
+than 10% owner of the major customer.  Additionally, Davis had previously been CFO of MSLP’s 
+major customer (where the CMO’s brother was CEO) and acquired a 1.75% indirect interest in the 
+major customer.  Davis also continued to perform work for the CEO of the major customer 
+personally at no charge while he worked at MSLP. 
+ 
+12. In August 2012, MSLP’s auditor requested that MSLP update an April 2012 memo 
+it had provided to the auditors addressing whether the major customer was a related party requiring 
+disclosure under GAAP, specifically due to the CMO’s or Davis’ employment.  The August memo 
+concluded that transactions with the major customer did not require disclosure under GAAP.  The 
+memo misapplied GAAP, which Davis, the only accountant signing the memo, did not correct.  
+The memo also contained inaccurate information about the relationship between MSLP, the CMO, 
+5 
+ 
+Davis, and the major customer.  As a result, MSLP failed to disclose transactions with its major 
+customer as related party transactions in Commission filings until it filed its Form 10-Q for the 
+quarter ended March 30, 2013 in May 2013. 
+ 
+Other Financial Statement, Accounting, and Disclosure Failures from 2012-2013 
+ 
+13. MSLP, while Davis was CFO, failed to disclose that it had one supplier that 
+accounted for nearly 100% of its product purchases in its 2012 Commission filings as required 
+under GAAP.   
+ 
+14. MSLP, while Davis was CFO, failed to disclose $100,000 of rent expense related 
+to an August 2012 aircraft lease agreement in its 2012 Form 10-K as required under GAAP.  As a 
+result, MSLP understated its disclosed rent expense by 23%.  In addition, MSLP, while Davis was 
+CFO, instead of recognizing no gain or loss on the settlement since the $100,000 paid equaled the 
+$100,000 owed per the lease agreement, MSLP recorded a $35,000 gain in 2013 related to the 
+January 2013 settlement.   
+ 
+15. MSLP, while Davis was CFO, failed to disclose the amount of its international 
+sales in its 2012 and 2013 Commission filings as required under GAAP.  MSLP’s international 
+sales accounted for 30% for 2012 and 31% for 2013.   
+ 
+Books, Records, and Lack of Internal Controls 
+ 
+16. Because MSLP improperly recorded and/or reported its perquisites, related parties, 
+manufacturing concentration, leases, and international sales, its books, records and accounts did 
+not, in reasonable detail, accurately and fairly reflect its transactions and dispositions of assets. 
+ 
+17. In addition, MSLP failed to implement internal accounting controls relating to its 
+perquisites, related parties, manufacturing concentration, leases, and international sales, which 
+were sufficient to provide reasonable assurances that transactions were recorded as necessary to 
+permit the preparation of financial statements in conformity with GAAP and to maintain the 
+accountability of assets.    
+Violations 
+ 
+18. As a result of the conduct described above, Davis willfully4 violated Sections 
+17(a)(2) and 17(a)(3) of the Securities Act and caused MSLP’s violations of Sections 17(a)(2) and 
+17(a)(3) of the Securities Act, which make it unlawful for any person in the offer or sale of any 
+                                                 
+4 A willful violation of the securities laws means merely “‘that the person charged with the duty 
+knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting 
+Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no requirement that the actor 
+“‘also be aware that he is violating one of the Rules or Acts.’”  Id. (quoting Gearhart & Otis, 
+Inc. v. SEC, 348 F.2d 798, 803 (D.C. Cir. 1965)). 
+ 
+6 
+ 
+securities by the use of interstate commerce to obtain money or property by means of any untrue 
+statement of a material fact or any omission to state a material fact necessary in order to make the 
+statements made, in light of the circumstances under which they were made, not misleading; and to 
+engage in any transaction, practice, or course of business which operates or would operate as a 
+fraud or deceit upon the purchaser.   
+ 
+19. As a result of the conduct described above, Davis caused MSLP’s violations of 
+Section 13(a) of the Exchange Act Rules 13a-1, 13a-13, and 12b-20 thereunder, which require 
+every issuer of a security registered pursuant to Section 12 of the Exchange Act file with the 
+Commission information, documents, and annual and quarterly reports as the Commission may 
+require, and mandate that periodic reports contain such further material information as may be 
+necessary to make the required statements not misleading.  
+ 
+20. As a result of the conduct described above, Davis caused MSLP’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 assets. 
+ 
+21. As a result of the conduct described above, Davis caused MSLP’s violations of 
+Section 13(b)(2)(B) of the Exchange Act and willfully violated Rule 13b2-1 thereunder, which 
+require all reporting companies to devise and maintain a system of internal accounting controls 
+sufficient to provide reasonable assurances that transactions are recorded as necessary to permit the 
+preparation of financial statements in conformity with GAAP and to maintain the accountability of 
+assets; and prohibit persons from directly or indirectly falsifying or causing to be falsified any 
+book, record, or account. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Davis’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Davis shall cease and desist from committing or causing any violations and any 
+future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a), 
+13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 13b2-1 
+promulgated thereunder.   
+ 
+ B. Davis is denied the privilege of appearing or practicing before the Commission as 
+an accountant.   
+ 
+ C. 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: 
+      
+7 
+ 
+       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.   
+ 
+D. The Commission will consider an application by Respondent to resume appearing 
+or practicing before the Commission provided that his state CPA license is current and he has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, 
+if state licensure is dependent on reinstatement by the Commission, the Commission will 
+consider an application on its other merits.  The Commission’s review may include consideration 
+of, in addition to the matters referenced above, any other matters relating to Respondent’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission. 
+ 
+8 
+ 
+ E. Respondent shall, within 10  days of the entry of this Order, pay a civil money 
+penalty in the amount of $30,000 to the Securities and Exchange Commission.  If timely payment 
+is not made, additional interest shall accrue pursuant to 31 U.S.C. 3717.  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 SEC 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 L. 
+Gary Davis as a Respondent in these proceedings, and the file number of these proceedings; a copy 
+of the cover letter and check or money order must be sent to Thomas J. Krysa, Division of 
+Enforcement, Securities and Exchange Commission, 1961 Stout Street, Suite 1700, Denver, CO 
+80294.   
+9 
+ 
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75855 / September 8, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3687 / September 8, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16792 
+ 
+ 
+In the Matter of 
+ 
+Donald W. Prosser, CPA, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER 
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Donald W. Prosser (“Prosser” 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, and except as provided herein in Section V, Respondent consents 
+to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the 
+Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order 
+(“Order”), as set forth below. 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+MusclePharm Corporation (“MSLP”) is a Denver-based sports nutrition company that 
+develops, manufactures, and markets sports nutrition products.  When MSLP became a public 
+company in 2010, it was unprepared for the Commission’s reporting requirements and lacked 
+sufficient infrastructure to support its rapid growth.  MSLP’s revenues greatly increased each year 
+(MSLP’s reported revenue was $3M in 2010, $17M in 2011, $67M in 2012 and $111M in 2013).  
+MSLP’s senior management lacked public company or accounting experience.  While the 
+company focused on revenue growth, it failed to establish sufficient internal controls and keep 
+proper books and records.  From July 2012 through April 10, 2014, Prosser was a member of 
+MSLP’s board of directors and chair of the audit committee.  Beginning in September 2012, 
+Prosser, the board of directors and members of senior management had reason to know that MSLP 
+had not disclosed certain perquisite compensation paid to its executive officers.  Prosser, however, 
+knew or should have known that he signed materially false and misleading filings with the 
+Commission that failed to disclose all perquisites MSLP was required to disclose under the 
+securities laws.  By summer 2013, MSLP began an internal review to determine the amount of 
+undisclosed perquisites paid by MSLP to its executives since 2010.  In July 2013, Prosser became 
+directly involved in MSLP’s internal perquisite review.  MSLP nevertheless continued to make 
+filings with the Commission that materially understated perquisite compensation through July 
+2014.    
+Respondent 
+1. Donald W. Prosser, CPA, age 64, a resident of Denver, Colorado, was a member of 
+the MSLP board of directors from July 2012 through April 10, 2014.  As an independent member 
+of the MSLP board of directors, Prosser served as chair of the audit committee, a member of the 
+compensation committee, and a member of the nominating and governance committee.  From 
+April 10, 2014 through March 2, 2015, Prosser served as interim chief financial officer (“CFO”) of 
+MSLP.  Prosser has been licensed as a certified public accountant (“CPA”) in Colorado since 1977, 
+except for the three year period from June 1, 1998 to June 26, 2001. 
+ 
+Relevant Entity 
+ 
+2. MSLP is a Nevada corporation, based in Denver, Colorado, that manufactures and 
+markets sports nutrition products.  From 2010 to present, MSLP’s common stock was registered 
+with the Commission pursuant to Section 12(g) of the Exchange Act and was quoted on the OTC 
+Bulletin Board. 
+                                                 
+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 
+ 
+Prosser’s Role in MSLP’s Executive Compensation Disclosures 
+ 
+3. In September 2012, according to the MSLP board minutes, Prosser attended a 
+meeting of the MSLP board of directors and compensation committee.  During the meeting, the 
+MSLP board of directors determined perquisites related to autos, golf club memberships, and 
+private plane usage would be disclosed in Commission filings.  MSLP, however, filed several 
+Commission filings in the form of Forms 10-K and Forms S-1, as well as amendments thereto, 
+through July 2014, which failed to include complete disclosure of the perquisites identified at the 
+September 2012 board meeting and otherwise known by senior management.  Prosser signed these 
+filings as a director. 
+4. On January 4, 2013, Prosser attended a meeting of the MSLP Compensation 
+Committee of the board of directors.  During the meeting, it was resolved that the cost of the use of 
+a private plane from non-employee relatives of MSLP officers in 2012 would be imputed to the 
+executives.  MSLP, however, filed several Commission filings in the form of Forms 10-K and 
+Forms S-1, as well as amendments thereto, through March 2014, which failed to include 
+perquisites related to officer spousal use of a private plane in 2012.  Prosser signed these filings as 
+a director. 
+5. By summer 2013, MSLP began an internal review of its records to determine the 
+amount of undisclosed perquisites paid by MSLP to its executives since 2010.  MSLP’s CFO 
+began this review and in July identified over $100,000 of undisclosed perquisites, including jet use, 
+autos, and golf club memberships and informed Prosser of the amount of undisclosed perquisites 
+located to date. 
+6. In July 2013, the audit committee, with Prosser as its chair, became directly 
+involved in MSLP’s perquisite review process.  MSLP hired an outside consultant to perform a 
+factual review of documents and information related to potential perquisites.  MSLP, however, 
+filed a Form S-1 in August 2013 with incorrect perquisite disclosures that were identical to 
+amounts previously disclosed before the internal review.  Prosser signed this filing as a director. 
+7. After the August Form S-1 was filed, Prosser assisted and supervised the 
+independent consultant in connection with his review of perquisites.  Prosser also approved the 
+independent consultant’s work plan and consulted with the independent consultant during the 
+review.   
+8. In December 2013, MSLP stopped using the independent consultant.  The board 
+approved and MSLP hired an internal auditor and assigned the perquisite review to the internal 
+auditor.  Prosser assisted and supervised the work of the internal auditor and consulted with the 
+internal auditor during the review.  
+9. On March 31, 2014, MSLP filed its Form 10-K for the year ended December 31, 
+2013.  Prosser approved and signed this filing.  The 2013 Form 10-K included a revised executive 
+compensation table for the years 2011-2013.  In the table, MSLP set forth previously undisclosed 
+perquisites for 2011 and 2012 totaling approximately $189,000 ($73,000 for 2011 and $115,000 
+ 4 
+for 2012).  The table also disclosed approximately $130,000 of perquisites in 2013.  These 
+disclosures, however, still significantly understated perquisites paid to MSLP executives. 
+10. On April 14, 2014, Prosser resigned from the MSLP board, including as a member 
+of the audit committee as its chair, and became MSLP’s interim CFO.   
+11. On July 23, 2014, MSLP filed a Definitive Proxy Statement, which included the 
+same deficient perquisite disclosure as the 2013 Form 10-K. 
+12. MSLP and its audit committee reexamined its perquisite investigation results from 
+spring 2014 through fall 2014.  On October 31, 2014, MSLP filed amended Forms 10-K for the 
+years ended 2012 and 2013.  Prosser signed these filings as the Principal Financial Officer and 
+Principal Accounting Officer.  The 2013 Form 10-K/A disclosed approximately $252,000 of 
+additional perquisites for the years 2011, 2012, and 2013 that were not included in the 2013 Form 
+10-K or MSLP’s July 2014 proxy statement.  The 2012 Form 10-K/A disclosed approximately 
+$37,000 of additional perquisites for 2010.  In total, MSLP failed to report perquisites totaling 
+approximately $482,000 from 2010-2013. 
+13. Because MSLP did not properly identify and record perquisites paid to its 
+executives, MSLP’s books, records and accounts did not, in reasonable detail, accurately and fairly 
+reflect its transactions and dispositions of assets and its filings with the Commission were 
+materially false and misleading. 
+ 
+Violations 
+ 
+14. As a result of the conduct described above, Prosser caused MSLP’s violations of 
+Section 14(a) of the Exchange Act and Rule 14a-9 thereunder, which prohibits solicitations by 
+means of a proxy statement, form of proxy, notice of meeting or other communication, written or 
+oral, containing a statement which, at the time and in the light of the circumstances under which it 
+was made, was false or misleading with respect to any material fact, or which omitted to state any 
+material fact necessary in order to make the statements therein not false or misleading or necessary 
+to correct any statement in any earlier communication with respect to the solicitation of a proxy for 
+the same meeting or subject matter which has become false or misleading. 
+ 
+15. As a result of the conduct described above, Prosser caused MSLP’s violations of 
+Section 13(a) of the Exchange Act Rules 13a-1 and 12b-20 thereunder, which require every issuer 
+of a security registered pursuant to Section 12 of the Exchange Act file with the Commission 
+information, documents, and annual and quarterly reports as the Commission may require, and 
+mandate that periodic reports contain such further material information as may be necessary to 
+make the required statements not misleading.  
+ 
+16. As a result of the conduct described above, Prosser caused MSLP’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 assets.
+ 5 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Prosser’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent Prosser cease and desist 
+from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), 
+and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, and 14a-9 thereunder.   
+   
+B. Respondent shall, within 10 days of the entry of this Order, pay a civil money 
+penalty in the amount of $30,000 to the Securities and Exchange Commission.  If timely payment 
+is not made, additional interest shall accrue pursuant to 31 U.S.C. 3717.  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 
+SEC 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 
+Donald W. Prosser as a Respondent in these proceedings, and the file number of these proceedings; 
+a copy of the cover letter and check or money order must be sent to Thomas J. Krysa, Division of 
+Enforcement, Securities and Exchange Commission, 1961 Stout Street, Suite 1700, Denver, CO 
+80294.  
+ 6 
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2015/AAER-3695.txt

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+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75921 / September 15, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3695 / September 15, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16810 
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+  Edward Parker, CA,   : 102(e) OF THE COMMISSION’S RULES OF 
+      : PRACTICE, MAKING FINDINGS, AND 
+  Respondent.   : IMPOSING REMEDIAL SANCTIONS 
+      :  
+      :  
+____________________________________ :   
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative proceedings be, and hereby are, instituted against Edward 
+Parker (“Respondent” or “Parker”) 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 l aws 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. Edward Parker, 42, a citizen and resident of Australia, was Controller of 
+Computer Sciences Corporation’s Australian subsidiary from 2007 until the company suspended 
+him in August 2011.  He left the company in October 2012.  Parker has been a licensed 
+Chartered Accountant in Australia since 1994. 
+ 
+2. Computer Sciences Corporation (“CSC”), a Nevada corporation 
+headquartered in Falls Church, Virginia, sells information technology services.  At all relevant 
+times, CSC’s common stock traded on the New York Stock Exchange. 
+ 
+3. On June 5, 2015, the Commission filed a complaint in the United States 
+District Court for the Southern District of New York against Parker in Securities and Exchange 
+Commission v. Edward Parker, Civil Action Number 15-cv-4341 (ER).  On September 9, 2015, 
+the court entered an order permanently enjoining Parker, by consent, from future violations of 
+Section 17(a) of the Securities Act of 1933 (the “Securities Act”) and Sections 10(b) and 
+13(b)(5) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rules 10b-5(a) and 
+(c) and 13b2-1 promulgated thereunder, and from aiding and abetting violations of Exchange Act 
+Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-1 and 13a-13 promulgated 
+thereunder.  Parker was also barred from acting as an officer or director of any public company 
+pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act for a 
+period of five years and ordered to pay $2,800 in disgorgement of ill-gotten gains and $750 in 
+prejudgment interest. 
+ 
+4. The Commission’s complaint alleged that Parker fraudulently inflated 
+CSC’s earnings in its first quarter of fiscal year 2009.  Parker manipulated the company’s 
+earnings by using a series of improper “cookie jar” reserves and by failing to record expenses as 
+required.  Parker’s actions fraudulently overstated CSC’s consolidated pretax income by over 
+5%.  But for Parker’s misconduct, CSC would have missed analysts’ earnings targets for the first 
+quarter of fiscal year 2009.   
+ 
+ 3 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Parker’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Parker 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.   
+      
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his practicing license is current 
+and he has resolved all other disciplinary issues with Chartered Accountants Australia and 
+ 4 
+New Zealand.  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 Respondent’s character, integrity, professional conduct, or qualifications to appear 
+or practice before the Commission. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2015/AAER-3696.txt

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75933 / September 16, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3696 / September 16, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16815 
+ 
+ 
+ 
+ 
+ 
+           In the Matter of 
+ 
+         Joseph F. Apuzzo, CPA 
+ 
+                     Respondent. 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE  
+             PROCEEDINGS PURSUANT TO RULE 
+102(e) OF THE COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest  that public administrative proceedings be, and hereby are, instituted against Joseph 
+F. Apuzzo (“Respondent” or “Apuzzo”) 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, 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 Respondent’s Offer, the Commission finds that:  
+ 
+ 1. Apuzzo, age 59, was licensed as a certified public accountant in the State of 
+New York beginning in 1986 until he allowed his license to lapse in 1995.  He served as Vice 
+President of Finance of Terex Corporation (“Terex”) from 1995 to 1996, Comptroller of Terex from 
+1996 to 1998, and Chief Financial Officer of Terex from October 1998 until September 2002, when 
+he became President of Terex Financial Services.  He resigned from Terex in August 2005. 
+ 
+ 2. Terex was, at all relevant times, a Delaware corporation with its principal 
+place of business in Westport, Connecticut.  Terex is a diversified global manufacturer of a broad 
+range of equipment primarily for construction, infrastructure and surface to mining industries.  At 
+all relevant times, Terex’s common stock was registered with the Commission pursuant to Section 
+12(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and trades on the New York Stock 
+Exchange. 
+ 
+ 3. On December 27, 2007, the Commission filed a complaint against Apuzzo 
+in SEC v. Joseph F. Apuzzo (Civil Action No. 3:07-cv-01910-AWT).  On September 8, 2015, 
+the court entered an order permanently enjoining Apuzzo, by consent, from violation of Sections 
+10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from aiding 
+and abetting violation of  Sections 13(a) and13(b)(2)(A) of the Exchange Act and Rule 13a-1 
+thereunder.  Apuzzo was also ordered to pay a civil money penalty in the amount of $100,000.   
+ 
+   4. The Commission’s complaint alleged, among other things, that Apuzzo 
+knowingly and substantially aided and abetted former officers of United Rentals, Inc. (“URI”) 
+with URI’s violations of the antifraud, reporting, and books and records provisions of the federal 
+securities laws, by among other things, improperly recognizing revenue from two fraudulent 
+sale-leaseback transactions between URI and Terex.  In both transactions, URI sold used 
+equipment to a financing company, General Electric Capital Corporation (“GECC”), and then 
+leased it back for an 8-month period.  The complaint alleges that URI also arranged, through 
+Apuzzo, for Terex to remarket the equipment at the end of the lease period and to provide GECC 
+3 
+ 
+with a residual value guarantee under which Terex guaranteed that GECC would receive not less 
+than 96 percent of the purchase price that it had paid URI for the used equipment. For one of the 
+transactions, URI and Terex also entered into a “backup” remarketing agreement, signed by 
+Apuzzo, under which URI effectively assumed Terex’s remarketing obligations and guarantees 
+to GECC and agreed to cover, through guaranteed future purchases, any losses to Terex over the 
+amount of a $5 million advance payments made by URI.  As a result of this fraudulent 
+accounting, the complaint alleges that the financial statements and results that URI incorporated 
+into its periodic filings and other materials disseminated to the investing public were materially 
+false and misleading.  The Complaint alleges that Apuzzo knowingly provided substantial 
+assistance to URI in perpetrating the fraud by helping to conceal URI’s assumption of the risks 
+and obligations of the transactions from URI’s auditors.  The Complaint alleges that Apuzzo also 
+knew that the price of the equipment being paid by GECC to URI was inflated above fair market 
+value and would therefore cause Terex to suffer a loss.  
+  
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent Apuzzo’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Apuzzo 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 
+4 
+ 
+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. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 
+ 

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+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9914 / September 17, 2015 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75941 / September 17, 2015 
+ 
+INVESTMENT COMPANY ACT OF 1940 
+Release No. 31829 / September 17, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3697 / September 17, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16819 
+ 
+ 
+ 
+In the Matter of 
+ 
+PHILIP A. PENDERGRAFT, 
+KEVIN W. MCALEER, CPA, 
+ THOMAS R. JOHNSON, 
+ and CHARLES W. YANCEY, 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT 
+TO SECTION 8A OF THE SECURITIES 
+ACT OF 1933, SECTIONS 4C, 15(b), 
+AND 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, SECTION 
+9(b) OF THE INVESTMENT COMPANY 
+ACT OF 1940, AND RULE 102(e) OF 
+THE COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS 
+AND A CEASE-AND-DESIST ORDER 
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
+instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Sections 15(b) 
+and 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and Section 9(b) of the 
+Investment Company Act of 1940 (“Investment Company Act”), against Philip A. Pendergraft, 
+Exchange Act Sections 4C and 21C, and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice 
+ 
+ 
+2 
+against Kevin W. McAleer, CPA, Exchange Act Section 21C against Thomas R. Johnson, and 
+Exchange Act Section 15(b) against Charles W. Yancey. 
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (“Offers”) which the Commission has determined to accept.  Solely for the purpose 
+of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are 
+admitted, and except as provided herein in Section V, 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, Sections 4C, 15(b), and 21C of the Securities Exchange Act of 1934, 
+Section 9(b) of the Investment Company Act of 1940, and Rule 102(e) of the Commission’s Rules 
+of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order 
+(“Order”), as set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds1 that 
+ 
+A. Summary 
+ 
+1. These proceedings relate to approximately $100 million in failed margin loans made 
+by now-defunct Penson Financial Services, Inc. (“PFSI”)—which was once the second largest 
+clearing broker-dealer in the U.S.—to certain of its customers.  PFSI made the bulk of these margin 
+loans between 1999 and 2008 to Christopher J. Hall and his affiliates, including a company named 
+Call Now, Inc. (“Call Now”), who invested in risky, unrated municipal bonds.  Hall was the 
+Chairman of Call Now’s board of directors, and in 2006 Call Now became a large shareholder of 
+PFSI’s publicly traded parent company, Penson Worldwide, Inc. (“PWI”). 
+ 
+2. In the wake of the financial crisis of 2008, PFSI incurred significant losses on these 
+margin loans to Hall and Call Now because their margin collateral had plummeted in value.  A 
+substantial portion of Hall and Call Now’s margin collateral consisted of distressed municipal bonds 
+related to a financially struggling horse racetrack in Texas operated by Call Now.  Hall and Call 
+Now failed to satisfy margin calls issued by PFSI because they did not have sufficient assets.  Hall 
+and Call Now’s primary hope of satisfying PFSI’s margin calls rested on speculation that a future 
+change in Texas gambling laws would allow slot machines at Texas horse racetracks.  Nevertheless, 
+PFSI failed to liquidate these customers’ collateral to satisfy their margin calls because doing so 
+                                                 
+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 
+would lock in large losses for PFSI and PWI (collectively “Penson”).  Instead, in 2009 and 2010 
+Penson extended additional loans to these customers, hoping that they would survive financially and 
+their collateral value would improve in the future so that Penson could reverse the losses on the 
+margin loans.  But these additional loans improperly increased Hall and Call Now’s indebtedness to 
+PFSI in violation of federal margin regulations, which are designed to prevent the excessive use of 
+credit by broker-dealers. 
+ 
+3. Under the accounting standards governing public companies and broker-dealers, 
+Penson should have recognized losses on the loans as early as 2009, but did not do so until nearly 
+two years later.  As a result, Penson failed to present its financial statements in SEC filings in 
+conformity with accounting principles generally accepted in the U.S. (“GAAP”), for the annual 
+periods ended December 31, 2009 and December 31, 2010, and with respect to PWI, the quarterly 
+periods ended March 31, 2010 through June 30, 2011.  In addition, Penson failed to adequately 
+disclose the nature of the loans in SEC filings for the 2009 and 2010 annual periods in violation of 
+applicable disclosure requirements. 
+ 
+4. PWI ultimately recorded more than $60 million in losses for these loans in 2011 and 
+2012.  These losses and other disclosures about the loans beginning in 2011 contributed to a series 
+of events resulting in PWI and PFSI’s bankruptcies in 2013. 
+ 
+5. Respondent Philip A. Pendergraft, Penson’s co-founder, Director and CEO of PWI, 
+and an Executive Vice President (“EVP”) of PFSI, managed Penson’s loans to Hall, Call Now, and 
+their related entities and exercised substantial control over certain key operations of 
+PFSI.  Pendergraft, along with Respondent Kevin W. McAleer (PWI’s CFO), was responsible for 
+the improper accounting treatment and disclosure of these loans in PWI and PFSI’s filings with the 
+Commission.  Respondent Thomas R. Johnson, who was a Director of PWI, and a Director and the 
+President/CEO of Call Now, was a cause of PWI’s improper disclosures as he knew or should have 
+known that these disclosures were materially misleading when he signed PWI’s filings with the 
+Commission.  Finally, Respondent Charles W. Yancey, PFSI’s President/CEO, failed reasonably to 
+supervise Pendergraft, an EVP and associated person of PFSI, who managed PFSI’s margin loans to 
+Hall, Call Now, and their related entities, and directed PFSI’s recordkeeping and financial reporting 
+with respect to those loans for the relevant periods. 
+ 
+B. Respondents 
+ 
+6. Philip A. Pendergraft, age 56, is a resident of Arlington, Texas.  Pendergraft was a 
+co-founder, a Director, and the Chief Executive Officer of PWI, and an Executive Vice President 
+and associated person of PFSI from May 1995 to July 2012.  He held Series 3, 4, 7, 15, 24, 27, 53, 
+and 63 licenses. 
+ 
+7. Kevin W. McAleer, CPA, age 64, is a resident of Frisco, Texas.  McAleer was 
+PWI’s Chief Financial Officer from February 2006 to March 2012.  McAleer has been a CPA since 
+1976 and currently is licensed as a CPA by the Texas Board of Accountancy. 
+ 
+ 
+ 
+4 
+8. Thomas R. Johnson, age 48, is a resident of Orleans, Massachusetts.  Johnson was 
+a Director of PWI from August 2003 to May 2011.  Johnson also was a Director and the 
+President/CEO of Call Now, Inc. from November 2001 to approximately November 2011.  He held 
+Series 7, 24, 52, and 63 licenses. 
+ 
+9. Charles W. Yancey, age 59, is a resident of Colleyville, Texas.  He was PFSI’s 
+President and CEO from August 2005 to February 2012.  Yancey currently is associated with a 
+registered broker-dealer and holds Series 7, 24, 55, and 63 licenses. 
+ 
+C. Other Relevant Entities 
+ 
+10. Penson Worldwide, Inc. was a Delaware corporation with its principal place of 
+business in Dallas, Texas, that provided clearing, execution, and other services to the securities 
+brokerage industry through its subsidiaries.  In October 2012, PWI filed Forms 25 and 15 
+voluntarily withdrawing its common stock from listing on the Nasdaq Global Market and 
+terminating its registration under Exchange Act Sections 12(b) and 12(g).  On January 11, 2013, 
+PWI and its subsidiaries filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the 
+District of Delaware. 
+ 
+11. Penson Financial Services, Inc. was a North Carolina corporation with its principal 
+place of business in Dallas, Texas.  PFSI was a wholly owned subsidiary of SAI Holdings, Inc. 
+(“SAI”), which was a wholly owned subsidiary of PWI.  From 2009 to 2011, PFSI was the second 
+largest clearing broker-dealer in the U.S. based on the number of correspondents.  PFSI was 
+registered as a broker-dealer with the Commission from February 1990 to October 2012, when its 
+filed Form BDW became effective.  On January 11, 2013, PFSI filed for bankruptcy along with 
+PWI. 
+ 
+12. Christopher J. Hall, age 56, was the Chairman and controlling shareholder of Call 
+Now, Inc. for all relevant periods.  Hall was a former CFO and financial operations principal of 
+Howe, Solomon & Hall, Inc., which was registered as a broker-dealer with the Commission from 
+June 1983 to February 2000. 
+ 
+13. Call Now, Inc. was a Nevada corporation with its principal place of business in the 
+City of Selma, Texas.  Call Now’s primary business was the operation and management of the 
+Retama Park horse racetrack owned by the Retama Development Corporation, a municipal 
+corporation of Selma.  Call Now’s common stock was registered under Exchange Act Section 12(g) 
+until August 1, 2014, when its registration was revoked by the Commission for failure to file 
+periodic reports since the period ended June 30, 2011. 
+ 
+ 
+ 
+5 
+D. Facts 
+ 
+ Background 
+ 
+14. PFSI was PWI’s U.S.-based and largest clearing broker-dealer subsidiary.  PFSI 
+generated substantial interest income from its margin lending business—extending credit to 
+correspondent broker-dealers and customers to purchase securities on margin collateralized by 
+existing cash or securities in their margin accounts.  PFSI’s margin lending business was subject 
+to, among other things, the margin regulations of the Board of Governors of the Federal Reserve 
+System (“Federal Reserve Board”) and the Financial Industry Regulatory Authority (“FINRA”).2  
+These margin regulations generally require a margin account to maintain minimum equity 
+(maintenance margin) of at least 25% of the current market value of the marginable securities in 
+the account.  PFSI’s internal margin policies also required a margin account to maintain a 25% 
+minimum maintenance margin rate. 
+ 
+15. When the margin equity of a PFSI customer’s margin account fell below the 25% 
+minimum maintenance margin rate, PFSI’s systems generated a maintenance margin call.  PFSI’s 
+policies required its operations personnel to demand the customer to deposit the required cash or 
+marginable securities into the account within three days to cure the margin deficiency.  PFSI’s 
+customer margin account agreement required the customer promptly to pay, upon demand, any 
+margin indebtedness or deficiency.  If the customer failed to do so, PFSI typically liquidated 
+securities or other assets from the customer’s account to redress the margin deficiency.  In some 
+instances PFSI also obtained guarantees or other pledges of collateral from margin customers to 
+address margin deficiencies.  PFSI generally established an allowance for doubtful accounts and 
+recognized a bad debt expense when the collateral, guarantees, or other rights were insufficient to 
+cover potential losses on margin loans. 
+ 
+ Penson’s Relationship With Christopher J. Hall and Call Now, Inc. 
+ 
+16. From 1999 to 2008, PFSI extended substantial margin loans to Christopher J. Hall 
+and his affiliates, who primarily invested in risky, unrated municipal bonds.  By 2008, these 
+margin loans were maintained in four accounts—Hall’s personal account, The Hemisphere Trust 
+(“Hemisphere,” a Belize-based trust controlled by Hall), The Global Trust (“Global,” another 
+Belize-based trust purportedly cross-guaranteed by Hemisphere), and Call Now’s account 
+(controlled by Johnson) (collectively “Hall/Call Now” or the “Hall/Call Now accounts”).  During 
+this period, Pendergraft was PFSI’s primary relationship manager for Hall/Call Now based on his 
+prior business relationship with Hall. 
+ 
+                                                 
+2  Exchange Act Section 7(c); Regulation T, 12 C.F.R. §§ 220.1 – 220.12; NASD Conduct 
+Rule 2520 (“NASD Rule 2520”).  NASD Rule 2520 was amended and superseded by FINRA 
+Rule 4210 effective December 2, 2010. 
+ 
+ 
+ 
+6 
+17. One of the key investments in the Hall/Call Now accounts was in unrated municipal 
+bonds issued by the Retama Development Corporation (“RDC”), which owned the Retama Park 
+horse racetrack.  The RDC had issued $93.9 million in two series of bonds since 1993 to build and 
+fund Retama Park—$7 million of Series A bonds, secured by Retama Park’s facilities, and $86.9 
+million in Series B revenue bonds (“Retama B Bonds”) that paid interest only if Retama Park 
+generated sufficient revenue.  But Retama Park had struggled financially since it opened in 1995 
+and the RDC never paid interest on the Retama B Bonds.  Retama Park’s primary hope of making 
+a profit was legislation in Texas that would allow expanded gambling, including slot machines, at 
+Texas horse racetracks.  Since Retama Park opened, however, every bill proposing such legislation 
+had failed in the Texas Legislature. 
+ 
+18. Hall and his affiliates, including Call Now, owned the vast majority of the Retama 
+B Bonds, held in their PFSI accounts, and other Retama Park related assets.  Hall and Call Now’s 
+goal with these investments was to operate Retama Park and lobby the Texas Legislature to pass 
+enhanced gambling legislation, which purportedly would cause the value of their Retama Park 
+related assets to appreciate and be sold at a premium to a casino or other gaming company.  To 
+finance portions of this plan, Hall and Call Now withdrew cash from their PFSI margin accounts to 
+make loans to the RDC, which repeatedly needed money to avoid defaulting on its debts and to pay 
+its and Retama Park’s operating expenses.  Hall and Call Now also obtained substantial additional 
+margin loans from PFSI for purchasing or carrying hundreds of unrated municipal bonds and other 
+securities, and Call Now also withdrew cash from its margin account partially to fund its own 
+operating expenses. 
+ 
+19. Also, at Penson’s request in 2003, Hall and Johnson (on behalf of Call Now) agreed 
+to have Call Now purchase $6.6 million of PWI’s convertible notes by borrowing from Call Now’s 
+PFSI margin account to fund the purchase.  At the time, PWI needed capital to grow its business, 
+and Penson determined that a quick way to raise that capital was to have Call Now buy PWI’s 
+notes with a margin loan from PFSI.  In exchange, PWI agreed to use its best efforts to appoint a 
+nominee of Call Now to its Board of Directors, and Johnson thereafter was elected to PWI’s Board 
+in August 2003.  In May 2006, PWI completed an initial public offering of its common stock, and 
+Call Now converted its PWI notes to common stock to become PWI’s fifth largest common 
+stockholder.  Call Now also became a related party of PWI due to Johnson’s dual role as a PWI 
+director and a Call Now director and officer. 
+ 
+20. The Hall/Call Now accounts were unusual at PFSI for at least the following 
+reasons.  First, they were direct customer accounts not associated with a correspondent broker, 
+which was not common at PFSI.  Second, the accounts obtained substantial margin loans to 
+purchase or carry unrated municipal bonds, whereas PFSI generally made margin loans to 
+customers to purchase equity securities.  Finally, Pendergraft was the primary relationship manager 
+for the Hall/Call Now accounts instead of PFSI’s operations department, which was otherwise 
+responsible for monitoring margin lending risk and enforcing margin requirements. 
+ 
+ 
+ 
+7 
+ PFSI’s Margin Loans to Hall/Call Now Were Troubled by 2009 
+ 
+21. By early 2008, the margin equity for Hall and Hemisphere’s accounts had fallen 
+below FINRA’s and PFSI’s 25% minimum maintenance margin rate for all customer margin 
+accounts.  Instead of issuing margin calls to Hall and Hemisphere per PFSI’s policies, however, 
+PFSI lowered the minimum maintenance margin rate for the unrated municipal bonds in Hall and 
+Hemisphere’s accounts from 25% to 7% (which corresponds to FINRA’s minimum maintenance 
+margin rate for municipal bonds) so that, in effect, no margin call would be issued to the 
+customers.3 
+ 
+22. But during 2008, Hall and Hemisphere’s unrated municipal bonds had further 
+declined in value, causing their margin equity to fall below the 7% minimum maintenance margin 
+rate.  Pendergraft, throughout 2008, had demanded that Hall deposit additional collateral into Hall 
+and Hemisphere’s accounts, but Hall failed to deposit sufficient collateral to satisfy the accounts’ 
+margin deficiency.  Although FINRA’s margin rules and PFSI’s policies required PFSI to obtain 
+the required margin from Hall and Hemisphere within fifteen business days of the date the margin 
+deficiency occurred, PFSI could not do so because Hall did not have sufficient assets.4  PFSI also 
+did not request FINRA to grant it additional time to obtain the required margin.  PFSI decided not 
+to liquidate the mostly unrated municipal bonds in Hall and Hemisphere’s accounts because they 
+could not be sold without locking in substantial losses for PFSI.  Because the accounts’ margin 
+equity was below the minimum maintenance margin rate, PFSI was required to deduct Hall and 
+Hemisphere’s margin deficiency from its net capital in accordance with the Commission’s net 
+capital rule.5  By December 31, 2008, PFSI had deducted $14.2 million, as “other deductions 
+and/or charges” from its net capital for Hall and Hemisphere’s margin deficiency. 
+ 
+                                                 
+3  NASD Rule 2520(e)(2)(B) required a minimum maintenance margin rate of 7% of the 
+current market value of any positions in exempted securities, including municipal bonds.  NASD 
+Rule 2520(f)(1) also required that “[s]ubstantial additional margin must be required in all cases 
+where the securities carried in ‘long’ or ‘short’ positions are subject to unusually rapid or violent 
+changes in value, or do not have an active market on a national securities exchange, or where the 
+amount carried is such that the position(s) cannot be liquidated promptly.”  PFSI’s own policies 
+required a minimum maintenance margin rate of the greater of 15% of the current market value, 
+or 7% of face value, for investment grade municipal bonds.  
+ 
+4  NASD Rule 2520(f)(6) required that “[t]he amount of margin or ‘mark to market’ 
+required by any provision of this Rule shall be obtained as promptly as possible and in any event 
+within fifteen days from the date such deficiency occurred, unless [the NASD or FINRA] has 
+specifically granted the member additional time.”  PFSI’s policies also stated that if a margin 
+account’s equity fell below the 25% maintenance rate, PFSI would “liquidate enough securities 
+to bring the account back to a 25% maintenance rate.” 
+ 
+5  See Exchange Act Rule 15c3-1(c)(2). 
+ 
+ 
+8 
+23. By early 2009, PFSI’s senior executives, including Yancey, became aware of 
+irregularities with PFSI’s margin loans to the Hall/Call Now accounts.  Hall and Hemisphere’s 
+accounts repeatedly appeared on PFSI’s exception and risk management reports that tracked large 
+margin debts, outstanding margin calls, or negative equity (unsecured loan balances).  Many PFSI 
+senior executives were aware that the Hall/Call Now accounts held mostly unrated municipal 
+bonds, which were distressed or in default, and PFSI generally did not extend margin loans on such 
+collateral.  The executives also knew that PFSI had taken net capital charges for Hall and 
+Hemisphere’s margin deficiency.  But all of PFSI’s executives, including Yancey, deferred to 
+Pendergraft on the issues raised by these accounts.  Pendergraft instructed PFSI executives, 
+including Yancey, not to get involved with the Hall/Call Now accounts because he was managing 
+them personally in consultation with certain members of PWI’s Board.  Pendergraft, as PFSI’s co-
+founder and EVP, exercised substantial control over certain key PFSI operations, including 
+computations of PFSI’s net capital and management of the Hall/Call Now accounts.  PFSI’s senior 
+executives generally did not challenge Pendergraft’s authority or actions over those matters. 
+ 
+24. Of all the PFSI executives, only Yancey attempted to address the risks posed by 
+PFSI’s margin loans to Hall and Hemisphere.  Other PFSI executives looked to Yancey to address 
+those risks.  Although Yancey reported to Pendergraft in Pendergraft’s capacity as CEO of PWI, 
+Yancey supervised Pendergraft in Pendergraft’s capacity as an EVP and associated person of PFSI.  
+By early 2009, Yancey became more aware of the Hall/Call Now accounts as Hall and 
+Hemisphere’s accounts became more distressed.  Yancey was aware that the Hall/Call Now loan 
+balances continued to increase, Hall and Hemisphere’s accounts continued to appear on PFSI’s 
+negative equity reports, and PFSI deducted from its net capital increasing amounts of those 
+accounts’ margin deficiencies.  Yancey told Pendergraft that PFSI should stop extending loans to 
+the Hall/Call Now accounts and should liquidate their collateral.  Yancey also denied requests for 
+additional loans to those accounts.  But Pendergraft rebuffed Yancey’s efforts.  Yancey routinely 
+sought assurances from Pendergraft that the accounts were being properly managed.  Pendergraft 
+assured Yancey on numerous occasions that the accounts’ collateral had substantial value and 
+would recover in the future, and that Yancey should not worry about the accounts and instead 
+focus on growing PFSI’s business.  Though Yancey repeatedly voiced his concerns about the loans 
+to Pendergraft thereafter, Yancey did not take additional measures that reasonably would be 
+expected to address Pendergraft’s management of the Hall/Call Now accounts. 
+ 
+25. By early 2009, PFSI’s operations personnel effectively ceased monitoring the 
+Hall/Call Now accounts because of Pendergraft’s control over them.  Pendergraft also instructed 
+PFSI’s margins department to “abate” or close without any action any margin calls generated by 
+PFSI’s systems for the Hall/Call Now accounts as he would handle margin issues personally with 
+Hall and Call Now. 
+ 
+Penson Makes Another Loan to Hall in 2009 to Support His Account 
+ 
+26. By March 2009, Hall’s personal account had a negative equity balance of $9 
+million.  Hall also had unmet margin calls in the amount of $15.8 million.  At Pendergraft’s 
+demand, Hall agreed to pledge to Penson his controlling interest of 1.5 million restricted shares of 
+ 
+ 
+9 
+Call Now as additional collateral, but told Pendergraft that he needed to borrow $3.7 million to pay 
+off purportedly existing liens on the shares.  Pendergraft agreed to have Penson lend Hall the 
+money to do so. 
+ 
+27. In exchange for Hall’s pledge of 1.5 million Call Now shares to Penson, 
+Pendergraft, after discussions with certain PWI directors and officers, arranged for a loan to Hall 
+from SAI (PWI’s subsidiary that owned PFSI) via promissory notes and stock pledge agreements 
+effective June 2009 (“SAI loan”).  The SAI loan to Hall was payable on demand, like a margin 
+loan, and charged an interest rate of 7.45%, which PFSI had charged on margin loans.  Pendergraft 
+directed PFSI to wire the loan proceeds from PFSI’s bank accounts to a trust account of Hall’s 
+lawyer in Florida, per Hall’s wiring instructions.  After the PFSI wires were received by the trust 
+account, Hall delivered the Call Now stock certificates to PFSI.  PFSI then deposited the shares 
+into Hall’s margin account, thereby reversing the account’s negative balance of $9 million to a 
+positive balance by July 2009. 
+ 
+28. This SAI loan to Hall was made in contravention of Regulation T, which prohibits 
+the withdrawal of cash from any margin account that creates or increases a margin deficiency, and 
+PFSI’s own policies, which prohibited the withdrawal of any cash from a margin account that was 
+subject to a maintenance margin call.6  The SAI loan was effectively a margin loan as it was a 
+demand loan that charged PFSI’s margin loan interest rate, funded by PFSI, and collateralized by 
+Hall’s Call Now shares.  Although the value of Hall’s Call Now shares deposited into his PFSI 
+margin account supposedly restored the account to a positive balance, the shares were non-
+marginable, and had no effect on his account’s existing margin deficiency.  Because the SAI loan 
+was effectively a margin loan, however, the loan actually had the effect of increasing Hall’s 
+account’s margin deficiency by $3.7 million.  Most PFSI executives, including Yancey, were not 
+aware of the SAI loan when it was made. 
+ 
+29. By June 2009, Penson’s loans to Hall/Call Now reached $89 million as unpaid loan 
+interest continued to accrue and Call Now withdrew cash from its margin account to fund Retama 
+Park and its own operating expenses, including portions of Hall and Johnson’s Call Now salaries.  
+Hall and Hemisphere’s margin accounts continued to be subject to daily margin calls that Hall had 
+failed to meet since 2008.  Though Penson and Hall had hoped that the 2009 session of the Texas 
+Legislature (which meets every odd-numbered year) would result in enhanced gambling 
+legislation, bills proposing such legislation failed to reach a floor vote before the session adjourned 
+in June 2009. 
+ 
+                                                 
+6  Regulation T, 12 C.F.R. § 220.4(e)(1)(ii), permits the withdrawal of cash or securities 
+from an account except if “[t]he withdrawal, together with other transactions, deposits, and 
+withdrawals on the same day, would create or increase a margin deficiency.” 
+ 
+ 
+10 
+FINRA Instructs PFSI to Take a 100% Haircut to Net Capital for the Retama B Bonds 
+ 
+30. During the summer of 2009, FINRA’s exam staff conducted a cycle examination of 
+PFSI, and found that PFSI failed to comply with FINRA’s margin rules because the Retama B 
+Bonds owned by Hall/Call Now were not marginable securities.  The FINRA exam staff reached 
+this conclusion because the Retama B Bonds were unrated, did not have an active market, and had 
+deferred on interest payments.  After discussions with PFSI’s executives and outside counsel, the 
+FINRA exam staff instructed PFSI to apply a 100% margin maintenance rate or “haircut” to its net 
+capital for the value of the bonds, issue margin calls to the account holders, and submit a plan of 
+liquidation of the collateral.  The FINRA exam staff reviewed these conclusions in an exit meeting 
+with all senior PFSI executives in October 2009. 
+ 
+31. PFSI eventually agreed to treat the bonds as non-marginable, and applied a 100% 
+haircut for their value, resulting in an additional $20 million deduction to PFSI’s net capital.  This 
+was on top of the nearly $20 million in net capital charges PFSI was already taking for Hall and 
+Hemisphere’s margin deficiency.  By September 30, 2009, PFSI had deducted approximately $40 
+million from its net capital for the Hall/Call Now accounts’ margin deficiency, and reported net 
+capital of $92 million.  Though PFSI did not violate minimum net capital requirements, its margin 
+loans to the Hall/Call Now accounts had substantially reduced its net capital. 
+ 
+32. On September 24, 2009, pursuant to FINRA’s instructions, PFSI also sent 
+maintenance margin call letters to Hemisphere, Global, and Call Now.  The letters stated that, 
+based on FINRA’s determination that the Retama B Bonds in their accounts were not marginable, 
+Hemisphere, Global, and Call Now needed to deposit in their accounts additional margin in the 
+amounts of $8.25 million, $2.7 million, and $5.3 million, respectively, by September 30, 2009.  
+Hemisphere, Global, and Call Now failed to deposit any margin in response to these margin calls. 
+ 
+Penson “Restructures” Hall and Call Now’s Debts to Support Their Accounts 
+ 
+33. By yearend 2009, Penson’s loans to the Hall/Call Now accounts totaled $91 million 
+and became severely distressed due to further declines in collateral value and unpaid interest.  Hall 
+and Hemisphere’s accounts had become unsecured by more than $26 million.  Margin calls on all 
+four of the Hall/Call Now accounts remained unpaid for months as the customers lacked “the 
+wherewithal” to pay.  PFSI’s net capital charges for those unpaid margin calls had soared to $56 
+million, compared with PFSI’s reported net capital of $95 million at yearend 2009.  Penson did not 
+liquidate or foreclose on the accounts’ illiquid collateral because liquidation would result in 
+significant losses to Penson, and foreclosure would result in the impractical outcome of Penson 
+controlling Call Now and Retama Park’s operations.  Penson concluded that the only viable option 
+was to restructure Hall/Call Now’s debts to obtain as much collateral as possible. 
+ 
+34. In February 2010, Pendergraft, after months of negotiations with Hall and Johnson 
+(on behalf of Call Now), devised a complex transaction (“restructuring transaction”) involving 
+Penson, Hall, and Call Now.  The purpose of the transaction was to obtain as much collateral as 
+possible to reduce the unsecured portion of Hall’s margin loan, which was $15.7 million at yearend 
+ 
+ 
+11 
+2009.  Because Call Now’s collateral (which included PWI stock) was relatively more liquid than 
+Hall’s, Penson demanded that Call Now transfer approximately $10 million in additional equity in 
+cash and other assets to Hall by buying Hall’s illiquid collateral, including certain unrated 
+municipal bonds and an additional 721,463 Call Now shares.   
+ 
+35. Because Call Now did not have enough cash or liquid assets to finance this 
+transaction, Penson again authorized the use of PFSI’s capital, like the SAI loan, to make an 
+improper loan to Call Now.  PWI “converted” Call Now’s $13.9 million outstanding margin loan 
+at PFSI into a two-year promissory note in favor of PWI, effectively transferring the debt from Call 
+Now’s margin account and PFSI’s books to PWI.  This promissory note, which was collateralized 
+in part by all of the securities in Call Now’s margin account, ostensibly reset Call Now’s margin 
+debt to zero and allowed it to borrow on margin again from its PFSI margin account.  Then, against 
+part of the same collateral securing Call Now’s promissory note, Pendergraft directed PFSI to 
+extend another $5.5 million in margin loans to Call Now so that it could use those proceeds to buy 
+Hall’s illiquid collateral.  While this transaction increased the equity in Hall’s account by 
+approximately $10 million, Call Now’s overall indebtedness to Penson also increased from $13.9 
+million to $19.4 million as a result of this transaction. 
+ 
+36. Indirectly related to this transaction, Pendergraft directed PFSI to extend another 
+$500,000 margin loan to Call Now and another $1 million margin loan to Hall in February and 
+April 2010, respectively, when Call Now and Hall’s accounts were subject to unmet margin calls.  
+Call Now used the $500,000 to fund its investment and operating expenses for 2010, including 
+portions of Hall’s and Johnson’s $200,000 annual Call Now salaries.  Hall loaned the $1 million to 
+the RDC for its and Retama Park’s operating expenses. 
+ 
+37. These extensions of credit, like the SAI loan, were in contravention of Regulation T 
+and PFSI’s policies. 
+ 
+FINRA Finds That PFSI Lacked Sufficient Internal Controls on the Hall/Call Now Loans 
+ 
+38. In the summer of 2010, the FINRA exam staff conducted a cycle examination of 
+PFSI.  The FINRA exam staff concluded that PFSI did not have sufficient controls over its 
+extension of credit to the Hall/Call Now accounts because the loans continued to be collateralized 
+by unrated municipal bonds lacking an active market.  The FINRA exam staff instructed PFSI to 
+take a further $15.4 million deduction to its net capital for additional concentrated positions of 
+unrated municipal bonds collateralizing the loans.  The FINRA exam staff also concluded that 
+Pendergraft’s control over the Hall/Call Now accounts resulted in PFSI’s failure to consider or 
+identify risk factors such as the marketability and concentration of the collateral, liquidity risk, and 
+the customers’ creditworthiness.  By not adequately considering these risk factors, the FINRA 
+exam staff concluded, PFSI failed to supervise these credit extensions and materially impaired its 
+net capital.  The FINRA exam staff reviewed these conclusions at an exit meeting with all senior 
+PFSI executives in October 2010. 
+ 
+ 
+ 
+12 
+39. By yearend 2010, Yancey knew or had reason to know that Pendergraft approved 
+loans to Hall/Call Now in 2009 and 2010 that contravened Regulation T and PFSI’s own policies 
+and internal controls.  Yancey knew that Pendergraft directed PFSI’s associated persons not to 
+record losses on the Hall/Call Now loans in PFSI’s books and records and financial statements 
+because Pendergraft had assured Yancey that he and other PWI executives had determined that the 
+loans were collectable, following discussions with PWI’s Board and auditor.  But Yancey told 
+Pendergraft that he doubted whether the Hall/Call Now loans were fully collectable because the 
+loan balances continued to grow from 2009 to 2010, and because PFSI continued to take large 
+deductions to its net capital for the Hall/Call Now loans since September 2009.  Although Yancey 
+continued to voice concerns to Pendergraft about extending additional credit to Hall/Call Now and 
+advocated to liquidate their collateral to minimize losses for PFSI, Yancey failed to take additional 
+measures that reasonably would be expected to prevent and detect Pendergraft’s actions resulting 
+in PFSI extending credit in contravention of Regulation T, and resulting in PFSI’s failure to 
+accurately record losses in its ledgers and to file its financial statements in conformity with GAAP. 
+ 
+Penson’s Improper Accounting of the Hall/Call Now Loans in its 2009 Yearend Filings 
+ 
+40. PWI and PFSI were required under GAAP to evaluate whether the Hall/Call Now 
+loans were impaired.  Impairment is required to be recognized when information available before 
+the financial statements are issued indicate that it is “probable” that the creditor will be unable to 
+collect all amounts due, including principal and interest, in accordance with the loan’s contractual 
+terms.7  PWI and PFSI were also required, under GAAP, to measure and recognize in their 
+financial statements the amount of impairment losses associated with such loans, and to disclose 
+the amount of the impaired loans and loans that were more than ninety days past due and still 
+accruing.8  These financial statements were included in PWI’s Forms 10-K and 10-Q, and PFSI’s 
+annual audited reports filed with the Commission. 
+ 
+41. PWI and PFSI’s accounting policies claimed that they “did not lend money to 
+customers or correspondents except on a fully collateralized basis.”  Those policies also required 
+PWI and PFSI to record a bad debt expense and an allowance for doubtful accounts if a margin 
+customer’s collateral value, guarantees, or other rights granted were insufficient to cover any 
+potential losses. 
+ 
+42. At yearend 2009, Hall/Call Now collectively owed Penson $91 million, and were 
+subject to margin calls for $56 million.  Hall, Hemisphere, Global, and Call Now were required 
+under their PFSI customer margin account agreements promptly to pay any indebtedness or 
+deficiency upon demand from PFSI.  Each of these four customers failed to meet PFSI’s demands 
+for payment by September 30, 2009. 
+                                                 
+7  Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 
+Topic 310-10-35-16. 
+ 
+8  ASC 310-10-35-22 & 310-10-50-7. 
+ 
+ 
+13 
+ 
+43. Nonetheless, PWI and PFSI, at Pendergraft and McAleer’s direction, concluded 
+that the Hall/Call Now loans were fully collectable and not impaired because they expected, 
+without adequate basis, that (a) the real estate market would recover in 2010, or (b) the Texas 
+Legislature likely would pass enhanced gambling legislation in 2011, either of which would cause 
+the Hall/Call Now accounts’ collateral value to improve and, at some point in the future, allow the 
+customers to pay back their loans.  For the same reasons, PWI and PFSI concluded that loss 
+recognition and the establishment of an allowance for doubtful accounts for the Hall/Call Now 
+loans was not necessary.  PWI’s Audit Committee and auditor concurred with these conclusions. 
+ 
+44. But these conclusions did not comply with GAAP.  Because the Hall/Call Now 
+accounts failed to meet their outstanding margin calls upon demand, it was at least probable at 
+yearend 2009 that PWI and PFSI would be unable to collect all amounts due in accordance with 
+the contractual terms of the margin loans.  Neither the possible recovery of the real estate market, 
+the possible enactment of gambling legislation, nor the additional collateral pledged in the 
+restructuring transaction affected PWI and PFSI’s inability to collect all amounts when due from 
+the customers at yearend 2009.  Further, PWI and PFSI failed to record a bad debt expense for the 
+Hall/Call Now loans, or even to disclose that the loans were past due for more than ninety days and 
+still accruing. 
+ 
+45. As a result, PWI and PFSI failed to properly identify the loans to Hall/Call Now as 
+impaired, and to measure and recognize the amount of impairment in conformity with GAAP.  Had 
+PWI and PFSI properly identified the loans as impaired and measured the amount of impairment 
+according to their own internal policies, they would have recorded a loss in the amount of 
+approximately $19 million for the period ended December 31, 2009.  Such a loss would have been 
+material to PWI and PFSI’s net income of $16 million and $35.3 million, respectively, for the same 
+period.  By failing to recognize this impairment charge, PWI and PFSI’s financial statements, 
+included in PWI’s 2009 Form 10-K and PFSI’s 2009 annual audited report, were not presented in 
+conformity with GAAP, and were materially misstated and inaccurate for the period ended 
+December 31, 2009.  Because PWI’s 2009 Form 10-K was incorporated by reference in the 
+offering memorandum for PWI’s April 2010 unregistered offering of $200 million in Senior 
+Second Lien Secured Notes Due 2017 (“2010 Offering Memorandum”), PWI’s 2010 Offering 
+Memorandum also was materially misstated. 
+ 
+Penson’s Misleading Related Party Disclosures in Yearend 2009 Filings 
+ 
+46. Under Item 404(a) of Regulation S-K, PWI was required to disclose any transaction 
+in which PWI was a participant and the amount involved exceeded $120,000, and in which any 
+related person of PWI had a direct or indirect material interest.  Item 404(a) also required PWI to 
+disclose any other information regarding the transaction or the related person in the context of the 
+transaction that is material to investors in light of the circumstances of the particular transaction.  
+Similarly, GAAP required PWI and PFSI to disclose material related party transactions, including 
+the nature of the relationship involved, a description of the transactions, and such other information 
+ 
+ 
+14 
+deemed necessary to an understanding of the effects of the transactions on their financial 
+statements.9 
+ 
+47. PWI’s 2009 Form 10-K included the following disclosure in a note to the financial 
+statements about the February 2010 Hall/Call Now restructuring transaction: 
+ 
+Over the past several years, the Company has, through PFSI, its U.S. securities clearing 
+broker-dealer subsidiary, extended margin credit to Call Now, among other of the 
+Company’s related parties.  Such credit has been extended in the ordinary course of 
+business, on substantially the same terms, including interest rates and collateral, as those 
+prevailing at the time for comparable transactions with unaffiliated third parties and had not 
+involved more than normal risk of collectability or presented other unfavorable features. 
+ 
+The Company’s management recently determined that certain municipal bonds 
+underlying Call Now’s margin position had suffered reduced liquidity, and began working 
+with Call Now to restructure the margin loan.  As part of the restructuring, on February 25, 
+2010, Call Now converted $[13,922,000] of its outstanding margin loan into a Promissory 
+Note in favor of the Company accumulating interest at a rate of 10% per year. The 
+Company’s management currently believes that all amounts due under the Promissory Note 
+will be collected pursuant to the terms of the Promissory Note. . . .  Mr. Thomas Johnson 
+has no interest in the Call Now margin account or the Promissory Note, except to the extent 
+of his approximately 3.2% ownership interest in Call Now. Mr. Johnson abstained from 
+voting on all matters on behalf of the Company. 
+ 
+48. This disclosure did not comply with GAAP and was materially misleading in 
+numerous ways.  First, it failed to disclose that the true purpose of the transaction was to obtain as 
+much collateral as possible for Hall’s unsecured debt.  Second, it failed to disclose that Call Now 
+had failed to pay margin calls issued by PFSI because it determined, at FINRA’s instruction, that 
+the Retama B Bonds held by Call Now were not marginable collateral.  Third, the loans to Call 
+Now were not made in the ordinary course—Call Now received favorable treatment from Penson 
+because it was a related party.  Fourth, it omitted the fact that Penson premised collectability of the 
+loan on speculation as to the recovery of the real estate market and gambling legislation.  Finally, it 
+omitted the fact that Johnson, on behalf of Call Now, had obtained loans from PFSI to Call Now to 
+fund its operating expenses, including portions of his and Hall’s annual $200,000 salaries. 
+ 
+49. These materially misleading disclosures were also substantially included in PFSI’s 
+2009 annual audited report, and PWI’s 2010 definitive Proxy Statement on Schedule 14A, which 
+was used to solicit votes to reelect Pendergraft and Johnson as PWI Directors through 2013.  The 
+disclosures also were incorporated by reference in PWI’s April 2010 Offering Memorandum.  As a 
+result, PFSI’s 2009 annual audited report, and PWI’s 2010 Schedule 14A and April 2010 Offering 
+Memorandum also contained materially misleading disclosures and were inaccurate. 
+                                                 
+9  ASC 850-10-50. 
+ 
+ 
+15 
+ 
+ Penson’s Accounting and Disclosure Errors in 2010 
+ 
+50. In PWI’s quarterly reports on Forms 10-Q for the periods ended from March 31, 
+2010 to September 30, 2010, PWI continued to fail to identify the Hall/Call Now loans as impaired 
+and to measure and recognize impairment losses on those loans.  PWI also continued to fail to 
+disclose the amount of loans over ninety days past due and still accruing.  As a result, PWI’s 
+quarterly financial statements for these periods were not presented in conformity with GAAP and 
+were materially misstated. 
+ 
+51. By yearend 2010, Penson’s loans to Hall/Call Now had reached $95 million, and 
+the customers continued to fail to meet outstanding margin calls.  The real estate market did not 
+recover in 2010 to improve the collateral value underlying the loans.  The possibility of gambling 
+legislation in 2011 was Penson’s main hope for collecting on the loans. 
+ 
+52. Penson placed Hall and Hemisphere’s loans on nonaccrual status and ceased to 
+accrue interest on them beginning in March 2010.  Effective January 1, 2011, Penson placed all of 
+the Hall/Call Now loans on nonaccrual status and ceased to accrue interest on them, indicating that 
+Penson no longer believed that it would collect all amounts due under the terms of the loan 
+agreements with these customers. 
+ 
+53. In its 2010 Form 10-K, PWI disclosed that it had $97.4 million in loans or 
+receivables “primarily from customers and correspondents” for which interest income was 
+recorded when received.  PWI did not disclose that the vast majority of these receivables were the 
+$95 million in loans to Hall/Call Now, who were direct customers of PFSI not introduced through 
+a correspondent broker-dealer.  Even though Penson ceased to accrue interest on the Hall/Call Now 
+loans, Penson continued to treat the loans as fully collectable.  PFSI’s 2010 annual audited report 
+did not make any disclosures about these loans being placed on nonaccrual status. 
+ 
+54. As a result, PWI and PFSI failed to properly identify the loans to Hall/Call Now as 
+impaired, and to measure and recognize the amount of impairment of the loans as required by 
+GAAP.  Had PWI and PFSI properly identified the loans as being impaired and measured the 
+amount of impairment according to their own internal policies, they would have recorded 
+cumulative losses of at least $18 million for the period ended December 31, 2010.  This amount 
+would have been material to both PWI’s reported net loss of $19.8 million and PFSI’s reported net 
+income of $23.6 million for the same period.  By failing properly to account for and adequately to 
+disclose the nature of the Hall/Call Now loans, PWI and PFSI’s financial statements, included in 
+PWI’s 2010 Form 10-K and PFSI’s 2010 annual audited report, were not presented in conformity 
+with GAAP and were materially misstated and inaccurate for the period ended December 31, 2010. 
+ 
+55. PWI’s 2010 Form 10-K, PWI’s 2011 definitive Proxy Statement on Schedule 14A, 
+and PFSI’s 2010 annual audited report contained essentially the same related party disclosure 
+about the Call Now loan as in their respective 2009 Form 10-K, 2010 Schedule 14A, and 2009 
+annual audited report.  For the reasons described above in connection with the disclosures in PWI’s 
+ 
+ 
+16 
+2009 Form 10-K, PWI’s 2010 Form 10-K and Schedule 14A, and PFSI’s 2010 annual audited 
+report were materially misleading and inaccurate. 
+ 
+ PWI’s Accounting Errors in its 2011 Quarterly Reports 
+ 
+56. In its Form 10-Q for the period ended March 31, 2011, PWI again failed to identify 
+and measure any impairment on the loans to Hall/Call Now as required by GAAP.  Had PWI done 
+so, it would have recorded cumulative losses totaling at least $20 million for the period. 
+ 
+57. But PWI did, in its Form 10-Q, disclose that it had approximately $97 million in 
+“Nonaccrual Receivables” —almost entirely the Hall/Call Now loans—of which approximately 
+$43 million were collateralized by RDC bonds and related assets.  The Form 10-Q further 
+disclosed that, should expanded gambling legislation not be enacted in 2011, it is possible that the 
+collateral underlying the receivables might be impaired, resulting in a write down of a portion of 
+the receivables that could be material in amount.  The Form 10-Q, however, failed to disclose the 
+nature of the remaining $54 million in Nonaccrual Receivables and whether they were adequately 
+collateralized.  Nevertheless, three days after this Form 10-Q was filed, PWI’s stock price had 
+dropped by approximately 40%, and Johnson resigned as a Director of PWI. 
+ 
+58. Three months later, in its Form 10-Q for the period ended June 30, 2011, PWI 
+finally disclosed that the carrying value of the Nonaccrual Receivables collateralized by the RDC 
+bonds and related assets were not fully collectable and recorded an impairment charge of $43 
+million—PWI’s biggest losses ever.  However, PWI should have recognized in prior periods at 
+least $20 million of impairment losses on the Hall/Call Now loans.  PWI disclosed that one factor 
+underlying the decision to record an impairment charge was the Texas Legislature’s adjournment 
+in June 2011 without passing enhanced gambling legislation.  PWI also began to foreclose on 
+certain collateral underlying the Hall/Call Now accounts.  PWI ultimately recorded approximately 
+$60 million in losses on these loans by the first quarter of 2012. 
+ 
+59. Pendergraft, McAleer, and Johnson each signed PWI’s annual reports on Forms 10-
+K for the periods ended December 31, 2009, and December 31, 2010.  Pendergraft and McAleer 
+also signed PWI’s quarterly reports on Forms 10-Q for the periods ended from March 31, 2010 to 
+June 30, 2011, and certified each periodic report identified above. 
+ 
+ Penson’s Demise  
+ 
+60. In PWI’s August 5, 2011 earnings conference call, Pendergraft admitted that the 
+company had made mistakes in extending credit to Hall/Call Now:  “Our mistake—really a couple 
+of mistakes here—one was not bringing these accounts into line with our new policies and 
+procedures [on credit extension].  And second—was not just going out and liquidating the accounts 
+when we [began] to see illiquidity in the underlying assets.” 
+ 
+61. PWI’s disclosures and impairment of the loans to Hall/Call Now in 2011 
+contributed to a series of events that ultimately led to Penson’s demise in 2013.  In 2011, PWI’s 
+ 
+ 
+17 
+clearing businesses were already experiencing lower trading commissions and interest revenues 
+due to the weak global economy and market volatility.  The losses on the loans to Hall/Call Now in 
+2011 seriously undermined confidence in PWI’s ability to operate as a going concern.  PWI’s 
+creditors restricted credit lines that were vital to its operations, correspondents and customers 
+ceased doing business with PFSI, and investors sold millions of PWI shares at depressed prices.  
+These events caused a liquidity crisis that prohibited PWI from servicing or restructuring more 
+than $260 million in outstanding debts.  As a result, PWI was forced to sell its clearing broker-
+dealer subsidiaries, including PFSI’s clearing business, and file for bankruptcy protection in 2013. 
+ 
+E.  Violations 
+ 
+62. Securities Act Section 17(a)(2) prohibits any person from obtaining money or 
+property in the offer or sale of securities 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.  Securities Act Section 17(a)(3) 
+prohibits any person from engaging in any transaction, practice, or course of business which 
+operates or would operate as a fraud or deceit upon the purchaser in the offer or sale of securities. 
+ 
+63. Exchange Act Section 7(c) prohibits a broker or dealer, directly or indirectly, from 
+extending or maintaining credit or arranging for the extension or maintenance of credit to or for 
+any customer in violation of rules and regulations prescribed by the Federal Reserve Board.  
+Regulation T, prescribed under Section 7(c), prohibits, among other things, the withdrawal of cash 
+or securities from a margin account that creates or increases a margin deficiency.  12 C.F.R. § 
+220.4(e)(1)(ii). 
+ 
+64. Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 require every issuer of a 
+security registered pursuant to Exchange Act Section 12 to file with the Commission annual and 
+quarterly reports as the Commission may require.  Rule 13a-14 mandates, among other things, that 
+an issuer’s principal executive and financial officers certify each periodic report.  Rule 12b-20 
+requires that the issuer’s filings contain such further material information as may be necessary to 
+make the required statements, in the light of the circumstances under which they were made, not 
+misleading. 
+  
+65. Exchange Act Section 13(b)(2)(A) requires issuers to make and keep books, 
+records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions 
+and dispositions of their assets.  Section 13(b)(2)(B) requires issuers to devise and maintain a 
+system of internal accounting controls sufficient to provide reasonable assurances that, among 
+other things, transactions are recorded to permit the preparation of financial statements in 
+conformity with GAAP.  Section 13(b)(5) prohibits any person from knowingly circumventing or 
+knowingly failing to implement a system of internal accounting controls, and from knowingly 
+falsifying any book, record, or account under Section 13(b)(2).  Rule 13b2-1 prohibits any person 
+from directly or indirectly falsifying or causing to be falsified any book, record or account subject 
+to Section 13(b)(2)(A). 
+ 
+ 
+ 
+18 
+66. Exchange Act Section 14(a) requires issuers that solicit any proxy or consent or 
+authorization in connection with any security registered pursuant to Section 12 of the Exchange 
+Act (other than an exempted security) to comply with such rules as the Commission may 
+promulgate.  Rule 14a-9 prohibits the use of proxy statements containing materially false or 
+misleading statements or materially misleading omissions. 
+ 
+67. Exchange Act Section 15(b)(4)(E) requires a broker or dealer reasonably to 
+supervise, with a view to preventing violations of the federal securities laws, another person who 
+commits such violation, if such other person is subject to its supervision.  Exchange Act 15(b)(6) 
+incorporates by reference Section 15(b)(4)(E) and allows for the imposition of sanctions against 
+persons associated with a broker or dealer for failing reasonably to supervise. 
+ 
+68. Exchange Act Section 17(a) requires each broker-dealer to make and keep records 
+and make and disseminate such reports as the Commission may prescribe.  Rule 17a-3(a)(2) 
+requires broker-dealers to maintain ledgers reflecting assets and liabilities, income and expense and 
+capital accounts.  Exchange Act Section 17(e) and Rule 17a-5 require broker-dealers to file with 
+the Commission annual audited reports containing, among other things, financial statements 
+prepared in conformity with GAAP.  The records and reports required by these rules must be 
+accurate. 
+ 
+69. Exchange Act Section 4C(a)(3) and Rule 102(e)(1)(iii) of the Commission’s Rules 
+of Practice provide, in pertinent part, that “[t]he Commission may censure a person or deny, 
+temporarily or permanently, the privilege of appearing or practicing before it in any way to any 
+person who is found . . . [t]o have willfully violated . . . any provision of the Federal securities laws 
+or the rules and regulations thereunder.”  17 C.F.R. § 201.102(e)(1)(iii). 
+ 
+70. As a result of the conduct described above, Pendergraft willfully10 violated 
+Securities Act Sections 17(a)(2) and 17(a)(3), Exchange Act Section 13(b)(5), and Exchange Act 
+Rules 13a-14 and 13b2-1.  Pendergraft also willfully aided and abetted and caused PWI’s 
+violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a), and Rules 12b-20, 
+13a-1,13a-13, and 14a-9.  Pendergraft also willfully aided and abetted and caused PFSI’s violations 
+of Exchange Act Sections 7(c), 17(a), and 17(e), Exchange Act Rules 17a-3(a)(2) and 17a-5, and 
+Regulation T. 
+ 
+                                                 
+10  A willful violation of the securities laws means merely “‘that the person charged with the 
+duty knows what he is doing.’” Wonsover v. S.E.C., 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting 
+Hughes v. S.E.C., 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no requirement that the actor 
+“‘also be aware that he is violating one of the Rules or Acts.”  Id. (quoting Gearhart & Otis, Inc. 
+v. S.E.C., 348 F.2d 798, 803 (D.C. Cir. 1965)). 
+ 
+ 
+ 
+19 
+71. As a result of the conduct described above, McAleer willfully11 violated Exchange 
+Act Section 13(b)(5), and Rules 13a-14 and 13b2-1 within the meaning of Section 4C(a)(3) and 
+Rule 102(e)(1)(iii).  McAleer also caused PWI’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. 
+ 
+72. As a result of the conduct described above, Johnson caused PWI’s violations of 
+Exchange Act Sections 13(a), 13(b)(2)(A), and 14(a), and Rules 12b-20, 13a-1, and 14a-9. 
+ 
+73. As a result of the conduct described above, Yancey failed reasonably to supervise 
+Pendergraft, an associated person of PFSI, within the meaning of Exchange Act Section 15(b)(6), 
+incorporating by reference Section 15(b)(4)(E), with a view to preventing and detecting 
+Pendergraft’s aiding and abetting and causing PFSI’s violations of Exchange Act Sections 7(c), 
+17(a), and 17(e), Exchange Act Rules 17a-3(a)(2) and 17a-5, and Regulation T. 
+ 
+F. Undertakings 
+ 
+74. Respondents Pendergraft, McAleer, Johnson, and Yancey have undertaken to 
+cooperate fully with the Commission in any and all investigations, litigation, administrative or other 
+proceedings commenced by the Commission or to which the Commission is a party relating to or 
+arising from the matters described in the Order.  In connection with such investigations, litigation, 
+administrative or other proceedings, Respondents agree to the following: (i) to produce, without 
+service of a notice or subpoena, any and all documents and other materials and information as 
+reasonably requested by the Commission; (ii) to appear and testify without service of a notice or 
+subpoena in such investigations, interviews, depositions, hearings and trials, at such times and 
+places as reasonably requested by the Commission; and (iii) to respond promptly to all inquiries 
+from the Commission.  Respondent Yancey also has undertaken to provide to the Commission, 
+within fifteen (15) days after the end of the six-month suspension period described below, an 
+affidavit that he has complied fully with the sanctions applicable to him described in Section IV 
+below. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate, in the public interest to 
+impose the sanctions agreed to in Respondents’ Offers. 
+ 
+ Accordingly, pursuant to Section 8A of the Securities Act, Sections 4C, 15(b), and 21C of 
+the Exchange Act, Section 9(b) of the Investment Company Act and Rule 102(e)(1)(iii) of the 
+Commission’s Rules of Practice, it is hereby ORDERED that: 
+ 
+                                                 
+11  See id. 
+ 
+ 
+20 
+A. Philip A. Pendergraft 
+ 
+1. Respondent Pendergraft shall cease and desist from committing or causing any 
+violations and any future violations of Securities Act Sections 17(a)(2) and 17(a)(3), and Exchange 
+Act Sections 7(c), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), 14(a), 17(a), and 17(e), Exchange Act 
+Rules 12b-20, 13a-1, 13a-13, 13a-14, 13b2-1, 14a-9, 17a-3(a)(2), and 17a-5, and Regulation T. 
+ 
+2. Pendergraft be, and hereby is: 
+ 
+a. barred from association with any broker, dealer, investment adviser, 
+municipal securities dealer, municipal advisor, transfer agent, or nationally recognized 
+statistical rating organization; 
+ 
+b. prohibited from serving or acting as an employee, officer, director, member 
+of an advisory board, investment adviser or depositor of, or principal underwriter for, a 
+registered investment company or affiliated person of such investment adviser, depositor, or 
+principal underwriter; and 
+ 
+c. barred from participating in any offering of a penny stock, including: acting 
+as a promoter, finder, consultant, agent or other person who engages in activities with a 
+broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or 
+inducing or attempting to induce the purchase or sale of any penny stock. 
+ 
+3. Any reapplication for association by Pendergraft 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 Pendergraft, 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. 
+ 
+4. Pendergraft shall pay a civil money penalty in the amount of $100,000 to the 
+Commission.  Payment shall be made in $20,000 installments within 15, 90, 180, 270, and 360 
+days of the date of entry of this Order.  If any payment is not made by the date the payment is 
+required by this Order, the entire outstanding balance of civil penalties, plus any additional interest 
+accrued pursuant to 31 U.S.C. 3717, shall be due and payable immediately, without further 
+application.  Payments must be made as set forth in paragraph E below. 
+ 
+5. Pendergraft shall comply with the undertaking in Section III, paragraph 74, above. 
+ 
+ 
+ 
+21 
+B. Kevin W. McAleer 
+ 
+1. Respondent McAleer shall cease and desist from committing or causing any 
+violations and any future violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 
+13(b)(5), and Exchange Act Rules 12b-20, 13a-1, 13a-13, 13a-14, and 13b2-1. 
+ 
+2. McAleer is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+ 
+3. After one year from the date of this Order, McAleer may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the Chief 
+Accountant) to resume appearing or practicing before the Commission as: 
+ 
+a. a preparer or reviewer, or a person responsible for the preparation or review, 
+of any public company’s financial statements that are filed with the Commission.  Such an 
+application must satisfy the Commission that McAleer’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public 
+company for which he works or in some other acceptable manner, as long as he practices 
+before the Commission in this capacity; and/or 
+ 
+b. an independent accountant.  Such an application must satisfy the 
+Commission that: 
+ 
+1) McAleer, or the public accounting firm with which he is associated, 
+is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to 
+be effective; 
+ 
+2) McAleer, or the registered public accounting firm with which he is 
+associated, has been inspected by the Board and that inspection did not identify any 
+criticisms of or potential defects in the respondent’s or the firm’s quality control 
+system that would indicate that the respondent will not receive appropriate 
+supervision; 
+ 
+3) McAleer has resolved all disciplinary issues with the Board, and has 
+complied with all terms and conditions of any sanctions imposed by the Board 
+(other than reinstatement by the Commission); and 
+ 
+4) McAleer 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. 
+ 
+ 
+ 
+22 
+4. The Commission will consider an application by McAleer 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 McAleer’s character, 
+integrity, professional conduct, or qualifications to appear or practice before the Commission. 
+ 
+5. McAleer shall pay a civil money penalty in the amount of $25,000 to the 
+Commission.  Payments shall be made in $5,000 installments within 15, 90, 180, 270, and 360 
+days of the date of entry of this Order.  If any payment is not made by the date the payment is 
+required by this Order, the entire outstanding balance of civil penalties, plus any additional interest 
+accrued pursuant to 31 U.S.C. 3717, shall be due and payable immediately, without further 
+application.  Payments must be made as set forth in paragraph E below. 
+ 
+6. McAleer shall comply with the undertaking in Section III, paragraph 74, above. 
+ 
+C. Thomas R. Johnson 
+ 
+1. Respondent Johnson shall cease and desist from committing or causing any 
+violations and any future violations of Exchange Act Section 13(a), 13(b)(2)(A), 14(a), and 
+Exchange Act Rules 12b-20, 13a-1, and 14a-9. 
+ 
+2. Johnson shall pay a civil money penalty in the amount of $25,000 to the 
+Commission.  Payment shall be made in $5,000 installments within 15, 90, 180, 270, and 360 days 
+of the date of entry of this Order.  If any payment is not made by the date the payment is required 
+by this Order, the entire outstanding balance of civil penalties, plus any additional interest accrued 
+pursuant to 31 U.S.C. 3717, shall be due and payable immediately, without further application.  
+Payments must be made as set forth in paragraph E below. 
+ 
+3. Johnson shall comply with the undertaking in Section III, paragraph 74, above. 
+ 
+D. Charles W. Yancey 
+ 
+1. Respondent Yancey be, and hereby is, suspended from association in a supervisory 
+capacity with any broker, dealer, investment adviser, municipal securities dealer, municipal 
+advisor, transfer agent, or nationally recognized statistical rating organization for a period of six (6) 
+months, effective on the date of entry of this Order. 
+ 
+2. Yancey, shall, within fifteen (15) days of the entry of this Order, pay a civil money 
+penalty in the amount of $25,000 to the Commission.  If timely payment is not made, additional 
+interest shall accrue pursuant to 31 U.S.C. § 3717.  Payment must be made as set forth in paragraph 
+E below. 
+ 
+ 
+ 
+23 
+3. Yancey shall comply with the undertakings in Section III, paragraph 74, above. 
+   
+E. Respondents may make payments in the following ways: 
+ 
+1. By transmitting payment electronically to the Commission, which will provide 
+detailed ACH transfer/Fedwire instructions upon request; 
+ 
+2. By making direct payment from a bank account via Pay.gov through the SEC 
+website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+3. 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 
+ 
+4. Payments by check or money order must be accompanied by a cover letter 
+identifying each payor by name as a Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to Gerald W. 
+Hodgkins, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549. 
+ 
+F.  The Commission will hold funds paid pursuant to this Section in an account at the United 
+States Treasury pending a decision whether the Commission, in its discretion, will seek to 
+distribute funds or, subject to Exchange Act Section 21F(g)(3), transfer them to the general fund of 
+the United States Treasury.  The Commission may distribute civil money penalties collected in this 
+proceeding if, in its discretion, the Commission orders the establishment of a Fair Fund pursuant to 
+15 U.S.C. § 7246, Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended.  Regardless of 
+whether the Commission in its discretion orders the creation of a Fair Fund for the penalties 
+ordered in this proceeding, amounts ordered to be paid as civil money penalties pursuant to this 
+Order shall be treated as penalties paid to the government for all purposes, including all tax 
+purposes.  To preserve the deterrent effect of the civil penalty, Respondents agree that in any 
+Related Investor Action, they shall not argue that they are entitled to, nor shall they benefit by, 
+offset or reduction of any award of compensatory damages by the amount of any part of 
+Respondents’ payment of a civil penalty in this action (“Penalty Offset”).  If the court in any 
+Related Investor Action grants such a Penalty Offset, Respondents agree that they shall, within 30 
+days after entry of a final order granting the Penalty Offset, notify the Commission’s counsel in 
+this action and pay the amount of the Penalty Offset to the Securities and Exchange Commission.  
+Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change 
+the amount of the civil penalty imposed in this proceeding.  For purposes of this paragraph, a 
+“Related Investor Action” means a private damages action brought against Respondents by or on 
+ 
+ 
+24 
+behalf of one or more investors based on substantially the same facts as alleged in the Order 
+instituted by the Commission in this proceeding. 
+ 
+ 
+V. 
+ 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondents under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondents of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2015/AAER-3702.txt

@@ -0,0 +1,1109 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 9920 / September 18, 2015 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 75950 / September 18, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3702 / September 18, 2015 
+  
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16821 
+ 
+ 
+In the Matter of 
+ 
+CHRISTOPHER D. WHETMAN, CPA, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE AND 
+DESIST PROCEEDINGS PURSUANT 
+TO SECTION 8A OF THE SECURITIES 
+ACT OF 1933 AND SECTIONS 4C AND 
+21C OF THE SECURITIES EXCHANGE 
+ACT OF 1934, AND RULE 102(e) OF 
+THE COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS 
+AND A CEASE-AND-DESIST ORDER 
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
+instituted pursuant to Section 8A of the Securities Act, Sections 4C, and 21C of the Securities 
+Exchange Act, and Rule 102(e) of the Commission’s Rules of Practice against Christopher D. 
+Whetman (“Whetman” or “Respondent”). 
+ 
+II. 
+ 
+ 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, as set forth below. 
+ 
+2 
+ 
+ 
+III. 
+ 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+ 
+SUMMARY 
+1. On or about July 17, 2012, Whetman consented to the inclusion of an audit report 
+reflecting an audit he conducted of La Paz Mining Corp.’s (“La Paz”) financial statements in a 
+Form S-1 registration statement filed with the Commission.  This audit report falsely stated that 
+“[w]e conducted our audit in accordance with the standards of the Public Company Accounting 
+Oversight Board (United States)” and that the financial statements present La Paz’s financial 
+position “in conformity with U.S. generally accepted accounting principles.”  Additionally, in or 
+about November 2012, while auditing La Paz’s interim financial statements, Whetman failed to 
+appropriately respond to an employee’s concerns that La Paz was part of a fraudulent scheme.  As 
+described below, the audit Whetman conducted was so deficient that it amounted to no audit at all, 
+and Whetman ignored red flags that La Paz was part of a fraud. 
+2. Whetman also engaged in improper professional conduct by failing to comply with 
+Public Company Accounting Oversight Board (“PCAOB”) Standards when leading certain of his 
+firm’s audits of Idle Media, Inc.’s (“Idle Media”) 2010 and 2011 fiscal year-end consolidated 
+financial statements, which Idle Media restated multiple times.   
+3. On January 15, 2015, the Commission instituted public administrative and cease-
+and-desist proceedings captioned In the Matter of John Briner, Esq., et al., Admin. Proc. File No. 
+3-16339 against Whetman (the “Briner Action”), among others, in connection with Whetman’s 
+audit of La Paz’s financial statements, described above.  The Commission dismissed Whetman 
+from that proceeding in connection with instituting the instant proceeding that makes findings of 
+fact concerning Whetman’s audits of both La Paz and Idle Media and imposes remedial sanctions.      
+RESPONDENTS 
+4. Whetman, 47, of Las Vegas, Nevada, is a CPA licensed in the state of Nevada and 
+a partner at De Joya Griffith, LLC (“De Joya”).  Whetman served as the engagement partner for an 
+audit of La Paz Mining Corp. (“La Paz”).  Whetman also served as the audit manager for De 
+Joya’s original audit of Idle Media’s 2010 fiscal year-end financial statements and for De Joya’s 
+quarterly review of Idle Media’s financial statements for the quarter ended December 31, 2010.  
+After March 2012, when Whetman became partner at De Joya, Whetman served as De Joya’s 
+engagement partner on all later engagements to perform audits and quarterly reviews of Idle 
+Media’s financial statements, including all engagements to audit or review Idle Media’s restated 
+financial statements.    
+                                                 
+ 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 
+ 
+RELEVANT ENTITIES AND INDIVIDUALS 
+5. John Briner (“Briner”), 35, is an attorney and a Canadian citizen who resides in 
+Vancouver, British Columbia.  Briner’s law firm was MetroWest Law Corporation (“MetroWest”).  
+Briner also controlled Jervis Explorations Inc. (“Jervis”), a British Columbia corporation.  In 2010, 
+to resolve a Commission action against him alleging a pump-and-dump and market manipulation 
+scheme, Briner consented to the entry of a federal court judgment that enjoined him from violating 
+the antifraud and securities registration provisions of the federal securities laws; barred him for five 
+years from participating in penny stock offerings; and ordered him to disgorge ill-gotten gains of 
+$52,488.32 plus prejudgment interest and pay a civil penalty of $25,000.  SEC v. Golden Apple Oil 
+and Gas, Inc., et al., 09-Civ-7580 (S.D.N.Y.) (HB).  The Commission subsequently suspended 
+Briner from appearing or practicing before it as an attorney, with a right to apply for reinstatement 
+after five years.  John Briner, Exchange Act Release No. 63371, 2010 WL 4783445 (Nov. 24, 
+2010). 
+6. Diane Dalmy (“Dalmy”), 58, is an attorney who resides in Denver, Colorado and is 
+admitted to practice law in Colorado.  Dalmy issued opinion letters for eighteen issuers referred to 
+her by Briner. 
+7. Jervis is a British Columbia corporation whose sole director is John Briner.  Jervis 
+purportedly sold certain British Columbia mineral claims to twenty issuers, including La Paz. 
+8. De Joya Griffith is a registered public accounting firm based in Henderson, 
+Nevada.  De Joya issued audit reports for nine issuers referred to it by Briner.  For all relevant 
+times, Whetman was a partner of De Joya.  De Joya has also been Idle Media’s auditor from 
+December 2010 to the present.  De Joya also performed quarterly reviews for Idle Media. 
+9. La Paz is a Nevada corporation organized in November 2011.  On July 19, 2012, 
+La Paz filed a Form S-1 registration statement with the Commission seeking to register 
+management’s common shares for resale in a $20,000 public offering.  On September 25, 2012, La 
+Paz filed an amendment to its Form S-1 registration statement.  La Paz’s registration statement 
+states that it has its principal offices in Peoria, Arizona. 
+ 
+10. Idle Media is a Nevada corporation based in Leesport, Pennsylvania.  Idle Media 
+develops and operates several websites focusing on music, music videos and gaming.  Idle Media 
+became a publicly traded company in May 2010 through a reverse merger with another 
+corporation.  Idle Media’s stock was voluntarily registered with the Commission pursuant to 
+Section 12(g) of the Exchange Act from August 2012 to December 2013.  During that period, Idle 
+Media’s stock was quoted on the OTC Bulletin Board under the ticker symbol “IDLM.”  The stock 
+is currently quoted on the OTC Link, which is operated by OTC Markets Group Inc.  
+Approximately 65% of Idle Media’s outstanding stock is owned by its parent company, Zoeter 
+(f/k/a Idle Media, LLC). 
+ 
+11. Marcus Frasier, 30, is a resident of Shoemakersville, Pennsylvania.  Frasier is the 
+founder of Idle Media and is its CEO.  Frasier also owns Zoeter and is its only member. 
+ 
+4 
+ 
+WHETMAN CONDUCTED A MATERIALLY DEFICIENT AUDIT OF LA PAZ 
+Background 
+12. Beginning in or about November 2011, Briner contacted De Joya to conduct audits 
+of nine issuers’ financial statements that were to be included in Form S-1 registration statements.  
+Whetman was the engagement partner for the audit of La Paz, one of the nine issuers, from March 
+2012 through June 2013 (when De Joya resigned from the engagement). 
+13. Whetman knew that Briner did the accounting and created the financial statements 
+to be used in La Paz’s Form S-1 registration statement.  Whetman also knew that Briner 
+maintained all of La Paz’s purported funds “in trust” in an account Briner controlled (the “Master 
+Trust Account”). 
+14. Briner and his assistant were the exclusive contacts between De Joya and La Paz’s 
+sole officer.  Whetman did not directly communicate with La Paz’s sole officer.  Whetman knew 
+that Briner provided all of the information concerning La Paz and all of the supporting evidence for 
+its audit.   
+15. La Paz’s two largest transactions consisted of the officer’s purchase of La Paz stock 
+for $30,000 and the La Paz’s purchase of a British Columbia mineral claim for $20,000 from 
+Jervis. 
+16. Whetman conducted La Paz’s audit, including auditing the above transactions, and 
+consented to the inclusion of De Joya’s audit report in La Paz’s Form S-1 registration statement 
+filed with the Commission on or about July 17, 2012.  De Joya was paid a total approximately 
+$4,000 for the La Paz audit.  La Paz’s audit report stated that “[w]e conducted our audit in 
+accordance with the standards of the Public Company Accounting Oversight Board (United 
+States)” and that the financial statements present La Paz’s financial position “in conformity with 
+U.S. generally accepted accounting principles.”  As described below, the audit was so deficient that 
+it amounted to no audit at all, and Whetman ignored red flags. 
+Whetman Failed to Appropriately Identify and Assess Risks in 
+Accepting and Continuing with La Paz as a Client 
+17. Under PCAOB Auditing Standard No. 12 (Identifying and Assessing Risks of 
+Material Misstatement) (“AS 12”), auditors should “evaluate whether information obtained from 
+the client acceptance and retention evaluation process or audit planning activities is relevant to 
+identifying risks of material misstatement” (¶ 41).2 
+18. Also, auditors must meet PCAOB standard AU Section 230 (Due Professional Care 
+in the Performance of Work) (“AU 230”), which requires that auditors “exercise professional 
+skepticism” (at .07), “consider the competency and sufficiency of the evidence” (at .08), and 
+“neither assume[] that management is dishonest nor assume[] unquestioned honesty” (at .09). 
+                                                 
+ 2 The PCAOB standards referenced herein are the standards that were in effect during the 
+time of relevant conduct. 
+ 
+5 
+ 
+19. De Joya’s client acceptance policy instructed its staff to “confirm individuals” and, 
+if there was something to report, to “summarize findings, site [sic] sources, and email Partner.”  In 
+practice, such check consisted of a simple Internet search.     
+20. Whetman failed to sufficiently question or otherwise investigate La Paz’s 
+management, which would have revealed Briner’s undisclosed role as a control person.  Nor did he 
+conduct a background check of Briner or Dalmy, which at minimum would have turned up, among 
+other things, the Commission’s complaint alleging fraud and suspension order against Briner, and 
+that Briner had been on the OTC Market’s Prohibited Attorney List since March 15, 2006, and that 
+Dalmy had also been on the list since September 25, 2009. 
+21. For the above reasons, Whetman failed to meet AS 12 and AU 230.  
+Whetman Disregarded Red Flags that La Paz’s Stock Sale to Its Officer Was a Sham 
+22. Under PCAOB Auditing Standard No. 15 (Audit Evidence) (“AS 15”), “[i]f audit 
+evidence obtained from one source is inconsistent with that obtained from another, or if the auditor 
+has doubts about the reliability of information to be used as audit evidence, the auditor should 
+perform the audit procedures necessary to resolve the matter and should determine the effect, if 
+any, on other aspects of the audit” (¶ 29 ).  Under AS 12, the auditor should obtain “an 
+understanding of the nature of the company include[ing]…the sources of funding of the company’s 
+operations” (¶ 10)  and “[w]hen the auditor obtains audit evidence during the course of the audit 
+that contradicts the audit evidence on which the auditor originally based his or her risk assessment, 
+the auditor should revise the risk assessment and modify planned audit procedures or perform 
+additional procedures in response to the revised risk assessments” (¶ 74).  Further, under PCAOB 
+Auditing Standard No. 14 (Evaluating Audit Results) (“AS 14”), auditors should consider “[t]he 
+sufficiency and appropriateness of the audit evidence obtained” (¶ 4.f.).  In meeting these 
+standards, auditors must apply professional skepticism and due care consistent with AU 230. 
+23. Whetman failed to resolve significant contradictions and inconsistencies in the 
+audit evidence supporting La Paz’s stock sale to its officer in violation of these standards. 
+24. Specifically, Whetman received contradicting accounting support as to who paid 
+$30,000 for La Paz’s stock.  On or about May 29, 2012, Briner sent a purported schedule for La 
+Paz (prepared by Briner purportedly reflecting cash attributable to La Paz in the Master Trust 
+Account) that conflicted with the stock purchase agreement for La Paz stock.  The schedule 
+showed that the $30,000 for the purchase of La Paz stock was paid for by an entity called 
+“Hyperion [Management].”  The stock purchase agreement (and La Paz’s registration statement), 
+by contrast, described the stock purchase as a transaction between La Paz and La Paz’s officer.  
+Despite this red flag, Whetman never resolved the issue of who paid for the La Paz stock. 
+25. In fact, the back-up documentation Briner provided to support the stock purchase 
+further confused the issue.  It showed that another entity apparently provided the funds for the 
+stock purchase.  On July 4, 2012, in response to De Joya staff requests for support for the stock 
+purchase, Briner sent an email with information reflecting an alleged deposit into the Master Trust 
+Account on December 29, 2011 for $39,280.60 from an entity referred to as Ft-Green Omega, Inc.  
+In the email, Briner stated that “$30,000 was earmarked for the project [i.e., La Paz].”   
+ 
+6 
+ 
+26. The La Paz audit team then requested the corresponding bank statements.  In 
+response, on July 11, 2012, Briner sent an email containing what appear to be computer screen 
+shots reflecting transactions in the Master Trust Account.  Briner indicated these screen shots were 
+“bank statements.”  No actual bank statements were received by De Joya in connection with the La 
+Paz audit.  The computer screen shot Briner provided appeared to show a deposit by Ft-Green 
+Omega, Inc. on December 29, 2011 for $39,280.60.  In this same email, Briner also sent a revised 
+schedule for La Paz changing the date of the stock purchase from November 23, 2011 to December 
+29, 2011, apparently to make it consistent with the computer screen shots.  Briner left the name 
+“Hyperion [Management]” in this later version of the La Paz schedule.  Despite the contradicting 
+evidence regarding who paid for (and owned) La Paz’s stock, Whetman took no further action with 
+respect to the stock purchase. 
+27. For these reasons, Whetman failed to meet AS 14, AS 15, AS 12, and AU 230. 
+Whetman Disregarded Red Flags that La Paz’s Mineral Claim Purchase Was a Sham 
+28. Like the evidence supporting the stock purchase, the La Paz schedule and the 
+computer screen shots Briner provided to Whetman in support of the mineral claim purchase (the 
+same documents used to support the stock purchase) conflicted with one another.  As described 
+below, Whetman failed to resolve these conflicts and therefore violated AS 15, AS 12, and AU 
+230. 
+29. First, the La Paz schedule Briner provided to De Joya described the mineral claim 
+purchase as a $20,000 wire transfer occurring on December 12, 2011.  The transaction in the 
+computer screen shots was a $20,000 debit (not a wire) occurring on December 30, 2011.  Further, 
+in the computer screen shot also provided by Briner, this transaction is characterized in the 
+description as “Business Investment Savings.”  No mention in the description was made to Jervis 
+or how the cash was transferred.  From this, it is impossible to determine whether La Paz actually 
+paid Jervis for the mineral claim.  Moreover, if the funds were in fact transferred via a wire, there 
+is no sufficient explanation for the discrepancy between December 12 (the date listed in the La Paz 
+schedule that funds were sent) and December 30 (the date listed in the computer screen shots that 
+funds were sent).  Later, in an apparent attempt to cover up the date discrepancies, Briner changed 
+the dates of the mineral claim purchase from December 12 to December 30, 2011 when he sent De 
+Joya a revised schedule for La Paz (like he did for the dates of the alleged stock purchase). 
+30. Second, on July 17, 2012, Whetman requested additional support for La Paz’s 
+mineral claim purchase.  In response, on July 18, 2012, Briner provided a check, numbered 350, 
+that was from MetroWest to Jervis for $20,000 and was dated December 30, 2011.  “La Paz 
+Mining” was written in the memo line.  Briner included copies of both the front and back of the 
+check, but the back of the check was obscured such that it was impossible to tell whether the check 
+had been cashed.  The $20,000 transaction listed in the computer screen shots that Briner indicated 
+was for the mineral claim purchase, however, did not reference a check number 350, or any check 
+for $20,000.  The check numbers on the computer screen shots ranged from 1 to 253.  Whetman 
+failed to question this discrepancy, despite the fact that the computer screen shots reference 
+approximately thirty other transactions that each appear to identify the check numbers associated 
+with cashed checks. 
+ 
+7 
+ 
+31. Finally, Briner provided evidence to Whetman indicating that La Paz’s mineral 
+claim purchase may not have been the result of arms-length negotiation because Briner appeared to 
+have been behind the sale.  Specifically, the purchase agreement Whetman relied on to support La 
+Paz’s mineral claim purchase contained an invoice for the claim listing Briner’s name (in typeface) 
+as the signatory on behalf of Jervis.  Whetman did not do any additional investigation into whether 
+the purchase was a related party transaction. 
+32. In this regard, Whetman also violated PCAOB standard AU Section 334 (Related 
+Parties) (“AU 334”) (because Briner appeared to control Jervis and Whetman failed to, among 
+other things, “review the extent and nature of business transacted with [Jervis] for indications of 
+previously undisclosed relationships” (.08(e))), and PCAOB Auditing Standard No. 13 (The 
+Auditor’s Responses to the Risks of Material Misstatement) (“AS 13”), which states that “[t]he 
+auditor’s responses to the assessed risks of material misstatement, particularly fraud risks, should 
+involve the application of professional skepticism in gathering and evaluating audit evidence” (¶ 
+7). 
+Whetman Failed to Resolve Discrepancies in the 
+Audit Evidence Supporting the Officer’s Fee 
+33. Whetman accepted evidence that purported to support fees paid to La Paz’s officer 
+that did not in fact provide support.  On or about October 28, 2012, a De Joya staff accountant 
+asked for documents reflecting the payment of fees to, among others, La Paz’s officer.  The next 
+day, Briner’s assistant sent documents appearing to reflect wire transfers from MetroWest to, 
+among others, Crown Capital Partners for $6,000.  The La Paz schedule indicated that its officer 
+was paid $2,000 and does not mention Crown Capital Partners.  Although Briner’s assistant 
+indicated in an email that the wire to Crown Capital Partners was for La Paz’s officer (for services 
+to three companies), she did not provide any other evidence of this or how the $6,000 was 
+allocated.  And Whetman did not ask La Paz’s officer whether he was paid his fee or how the 
+$6,000 was allocated among the issuers he served as the officer.  Nonetheless, Whetman accepted 
+these documents as support for La Paz’s officer’s fees. 
+34. Whetman failed to resolve these conflicts or obtain sufficient appropriate audit 
+evidence to support De Joya’s opinion and therefore violated AS 15, AS 12, and AU 230. 
+Whetman Failed to Properly Audit La Paz’s Cash 
+35.   Under PCAOB standard AU Section 330 (The Confirmation Process) (“AU 330”), 
+when “information about the respondent’s [i.e., the person or entity from which a confirmation is 
+requested] competence, knowledge, motivation, ability, or willingness to respond, or about the 
+respondent’s objectivity and freedom from bias with respect to the audited entity comes to the 
+auditor’s attention, the auditor should consider the effects of such information on designing the 
+confirmation request and evaluating the results” and, in circumstances where “the respondent is the 
+custodian of a material amount of the audited entity’s assets,” the auditor should exercise “a 
+heightened degree of professional skepticism” and “should consider whether there is sufficient 
+basis for concluding that the confirmation request is being sent to a respondent from whom the 
+auditor can expect the response will provide meaningful and appropriate audit evidence” (at .27).  
+ 
+8 
+ 
+36. Additionally, under AS 15, “[t]he auditor must plan and perform audit procedures 
+to obtain sufficient appropriate audit evidence to provide a reasonable basis for his or her opinion” 
+(¶ 4).  To be appropriate, audit evidence must be both relevant and reliable in providing support for 
+the conclusions on which the auditor’s opinion is based.  “The reliability of evidence depends on 
+the nature and source of the evidence and the circumstances under which it is obtained” (¶ 8).  
+Under AS 13, “[t]he auditor’s responses to the assessed risks of material misstatement, particularly 
+fraud risks, should involve the application of professional skepticism in gathering and evaluating 
+audit evidence” (¶ 7). 
+37. Whetman exhibited no concern about Briner’s handling of La Paz’s alleged cash.  
+Whetman knew that Briner held all of La Paz’s purported funds in his Master Trust Account and 
+that La Paz did not have its own bank account.  Whetman also knew that Briner was a “consultant” 
+to La Paz and that MetroWest was a law firm.  Whetman did not seek any appropriate audit 
+evidence about what, if any, limitations governed Briner’s use of the cash in his Master Trust 
+Account.  Nor did he ask for a reconciliation between Briner’s Master Trust Account and the 
+schedules Briner provided purportedly showing how much cash in his account was attributable to 
+La Paz. 
+38. In addition, Whetman violated the above standards by failing to apply professional 
+skepticism in gathering and evaluating the evidence obtained, such as Briner’s confirmation of La 
+Paz’s cash, and consider Briner’s “objectivity and freedom from bias with respect to the audited 
+entity” in relation to the cash confirmation Briner provided. 
+Whetman Disregarded Red Flags that Briner’s Services 
+to La Paz Were Not Given Accounting Recognition 
+39. Under AU 334, transactions that are indicative of the existence of related parties 
+include, among other things, “transactions [that] are occurring, but are not being given accounting 
+recognition, such as receiving or providing accounting, management or other services at no 
+charge” (at .08(f)).  Further, under AS 15, “[i]f audit evidence obtained from one source is 
+inconsistent with that obtained from another, or if the auditor has doubts about the reliability of 
+information to be used as audit evidence, the auditor should perform the audit procedures 
+necessary to resolve the matter and should determine the effect, if any, on other aspects of the 
+audit” (¶ 29).  Finally, auditors must exercise professional skepticism throughout the course of the 
+engagement consistent with standard AU 230. 
+40. During the La Paz audit, the audit team requested details concerning Briner’s fee 
+arrangement with La Paz.  In a November 29, 2012 email response, Briner indicated that he would 
+charge between $10,000 and $25,000 for his services, but was not “comfortable” estimating his bill 
+because he told his “client” he “would work out a fair bill at the end of the project and [his client] 
+would find interim billing in the financials without their prior approval to be offensive.”  Whetman 
+failed to investigate further and allowed this material liability to remain undisclosed. 
+41. For the above reasons, Whetman failed to meet AU 334, AS 15, and AU 230. 
+ 
+9 
+ 
+Whetman Failed to Adequately Respond to Concerns that 
+Briner and Dalmy May Have Been Engaging in Fraud 
+42. In early November 2012, while Whetman was reviewing La Paz’s interim financial 
+statement, a De Joya staff member raised concerns to Whetman and another De Joya partner, who 
+was auditing the other eight Briner-referred issuers, that Briner and Dalmy may be engaging in 
+fraud with respect to the issuers they were auditing, including La Paz.   
+43. Under AS 12, “[t]he auditor’s assessment of the risks of material misstatement, 
+including fraud risks, should continue throughout the audit.  When the auditor obtains audit 
+evidence during the course of the audit that contradicts the audit evidence on which the auditor 
+originally based his or her risk assessment, the auditor should revise the risk assessment and 
+modify planned audit procedures or perform additional procedures in response to the revised risk 
+assessments” (¶ 74). 
+44. Further, under AS 13, “[t]he auditor’s responses to the assessed risks of material 
+misstatement, particularly fraud risks, should involve the application of professional skepticism in 
+gathering and evaluating audit evidence [including] . . . modifying the planned audit procedures to 
+obtain more reliable evidence regarding relevant assertions and (b) obtaining sufficient appropriate 
+evidence to corroborate management’s explanations or representations concerning important 
+matters, such as through third-party confirmation, use of a specialist engaged or employed by the 
+auditor, or examination of documentation from independent sources” (¶ 7).     
+45. Whetman failed to (a) properly consider the risks associated with La Paz’s audit, 
+(b) apply professional skepticism in evaluating audit evidence indicating Briner and Dalmy may be 
+engaging in fraud, and (c) re-evaluate his risk assessments for the La Paz audit in light of such 
+evidence in violation of AS 12 and AS 13. 
+46. On or about November 5, 2012, a De Joya staff member became concerned that 
+Briner might be engaging in fraud in connection with the issuers referred from Briner.  Her 
+concern stemmed from conversations she had with certain issuers’ officers in which nearly all her 
+questions about the issuers were deferred to Briner.  These conversations caused her to conduct an 
+internet search on Briner.  She found, among other things, the Commission’s complaint against 
+him.  Additional searches yielded news articles describing Briner and Dalmy as repeat securities 
+fraud offenders. 
+47. As a result, the De Joya staff member sent four emails over three days sharing the 
+negative information she found concerning Briner and Dalmy.  First, on November 5, 2012, she 
+sent Whetman and the other De Joya partner an email containing links to the Commission’s 
+complaint against Briner (SEC v. Golden Apple Oil and Gas, Inc., et al., 09-Civ-7580 (S.D.N.Y.) 
+(HB)) and a Canadian news article stating, among other things, that the British Columbia Securities 
+Commission issued an order (reciprocal to the Commission’s order suspending Briner) banning 
+Briner from trading shares in British Columbia or “acting in a management or consultative 
+capacity in any securities related matter.”3  In the email, she asked Whetman and the other De Joya 
+partner to “review the links” and stated that she “will call [the other De Joya partner] tonight.”   
+                                                 
+3 http://www.canadianjusticereviewboard.ca/article-securities%20lawyer.htm 
+ 
+ 
+10 
+ 
+48. Second, that same day, the De Joya staff member sent another email to Whetman 
+and the other De Joya partner with a link to an article posted on Pumpsanddumps.com stating that 
+Briner and Dalmy “together and apart, the pair has been involved in dozens of schemes on the 
+Vancouver market as well as the Pink sheets and OTC Bulletin Board, writing many a dubious 
+legal opinion resulting in millions of dollars lost by thousands of investors.”4    
+49. Third, on November 7, 2012, the De Joya staff member sent yet another email to 
+Whetman and the other De Joya partner attaching an article about a De Joya client, MoneyMinding 
+International Corp., and its counsel, Dalmy, who was described as having “a reputation for helping 
+scoundrel promoters take dubious companies public on the U.S. over-the-counter markets.”  The 
+article also specifically mentions De Joya as having “similarly helped many dubious companies go 
+public on the bulletin board.”5    
+50. Finally, the same day, the De Joya staff member forwarded the email and article to 
+one of De Joya’s two managing partners stating, “I thought I should forward this to you as well.  I 
+was doing research on Diane Dalmy and John Briner as we are working on some of their jobs and 
+that’s how I can [sic] across this article.”  The managing partner then forwarded her email with the 
+attached article to De Joya’s other managing partner without comment. 
+51. In light of the negative background the De Joya staff member found and the 
+officers’ apparent inability to answer questions about the issuers, the staff member found it 
+suspicious that Briner and Dalmy were working together on eight of the nine De Joya issuers.  The 
+staff member discussed her concerns with the other De Joya partner.  Whetman and that De Joya 
+partner then discussed the staff member’s concerns and resolved that the other De Joya partner 
+would raise them with De Joya’s two managing partners, which he did.   
+52. Whetman did not follow-up with the De Joya partner on the matter, nor did he do 
+anything further regarding the La Paz audit, such as considering whether to withdraw the audit 
+reports on La Paz’s financial statements that had been filed.  Nor did Whetman do anything further 
+with respect to La Paz’s interim financial statements, which he was reviewing at the time.  
+Whetman, therefore failed to meet PCAOB standard AU Section 561 (Subsequent Discovery of 
+Facts Existing at the Date of the Auditor’s Report) (“AU 561”), which provides that “[w]hen the 
+auditor becomes aware of information which relates to financial statements previously reported on 
+by him, but which was not known to him at the date of his report, and which is of such a nature and 
+from such a source that he would have investigated it had it come to his attention during the course 
+of his audit, he should, as soon as practicable, undertake to determine whether the information is 
+reliable and whether the facts existed at the date of his report” (at .04). 
+53. None of the above purported discussions were documented in any workpaper, or 
+otherwise, in violation of PCAOB Auditing Standard No. 3 (Audit Documentation) (“AS 3”), 
+which provides that auditors “must document significant findings or issues, actions taken to 
+                                                 
+4 http://www.pumpsanddumps.com/2011/06/all-that-glitters-is-not-greenwood-gold.html 
+ 
+5 http://blogs.vancouversun.com/2011/03/17/david-baines-two-victoria-startups-wade-
+into-bulletin-board-swamp/ 
+ 
+ 
+11 
+ 
+address them (including additional evidence obtained), and the basis for the conclusions reached in 
+connection with each engagement” (¶ 12). 
+WHETMAN CONDUCTED  MATERIALLY DEFICIENT AUDITS OF IDLE MEDIA 
+Background 
+ 
+54. In 2005, Marcus Frasier formed Zoeter, a company he wholly owned, to hold and 
+run certain web development projects he created.  Zoeter held datpiff.com, a website that enabled 
+customers to upload and share music.  In 2008, Frasier formed Datpiff, LLC (“Datpiff”), to hold 
+and run the datpiff.com website.   
+ 
+55. Although Frasier intended Datpiff to operate separately from Zoeter, Frasier used 
+accounts in Zoeter’s name to receive cash and pay expenses for Datpiff.     
+ 
+56. In May 2010, Idle Media was formed following a reverse merger with a shell 
+company.  At the same time, Frasier made Datpiff a wholly-owned subsidiary of Idle Media.  
+Zoeter received 40 million shares of Idle Media stock, representing a 65% share, and thereby 
+became the parent company of Idle Media.  After the merger, Frasier continued to own 100% of 
+Zoeter, and he became Idle Media’s chief executive officer.  Datpiff was the primary revenue 
+generating business of Idle Media.   
+ 
+57. Following Idle Media’s formation, Zoeter and Datpiff continued to share 
+employees, including Frasier, and commingled their funds in Zoeter accounts.  Payroll expenses 
+for shared employees and certain operating expenses for both companies were paid using Zoeter 
+accounts. 
+ 
+58. In December 2010, Idle Media engaged De Joya to perform independent public 
+accountant services.  The company filed its Form 10-K for the fiscal year ended September 30, 
+2010 on January 13, 2011, and its Form 10-Q for the quarter ended December 31, 2010 on 
+February 22, 2011.  Six days after issuing the Form 10-Q, on February 28, 2011, Idle Media filed 
+a Form 8-K announcing that its previously issued financial statements should not be relied upon 
+due to unspecified accounting errors that may require adjustments.   
+ 
+59. These accounting errors stemmed from Idle Media’s misallocation of revenue and 
+expenses between Datpiff and Zoeter. 
+ 
+60. Whetman served as the audit manager on the engagements to audit or review the 
+financial statements contained in the filings referenced in the February 28, 2011 Form 8-K.  
+During the quarterly review for the quarter ended December 31, 2010, Idle Media informed 
+Whetman that it had failed to record certain of Datpiff’s revenue and expenses that were 
+processed through Zoeter’s accounts.  Around the same time, through discussions with Idle 
+Media’s bookkeeper, Whetman became aware of Idle Media’s significant books and records 
+deficiencies in allocating revenue and expenses between Idle Media and Zoeter as a result of their 
+failure to segregate funds, among other things.  
+ 
+ 
+12 
+ 
+61. More than a year later, and without having issued restated financial statements, 
+Idle Media filed a Form 15 on March 8, 2012, terminating its voluntary SEC registration.  Also 
+in March 2012, De Joya promoted Whetman from manager to partner.  Whetman became the 
+new engagement partner for Idle Media engagements. 
+ 
+62. Three months later, Idle Media filed a Form 10 to recommence its voluntary 
+registration.  In this Form 10, filed on June 13, 2012, the company issued restated financial 
+statements for the fiscal year ended September 30, 2010 and for the first time issued financial 
+statements for its fiscal year ended September 30, 2011.  
+ 
+63. In the Form 10, the company did not correct its accounting deficiencies resulting 
+from the misallocation of revenue and expenses between Datpiff and Zoeter.  Rather, the 
+company stated that the balances it reported in its financial statements consolidated Zoeter’s 
+financial statements with those of Idle Media because Zoeter was a VIE and Idle Media was its 
+primary beneficiary.  On July 31, 2012, September 25, 2012, September 26, 2012, and October 
+29, 2012, Idle Media issued amendments to the Form 10 on Forms 10/A for various reasons, but 
+each included Idle Media’s financial statements consolidating Zoeter.  Through Whetman, De 
+Joya consented to the inclusion of its audit report for each of these filings opining that Idle 
+Media’s consolidated financial statements were presented fairly, in all material respects, in 
+conformity with GAAP (hereafter collectively referred to as the “Consolidation Timeframe 
+Audits”).  
+ 
+64. Idle Media’s consolidated financial statements in its Form 10 and in its first Form 
+10/A amended filing did not consolidate Zoeter’s accounts despite purporting to do so.  In 
+addition, when presenting the amount of the consolidated company’s net income that belonged to 
+Idle Media’s shareholders, Idle Media’s income statement improperly added, rather than 
+subtracted, the amount of net income attributable to Zoeter’s owner.  Idle Media’s second Form 
+10/A filing on September 25, 2012, restated the presentation of the consolidated financial 
+statements to correct these fundamental errors.   
+ 
+65. Despite issuing consolidated financial statements in its Form 10 and in four Forms 
+10/A, each audited by Whetman, Idle Media filed a Form 8-K on January 15, 2013, announcing 
+it would restate its financial statements again, this time to deconsolidate Zoeter.  Idle Media 
+acknowledged that its consolidation of Zoeter had never been proper.  Almost a year after this 
+announcement, Idle Media filed restated financial statements deconsolidating Zoeter in a fifth 
+amendment to the Form 10, filed on December 30, 2013, for its fiscal years 2010 and 2011 and 
+related quarterly periods.  This amendment to the Form 10 was also audited by Whetman. The 
+restatement demonstrated that, as a result of Idle Media’s improper consolidation of Zoeter and 
+revenue and expense allocation errors, the company had materially misstated revenue and net 
+income by 18% and 24%, respectively, for 2010.  Idle Media had also materially misstated net 
+income by 24% for 2011.   
+ 
+66. For the Consolidation Timeframe Audits, the engagement team consisted of 
+Whetman as the engagement partner and a staff auditor.  There was also a concurring review 
+ 
+13 
+ 
+partner.6  The staff auditor performed the audit fieldwork and created the workpapers for the 
+Consolidation Timeframe Audits.  As the engagement partner, Whetman was responsible for 
+planning and performing the audits to obtain reasonable assurance about whether Idle Media’s 
+financial statements were free of material misstatement.  Since no manager was assigned to the 
+engagement team, Whetman also directly supervised the staff auditor and was responsible for her 
+work.  At the time of the first Consolidation Timeframe Audit, the staff auditor had barely a year 
+of audit experience and had not yet earned a CPA license.  Whetman was fully aware of the staff 
+auditor’s inexperience. 
+ 
+Whetman’s Deficient Audits of Idle Media’s Consolidation 
+Approach Under VIE Accounting Standards 
+ 
+67. The GAAP standards for consolidation of a VIE are contained in Accounting 
+Standards Codification (“ASC”) 810, Consolidation.  Under ASC 810, among other 
+requirements, three conditions must be met in order for a reporting entity to consolidate another 
+entity as a VIE: (1) the reporting entity must hold a variable interest in the other entity; (2) that 
+other entity must be a VIE; and (3) the reporting entity must be the primary beneficiary of that 
+VIE.     
+ 
+68. Whetman appreciated the significance of the VIE consolidation issue and 
+characterized it as a “critical audit objective” during the planning stage of the Consolidation 
+Timeframe Audits.  He continued to characterize the VIE consolidation issue as a “critical 
+matter” throughout the course of the Consolidation Timeframe Audits.   
+ 
+69. Among other things, in the audit of Idle Media’s consolidation of Zoeter’s 
+financial statements, Whetman considered the conclusions that: (1) Idle Media held a variable 
+interest in Zoeter because of a related party receivable; (2) Zoeter was a VIE because it required 
+Idle Media’s subordinated financial support; and (3) Idle Media was the primary beneficiary of 
+Zoeter.  As explained below, Whetman failed to perform sufficient procedures to obtain 
+sufficient evidence about any of these conclusions. 
+ 
+Whetman Did Not Perform Adequate Procedures 
+to Assess the Conclusion that Idle Media Held a 
+Variable Interest in Zoeter 
+ 
+70. Pursuant to ASC 810-10, the reporting company must hold a “variable interest” in 
+an entity before that entity is subject to potential consolidation as a variable interest entity.  
+Generally, a variable interest arises from an ownership, or other contractual or pecuniary, interest 
+which requires the holder to absorb fluctuations in value of that entity that are exclusive of 
+fluctuations in the ownership or contractual interest.  
+ 
+                                                 
+ 6 PCAOB Auditing Standard No. 7 (Engagement Quality Review) did not become effective until Idle 
+Media’s fiscal year 2011, which began October 1, 2010.  Beginning on this date, the concurring review function was 
+performed by an “engagement quality review” partner. 
+ 
+ 
+14 
+ 
+71. At the time Idle Media consolidated Zoeter’s financial statements, Idle Media 
+held a purported related party receivable for amounts due from Zoeter.  Whetman’s audit 
+identified this related party receivable as Idle Media’s variable interest in Zoeter.  
+ 
+72. The purported related party receivable balance was asserted to be a result of 
+material transactions between Zoeter and Idle Media’s subsidiary, Datpiff.  Because this related 
+party receivable was Idle Media’s singular variable interest in Zoeter identified by Whetman, it 
+was fundamental to the variable interest entity consolidation analysis.   
+ 
+73. Whetman knew that Zoeter and Datpiff commingled their funds in Zoeter 
+accounts, that no promissory note existed between Zoeter and either Datpiff or Idle Media, and 
+that Zoeter had no obligation to use its future profits to pay back any funds it received from 
+Datpiff or Idle Media.  However, during the audit, Whetman’s procedures confirmed only that 
+the receivable’s balance eliminated in consolidation.  Whetman failed to perform any procedures 
+to determine the purpose, nature, and extent of the transactions making up the purported related 
+party receivable, nor did he obtain sufficient, competent evidence to show that a receivable 
+actually existed.  
+ 
+74. Had Whetman performed sufficient audit procedures, he would have likely 
+discovered that Idle Media had improperly recorded these amounts on its balance sheet as a 
+receivable.  In fact, when Whetman later re-audited Idle Media’s fiscal year-end 2010 financial 
+statements upon Idle Media’s deconsolidation of Zoeter, Whetman concluded that Idle Media 
+had properly reclassified these amounts as Idle Media’s expenses and not a receivable due from 
+Zoeter.  
+ 
+75. As a result of the above failures, Whetman’s procedures provided no reasonable 
+basis for concluding that the related party receivable existed.  The existence of the receivable as 
+a variable interest was the fundamental basis Whetman relied upon to support that Idle Media 
+should potentially consolidate Zoeter’s financial statements.  As a result, Whetman obtained 
+insufficient evidence to assess the conclusion that Idle Media indeed held a variable interest in 
+Zoeter.   
+ 
+Whetman Did Not Perform Adequate 
+Procedures to Assess the Conclusion 
+That Zoeter was a VIE 
+ 
+76. Whetman’s procedures to test the conclusion that Zoeter qualified as a variable 
+interest entity also were inadequate.  Whetman concluded that Zoeter was a variable interest entity 
+under ASC 810-10-15-14a because, by design, the total equity investment at risk was not sufficient 
+to permit Zoeter to finance its activities without additional subordinated financial support provided 
+by Idle Media or Datpiff.  When testing the assertion that Zoeter was a VIE, Whetman considered 
+whether Zoeter required subordinated financial support: (1) as of the date of Datpiff’s inception in 
+September 2008; and (2) during subsequent fiscal periods. 
+ 
+77. With respect to the first analysis, Whetman failed to adequately test whether, by 
+design, Zoeter required subordinated financial support as of September 2008.  In fact, financial 
+ 
+15 
+ 
+information included in Whetman’s audit workpapers indicated that Zoeter earned sufficient 
+revenue to support its own activities at that time. 
+ 
+78. With respect to the second analysis, Whetman concluded that subsequent transfers 
+of funds between Zoeter and Datpiff, as evidenced by the purported related party receivable, 
+demonstrated Zoeter’s continuing need for financial support.  However, Whetman’s audit did not 
+provide adequate support for these conclusions since Whetman did not test whether Zoeter’s 
+revenue was sufficient to cover its expenses or, as discussed above, whether the related party 
+receivable existed.  Indeed, since Idle Media had not accurately allocated revenue and expenses 
+between Zoeter and Idle Media at the time of the Consolidation Timeframe Audits, the conclusion 
+that Zoeter required Datpiff’s financial support was not substantiated.   
+ 
+Whetman Did Not Perform Adequate Procedures to Assess 
+the Conclusion That Idle Media Was the Primary 
+Beneficiary of Zoeter 
+ 
+79. Whetman’s procedures to test whether Idle Media was the primary beneficiary of 
+Zoeter similarly were inadequate.  In order for Idle Media to be the primary beneficiary and 
+therefore consolidate Zoeter under the VIE consolidation guidance, Idle Media must have had both 
+(1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic 
+performance and (2) the obligation to absorb losses or the right to receive benefits of the VIE that 
+could potentially be significant.  ASC 810-10-05 and ASC 810-10-15-14b.   
+ 
+80. Whetman did not obtain sufficient evidence to determine whether Idle Media had 
+an obligation to provide potentially significant funding to Zoeter or to determine whether Idle 
+Media had the right to potentially benefit significantly from Zoeter’s activities.  Whetman did 
+not test whether Idle Media had power over the most significant economic activities of Zoeter.  
+Finally, it was evident to Whetman that Idle Media and Zoeter were under the common control 
+of Frasier, which should have resulted in additional testing.   As a result, Whetman failed to 
+obtain sufficient competent evidence supporting the conclusion that Idle Media was the primary 
+beneficiary of Zoeter. 
+ 
+Whetman’s Deficient Audit of the Noncontrolling Interest  
+  
+81. Notwithstanding the flaws in the consolidation analysis described above, Idle 
+Media’s presentation of consolidated financial statements was not in conformity with GAAP.  
+Whetman missed these clear presentation errors in certain audits of Idle Media’s financial 
+statements, as discussed below.     
+ 
+Whetman Failed to Sufficiently Test Whether Idle Media’s 
+Revenue, Expenses, and Net Income Were Reported as 
+Consolidated Amounts 
+ 
+82. A reporting company’s revenue, expenses, and net income should “be reported in 
+the consolidated financial statements at the consolidated amounts, which include the amounts 
+attributable to the owners of the parent and the noncontrolling interest.”  ASC 810-10-45-19.  
+ 
+16 
+ 
+Accordingly, when Idle Media claimed to consolidate Zoeter’s financial results, it should have 
+combined Zoeter’s account balances within the appropriate line items of the consolidated income 
+statement and then separately reported the noncontrolling interest of the net income or loss.   
+ 
+83. When Idle Media first presented consolidated financial statements in the Form 10 
+filed on June 13, 2012 and in the first Form 10/A filed on July 31, 2012, Idle Media failed to 
+combine Zoeter’s account balances within the appropriate line items of its consolidated income 
+statement, including the consolidated net income line item.  Instead, Idle Media reported account 
+balances for Idle Media only.  
+ 
+84. When auditing the financial statements contained in these two filings, Whetman 
+reviewed the audit workpaper containing the company’s consolidating trial balance.  However, 
+Whetman failed to perform a fundamental audit procedure:  that is, recalculation to verify that 
+the rows of numbers were properly totaled.  Had Whetman simply added up rows of numbers on 
+the workpaper, he would have noticed that the totals for the consolidated amounts improperly 
+excluded Zoeter’s accounts.  Since he failed to perform this fundamental procedure, Whetman 
+failed to identify the fact that the account balances Idle Media reported in its consolidated 
+financial statements did not actually include Zoeter’s accounts and thus did not reconcile with 
+the supporting documents.  Whetman also failed to properly supervise his staff auditor by not 
+addressing these important omitted procedures.  
+ 
+85. Whetman failed to identify these fundamental misstatements despite reviewing a 
+different audit workpaper that stated that “[Zoeter] is not included [in these line items] because 
+they are reported separately within the income statement as part of VIE reporting requirements.”  
+This workpaper specifically highlighted the fact that Zoeter’s revenue and expenses were 
+excluded from the applicable line items of the consolidated financial statements. 
+ 
+Whetman Failed to Test Whether Idle Media’s Consolidated 
+Net Income Was Properly Apportioned Between Idle Media’s 
+Shareholders and the Noncontrolling Interest 
+ 
+86. GAAP requires that, after a company reports its consolidated net income, the 
+“[n]et income or loss… shall be attributed to the parent and the noncontrolling interest.”  ASC 
+810-10-45-20.  Accordingly, after presenting the net income for the consolidated company on its 
+income statement, Idle Media should have then subtracted the portion of the consolidated net 
+income belonging to Zoeter’s owner (Frasier) as being allocated to the noncontrolling interest 
+since Idle Media did not own Zoeter.  Idle Media should have then shown the remaining portion 
+of the consolidated net income as belonging to Idle Media’s shareholders.  
+ 
+87. In the financial statements included in its Form 10 filed on June 13, 2012 and its 
+first Form 10/A filed on July 31, 2012, Idle Media reported a consolidated net income amount 
+that did not include Zoeter’s net income.  Below the consolidated net income line, Idle Media 
+presented Zoeter’s net income as an amount attributable to the noncontrolling interest.  Idle 
+Media then added this figure to the net income amount, rather than subtracting it, when Idle 
+Media reported the amount of net income attributed to Idle Media’s shareholders.  These clear, 
+ 
+17 
+ 
+fundamental errors resulted in a substantial overstatement of the consolidated net income 
+apportioned to Idle Media’s shareholders.   
+ 
+88. Whetman’s procedures failed to identify these errors even though the income 
+statement reported that the net income allocated to Idle Media shareholders was substantially 
+greater than the total consolidated net income – a treatment that was clearly not in conformance 
+with GAAP. 
+ 
+89. Whetman’s deficient procedures relating to the allocation of revenue and 
+expenses between Zoeter and Idle Media also impacted his ability to audit the amount of income 
+Idle Media apportioned to the noncontrolling interest.  Since Whetman did not perform sufficient 
+procedures to assess the accuracy of Zoeter’s accounts, Whetman’s procedures could not provide 
+a reasonable basis for assessing the accuracy of the net income Idle Media attributed to the 
+noncontrolling interest. 
+ 
+Whetman’s Deficient Documentation of the Idle Media Audits 
+ 
+90. In addition to the failures discussed above, Whetman failed to adequately 
+document and retain requisite documentation related to certain of his audits. 
+ 
+Whetman Failed to Prepare Adequate Audit Documentation 
+ 
+91. On December 30, 2013, Idle Media filed a Form 10/A containing restated 
+financial statements to correct:  1) errors relating to the allocation of revenue and expenses 
+between Zoeter and Datpiff, and 2) the improper consolidation of Zoeter’s financial statements.  
+Whetman’s audit workpapers relating to the deconsolidation stated that “V.I.E. consolidation was 
+not appropriate since Zoeter, LLC did not need subordinated financial support to fund its 
+activities[.]”  However, the workpapers did not present any analysis or reference evidence to 
+support this revised conclusion that no subordinated financial support was needed.  For example, 
+the workpapers did not demonstrate that the auditor had examined any evidence indicating that 
+Zoeter generated sufficient revenue to fund its level of activity at the assessment date.   
+ 
+92. At the time of Idle Media’s deconsolidation of Zoeter, the audit workpaper 
+referenced a change in the date for the transfer of the datpiff.com website as support for Idle 
+Media’s deconsolidation decision.  However, to the extent the transfer date for the datpiff.com 
+website was significant to the deconsolidation decision, Whetman’s audit workpapers did not 
+explain that significance.  While the audit workpapers explained how the new date impacted the 
+allocation of revenue and expenses between Zoeter and Datpiff, the workpapers notably failed to 
+analyze why the new date impacted the separate issue of whether Idle Media should consolidate 
+Zoeter.  Moreover, the workpapers showed multiple inconsistencies regarding what the transfer 
+date actually was.     
+ 
+93. Whetman’s deconsolidation workpaper also quoted Idle Media’s disclosure that “it 
+is no longer able to conclude that Zoeter constitutes a variable interest entity, necessitating the 
+restatement of its financial statements” under GAAP.  However, the workpapers did not clarify, 
+much less explain, whether Zoeter had previously been a VIE but was no longer a VIE going 
+ 
+18 
+ 
+forward, or whether Zoeter had never been a VIE.  This analysis would have been necessary in 
+order to determine whether it was appropriate for Idle Media to restate its historical financial 
+statements.   
+ 
+94. Whetman also failed to properly supervise his audit staff with respect to 
+procedures to evaluate and document the deconsolidation analysis. 
+ 
+Whetman Failed to Retain Audit Documentation 
+ 
+95. When preparing workpapers for the Consolidation Timeframe Audits, Whetman’s 
+audit team incorporated, but did not retain, the workpapers from the original audit of Idle Media’s 
+fiscal year 2010 financial statements.  As a result, workpapers which reflect the planning and 
+performance of the work and the procedures performed, the evidence obtained, and the conclusions 
+reached as of the time that De Joya issued its audit report on January 12, 2011 no longer exist. 
+   
+Whetman’s Violations of Professional Standards In Performing the Idle Media Audits 
+ 
+Failure to Exercise Due Professional Care 
+ 
+96. AU 230 requires that “[d]ue professional care is to be exercised in the planning and 
+performance of the audit and the preparation of the report” (at .01).  The engagement partner should 
+know, at a minimum, the relevant professional accounting and auditing standards and should be 
+knowledgeable about the client.  The engagement partner is responsible for the assignment of tasks 
+to, and supervision of, the members of the engagement team (at .06).  Also, “[d]ue professional care 
+requires the auditor to exercise professional skepticism.  Professional skepticism is an attitude that 
+includes a questioning mind and a critical assessment of audit evidence” (at .07).  “Gathering and 
+objectively evaluating audit evidence requires the auditor to consider the competency and 
+sufficiency of the evidence.  Since evidence is gathered and evaluated throughout the audit, 
+professional skepticism should be exercised throughout the audit process” (at .08).  “The auditor 
+neither assumes that management is dishonest nor assumes unquestioned honesty.  In exercising 
+professional skepticism, the auditor should not be satisfied with less than persuasive evidence 
+because of a belief that management is honest” (at .09).    
+ 
+97. As the engagement partner, Whetman was responsible for each of the relevant audit 
+engagements and their performance, for proper supervision of the work of the engagement team 
+members, and for compliance with PCAOB standards.   
+ 
+98. Whetman violated AU 230 by conducting the Consolidation Timeframe Audits 
+without exercising due professional care or professional skepticism.  Whetman did not perform 
+sufficient procedures or analysis to support his audit conclusions that Idle Media’s consolidation of 
+Zoeter conformed with GAAP.  Whetman also violated AU 230 when he failed to notice that Idle 
+Media had not actually consolidated Zoeter’s accounts in the first set of consolidated financial 
+statements it filed, and that Idle Media had clearly improperly presented the amount of the 
+consolidated company’s net income attributable to Idle Media’s shareholders.  He also failed to 
+exercise due professional care in failing to document the analysis and conclusions supporting the 
+deconsolidation approach for Idle Media’s deconsolidated financial statements.  Additionally, 
+ 
+19 
+ 
+Whetman failed to supervise his audit staff with respect to the sufficiency of the procedures 
+performed and whether those procedures were adequately documented.   
+ 
+Failure to Obtain Sufficient Competent Evidential Matter 
+ 
+99. PCAOB standard AU Section 326, (Evidential Matter) (“AU 326”) requires that 
+“[s]ufficient competent evidential matter is to be obtained through inspection, observation, 
+inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial 
+statements under audit” (at .01).  “The auditor tests underlying accounting data by (a) analysis and 
+review, (b) retracing the procedural steps followed in the accounting process and in developing the 
+allocations involved, (c) recalculation, and (d) reconciling related types and applications of the 
+same information… Additionally, the auditor’s substantive procedures must include reconciling 
+the financial statements to the accounting records” (at .19).  “To be competent, evidence, 
+regardless of its form, must be both valid and relevant” (at .21).  
+ 
+100. Whetman violated AU 326 by concluding the Consolidation Timeframe Audits 
+without obtaining sufficient competent evidential matter through his audit procedures.  Notably, 
+Whetman failed to obtain sufficient, competent evidential matter during his procedures to assess 
+whether Idle Media’s consolidation conclusions were appropriate under the relevant accounting 
+standards for VIE consolidation.  Whetman also violated AU 326 by failing to obtain sufficient, 
+competent evidential matter in the form of a correctly totaled consolidating trial balance.  
+Whetman further failed to recalculate the underlying accounting data contained in the 
+consolidating trial balance and reconcile this data to the financial statements.  Because of this, he 
+failed to identify Idle Media’s fundamental errors in presenting consolidated financial statements – 
+by failing to actually consolidate Zoeter’s accounts in its consolidated income statement line items 
+and by failing to present the noncontrolling interest as a deduction from the consolidated net 
+income figure -- when Idle Media first filed its consolidated financial statements filed on Form 10 
+on June 13, 2012 and the first Form 10/A filed on July 31, 2012.         
+ 
+Failure to Apply Heightened Scrutiny to Related Party Transactions 
+ 
+101. AU 334 requires that “[t]he auditor should place emphasis on testing material 
+transactions with parties he knows are related to the reporting entity” (at .07).  “After identifying 
+related party transactions, the auditor should apply the procedures he considers necessary to 
+obtain satisfaction concerning the purpose, nature, and extent of these transactions and their 
+effect on the financial statements.  The procedures should be directed toward obtaining and 
+evaluating sufficient competent evidential matter and should extend beyond inquiry of 
+management” (at.09).   
+ 
+102. Whetman violated AU 334 during the Consolidation Timeframe Audits when he 
+failed to place emphasis on testing material transactions between related parties, including his 
+failures to apply heightened scrutiny to analysis of the purported related party receivable balance, 
+Zoeter’s purported need for subordinated financial support from Idle Media, and which related 
+party would be Zoeter’s primary beneficiary if Zoeter was a VIE.  Although the consolidation 
+analysis as a whole was characterized in the workpapers as both a “critical audit objective” and 
+ 
+20 
+ 
+as a “critical issue,” and involved related party transactions, Whetman failed to apply heightened 
+scrutiny when he audited any of the three bases for the consolidation conclusion.     
+ 
+Failure to Maintain Requisite Audit Documentation 
+ 
+103. AS 3 requires that “[a]mong other things, audit documentation includes records of 
+the planning and performance of the work, the procedures performed, evidence obtained, and 
+conclusions reached by the auditor” (¶ 2).  “Audit documentation must clearly demonstrate that the 
+work was in fact performed… Audit documentation must contain sufficient information to enable 
+an experienced auditor, having no previous connection with the engagement…to understand the 
+nature, timing, extent, and results of the procedures performed, evidence obtained, and conclusions 
+reached” (¶ 6).   “The auditor must retain audit documentation for seven years from the date the 
+auditor grants permission to use the auditor’s report in connection with the issuance of the 
+company’s financial statements (report release date), unless a longer period of time is required by 
+law” (¶ 14).  “Audit documentation must not be deleted or discarded after the documentation 
+completion date, however, information may be added” (¶ 16).  
+ 
+104. Whetman violated AS 3 during his audit of the restatement to deconsolidate Zoeter 
+when he failed to document his analysis in a manner which would allow an experienced auditor 
+having no previous connection with the engagement to understand the evidence obtained or audit 
+conclusions.  Notably, the workpapers did not explain the analysis underlying the decision to 
+deconsolidate Zoeter or the decision to restate historical financial statements for the 
+deconsolidation of Zoeter.  Additionally, Whetman violated AS 3 in his failure to retain 
+workpapers related to the original audit of fiscal year 2010. 
+ 
+Failure to Issue Accurate Audit Reports 
+ 
+105. PCAOB standard AU Section 508, Reports on Audited Financial Statements (“AU 
+508”), states that “[j]ustification for the expression of the auditor’s opinion rests on the conformity 
+of his or her audit with generally accepted auditing standards and on the findings” (at .03).  “The 
+auditor’s standard report states that the financial statements present fairly, in all material respects, 
+an entity’s financial position, results of operations, and cash flows in conformity with generally 
+accepted accounting principles.  This conclusion may be expressed only when the auditor has 
+formed such an opinion on the basis of an audit performed in accordance with generally accepted 
+auditing standards” (at .07).    
+ 
+106. Whetman violated AU 508 when he signed, on behalf of his audit firm, audit 
+reports contained in Idle Media’s Forms 10, 10A/1, 10A/2, 10A/3, 10A/4, and 10A/5, filed on 
+June 13, 2012, July 31, 2012, September 25, 2012, September 26, 2012, October 29, 2012, and 
+December 30, 2013, respectively, falsely stating that De Joya had conducted its audits in 
+accordance with the standards of the PCAOB.  The audits referenced in these audit reports were 
+not conducted in accordance with PCAOB standards, as evidenced by Whetman’s failures to 
+exercise due professional care in the planning and performance of the audit, to obtain sufficient 
+competent evidential matter, to apply heightened scrutiny to related party transactions, and to 
+maintain requisite audit documentation.   
+ 
+ 
+21 
+ 
+WHETMAN VIOLATED SECTION 17(a) OF THE SECURITES ACT, RULE 2-02 OF 
+REGULATION S-X, AND ENGAGED IN IMPROPER PROFESSIONAL CONDUCT 
+ 
+107. De Joya falsely stated in its audit report filed with La Paz’s Form S-1 registration 
+statement that it “conducted [its] audit in accordance with the standards of the Public Company 
+Accounting Oversight Board (United States)” and that the financial statements present La Paz’s 
+financial position “in conformity with U.S. generally accepted accounting principles.”  Whetman 
+signed or consented to the filing of this audit report. 
+108. For this false audit report, De Joya collected approximately $4,000 in fees.  
+109. Whetman knew, or was reckless in not knowing, that La Paz was a device, scheme, 
+or artifice to defraud in violation of Section 17(a)(1) of the Securities Act.  Further, by providing 
+La Paz’s audit report, Whetman acted unreasonably and caused La Paz’s violations of Sections 
+17(a)(1), (2), and (3) of the Securities Act.  Whetman also violated Sections 17(a)(2) and (3) of the 
+Securities Act by falsely claiming that the La Paz audit complied with PCAOB standards. 
+110. Additionally, for failing to meet the PCAOB audit standards identified above in 
+auditing La Paz and Idle Media, Whetman engaged in improper professional conduct pursuant to 
+the Commission’s Rules of Practice Rule 102(e)(1)(ii) by engaging in at least one instance of 
+highly unreasonable conduct or repeated instances of unreasonable conduct under Rule 
+102(e)(1)(iv).   
+111. Whetman also caused a violation of  Rule 2-02(b)(1) of Regulation S-X by 
+consenting to the filing of an audit report included in La Paz’s Form S-1 Registration statement 
+that falsely states that La Paz’s audit was conducted in accordance with PCAOB standards.   
+112. Further, as described above, Whetman willfully violated Sections 17(a)(1), (2), and 
+(3) of the Securities Act thereby engaging in conduct subject to the Commission’s Rules of 
+Practice Rule 102(e)(1)(iii). 
+IV. 
+COMMISSION FINDINGS 
+Based on the foregoing, the Commission finds that Respondent: 
+A. willfully violated Sections 17(a)(1), (2), and (3) of the Securities Act;  
+B. engaged in improper professional conduct pursuant to Section 4C(a)(2) of the 
+Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice;  
+C. caused a violation of Rule 2-02(b)(1) of Regulation S-X; and  
+D. willfully violated Sections 17(a)(1), (2), and (3) of the Securities Act thereby 
+engaging in conduct subject to Section 4C(a)(3) of the Exchange Act and Practice Rule 
+102(e)(1)(iii) of the Commission’s Rules of Practice. 
+ 
+22 
+ 
+V. 
+UNDERTAKINGS 
+Respondent has undertaken to: 
+A. appear and be interviewed by Commission staff at such reasonable times and places 
+as the staff requests upon reasonable notice in connection with the Briner Action; 
+B. 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 investigation by Commission staff related to the Briner Action; 
+C. appoint Respondent’s attorney, Sean T. Prosser, as agent to receive service of such 
+notices and subpoenas;  
+D. with respect to such notices and subpoenas, waive any objections to such notices 
+and subpoenas, 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  
+E. consent to personal jurisdiction over Respondent in any United States District Court 
+for purposes of enforcing any such subpoena. 
+In determining whether to accept Respondent’s Offer, the Commission has considered these 
+undertakings. 
+VI. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+ 
+Accordingly, pursuant to Section 8A of the Securities Act and Sections 4C and 21C of the 
+Exchange Act, it is hereby ORDERED that: 
+ 
+A. Respondent shall cease and desist from committing or causing any violations and 
+any future violations of Sections 17(a)(1), (2), and (3) of the Securities Act and Rule 2-02(b)(1) of 
+Regulation S-X. 
+B. Respondent is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+C. After five years from the date of entry of this Order, Whetman may request that the 
+Commission consider his reinstatement by submitting an application (attention: Office of the Chief 
+Accountant) to resume appearing or practicing before the Commission as: 
+a) a preparer or reviewer, or a person responsible for the preparation or review, 
+ 
+23 
+ 
+of any public company’s financial statements that are filed with the Commission.  Such an 
+application must satisfy the Commission that Respondent’s work in his practice before the 
+Commission will be reviewed either by the independent audit committee of the public company for 
+which he works or in some other acceptable manner, as long as he practices before the Commission 
+in this capacity; and/or 
+b) an independent accountant.  Such an application must satisfy the 
+Commission that: 
+i. A public accounting firm with which Respondent 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; 
+ii. A registered public accounting firm with which Respondent 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; 
+iii. 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 
+iv. Respondent acknowledges his responsibility, as long as Respondent 
+appears or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards.   
+D. The Commission will consider an application by Whetman 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 board of accountancy.  However, if state 
+licensure is dependent on reinstatement by the Commission, the Commission will consider his 
+application on 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. 
+E. Whetman shall pay a civil penalty of $15,000.00, to the Securities and Exchange 
+Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act 
+Section 21F(g)(3), which shall be paid in the following installments:  $3,000.00 within 10 days of 
+the entry of this Order, and $12,000.00 in four installments of $3,000.00 due on October 1, 2015, 
+January 1, 2016, April 1, 2016, and one year from entry of this Order.   If timely payment is not 
+made, additional interest shall accrue pursuant to 31 U.S.C. § 3717. 
+F.   Payment of civil penalties must be made in one of the following ways:   
+ 
+a) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request; 
+b) Respondent may make direct payment from a bank account via Pay.gov 
+ 
+24 
+ 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+c) 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 the 
+Respondent by name in these proceedings, and the file number of these proceedings; a copy of the 
+cover letter and check or money order must be sent to Lara Shalov Mehraban, Division of 
+Enforcement, Securities and Exchange Commission, 200 Vesey Street, NY 10281.   
+ 
+G. The Division of Enforcement (“Division”) may, at any time following the entry of 
+this Order, petition the Commission to: (1) reopen this matter to consider whether Respondent 
+provided accurate and complete financial information at the time such representations were made; 
+and (2) seek an order directing payment of disgorgement and pre-judgment interest. No other issue 
+shall be considered in connection with this petition other than whether the financial information 
+provided by Respondent was fraudulent, misleading, inaccurate, or incomplete in any material 
+respect. Respondent may not, by way of defense to any such petition: (1) contest the findings in this 
+Order; (2) assert that payment of disgorgement and interest should not be ordered; (3) contest the 
+amount of disgorgement and interest to be ordered; or (4) assert any defense to liability or remedy, 
+including, but not limited to, any statute of limitations defense. 
+ 
+H. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To preserve 
+the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, he 
+shall not argue that he is entitled to, nor shall he benefit by, offset or reduction of any award of 
+compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in this 
+action (“Penalty Offset”).  If the court in any Related Investor Action grants such a Penalty Offset, 
+Respondent agrees that he shall, within 30 days after entry of a final order granting the Penalty 
+Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty Offset to 
+the Securities and Exchange Commission.  Such a payment shall not be deemed an additional civil 
+penalty and shall not be deemed to change the amount of the civil penalty imposed in this 
+proceeding.  For purposes of this paragraph, a “Related Investor Action” means a private damages 
+action brought against Respondent by or on behalf of one or more investors based on substantially 
+the same facts as alleged in the Order instituted by the Commission in this proceeding. 
+ 
+VII. 
+ 
+ It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S. C. §523, that the findings in this Order are true and admitted 
+ 
+25 
+ 
+by Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent under this Order or any other judgment, order, consent order, decree or 
+settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+        Brent J. Fields 
+        Secretary 

raw/aaer/2015/AAER-3712.txt

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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 23379 / October 6, 2015 
+         Accounting and Auditing Release No. 3712 / October 6, 2015 
+          Securities and Exchange Commission v.   Ryan  Petersen    Civil Action No.  5:15-cv-04599 (N.D. Cal.) 
+          Securities and Exchange Commission v. Arthur Knapp  Civil Action No. 5:15-cv-04598 (N.D. Cal.) 
+   
+ SEC Charges Former Executives with Accounting Fraud and Other Accounting Failures 
+         
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+         
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+         SEC Complaint  -->
+
+         
+	The Securities and Exchange Commission today charged two former top executives at OCZ Technology Group, Inc. for accounting failures at the now-bankrupt seller of computer memory storage and power supply devices.   
+ 
+	In a complaint filed in the Northern District of California, the SEC alleges that OCZ's former CEO Ryan Petersen engaged in a scheme to materially inflate OCZ's revenues and gross margins from 2010 to 2012. It separately charged OCZ's former chief financial officer Arthur Knapp for certain accounting, disclosure, and internal accounting controls failures at OCZ. Knapp agreed to settle the SEC's charges without admitting or denying the allegations against him. The SEC's litigation continues against Petersen. 
+ 
+	The SEC's complaints allege that: 
+  
+		Petersen's scheme included mischaracterizing sales discounts as marketing expenses and having employees create false documentation to conceal the scheme, channel-stuffing OCZ's largest customer by shipping more goods than the customer could sell in the normal course of business, and concealing large product returns from OCZ's finance department and OCZ's auditor so that those returns would not be recorded in OCZ's books and records.   
+	 
+		OCZ filings that Petersen signed and certified portrayed the company in a way that was a far cry from its true operational and financial condition.  
+	 
+
+	 
+		Petersen personally profited from his misstatements by selling shares of OCZ stock and receiving a bonus during the period when OCZ's public filings contained inflated financial results.   
+
+
+ 
+		Knapp instituted or maintained policies that caused OCZ to record transactions in a manner that was not in accordance with U.S. generally accepted accounting principles. These policies included reclassifying costs of goods sold as research and development expenses without sufficient basis for doing so, failing to capitalize labor and overhead costs in OCZ's inventory costs, recognizing revenues upon product shipment rather than upon delivery of the product to OCZ's customers, and understating OCZ's accruals for product returns.   
+
+
+	 
+		As CFO, Knapp had responsibility for OCZ's internal accounting controls and procedures. Nevertheless, he failed to implement sufficient internal accounting controls to prevent OCZ from misclassifying sales discounts as marketing expenses and significantly overstating its revenues and gross profits. 
+  
+	The SEC charged Petersen with violating the antifraud, certification, books and records, internal controls, lying to accountants, and clawback provisions of the federal securities laws and with aiding and abetting OCZ's violations of the reporting, books and records and internal controls provisions.  Specifically, Petersen is charged 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 ("Exchange Act"); Exchange Act Rules 10b-5, 13a-14, 13b2-1 and 13b2-2; and Section 304(a) of the Sarbanes-Oxley Act of 2002; and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. The complaint seeks a permanent injunction, disgorgement plus prejudgment interest, a civil penalty, an officer and director bar, and forfeiture of Petersen's stock sales profits and bonus. 
+ 
+	The SEC charged Knapp with violating certain antifraud provisions, and the certification, and internal controls provisions of the federal securities laws, and with aiding and abetting OCZ's violations of the reporting, books and records, and internal controls provisions. Specifically, Knapp is charged with violation Sections 17(a)(2) and (3) of the Securities Act; Section 13(b)(5) of the Exchange Act; and Exchange Act Rules 13a-14 and 13b2-1; and aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act; and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13.  Knapp agreed to be permanently enjoined from violating or aiding and abetting violations of these provisions, to be barred from acting as an officer or director of a public company, to pay a total of $130,000 in disgorgement, prejudgment interest, and civil penalties, and to forego any claims against OCZ for $170,000 in unpaid compensation. The settlement is subject to court approval.  
+ 
+	The SEC's investigation, which is continuing, has been conducted by Ian Dattner, Michi Harthcock, Jonathan Cowen, and Stacy Bogert under the supervision of Assistant Director Lisa Deitch. The litigation will be handled by Kevin Lombardi and Ian Dattner. 
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raw/aaer/2015/AAER-3716.txt

@@ -0,0 +1,603 @@
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES ACT OF 1933 
+Release No. 9967 / October 27, 2015 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 76275 / October 27, 2015 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3716 / October 27, 2015 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16927 
+ 
+In the Matter of 
+THE ST. JOE COMPANY, 
+Wm. BRITTON GREENE, 
+WILLIAM S. McCALMONT, 
+JANNA L. CONNOLLY, CPA, 
+J. BRIAN SALTER, CPA, and 
+PHILLIP B. JONES, CPA, 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND 
+CEASE-AND-DESIST 
+PROCEEDINGS PURSUANT TO 
+SECTION 8A OF THE SECURITIES 
+ACT OF 1933, SECTIONS 4C AND 21C 
+OF THE SECURITIES EXCHANGE 
+ACT OF 1934, AND RULE 102(e) OF 
+THE COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, 
+AND IMPOSING REMEDIAL 
+SANCTIONS, CEASE-AND-DESIST 
+ORDERS AND PENALTIES 
+ 
+I. 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A 
+of the Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 
+1934 (“Exchange Act”) against The St. Joe Company, Wm. Britton Greene, William S. McCalmont, 
+Janna L. Connolly, CPA, J. Brian Salter, CPA, and Phillip B. Jones, CPA (collectively, 
+2 
+ 
+“Respondents”), and additionally as to McCalmont, Connolly, Salter and Jones, pursuant to 
+Exchange Act Section 4C1 and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+In anticipation of the institution of these proceedings, Respondents have submitted Offers of 
+Settlement (“Offers”), which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to which 
+the Commission is a party, and without admitting or denying the findings herein, except as to the 
+Commission’s jurisdiction over them and the subject matter of these proceedings, which are admitted, 
+and except as provided in Section V. herein, 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, 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, 
+Cease-and-Desist Orders and Penalties (“Order”), as set forth below. 
+II. 
+On the basis of this Order and Respondents’ Offers, the Commission finds
+3 that: 
+A. Overview 
+The St. Joe Company, an NYSE-listed real estate developer, timberland owner, and resort 
+operator, its former senior management, and others, committed or caused violations of the federal 
+securities laws, resulting in materially overstated earnings and assets during 2009 and 2010.4  The 
+underlying improper conduct comprised, first, failing in two respects to comply with Generally 
+Accepted Accounting Principles (“GAAP”) in the impairment testing of the Company’s real estate 
+development assets; second, after discovering the broader of the aforementioned GAAP lapses in 
+October 2010, (i) failing to identify or correct any resulting errors in prior-period financial statements 
+and (ii) improperly using assumptions based on conditions not existing as of the quarter ended 
+                                                 
+1 Section 4C provides, in relevant part, that:  
+The Commission may … deny, temporarily or permanently, to any person the privilege of appearing or 
+practicing before the Commission in any way, if that person is found . . . (3) to have  willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or the rules and regulations 
+thereunder. 
+2 Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+The Commission may … deny, temporarily or permanently, the privilege of appearing or practicing before it . . . 
+to any person who is found . . . to have willfully violated, or willfully aided and abetted the violation of any 
+provision of the Federal securities laws or the rules and regulations thereunder. 
+3 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+4 These violations stemmed from the Company’s historical accounting and disclosure practices relating to its 
+valuation and impairment of real estate development assets which occurred prior to the 2011 replacement of the 
+Company’s Board of Directors and resignation of the Chief Executive Officer, Chief Financial Officer, and 
+Chief Accounting Officer. 
+3 
+ 
+September 30, 2010 in conducting that quarter’s impairment testing for certain real estate 
+developments; third, applying an unreasonable sales price assumption to undeveloped beachfront 
+land in one of the Company’s largest real estate developments in the fourth quarter of 2010; and 
+fourth, failing to specifically disclose, in its 2010 Form 10-K, that the Company had decided not to 
+proceed with the material development and planning of two of its largest real estate developments, 
+and had instead determined to bulk-sell the related undeveloped land in the future.  In the course of 
+the foregoing, and by their respective acts and omissions detailed below, the Respondents committed 
+or caused various respective violations of the antifraud, internal controls, books-and-records, periodic 
+reporting and other provisions of the federal securities laws.   
+B. Respondents 
+ 
+The St. Joe Company (“St. Joe” or “the Company”) is a Florida corporation headquartered in 
+WaterSound, Florida.  The Company is a residential and commercial real estate developer, rural and 
+timberland owner, and resort operator.  St. Joe’s common stock is registered with the Commission 
+pursuant to Section 12(b) of the Exchange act and listed on the New York Stock Exchange (“NYSE”) 
+under the ticker symbol “JOE.”  At all relevant times, St. Joe’s fiscal year coincided with the calendar 
+year. 
+Wm. Britton Greene (“Greene”), age 61, resides in Winter Park, Florida.  He served as St. 
+Joe’s Chief Operating Officer (“COO”) from August 2006, and its Chief Executive Officer (“CEO”) 
+from May 2008, until his resignation on February 25, 2011. 
+William S. McCalmont (“McCalmont”), age 59, resides in Santa Rosa Beach, Florida.  He 
+served as St. Joe’s Chief Financial Officer (“CFO”) from May 2007 until his resignation on April 11, 
+2011.  McCalmont has never been a Certified Public Accountant (“CPA”), but obtained a Chartered 
+Financial Analyst designation (“CFA”) in 1986, which is now inactive.  From 2000 until October 19, 
+2015, McCalmont  served on the Audit Committee of another public company. 
+Janna L. Connolly (“Connolly”), age 59, resides in Destin, Florida.  She served as St. Joe’s 
+Chief Accounting Officer (“CAO”) from 1996 until April 11, 2011, when she succeeded McCalmont 
+as the Company’s CFO, and continued in that position until her resignation on May 7, 2012.  
+Connolly has been licensed as a CPA by the State of Florida since 1980. 
+J. Brian Salter (“Salter”), age 45, resides in WaterSound, Florida.  He was St. Joe’s Manager 
+of Finance from 2005 until July 2, 2010, when he was promoted to Director of Accounting and 
+Finance.  Salter continued in that position until May 17, 2011, when he was promoted to Vice 
+President of Finance and Accounting.  Salter is currently the Company’s Senior Vice President of 
+Finance and Investments.  Salter has been licensed as a CPA by the State of Florida since 1996.   
+Phillip B. Jones (“Jones”), age 46, resides in Jacksonville, Florida.  He was St. Joe’s Director 
+of Accounting from 2006 until leaving the Company on June 30, 2010.  Jones has been licensed as a 
+CPA by the State of Florida since 2002.  He is currently employed as Vice President of Revenue for a 
+private company. 
+ 
+ 
+4 
+ 
+C. FACTS 
+1. Applicable GAAP and Controls Environment  
+Throughout the period relevant to this Order, i.e. January 1, 2009 through March 3, 2011 (the 
+“Relevant Period”), St. Joe was one of the largest real estate development companies in Florida.  With 
+virtually all of its assets, income and revenue tied to real estate, it was, during the Relevant Period, of 
+central importance that those responsible for St. Joe’s financial reporting and internal accounting 
+controls have a command of, and properly apply, the GAAP applicable to its real estate assets (in 
+addition, of course, to all other relevant GAAP).  Accounting Standards Codification 360-10 
+(formerly FAS 144) (“ASC 360”) provides that long-lived assets to be held and used, including assets 
+under development, be tested for impairment whenever events or changes in circumstances indicate 
+that such an asset’s carrying amount may not be recoverable (“Triggering Events”);5 ASC-360 also 
+specifies both how to carry out, and how to apply the results of, such testing.   
+During the Relevant Period and pursuant to St. Joe’s internal accounting controls and policies 
+and procedures, responsibility for impairment testing was shared among Respondents Greene, 
+McCalmont, Connolly, Salter and/or Jones.  For their part, during the Relevant Period and pursuant to 
+the Company’s policies, former CEO Greene, former CFO McCalmont, and former CAO Connolly 
+were each required to review and approve the impairment testing that was used for financial reporting 
+purposes.  As Directors of Accounting and pursuant to the Company’s controls, Jones (for all of 2009 
+as well as the first six months of 2010) and Salter (from July 2, 2010 through the balance of the 
+Relevant Period) were responsible for testing St. Joe’s long-lived real estate developments for 
+impairment on a quarterly basis.6   
+In addition, Greene, McCalmont and Connolly,7 as members of St. Joe’s Investment 
+Committee, were responsible for approving all business assumptions and forecasted undiscounted 
+cash flows that were, among other things, used in the Company’s impairment testing.  Throughout the 
+Relevant Period, St. Joe’s business plans and forecasted undiscounted cash flows for specific 
+residential real estate developments were captured in comprehensive “economic models” which 
+reflected assumptions concerning the future plans for each development, including annualized 
+pricing, appreciation rates, specific costs, and detailed expected sales time frames for specific types of 
+home sites.  Pursuant to the Company’s internal policy, these economic models were updated at least 
+annually by the Company’s finance department and real estate development project managers.   
+ 
+ 
+                                                 
+5 Such events or changes in circumstances include, among other things, a significant adverse change in business 
+climate impacting the relevant assets.  See ASC 360-10-35-2.  These events were present across all of St. Joe’s 
+developments during the Relevant Period, due to, among other things, economic recession, a significant 
+downturn in the Florida real estate market, and a major oil spill in the Gulf of Mexico.  
+6 During the Relevant Period, St. Joe conducted quarterly impairment testing because it considered the financial 
+crisis and the 2010 Gulf oil spill to be ongoing Triggering Events.   
+7 Connolly became a member of the Investment Committee in Q1 2010. 
+5 
+ 
+2. St. Joe Deviated From GAAP 
+ During 2009 and 2010, the Company failed in two respects to conform with GAAP—with 
+one lapse impacting multiple periods and the other a single project and period—and each resulting in 
+an overstatement of the Company’s earnings and assets at the time.   
+a. Failure to Include all Necessary Costs in Impairment Testing 
+During all of 2009 and continuing through its second quarter of 2010, the Company’s 
+impairment testing failed to include all cash outflows necessary to develop, and that were expected to 
+arise as a direct result of the use and disposition of, St. Joe’s real estate developments.8  In particular, 
+the Company based its impairment testing on what it termed “Relative Sales Value” worksheets, or 
+“RSVs,” which were a partial summary of the cash flows found in the Company’s more 
+comprehensive approved economic models.  Thus, using the RSVs as the basis for the Company’s 
+impairment testing resulted in the exclusion of certain necessary non-capitalized cash outflows 
+associated with its real estate developments.  Had these additional required cash outflows been 
+included in the Company’s impairment testing, the Company would have been required to take 
+impairment charges on three of its largest real estate developments during the Relevant Period, 
+namely, the projects called Victoria Park, Southwood, and WaterColor.  Combined, the impairments 
+not taken on these projects amounted to at least $55 million in Q1 2009 and $19 million in Q4 2009, 
+and resulted in materially misstated financial statements during those same periods, which continued 
+through the remainder of the Relevant Period.9 
+As Directors of Accounting, Jones (during all of 2009 as well as the first six months of 2010), 
+and Salter (from July 2, 2010 through the balance of the Relevant Period) were responsible for 
+preparing the Company’s quarterly impairment testing in connection with the Company’s preparation 
+of annual and quarterly financial statements.  Each should have known that the Company’s quarterly 
+impairment testing failed to comply with GAAP because the RSVs did not include all cash outflows 
+necessary to develop each project.   
+For their part, Greene, McCalmont and Connolly were responsible for reviewing and 
+approving the Company’s quarterly impairment testing.  Additionally, as members of the Investment 
+Committee, Greene, McCalmont and Connolly were also responsible for reviewing and approving all 
+updates to the detailed business assumptions and cash flows in each of St. Joe’s real estate 
+development projects’ economic models.  Greene, McCalmont and Connolly each failed to prevent or 
+detect the inconsistencies between the cash flows used in the RSVs for impairment testing and the 
+corresponding complete cash flows in the economic models.  Each also failed to ensure that all 
+necessary costs be considered in the impairment testing which each reviewed and approved.  As a 
+result, each failed to prevent the overstatements in earnings and assets that resulted from the 
+Company’s use of incomplete cash outflows in its impairment testing.     
+                                                 
+8 ASC 360-10-35-29; ASC 360-10-35-34.  
+9 The Company reported a $67.8 million impairment in connection with the sale of its Victoria Park real estate 
+asset in Q4 2009.  Accordingly, had the Company properly taken a $55 million impairment on the Victoria Park 
+asset in Q1 2009, its reported Q4 2009 impairment of Victoria Park would have been reduced. 
+6 
+ 
+b. Failure to Consider Alternative Courses of Action 
+The Company failed to apply the pertinent GAAP in another respect in the Fall of 2009, with 
+this lapse materially impacting a single project and reporting period.  In particular, in performing and 
+approving the Company’s quarterly impairment testing of its Victoria Park project as a long-lived 
+asset to be held and used in connection with preparing the Company’s Q3 2009 financial statements, 
+Greene, McCalmont, and Connolly gave no consideration to the likelihood of  selling that project in 
+bulk by December 31, 2009.10  They each omitted any such consideration despite St. Joe having made 
+substantial efforts to pursue and achieve a sale.  Instead, the Q3 2009 impairment test of Victoria Park 
+was improperly performed using only the estimated cash flows expected from the long-term 
+development of the project. 
+In the Spring of 2009, the Company’s Investment Committee (which then included Greene 
+and McCalmont) approved the sale of Victoria Park in bulk at a substantial loss if such a transaction 
+could be closed by December 31, 2009.11  Immediately thereafter, the Company began pursuing the 
+sale of Victoria Park and, during its third quarter (which encompassed June through September), 
+received numerous letters of intent from buyers offering to purchase the property for prices ranging 
+from $9 million to $15 million.  Before the end of the quarter, St. Joe decided to pursue a sale to 
+Company A, while maintaining contact with another interested party (hereinafter “Company B”) as a 
+potential back-up buyer.  On October 1, 2009, during St. Joe’s quarter-end close process for Q3 2009, 
+Company A signed a contract to purchase Victoria Park for $15 million.  On October 30, 2009, 
+however, Company A withdrew from the transaction, at which time McCalmont informed St. Joe’s 
+independent auditor and Audit Committee of Company A’s withdrawal.  As a result of Company A’s 
+disengagement, St. Joe immediately pursued its contingency plan with the back-up buyer, Company 
+B.  Only one day after Company A’s withdrawal, St. Joe scheduled a meeting with Company B to 
+negotiate the sale of the development, and only four days after Company A’s withdrawal, St. Joe sent 
+Company B a draft purchase agreement.  Further, in anticipation of a sale and in order to accelerate 
+the timing of a sale, St. Joe had, by October 2009, prepared documentation that it felt would likely be 
+requested by a buyer.  As a result of St. Joe’s maintaining Company B as a potential contingency 
+purchaser, early preparation of documentation, and immediate follow-up with Company B, Company 
+B entered into a purchase and sale agreement, subject to diligence, to purchase Victoria Park for $11 
+million on November 12, 2009, two weeks after Company A withdrew.  The transaction closed on 
+December 15, 2009, and on that day the Company filed a Form 8-K announcing the sale of Victoria 
+Park. 
+During the four days between Company A’s withdrawal from the transaction on October 30th 
+and St. Joe’s November 3, 2009 filing of its Q3 2009 Form 10-Q, St. Joe performed impairment 
+testing on Victoria Park as an asset to be held and used (under development) without considering the 
+                                                 
+10 In performing an impairment test, estimated undiscounted cash flows should consider the likelihood of all 
+possible outcomes associated with any alternative courses of action under consideration for asset.  ASC 
+360-10-35-30. 
+11 St. Joe was pursuing this sale in order to take advantage of a tax-loss carryback benefit then available to the 
+Company for losses occurring before the end of 2009.  This tax-loss carryback benefit could have been obtained 
+only if the sale of Victoria Park were completed before the end of the 2009 calendar year.   
+7 
+ 
+likelihood of a potential sale of the project by the end of 2009.12  Instead, St. Joe considered only the 
+single course of action of St. Joe’s fully developing the property through 2026.  Had St. Joe 
+considered the undiscounted cash flows associated with even a small likelihood of selling Victoria 
+Park by year end 2009, and had it—pursuant to ASC 360—incorporated such likelihood into its 
+impairment testing, it would have been required to impair Victoria Park by at least $55 million in its 
+Q3 2009 filing, a material amount.13   
+In performing procedures related to the Company’s Q3 2009 impairment testing for Victoria 
+Park, the Company’s independent auditors relied on representations made by Greene, McCalmont, 
+and Connolly in a management representation letter associated with their Q3 2009 review that the 
+probability of selling Victoria Park by year end 2009 was “highly improbable, such that it [was] 
+essentially nil.”  While McCalmont informed the independent auditors of the existence of Company B 
+as a potential back-up buyer, neither he, nor any of the other executives, informed the auditors of the 
+extensive steps St. Joe had taken towards consummating a sale with Company B, including the fact 
+that a draft purchase agreement was sent to Company B on the same day that Greene, McCalmont, 
+Connolly signed the management representation letter.  Accordingly, St. Joe’s failure to perform the 
+Q3 2009 impairment testing of Victoria Park in accordance with GAAP went undetected by the 
+Company’s independent auditors.   
+3. Failures in the Wake of Discovering the Incorrect Accounting   
+On October 13, 2010, a short-seller gave a public presentation alleging that St. Joe was 
+overvaluing its real estate development assets and failing to take material impairment charges.  
+Following the presentation, there was increased focus within the Company on its impairment testing.  
+Although the Company’s impairment testing, as prepared by Salter and reviewed and approved by 
+Greene, McCalmont and Connolly, had continued—up to and including the day of the short-seller 
+presentation—to improperly utilize RSVs, Salter at some point came to realize that this RSV-based 
+method of impairment testing had been improper because it failed to include all necessary cash 
+outflows. Salter subsequently caused the Company to change its impairment testing methodology 
+going forward to one properly based on cash flows in the Company’s comprehensive economic 
+models, which included additional necessary cash outflows.  Greene, McCalmont, Connolly and 
+Salter nonetheless did not identify or correct any errors in St. Joe’s prior-period financials that 
+resulted from the faulty methodology.  Salter also improperly used assumptions generated after the 
+quarter ended September 30, 2010 in connection with at least one real estate development in 
+conducting that particular quarter’s impairment testing. 
+a. Failure to Review Prior Periods 
+Greene, McCalmont, Connolly and Salter failed to review or effectively cause a review of St. 
+Joe’s accounting for prior periods, and also failed to identify, correct or cause to be corrected the 
+                                                 
+12 The updated Victoria Park model was not subjected to the Company’s established Investment Committee or 
+impairment testing processes, as Greene, McCalmont, and Connolly knew. 
+13 The $67.8 million Victoria Park impairment charge (referenced in note 9, supra ), was taken by St. Joe in Q4 
+2009 to reflect the finalized sale of Victoria Park to Company B at a significant loss.  
+8 
+ 
+resulting errors in previously issued financial statements.14 While Salter recognized past flaws in St. 
+Joe’s impairment testing process and changed the Company’s impairment testing methodology to one 
+properly including additional necessary cash outflows, he failed to review the impairment accounting 
+for prior periods.  For his part, Greene also had concerns over prior period impairment testing 
+independent of Salter’s discovery of the improper accounting.  Greene expressed these concerns to 
+McCalmont and Connolly within a few days following the short-seller presentation, and asked 
+McCalmont to confirm that St. Joe’s impairment procedures were compliant in prior periods before 
+St. Joe filed its Q3 2010 financials.  McCalmont nevertheless did not review prior periods, and 
+Greene failed to follow up with McCalmont on the issue.  For her part, Connolly also failed to 
+conduct any review of prior period accounting.  
+Had Salter, McCalmont or Connolly reviewed the impairment testing for prior periods, or had 
+Greene caused such a review to take place, they would have discovered that St. Joe had improperly 
+failed to record at least $74 million in impairments, as described above, associated with three of its 
+real estate developments from approximately Q1 2009 through at least Q2 2010.  As a result, the 
+aforementioned errors were not corrected in the Company’s relevant previously issued financial 
+statements. 
+b. Failure to Use Existing Approved Assumptions For Q3 2010 Impairment 
+Testing 
+As noted above, the Company’s faulty RSV-based impairment testing had persisted until the 
+very day of the short-seller presentation.  In particular, on October 13, 2010, Greene, McCalmont and 
+Connolly had performed the final management review of St. Joe’s Q3 2010 impairment testing, which 
+Salter had prepared using the improper RSV methodology.  Had this impairment testing been 
+performed properly during the October 13, 2010 review, however, by including all necessary future 
+cash outflows, a material impairment would have been required for at least one of the Company’s real 
+estate developments. 
+Following the short-seller presentation, the Company’s auditors asked for all of St. Joe’s 
+economic models for its real estate developments in connection with the auditors’ review of, among 
+other things, St. Joe’s impairment testing for the quarter ended September 30, 2010.  In response, 
+Salter sent at least one economic model reflecting materially updated assumptions adopted 
+subsequent to the Company’s internal October 13, 2010 impairment review.15  These updated 
+assumptions should not have been used in conducting the impairment testing associated with 
+preparing the third quarter financial statements because the assumptions were based on conditions not 
+existing as of September 30, 2010.16  Had St. Joe tested the economic models with assumptions 
+                                                 
+14 See ASC 250-10-45-23.  
+15 The updated economic model was not subjected to the Company’s established Investment Committee process, 
+as Salter knew.   
+16 Evidence about conditions that did not exist at the balance sheet date should not be recognized in the financial 
+statements issued as of the balance sheet date. Instead, the entity should consider whether the nature of the new 
+evidence should be disclosed to keep the financial statements from being misleading. See ASC 855-10-25-3 and 
+ASC 855-10-50-2. 
+9 
+ 
+adopted as of September 30, 2010, it would have been required to account for approximately $15 
+million in impairments in its Q3 2010 Form 10-Q.17 
+4. Applying Unreasonably High Beachfront Pricing for Impairment Purposes 
+Windmark Beach II (“Windmark II”), located in Port St. Joe, Florida, was St. Joe’s largest real 
+estate development in terms of capital expenditures during 2009 and 2010, with a book value in St. 
+Joe’s public filings of over $165 million, including commercial and resort operations.  Windmark II 
+was also a primary target of the October 13, 2010 short-seller presentation, which heavily criticized 
+the project’s lack of development and stated that Windmark II was overvalued. 
+In Q4 2010, St. Joe adopted a new business plan for the Windmark II development, referred to 
+as a “bulk sale” strategy, whereby St. Joe would cease all material development of the project, retain 
+all undeveloped land until 2020, and sell it in bulk at that time.  The new bulk-sale economic model, 
+however, also assigned an unreasonably high valuation to certain undeveloped beachfront land in 
+Windmark II. Specifically, the new valuation of the undeveloped beachfront land was based on a 
+price of $6,000 per-linear foot as of 2010.  The valuation’s future bulk-sale price, in the year 2020, 
+was over $7,600 per-linear foot, or $1.4 million per acre, based on an assumed annual appreciation of 
+3%.  Greene approved these prices despite evidence then existing and known to him indicating a 
+substantially lower value.
+18 The Company’s Vice President of Development refused to sign the 
+portion of the Windmark II model with an undeveloped beachfront price above $3,500 per linear foot.  
+As a result, Greene signed off on the Windmark II bulk undeveloped beachfront portion of the 
+updated Windmark II economic model.  For their part, although McCalmont and Connolly were both 
+members of the Investment Committee approving economic models at the time and had responsibility 
+for approving quarterly impairment testing, neither raised any concerns or otherwise took any steps to 
+test the reasonableness of this pricing assumption.  
+The unreasonable $6,000 per-linear foot undeveloped beachfront pricing in the revised 
+Windmark II economic model had the effect of generating sufficient notional cash flows to render the 
+project recoverable and thus not require any impairment charge in Q4 2010.  Had St. Joe performed 
+an impairment test using, instead, a reasonable valuation based on comparable sales and other 
+available evidence, the Windmark II real estate development would not have been recoverable, and 
+the Company would have been required to take an impairment charge of at least $80 million in Q4 
+2010.   
+ 
+ 
+                                                 
+17 Moreover, St. Joe’s independent auditors were not made aware of the fact that the updated economic model 
+employed assumptions not based on conditions existing as of the end of the third quarter 2010.  
+18 During 2010, there were only two beachfront home site sales in Windmark II.  Both sales had a 
+price-per-linear-foot of less than $2,000.  Furthermore, St. Joe personnel assembled comparable property sales 
+from other non-St. Joe projects, and, out of the 21 sales in question, only one was priced at or above $6,000 per 
+linear foot, and only one was priced greater than $1 million per acre.  It does not appear that any of this 
+evidence—all available at the time—was considered in estimating cash flows for the impairment test for 
+Windmark II.   
+10 
+ 
+5. Failing to Disclose Significant Change in Business Strategy 
+St. Joe’s 2010 Form 10-K contained material misstatements and omissions concerning its 
+development plans for two of its largest real estate projects, Windmark II and Southwood.  In Q4 
+2010, St. Joe’s Investment Committee (then consisting of Greene, McCalmont and Connolly) 
+adopted new “bulk sale” strategies and economic models for both these developments.  These new 
+strategies constituted a significant shift for the Company that halted all material future development at 
+both sites and instead consisted of long term retention of the undeveloped land and selling it, 
+undeveloped, in the future. 
+St. Joe’s disclosures concerning the Windmark II and Southwood developments in relevant 
+sections of its 2010 10-K, however, failed to mention this significant change in strategy.  Instead, as to 
+Windmark II, St. Joe represented (Item 1, Business of the Company), that “[p]lans for [Windmark II] 
+include approximately 1,516 residential units and 76,000 square feet of commercial space,” and that 
+the community would include “approximately 14 miles of walkways and boardwalks, including a 3.5 
+mile boardwalk.”  By contrast, the Company’s approved economic model for Windmark II, as of 
+December 31, 2010, provided for total residential development of 191 home sites – comprising just 
+13% of the development promised in the 10-K. 
+As to Southwood, St. Joe’s 2010 10-K represented (in Item 1, Business of the Company) that 
+Southwood remained “[p]lanned to include approximately 4,770 residential units.”  By contrast, the 
+Company’s approved economic model for Southwood, as of December 31, 2010, called for ceasing 
+all future material parcel development and selling the undeveloped land through 2020.19   
+Greene and McCalmont, in certifying the Company’s 2010 Form 10-K in their capacities as 
+CEO and CFO, respectively, and during a time of heighted public scrutiny over St. Joe’s real estate 
+development assets, should have known that the Company’s disclosures concerning continued 
+development plans at Windmark II and Southwood were misleading because they failed to disclose 
+the Company’s Investment Committee-approved plans to cease material residential development and 
+sell undeveloped land in bulk.  Further, in their Sarbanes-Oxley 302 certifications, Greene and 
+McCalmont both represented that they reviewed the Form 10-K and that, based on their knowledge, 
+the report did not contain any material misstatements and omissions. 
+6. Inadequate Books and Records 
+During the Relevant Period, St. Joe failed to maintain adequate books-and-records concerning 
+its impairment testing of real estate developments.  Specifically, during the Relevant Period, St. Joe 
+failed to sufficiently perform the following: maintain adequate records of quarterly impairment 
+testing reviewed as part of its quarterly and annual accounting close process; document support for 
+assumptions used in undiscounted cash flows used in impairment testing; document its processes and 
+procedures concerning impairment testing; maintain the integrity of the economic models and RSVs 
+used in connection with past impairment testing; and document identified errors in past impairment 
+testing.   Importantly, St. Joe’s books-and-records failures during the Relevant Period adversely 
+                                                 
+19 The remaining development planned for Southwood was the building of “backbone” roads and connections to 
+general utility services—development that was required as a condition of the Community Development District 
+loans that St. Joe had received for the project.     
+11 
+ 
+impacted the SEC investigation leading to this Order, including causing unreasonably prolonged 
+uncertainty concerning the Company’s historic impairment testing procedures and causing 
+substantial delays to, and otherwise unnecessary steps in, that investigation.20 
+7. Later Developments 
+Following the Relevant Period, St. Joe made significant changes in personnel at both the 
+management and Board of Directors level, referenced in note 4 above.   In addition, in the fourth quarter 
+of 2011, with Salter’s assistance, St. Joe’s new Board and management (which included Connolly as 
+CFO at the time), citing the adoption of a new business strategy, recognized aggregate impairment losses 
+of over $374 million associated with its investments in real estate.  These impairments included more 
+than $126 million to Windmark II and more than $17 million to Southwood.  Collectively, the 
+impairments taken by the Company in Q4 2011 resulted in reductions to St. Joe’s investment in real 
+estate, and to its total asset value, of more than 50% and more than 35%, respectively.  
+Findings 
+Based on the foregoing, the Commission finds that Respondent The St. Joe Company violated 
+Securities Act Sections 17(a)(2) and (3) and  Exchange Act Sections 13(a), 13(b)(2)(A) and (B), and 
+Exchange Act Rules 12b-20, 13a-1. 13a-11 and 13a-13. 
+Based on the foregoing, the Commission further finds:  (1) that Respondent Greene violated 
+and Respondents McCalmont, Connolly and Salter willfully21 violated Securities Act Sections 
+17(a)(2) and (3), Exchange Act  Section 13(b)(5), and Exchange Act Rules 13b2-1 and 13b2-2; (2) 
+that Respondents Greene, McCalmont, Connolly, Salter and Jones caused St. Joe’s violations of 
+Exchange Act Sections 13(a), 13(b)(2)(A) and (B), and Exchange Act Rules 12b-20, 13a-1, 13a-11 
+and 13a-13; (3) that Respondent Greene violated and Respondent McCalmont willfully violated 
+Exchange Act Rule 13a-14; (4) that Respondents McCalmont, Connolly, Salter and Jones also 
+willfully violated the federal securities laws or rules and regulations thereunder pursuant to Section 
+4C of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice; and (5) that 
+Respondent Jones willfully violated Exchange Act Rule 13b2-1 and caused St. Joe’s violation of 
+Securities Act Section 17(a)(2). 
+III. 
+In determining to accept Respondent St. Joe’s Offer, the Commission considered remedial 
+steps taken by the Company since the conduct detailed herein, including enhancements to its 
+                                                 
+20 Since the Relevant Period, the Company, under the direction of its newly constituted Board and senior 
+management, has undertaken significant measures to strengthen its policies and procedures for maintaining 
+books and records. 
+21 The use of the word “willful” (both here and throughout the Findings section of this Order) does not reflect a 
+finding that the Respondents acted with the intention to violate the law or knowledge that they were doing so.  As 
+used in the governing provisions of law, “willfully” means only that the actor “intentionally committed t he act 
+which constitutes the violation.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965); see also Wonsover v. SEC, 205 F.3d 
+408, 414 (D.C. Cir. 2000).  “There is no requirement that the actor also be aware that he is violating one of the 
+Rules or Acts . . . .” Tager, 344 F.2d at 8. 
+12 
+ 
+impairment testing, accounting, internal controls, and books-and-records policies and procedures, 
+together with its replacement of its executive officers and Board.  
+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. Pursuant to Securities Act Section 8A, Respondents St. Joe, Greene, McCalmont, 
+Connolly, and Salter shall cease and desist from committing or causing any violations and any 
+future violations of Securities Act Sections 17(a)(2) and (3), and Respondent Jones shall cease 
+and desist from committing or causing any violations and any future violations of Securities 
+Act Section 17(a)(2). 
+B. Pursuant to Exchange Act Section 21C, Respondents St. Joe, Greene, McCalmont, 
+Connolly, Salter and Jones shall cease and desist from committing or causing any violations 
+and any future violations of Exchange Act Sections 13(a), 13(b)(2)(A) and  (B), and Exchange 
+Act Rules 12b-20, 13a-1, 13a-11 and 13a-13; Respondents Greene, McCalmont, Connolly 
+and Salter shall further cease and desist from committing or causing any violations and any 
+future violations of Exchange Act Section 13(b)(5) and Exchange Act Rules 13b2-1 and 
+13b2-2; Respondents Greene and McCalmont shall further cease and desist from committing 
+or causing any violations and any future violations of Exchange Act Rule 13a-14; and, finally, 
+Respondent Jones shall further cease and desist from committing or causing any violations 
+and any future violations of Exchange Act Rule 13b2-1. 
+C. Respondent St. Joe shall, within ten (10) days of the entry of this Order, pay a civil 
+money penalty in the amount of $2,750,000, to the Securities and Exchange Commission for 
+transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
+21F(g)(3).  If payment of this civil penalty is not timely made, additional interest shall accrue 
+pursuant to 31 U.S.C. § 3717.   
+D. Respondent Greene shall, within ten (10) days of the entry of this Order, pay (i) 
+disgorgement of $400,000 plus prejudgment interest of $52,300, for a total of $452,300, and 
+(ii) a civil money penalty in the amount of $120,000, to the Securities and Exchange 
+Commission for transfer to the general fund of the United States Treasury, subject to 
+Exchange Act Section 21F(g)(3).  If payment of disgorgement is not timely made, additional 
+interest shall accrue pursuant to SEC Rule of Practice 600.  If payment of the civil penalty is 
+not timely made, additional interest shall accrue pursuant to 31 U.S.C. § 3717. 
+E. Respondent McCalmont shall, within ten (10) days of the entry of this Order, pay 
+(i) disgorgement of $180,000 plus prejudgment interest of $22,868, for a total of $202,868, 
+and (ii) a civil money penalty in the amount of $120,000, to the Securities and Exchange 
+Commission for transfer to the general fund of the United States Treasury, subject to 
+Exchange Act Section 21F(g)(3).  If payment of disgorgement is not timely made, additional 
+interest shall accrue pursuant to SEC Rule of Practice 600.  If payment of the civil penalty is 
+not timely made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.   
+13 
+ 
+F. Respondent Connolly shall, within ten (10) days of the entry of this Order, pay (i) 
+disgorgement of $60,000 plus prejudgment interest of $10,896, for a total of $70,896, and (ii) 
+a civil money penalty in the amount of $70,000, to the Securities and Exchange Commission 
+for transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
+21F(g)(3).  If payment of disgorgement is not timely made, additional interest shall accrue 
+pursuant to SEC Rule of Practice 600.  If payment of the civil penalty is not timely made, 
+additional interest shall accrue pursuant to 31 U.S.C. § 3717. 
+G. Respondent Salter shall, within ten (10) days of the entry of this Order, pay a civil 
+money penalty in the amount of $25,000, to the Securities and Exchange Commission for 
+transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
+21F(g)(3).  If payment of this civil penalty is not timely made, additional interest shall accrue 
+pursuant to 31 U.S.C. § 3717. 
+H. All payments required by this Order 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 SEC 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 
+Respondent 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 Stephen L. 
+Cohen, Associate Director, Division of Enforcement, Securities and Exchange 
+Commission, 100 F St., N.E., Washington, DC 20549. 
+I. Respondents McCalmont, Connolly, Salter and Jones are each denied the privilege 
+of appearing and practicing before the Commission as an accountant. 
+J. After three (3) years from the date of this Order, Respondents Connolly and Salter 
+may, and after two (2) years from the date of this Order, Respondent Jones may request that 
+the Commission consider his or 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.  
+14 
+ 
+Such an application must satisfy the Commission that Respondent’s work in 
+his/her practice before the Commission will be reviewed either by the independent 
+audit committee of the public company for which he/she works or in some other 
+acceptable manner, as long as he/she practices before the Commission in this 
+capacity; and/or 
+(2) An independent accountant.  Such an application must satisfy the Commission that: 
+ 
+(a) Respondent, or the public accounting firm with which he/she is associated, is 
+registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration 
+continues to be effective; 
+(b) Respondent, or the registered public accounting firm with which he/she is 
+associated, has been inspected by the Board and that inspection did not identify 
+any criticisms of or potential defects in the respondent’s or the firm’s quality 
+control system that would indicate that the respondent will not receive 
+appropriate supervision; 
+(c) Respondent has resolved all disciplinary issues with the Board, and has 
+complied with all terms and conditions of any sanctions imposed by the Board 
+(other than reinstatement by the Commission); and 
+(d) Respondent acknowledges his/her responsibility, as long as Respondent 
+appears or practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, including, but 
+not limited to, all requirements relating to registration, inspections, concurring 
+partner reviews and quality control standards. 
+K. The Commission will consider an application by Respondents Connolly, Salter, 
+and Jones to resume appearing or practicing before the Commission provided that his/her state 
+CPA license is current and he/she has resolved all other disciplinary issues with the applicable 
+state boards of accountancy.  However, if state licensure is dependent on reinstatement by the 
+Commission, the Commission will consider an application on its other merits.  The 
+Commission’s review may include consideration of, in addition to the matters referenced 
+above, any other matters relating to the applying Respondent’s character, integrity, 
+professional conduct, or qualifications to appear or practice before the Commission. 
+L. After two (2) years from the date of this order, Respondent McCalmont 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. 
+V. 
+ 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code [11 U.S.C. § 523], the findings in this Order are true and admitted by 
+Respondents Greene, McCalmont, Connolly and Salter, and further, any debt for disgorgement, 
+prejudgment interest, civil penalty or other amounts due by each of the aforementioned Respondents 
+15 
+ 
+under this Order or any other judgment, order, consent order, decree or settlement agreement entered 
+in connection with this proceeding, is a debt for the violation by said Respondent of the federal 
+securities laws or any regulation or order issued under such laws, as set forth in Section 523(a)(19) of 
+the Bankruptcy Code [11 U.S.C. §523(a)(19)]. 
+By the Commission. 
+ 
+Brent J. Fields 
+Secretary 

raw/aaer/2015/AAER-3717.txt

@@ -0,0 +1,409 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 76401 / November 9, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3717 / November 9, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16952 
+ 
+ 
+ 
+In the Matter of 
+ 
+Larry D. Liberfarb, P.C., 
+              
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTIONS 4C AND 21C 
+OF THE SECURITIES EXCHANGE ACT 
+OF 1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A 
+CEASE-AND-DESIST ORDER 
+   
+ 
+I. 
+ 
+  
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against Larry D. 
+Liberfarb, P.C. (“Liberfarb” or “Respondent”) pursuant to Sections 4C1 and 21C of the Securities 
+                                                 
+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 
+ 
+Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice.2 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this the Order Instituting 
+Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the 
+Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, Making 
+Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth 
+below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that: 
+ 
+A. SUMMARY 
+ 
+           This matter concerns violations of the Commission’s auditor independence rules by 
+Liberfarb.  Liberfarb audited the annual financial statements that were filed with the Commission 
+for 20 broker-dealer audit clients for the fiscal years ending January 1, 2010 through September 30, 
+2011.  For at least one audit of each of these broker-dealer audit clients, Liberfarb was not 
+independent under auditor independence criteria established by the Commission and made 
+applicable by Exchange Act Rule 17a-5(f)(3) to audits of brokers and dealers.4  As a result of this 
+                                                 
+2  Rule 102(e)(1)(ii) provides, in relevant part, that: 
+ 
+ The Commission may censure a person or deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have engaged in unethical 
+or improper professional conduct. 
+ 
+3   The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding. 
+ 
+4  The provisions of Exchange Act Rule 17a-5 referred to herein are those in effect during, and applicable to, the 
+relevant conduct.  On July 30, 2013, the Commission adopted certain amendments to Rule 17a-5. See Broker-
+Dealer Reports, SEC Exchange Act Release No. 34-70073 (July 30, 2013), 78 Fed. Reg. 51910 (Aug. 21, 
+2013).  Among other things, the amendments to Rule 17a-5 require that audits of brokers and dealers be 
+performed in accordance with Public Company Accounting Oversight Board standards, effective for audits of 
+fiscal years ending on or after June 1, 2014.  The auditor independence requirement of Rule 2-01 of 
+Regulation S-X applied to broker-dealer audits both before and after the July 30, 2013 amendments.  At the 
+ 
+3 
+ 
+conduct, Liberfarb engaged in improper professional conduct, violated the auditor independence 
+rules, and caused each of the broker-dealers’ failure to file an annual report audited by an 
+independent accountant.  
+ 
+B. RESPONDENT 
+ 
+ Respondent Liberfarb, a professional corporation, is an accounting and auditing firm 
+registered with the Public Company Accounting Oversight Board (“PCAOB”).  Liberfarb has one 
+shareholder, Larry D. Liberfarb, and is located in Norwood, Massachusetts.  During the Relevant 
+Period, Liberfarb also employed, on a part-time basis, a Certified Public Accountant who assisted 
+the firm with audit engagements. 
+ 
+C. FACTS 
+ 
+ 1. Lack of Independence 
+ 
+ a. During fiscal years ending January 1, 2010 through September 30, 2011 (the 
+“Relevant Period”), Liberfarb served as the independent public accountant for 20 broker-dealer 
+audit clients.  In connection with at least one audit performed for each of these broker-dealer audit 
+clients during the Relevant Period, Liberfarb prepared the financial statements and/or notes to the 
+financial statements that were filed with the Commission on Form X-17A-5.  
+ 
+b. For example, Liberfarb audited the annual financial statements for Broker-Dealer 
+A for the fiscal year ending September 30, 2011.  During the audit, Liberfarb was provided with 
+financial documents generated by Broker-Dealer A, including a balance sheet and a profit and 
+loss statement.  Liberfarb reviewed and tested these documents, and the financial data contained 
+therein, as part of the audit.   
+ 
+c. Liberfarb then utilized the information contained in these documents to create and 
+revise a set of financial statements to be filed with the Commission.  In particular, using the prior 
+year’s financial statements as a template, Liberfarb personnel working on Liberfarb computers 
+typed and updated the new set of financial statements, including the notes to the financial 
+statements.  Liberfarb then provided the set of financial statements it had prepared to Broker-
+Dealer A’s management for approval. 
+  
+d. In November 2011, Broker-Dealer A filed with the Commission a Form X-17A-5 
+Part III for the fiscal year ended September 30, 2011.  Included in that filing is an audit report 
+signed by Liberfarb and stating, among other things, that Liberfarb’s audit of Broker-Dealer A 
+was conducted “in accordance with auditing standards generally accepted in the United States of 
+America.”   
+  
+                                                                                                                                                             
+time of the relevant conduct, prior to the amendments, that requirement was set out in Rule 17a-5(f)(3).  It is 
+now set out in Rule 17a-5(f)(1). 
+4 
+ 
+e. Liberfarb engaged in substantially similar conduct in connection with at least one 
+audit for 19 additional broker-dealer clients during the Relevant Period.  
+ 
+ 2. Violations  
+ 
+a. Section 17(e)(1)(A) of the Exchange Act requires that every registered broker or 
+dealer “annually file with the Commission a balance sheet and income statement certified by an 
+independent public accounting firm, or by a registered public accounting firm if the firm is 
+required to be registered under the Sarbanes-Oxley Act of 2002, prepared on a calendar or fiscal 
+year basis, and such other financial statements (which shall, as the Commission specifies, be 
+certified) and information concerning its financial condition as the Commission, by rule may 
+prescribe as necessary or appropriate in the public interest or for the protection of investors.” 
+b. Exchange Act Rule 17a-5(e)(1)(i) states: “An audit shall be conducted by a public 
+accountant who shall be in fact independent as defined in paragraph (f)(3) of this section herein, 
+and he shall give an opinion covering the statements filed pursuant to paragraph (d) . . . .” 
+Exchange Act Rule 17a-5(f)(3) further states that, for such audits, “[a]n accountant shall be 
+independent in accordance with the provisions of Rule 2-01(b) and (c) of Regulation S-X.”   
+ 
+c. Exchange Act Rule 17a-5(g) requires that “[t]he audit shall be made in accordance 
+with generally accepted auditing standards” and Exchange Act Rule 17a-5(i) requires that “[t]he 
+accountant’s report shall . . . [s]tate whether the audit was made in accordance with generally 
+accepted auditing standards.”  Generally accepted auditing standards (“GAAS”) require auditors to 
+maintain strict independence from their audit clients; an auditor “must be free from any obligation 
+to or interest in the client, its management or its owners.”  See Statement on Auditing Standard No. 
+1, Section 220.03.  Accordingly, if an auditor’s report states that its audit was performed in 
+accordance with GAAS when the auditor was not independent, then it has violated Exchange Act 
+Rule 17a-5(i).  See In the Matter of Rosenberg Rich Baker Berman & Company and Brian Zucker, 
+CPA, Exchange Act Release No. 69765 at p. 5 (June 14, 2013).   
+d. Rule 2-01(c)(4) of Regulation S-X provides that an accountant is not independent 
+if, at any point during the audit and professional engagement period, the accountant provides 
+prohibited non-audit services to an audit client.  Rule 2-01(c)(4)(i) of Regulation S-X provides that 
+prohibited non-audit services include bookkeeping or other services related to the accounting 
+records or financial statements of the audit client, and defines such services as:   
+ 
+Any service, unless it is reasonable to conclude that the results of these services will 
+not be subject to audit procedures during an audit of the audit client’s financial 
+statements, including: 
+(A) Maintaining or preparing the audit client’s accounting records; 
+ 
+(B) Preparing the audit client’s financial statements that are filed 
+with the Commission or that form the basis of financial 
+statements filed with the Commission; or 
+5 
+ 
+ 
+(C) Preparing or originating source data underlying the audit client’s 
+financial statements. 
+ 
+e. Rule 2-01(c)(4)(i) of Regulation S-X specifically prohibits an audit firm from 
+preparing an audit client’s financial statements that are filed with the Commission.  In this context, 
+preparing financial statements includes but is not limited to:  aggregating line items from internal 
+books and records to the financial statements; changing line item descriptions; drafting or editing 
+notes to the financial statements; and converting FOCUS reports or bookkeeping software program 
+reports into financial statements.  With respect to the audit of Broker-Dealer A, and the additional 
+audits in which Liberfarb engaged in substantially similar conduct, Liberfarb engaged in one or 
+more of the above prohibited actions.  
+ 
+f. As a result of Liberfarb’s conduct in preparing the financial statements, including 
+the notes thereto, Liberfarb was not independent of its broker-dealer audit clients under the 
+independence criteria established by Rule 2-01(c)(4) of Regulation S-X, which Exchange Act Rule 
+17a-5 made applicable to the audits of broker-dealer financial statements.  As the Commission 
+explained in adopting Rule 2-01(c)(4), providing such services for an audit client “impairs the 
+auditor’s independence because the auditor will be placed in the position of auditing the firm’s 
+work when auditing the client’s financial statements. . . .  In addition, keeping the books is a 
+management function, the performance of which leads to an inappropriate mutuality of interests 
+between the auditor and the audit client.”  Revision of the Commission’s Auditor Independence 
+Requirements, Exchange Act Release No. 43602, at IV.D.4.b(i) (November 21, 2000).  See also 
+Strengthening the Commission’s Requirements Regarding Auditor Independence, Exchange Act 
+Release No. 47265 (“keeping the books is a management function, which also is 
+prohibited”)(January 28, 2003). 
+ 
+ g. Liberfarb violated Exchange Act Rule 17a-5(i) by representing in its audit reports 
+that it had performed the audits of the broker-dealers’ financial statements in accordance with 
+GAAS when in fact, because of the independence impairment described above, the audits had not 
+been performed in accordance with GAAS. 
+ 
+h. Exchange Act Section 17(a) and Rule 17a-5 require broker-dealers to file annual 
+reports containing financial statements audited by independent public accountants.  No showing of 
+scienter is necessary to establish a violation of Exchange Act Section 17(a)(1).  See In the Matter 
+of Orlando Joseph Jett, Exchange Act Release No. 49366 at n.45 (March 5, 2004) (citing SEC v. 
+Drexel Burham Lambert Inc., 837 F. Supp. 587, 610 (S.D.N.Y. 1993); Stead v. SEC, 444 F.2d 713, 
+716-17 (10th Cir. 1971), cert denied, 404 U.S. 1059 (1972)).   
+i. Under Section 21C of the Exchange Act, a person is a “cause” of another’s primary 
+violation if the person knew or should have known that his act or omission would contribute to the 
+primary violation.  Negligence is sufficient to establish “causing” liability under Section 21C when 
+a person is alleged to have caused a primary violation that does not require scienter.  In re KPMG 
+6 
+ 
+Peat Marwick, Exchange Act. Rel. No. 43862 (Jan. 19, 2001), aff’d, KPMG v. SEC, 289 F.3d 109 
+(D.C. Cir. 2002).  
+j. Liberfarb caused its broker-dealer audit clients to violate Exchange Act Section 
+17(a) and Rule 17a-5.  Liberfarb, an audit firm registered with the PCAOB and operated by a 
+Certified Public Accountant, knew or should have known that its conduct contributed to its audit 
+clients’ violations of Exchange Act Section 17(a) and Rule 17a-5.      
+k. Rule 102(e) of the Commission’s Rules of Practice allows the Commission to 
+censure a person if it finds that such person has engaged in “improper professional conduct.”  
+Exchange Act § 4C(a)(2); Rule 102(e)(1)(ii).  Rule 102(e) defines improper professional conduct, 
+in part, as:  “[a] single instance of highly unreasonable conduct that results in a violation of 
+applicable professional standards in circumstances in which the registered public accounting firm 
+or associated person knows, or should know, that heightened scrutiny is warranted.”  Exchange Act 
+§ 4C(b)(2); Rule 102(e)(1)(iv)(B). 
+ l. Questions regarding an auditor’s independence always warrant heightened scrutiny.  
+See Amendment to Rule 102(e) of the Commission’s Rules of Practice, 63 Fed. Reg. 57164, 57168 
+(Oct. 26, 1998) (codified at 17 C.F.R. Part 201).  The Commission has defined the “highly 
+unreasonable” standard as: 
+ 
+an intermediate standard, higher than ordinary negligence but lower than the 
+traditional definition of recklessness used in cases brought under Section 10(b) of 
+the Exchange Act and Rule 10b-5 of the Exchange Act.  The highly unreasonable 
+standard is an objective standard. The conduct at issue is measured by the degree of 
+the departure from professional standards and not the intent of the accountant.   
+ 
+Id. at 57,167; see also In the Matter of Ernst & Young LLP, Admin. Proc. File No. 3-10933, SEC 
+Initial Decision Release No. 249, at 60 (Apr. 16, 2004). 
+ 
+ m. Based on the conduct set forth above, Liberfarb engaged in highly unreasonable 
+conduct that resulted in violations of applicable professional standards when it knew or should 
+have known that heightened scrutiny was required. 
+ 
+ 3. Findings 
+ 
+ a. Based on the foregoing, the Commission finds that Liberfarb engaged in improper 
+professional conduct pursuant to Exchange Act Section 4C(a)(2) and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice. 
+ 
+b. Based on the foregoing, the Commission finds that Liberfarb committed violations 
+of Exchange Act Rule 17a-5(i) and caused 20 broker-dealers’ violations of Section 17(a) and Rule 
+17a-5 promulgated thereunder.  
+ 
+ 
+7 
+ 
+ 4. Respondent’s Remedial Efforts 
+ 
+ In determining to accept the Offer, the Commission considered remedial acts promptly 
+undertaken by Respondent. 
+ 
+ 5. Undertakings 
+ 
+ Liberfarb undertakes: 
+ 
+a.  within ninety (90) days from the date of the Order, to establish written policies and 
+procedures, or to revise and/or supplement existing written policies and procedures, for the purpose 
+of providing Liberfarb with reasonable assurance of compliance with applicable independence 
+requirements, including those requirements of Rule 2-01 of Regulation S-X applicable to an SEC 
+Registered Broker-Dealer Engagement (defined to mean an engagement to provide a report – 
+whether an audit report, an examination report, or a review report – required under Exchange Act 
+Rule 17a-5(d)(1)(i)(C), as amended); 
+ 
+b. within ninety (90) days from the date of the Order, to establish a policy of ensuring 
+training, whether internal or external, on an annual or more frequent regular basis, concerning 
+applicable independence requirements, including those requirements of Rule 2-01 of Regulation S-
+X applicable to an SEC Registered Broker-Dealer Engagement, of any Firm audit personnel who 
+participate in any way in the planning or performing of any SEC Registered Broker-Dealer 
+Engagement; 
+ 
+c. within ninety (90) days from the date of the Order and before Liberfarb’s 
+commencement of any SEC Registered Broker-Dealer Engagement (or, where Liberfarb by the 
+date of this Order has already commenced but not completed such an engagement, before 
+Liberfarb’s release of its report), to ensure training pursuant to the policy described in paragraph 
+(5)(b) above has been provided on at least one occasion; 
+ 
+d. to provide a copy of the Order –  
+ 
+ (i) within thirty (30) days from the date of the Order, to all audit personnel 
+employed by, or associated with (as defined in PCAOB Rule 1001(p)(i)), Liberfarb as of the date 
+of the Order; and 
+ 
+ (ii) within thirty (30) days from the date of the Order, to any client of Liberfarb 
+as of the date of the Order for which Liberfarb has performed or has been engaged to perform an 
+SEC Registered Broker-Dealer Engagement; 
+ 
+e. to certify, in writing, compliance with the undertakings set forth above in 
+paragraphs 5(a) through 5(d)(ii).  The certification shall identify the undertakings, provide written 
+evidence of compliance in the form of a narrative, and be supported by exhibits sufficient to 
+demonstrate compliance.  The Commission staff may make reasonable requests for further 
+8 
+ 
+evidence of compliance, and Respondent agrees to provide such evidence.  The certification and 
+supporting material shall be submitted to Stephen L. Cohen, Associate Director, Division of 
+Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, DC 20549-
+5553, with a copy to the Office of Chief Counsel of the Enforcement Division, no later than one 
+hundred twenty (120) days from the date of the Order.    
+    
+ 
+IV. 
+ 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Liberfarb’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Liberfarb is hereby censured. 
+ 
+B. Liberfarb shall cease and desist from committing or causing any violations and any 
+future violations of Section 17(a) of the Exchange Act and Rule 17a-5 promulgated thereunder. 
+ 
+ C. Liberfarb shall comply with the undertakings enumerated in Section (III)(C)(5) 
+above. 
+ 
+ D. Liberfarb shall pay a civil money penalty in the amount of $30,000 to the Securities 
+and Exchange Commission for transfer to the general fund of the United States Treasury, subject to 
+Exchange Act Section 21F(g)(3).  Payment shall be made in the following installments:  $7,500 
+within ten days of the entry of this Order; $7,500 within 120 days of the entry of this Order; $7,500 
+within 240 days of the entry of this Order; and $7,500 within 360 days of the entry of this Order.  
+If any payment is not made by the date the payment is required by this Order, the entire 
+outstanding balance of civil penalties, plus any additional interest pursuant to 31 U.S.C. § 3717, 
+shall be due and payable immediately, without further application.  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 SEC 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:  
+ 
+ 
+9 
+ 
+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 
+Larry D. Liberfarb, P.C. as a Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to Stephen L. 
+Cohen, Division of Enforcement, Securities and Exchange Commission, 100 F St., N.E., 
+Washington, DC 20549-5553.   
+ 
+ E. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting 
+the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the 
+Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 
+an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
+imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a 
+private damages action brought against Respondent by or on behalf of one or more investors based 
+on substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2015/AAER-3721.txt

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 76607 / December 10, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3721 / December 10, 2015  
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16993 
+ 
+ 
+ 
+In the Matter of 
+ 
+PETER MESSINEO, CPA and 
+MESSINEO & CO., CPAS, 
+LLC,  
+ 
+Respondent. 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTIONS 4C AND 21C 
+OF THE SECURITIES EXCHANGE ACT 
+OF 1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS 
+AND A CEASE-AND-DESIST ORDER 
+   
+ 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+public administrative and cease-and-desist proceedings be, and hereby are, instituted against 
+Peter Messineo (“Messineo”) and Messineo & Co., CPAs, LLC (“Messineo & Co.”) (together, 
+“Respondents”) pursuant to Sections 4C1 and 21C of the Securities Exchange Act of 1934 
+                                                 
+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 
+ 
+(“Exchange Act”) and Rule 102(e)(1)(ii) and 102(e)(1)(iii) of the Commission’s Rules of 
+Practice.2 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted an 
+Offer of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the 
+purpose of these proceedings and any other proceedings brought by or on behalf of the 
+Commission, or to which the Commission is a party, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over them and the subject matter of 
+these proceedings, which are admitted, and except as provided herein in Section V, Respondents 
+consent to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, 
+Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the 
+Commission’s Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a 
+Cease-and-Desist Order (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offer, the Commission finds3 that:  
+ 
+A. SUMMARY 
+ 
+Messineo & Co. is a small, Florida-based accounting firm.  Among other things, it has 
+performed audits of public companies whose stock is registered with the Commission and who 
+file audited financial statements with the Commission.  Messineo is a partner at and majority 
+owner of Messineo & Co.  Messineo & Co. and Messineo performed deficient audits of public 
+company clients, which caused those clients to file misleading audited financial statements with 
+the Commission.  To cover up their deficiencies, certain employees of Messineo & Co. 
+backdated and falsified its audit documentation.  Messineo also performed sub-standard 
+engagement quality reviews for another auditor.  In late 2012, Messineo effectively merged his 
+                                                 
+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. 
+ 
+ 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. 
+ 
+3   The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding.   
+3 
+ 
+firm with another firm to form DKM Certified Public Accountants, Inc. (“DKM”).  The merger 
+exacerbated Respondents’ on-going violations of the independence rules for accountants 
+involving DKM’s clients and Messineo.  Prior to the merger, Messineo had been the chief 
+financial officer (“CFO”) of two of DKM’s clients and concurrently the employer of a partner on 
+DKM’s audit engagement team.  After the merger, Messineo was a shareholder of two of DKM’s 
+clients and DKM was auditing Messineo’s work.  Lastly, Messineo failed to timely file with the 
+Commission Forms 3, 4, or 5 and Schedule 13Ds detailing his beneficial ownership of stock in 
+these audit clients.   
+ 
+As a result, Messineo & Co. and Messineo violated auditing standards and independence 
+rules, caused issuers to file misstatements, and failed to disclose his beneficial ownership.  In 
+addition, Messineo falsely certified annual and quarterly reports as chief financial officer of two 
+issuers.  Respondents’ conduct violated the Federal securities laws and the rules and regulations 
+thereunder.  Respondents’ conduct was willful and constitutes improper professional conduct.     
+ 
+B. RESPONDENTS 
+ 
+ Messineo & Co., CPAs, LLC (“Messineo & Co.”) is registered with the Public 
+Company Accounting Oversight Board (“PCAOB”) as a public accounting firm based in 
+Clearwater, Florida.  The limited liability company operated as a sole proprietorship under the 
+name Peter Messineo, CPA from 2009 until December 17, 2012, when it effectively merged with 
+Drake & Klein, CPAs PA (“Drake & Klein”) to form DKM Certified Public Accountants, Inc. 
+(“DKM”).  Peter Messineo separated from DKM in April 2013 and began operating Messineo & 
+Co. again, but under its present name and form.  During 2012, Messineo & Co. performed audit 
+services for over 70 clients, but only had one partner -- sole owner Peter Messineo -- authorized 
+to sign or issue audit reports.  In 2012, Messineo & Co. employed Robin Bigalke and Richard 
+Confessore and paid Joseph E. Mohr to perform engagement quality reviews (“EQRs”).   
+ 
+ Peter Messineo, age 54, resides in Palm Harbor, Florida and is currently a partner at and 
+95% owner of Messineo & Co.  In 2012, he was the sole owner of Messineo & Co. (then named 
+“Peter Messineo, CPA”) and CFO of Issuer A and Issuer B (described below).  From December 
+17, 2012 to April 16, 2013, Messineo was a partner and one third owner of DKM and a 
+shareholder of Issuer A and Issuer B stock.   Messineo has been licensed as a certified public 
+accountant (“CPA”) in New York since 1989 and in Florida since 2007.   
+ 
+C. OTHER RELEVANT PARTIES 
+ 
+ DKM Certified Public Accountants, Inc. (“DKM”) is a PCAOB-registered public 
+accounting firm based in Clearwater, Florida.  DKM is a Florida corporation and successor to 
+audit firms:  (i) Drake Klein & Messineo CPAs PA and (ii) Drake & Klein.  In December 2012, 
+when Peter Messineo joined DKM, the firm changed its operational name from Drake & Klein to 
+DKM.  From December 2012 through April 2013, DKM had four partners authorized to issue 
+audit reports on behalf of the firm, including:  Messineo, Confessore, and Charles Klein.     
+ 
+4 
+ 
+ Ronald R. Chadwick, P.C. (“Chadwick”) was a PCAOB-registered public accounting 
+firm based in Aurora, CO.  From at least September 2010 through October 2013, Messineo 
+performed engagement quality reviews of audits conducted by Chadwick.  In April 2015, the 
+PCAOB revoked Chadwick’s registration and has barred Mr. Ronald Chadwick from being an 
+associated person of a registered public accounting firm.  The PCAOB imposed those sanctions 
+on the basis of its findings of violations of the PCAOB’s rules and auditing standards in 
+connection with the audits of financial statements of five issuer clients for which Messineo 
+provided the engagement quality review.      
+Richard Confessore, age 73, resides in Sarasota, Florida and has been a licensed CPA in 
+Florida since 1970.  Confessore is currently a “Quality Review Partner” at DKM.  During 2011, 
+Confessore was the CFO and worked at Issuer C Corporation.  During 2012-2013, Confessore 
+performed engagement quality reviews for the annual audits and interim reviews DKM 
+performed for Issuers A and B.  In addition, from June 2012 – December 2012, Confessore was 
+an employee for Messineo & Co, then a sole proprietorship owned by Peter Messineo.   
+Charles U. Klein, age 60, resides in Dunedin, Florida and is currently President of 
+DKM.  From approximately February 2012 through June 2013, Klein was the lead engagement 
+partner for the services DKM performed for Issuer A and Issuer B, including annual audits and 
+interim reviews of Issuer B’s and Issuer A’s financial statements.  Klein has been a licensed CPA 
+in Florida since 1985, excluding 1995 to 1998 when his license was inactive. 
+Joseph E. Mohr, age 49, resides in Spring Hill, Florida and is currently an assistant 
+professor at a Florida university.  From 2009 through 2012, Messineo & Co. hired Mohr to 
+perform EQRs.  At the time, Mohr lived and worked in Florida, but was not licensed as a CPA in 
+Florida or in any other state. 
+ 
+ Issuer A was incorporated in Delaware in 2005 and is currently headquartered in California.  
+During 2012 and 2013, Issuer A’s common stock was registered with the Commission pursuant to 
+Section 12(g) of the Exchange Act.  In its most recent Form 10-K filed with the Commission, 
+Issuer A states that its business offers marketing tools and expertise to advertisers.  From February 
+2010 through November 2012, Messineo served as CFO of Issuer A.  In 2012 and 2013, Issuer A 
+engaged Drake & Klein and then DKM to perform audit services.       
+ 
+ Issuer B was incorporated in Nevada in 2004 and is currently headquartered in St. 
+Petersburg, FL.  During 2012 and 2013, Issuer B’s common stock was registered with the 
+Commission pursuant to Section 12(g) of the Exchange Act.  In its most recent Form 10-K filed 
+with the Commission, Issuer B states that its business “creates a unified solution path to securely 
+manage Advanced Metering Infrastructure and other Smart Grid optimization applications such as 
+substation and distribution automation.”  From September 2010 through October 2012, Messineo 
+served as CFO of Issuer B.  In 2012 and 2013, Issuer B engaged Drake & Klein and then DKM to 
+perform audit services. 
+Issuer C was incorporated in Colorado in 1981.  Currently, it is a Florida corporation 
+headquartered in Southbury, CT.  During 2012 and 2013, Issuer C’s common stock was registered 
+5 
+ 
+with the Commission pursuant to Section 12(g) of the Exchange Act.  In its most recent Form 10-K 
+filed with the Commission, Issuer C states that its business consists of “operating motor freight 
+carriers, providing truck load service throughout the forty-eight contiguous United States.”  
+Confessore resigned as CFO of Issuer C on April 12, 2011.  In 2012, Issuer C engaged Messineo & 
+Co. to provide audit services.  Messineo & Co. did not complete its audit or issue an audit report 
+before the formation of DKM.  In 2013, Issuer C engaged DKM to provide audit services for the 
+same period for which Messineo & Co. had been engaged.  
+ 
+D. MESSINEO & CO. AND MESSINEO ENGAGED IN IMPROPER 
+PROFESSIONAL CONDUCT BY CONDUCTING AUDITS AND REVIEWS NOT 
+IN ACCORDANCE WITH PCAOB STANDARDS. 
+ 
+1. During 2011 and 2012, Messineo & Co. -- at Messineo’s direction -- issued audit 
+reports to at least 13 issuers without first obtaining the required engagement quality 
+review (“EQR”) and concurring approval in violation of PCAOB auditing standards.  
+ 
+2. PCAOB Auditing Standard No. 7 (Engagement Quality Review) (“AS 7”) enumerates 
+the standards for an EQR or concurring review.  An EQR is required for every audit 
+of an annual report and review of interim financial information for a quarterly report.  
+See PCAOB AS 7.1. 
+ 
+3. PCAOB AS 7 provides that “[i]n an audit, the firm may grant permission to the client 
+to use the engagement report only after the engagement quality reviewer provides 
+concurring approval of issuance” and “[i]n a review of interim financial information, 
+the firm may grant permission to the client to use the engagement report (or 
+communicate an engagement conclusion to its client, if no report is issued) only after 
+the engagement quality reviewer provides concurring approval of issuance.”  See 
+PCAOB AS 7.13 and AS 7.18. 
+ 
+4. For some of the 13 engagements, Messineo requested an EQR from Joseph Mohr 
+after he had already issued the audit report.  For other engagements, Messineo 
+requested the EQR before he issued the audit report, but failed to wait for Mohr to 
+respond before issuing the audit report and granting permission to use it. 
+ 
+5. For at least one engagement, Messineo & Co. issued an audit report without even 
+soliciting an EQR because it erroneously deemed EQRs “unnecessary” for clients 
+who were “blank check” companies.   
+ 
+6. By issuing audit reports to the 13 issuers without an EQR and concurring approval, 
+Messineo & Co. violated PCAOB standards.  See PCAOB AS 7.  
+ 
+ 
+ 
+6 
+ 
+E. RESPONDENTS VIOLATED RULE 2-02 OF REGULATION S-X BECAUSE 
+MESSINEO & CO’S AUDIT REPORTS DID NOT COMPLY WITH PCAOB 
+STANDARDS. 
+ 
+7. Rule 2-02(b)(1) of Regulation S-X (Representations as to the Audit included in 
+Accountants’ Reports) requires an accountant’s report to state “whether the audit was 
+made in accordance with generally accepted auditing standards.”  17 CFR §210.2-
+02(b).  These standards include the standards of the PCAOB. “[R]eferences in 
+Commission rules and staff guidance and in the federal securities laws to [generally 
+accepted auditing standards “GAAS”] or to specific standards under GAAS, as they 
+related to issuers, should be understood to mean the standards of the PCAOB plus any 
+applicable rules of the Commission.”  See SEC Release No. 34-49708. 
+ 
+8. Messineo & Co.’s audit reports for each of these 13 engagements inaccurately stated 
+that Messineo & Co. had “conducted [its] audit in accordance with the standards of 
+the Public Company Accounting Oversight Board (United States).”  
+ 
+9. In fact, Messineo & Co.’s audits were not conducted in accordance with PCAOB 
+auditing standards because they lacked an EQR and concurring approval of issuance.  
+See PCAOB AS 7.1 and AS 7.13.  
+ 
+10. Accordingly, Messineo & Co. violated and Messineo aided and abetted and caused a 
+violation of Rule 2-02 of Regulation S-X.  
+ 
+F. RESPONDENTS�� CONDUCT CAUSED VIOLATIONS OF EXCHANGE ACT 
+SECTIONS 13(a) AND 15(d) AND RULES 13a-1 AND 15d-1 THEREUNDER. 
+ 
+11. Exchange Act Sections 13(a) and 15(d) and Rules 13a-1 and 15d-1 require an issuer 
+to file accurate annual reports on Form 10-K.  
+ 
+12. As detailed above, Messineo & Co. and Messineo issued false audit reports to at least 
+13 issuers because they lacked an EQR and concurring approval of issuance.  Twelve 
+of the 13 issuers were required to file annual statements under Sections 13(a) and 
+15(d).  In accordance with Messineo & Co.’s and Messineo’s expectations, the 12 
+issuers incorporated the false audit reports into their respective annual reports (Form 
+10-Ks) filed with the Commission.  As a result, the issuers’ annual reports contained 
+material misstatements because they included false audit reports that lacked an EQR 
+and concurring approval of issuance.            
+ 
+13. Messineo & Co. and Messineo, therefore, caused at least 12 different issuers to 
+violate Sections 13(a) and 15(d) of the Exchange Act and Rules 13a-1 and 15d-1 
+thereunder.   
+ 
+7 
+ 
+G. RESPONDENTS ENGAGED IN IMPROPER PROFESSIONAL CONDUCT BY 
+FALSIFYING RECORDS AND BACKDATING DOCUMENTS. 
+ 
+14. The PCAOB had issued an inspection report to Messineo & Co. in April 2012 and 
+notified Messineo that it was going to conduct another inspection approximately 12 
+months following its report.    
+ 
+15. In August 2012, Messineo directed Messineo & Co. personnel to review its audit files 
+to identify and correct deficiencies in its audit documentation.  Because Messineo had 
+issued engagement reports without concurring approval, deficiencies existed in 
+Messineo & Co.’s EQR documentation.   
+ 
+16. PCAOB Auditing Standard No. 7 requires that documentation of an EQR should 
+“contain sufficient information to enable an experienced auditor, having no previous 
+connection with the engagement, to understand the procedures performed by the 
+engagement quality reviewer…to comply with the provisions of this standard, 
+including information that identifies: 
+ 
+* * * 
+c.  The date the engagement quality reviewer provided concurring 
+approval of issuance or, if no concurring approval of issuance was 
+provided, the reasons for not providing the approval. 
+ 
+See PCAOB AS 7.19. 
+ 
+17. PCAOB AS 7 also states that “[d]ocumentation of an engagement quality review 
+should be included in the engagement documentation” and that “[t]he requirements 
+related to retention of and subsequent changes to audit documentation in PCAOB 
+Auditing Standard No. 3, Audit Documentation, apply with respect to the 
+documentation of the engagement quality review.”  See PCAOB AS 7.20 and 7.21. 
+ 
+18. PCAOB Auditing Standard No. 3 (Audit Documentation) (“AS 3”) provides the 
+requirements for documentation an auditor should prepare and retain for 
+engagements.  Per PCAOB AS 3, audit documentation must document the nature, 
+timing, and results of the procedures performed.  See PCAOB AS 3.6. 
+ 
+19. PCAOB AS 3 requires an auditor to assemble a complete and final set of audit 
+documentation no more than 45 days after the report release date (“documentation 
+completion date”).  Audit documentation may not be deleted or discarded following 
+the documentation completion date.  PCAOB AS 3 mandates that any documentation 
+added after the document completion date “must indicate the date the information was 
+added, the name of the person who prepared the additional documentation, and the 
+reason for adding it.”  See PCAOB AS 3.15 and AS 3.16. 
+ 
+8 
+ 
+20. To document EQRs, Messineo & Co. used a “Concurring Review Questionnaire,” 
+otherwise known as a “Form 4.2.”    
+ 
+21. After completing an EQR, the engagement quality reviewer–typically Mohr–was 
+supposed to answer the questions on the Concurring Review Questionnaire and then 
+sign and date the Questionnaire.  The date on the form was to indicate when Mohr 
+provided concurring approval of the issuance of the audit report.  Messineo had no 
+other system of tracking when Mohr completed an EQR other than the Form 4.2.       
+ 
+22. Mohr then emailed the signed forms to Messineo & Co. where the executed 
+Concurring Review Questionnaires were included within the firm’s audit files. 
+ 
+23. Beginning in August 2012, Messineo & Co. identified many engagements for which 
+either: 
+ 
+a. it was missing a Concurring Review Questionnaire signed by Mohr; or 
+ 
+b. the signed Concurring Review Questionnaire was dated after the audit 
+report had been issued by Messineo & Co., indicating that Messineo & 
+Co. had issued the audit report prior to Mohr’s completion of his EQR. 
+ 
+24. As a result, Messineo & Co. personnel under Messineo’s general supervision 
+requested Mohr backdate his signature on Concurring Review Questionnaires for 
+multiple public company audit clients.   
+ 
+25. Mohr complied with many–if not all–of Messineo & Co.’s requests.  He knowingly 
+misrepresented the dates that he completed his EQRs. 
+ 
+26. Messineo & Co. personnel then inserted the backdated Concurring Review 
+Questionnaires into Messineo & Co.’s audit files, including into files which should 
+have been–pursuant to auditing standards–closed because the audit report had been 
+issued more than 45 days earlier.   
+ 
+27. In addition, in connection with audits of two clients, Messineo & Co. personnel 
+completed at some time various audit checklists and forms, including “Audit 
+Documentation Checklists” and “Supervision, Review, and Approval Forms.”   
+ 
+28. On the forms, Messineo & Co.’s audit manager signed Peter Messineo’s name and 
+initials on his behalf thereby certifying that the EQRs for those two audits were 
+timely and adequately performed and that the audit files contained documentation of 
+the EQRs. Those representations were false.  As of the date indicated on the 
+respective forms, Mohr had not performed the EQRs for those two audits.  These 
+false documents were included within Messineo & Co.’s audit files. 
+ 
+9 
+ 
+29. The backdating and falsification of audit documentation and the insertion of the false 
+documents into Messineo & Co.’s audit files constitutes violations of PCAOB AS 3 
+and PCAOB AU 230 (Due Professional Care in the Performance of Work).  
+ 
+30. PCAOB Interim Auditing Standard AU 230 “requires the independent auditor to plan 
+and perform his or her work with due professional care. Due professional care 
+imposes a responsibility upon each professional within an independent auditor's 
+organization to observe the standards of field work and reporting.”  See PCAOB AU 
+230.02. 
+ 
+H. MESSINEO ENGAGED IN IMPROPER PROFESSIONAL CONDUCT WHEN 
+HE CONDUCTED ENGAGEMENT QUALITY REVIEWS FOR AN ANOTHER 
+AUDITOR IN CONTRAVENTION OF PCAOB STANDARDS.  
+ 
+31. From approximately September 2010 until October 2013, Messineo functioned as 
+Ronald Chadwick’s engagement quality reviewer.  He consented to the issuance of 
+over 130 audit reports for over 80 different Chadwick issuer clients during that 
+period.  For at least 5 of these engagements, Messineo conducted substandard 
+reviews. 
+ 
+32. PCAOB AS 7 requires that “an engagement quality reviewer must have competence, 
+independence, integrity, and objectivity.”  See PCAOB AS 7.4. 
+ 
+33. Per PCAOB AS 7, in an audit the engagement quality reviewer should review 
+engagement documentation, and specifically “should”: 
+ 
+     * * * 
+ 
+10(g).   Read other information in documents containing the financial 
+statements to be filed with the Securities and Exchange Commission 
+("SEC") and evaluate whether the engagement team has taken 
+appropriate action with respect to any material inconsistencies with the 
+financial statements or material misstatements of fact of which the 
+engagement quality reviewer is aware. 
+ 
+See PCAOB AS 7.10. 
+ 
+34. To conduct the EQRs, Messineo relied upon Chadwick to provide him with audit 
+materials and documents.  But Chadwick did not provide him with the requisite 
+documentation for Messineo to conduct a proper EQR.   
+ 
+35. For example, for at least five reviews, Chadwick failed to provide a complete draft 
+filing (Form 10-K, Form S-1, etc.) for Messineo’s review.  While Messineo may have 
+reviewed some form of the financial statements, Messineo did not read -- as required 
+10 
+ 
+by PCAOB AS 7 -- the information in documents containing the financial statements 
+that were to be filed with the Commission prior to issuing his EQR.  Nor could he 
+evaluate whether Chadwick had taken appropriate action with respect to any material 
+inconsistencies with the financial statements or material misstatements of fact. 
+ 
+36. Despite lacking sufficient documentation to conduct a proper EQR, Messineo 
+approved Chadwick’s issuance of the audit reports in violation of PCAOB auditing 
+standards.  See PCAOB AS 7.   
+ 
+I. AS CHIEF FINANCIAL OFFICER OF ISSUER A AND ISSUER B, MESSINEO 
+FALSELY CERTIFIED THEIR ANNUAL AND QUARTERLY REPORTS IN 
+2012 IN VIOLATION OF SECTION 13(a) OF THE EXCHANGE ACT AND 
+RULE 13a-14 THEREUNDER AND AIDED AND ABETTED AND CAUSED 
+ISSUER A AND ISSUER B TO VIOLATE SECTION 13(a) OF THE EXCHANGE 
+ACT AND RULES 13a-1 AND 13a-13 THEREUNDER. 
+ 
+37. As Chief Financial Officer of Issuer A, Messineo provided certifications included 
+with Issuer A’s Forms 10-Qs for the quarters ending June 30, 2012 (filed August 14, 
+2012) and September 30, 2012 (filed November 14, 2012).   
+ 
+38. As Chief Financial Officer of Issuer B, Messineo provided certifications included 
+with Issuer B’s Form 10-K for the annual period ending June 30, 2012 (filed October 
+15, 2012) and its amended Form 10-K filed October 22, 2012 covering the same 
+period.  
+ 
+39. With respect to each report, Messineo certified that: 
+ 
+ “Based on my knowledge, this 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 this report.” 
+ 
+40. Messineo provided certifications for Issuer A and Issuer B pursuant to Rule 13a-14 
+under the Exchange Act.   
+ 
+41. Rule 13a-14(a) under the Exchange Act requires the principal financial officer to 
+certify that, based on his knowledge, the Form 10-K or 10-Q submitted to the 
+Commission by the issuer “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….”  17 CFR 
+§240.13a-14(a).  
+ 
+11 
+ 
+42. Messineo’s certifications were false because Messineo knew that Issuer A’s and 
+Issuer B’s auditor, DKM, was not independent as required by Section 13(a) of the 
+Exchange Act and Rule 10-01(d) of Regulation S-X.  See Exchange Act Section 13(a) 
+(requiring issuers to file annual reports certified by “independent public 
+accountants”); 17 CFR §210.10-01(d) (requiring that prior to filing, interim financial 
+statements included in quarterly reports on Form 10-Q “must be reviewed by an 
+independent public accountant using professional standards and procedures for 
+conducting such reviews….”).  An auditor’s lack of independence is a material fact.    
+ 
+43. DKM lacked independence because the engagement quality reviewer at DKM for the 
+Issuer A and Issuer B engagements -- Richard Confessore -- concurrently maintained 
+a prohibited business relationship with Messineo.  
+ 
+44. Rule 2-01(b) of Regulation S-X (Qualifications of Accountants) states that the 
+“Commission will not recognize an accountant as independent, with respect to an 
+audit client, if the accountant is not…capable of exercising objective and impartial 
+judgment on all issues encompassed within the accountant’s engagement.”  17 CFR 
+§210.2-01. 
+ 
+45. Rule 2-01(c) (3) states certain “business relationships” are inconsistent with 
+independence: 
+ 
+Business Relationships.  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. 
+ 
+17 CFR §210.2-01(c)(3) 
+ 
+46. Rule 2-01(f)(11) defines “covered person” to include partners, principals, 
+shareholders, and employees of an accounting firm on the “audit engagement team.”  
+17 CFR §210.2-01(f)(11).  The “audit engagement team” includes the “concurring or 
+reviewing partner.”  17 CFR §210.2-01(f)(7)(ii)(B).    
+ 
+47. PCAOB standards also require auditor independence.  PCAOB Rule 3520 (Auditor 
+Independence) requires that, “[a] registered public accounting firm and its associated 
+persons must be independent of the firm’s audit client throughout the audit and 
+professional engagement period.” 
+ 
+48. PCAOB AS 7 requires that “an engagement quality reviewer must have competence, 
+independence, integrity, and objectivity.”  See PCAOB AS 7.4. 
+ 
+12 
+ 
+49. In June 2012, Messineo hired Confessore to work for him at Messineo & Co.  
+Confessore worked at Messineo & Co. until mid-December 2012.  Thus, at the same 
+time Confessore conducted engagement quality reviews for DKM’s reviews of Issuer 
+A’s interim financial statements filed August 14, 2012 and November 14, 2012 and 
+for DKM’s audit of Issuer B’s annual financial statements filed October 15, 2012 and 
+amended October 22, 2012, Confessore worked under Messineo -- the Chief 
+Financial Officer of both Issuer A and Issuer B.  Confessore’s employment with 
+Messineo constitutes an improper business relationship and conflict of interest.     
+ 
+50. As an auditor subject to independence rules, Messineo knew or should have known 
+that the audits and reviews being performed by DKM with Confessore as the 
+engagement quality reviewer violated the independence rules and relevant 
+professional standards. 
+ 
+51. Despite Confessore’s and, therefore, DKM’s lack of independence, DKM issued an 
+audit report to Issuer B falsely stating that its audit was performed in accordance with 
+PCAOB standards.   
+ 
+52. Despite knowing Confessore and DKM lacked independence, Messineo still certified 
+Issuer A’s quarterly reports and Issuer B’s annual report and amended annual report 
+in violation of Rule 13a-14. 
+ 
+53. Messineo signed and approved for filing Issuer B’s annual report even though it 
+included DKM’s false audit report and had not been certified by an independent 
+public accountant.  He signed and approved for filing Issuer A’s quarterly reports 
+even though Issuer A’s interim financial statements had not previously been reviewed 
+by an independent public accountant  
+ 
+54. Therefore, Messineo aided and abetted and caused Issuer A’s and Issuer B’s 
+violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 
+promulgated thereunder.   
+ 
+J. IN 2013, MESSINEO CAUSED DKM NOT TO BE INDPENDENT BY 
+POSSESSING A DIRECT FINANCIAL INTEREST IN DKM’S AUDIT CLIENTS 
+ISSUER A AND ISSUER B. 
+ 
+55. Messineo resigned as Issuer B’s Chief Financial Officer effective October 30, 2012 
+and Issuer A’s Chief Financial Officer effective November 15, 2012.    
+ 
+56. In mid-December 2012, Messineo joined DKM.  Messineo was a partner and one-
+third owner of DKM.   
+ 
+57. Issuer A engaged DKM to perform audit services for the annual period ending 
+December 31, 2012 (Form 10-K filed April 15, 2013).  Issuer B engaged DKM to 
+13 
+ 
+perform a review for the quarter ending December 31, 2012 (Form 10-Q filed 
+February 19, 2013).   
+ 
+58. Charles Klein continued to be DKM’s lead partner for the Issuer A and Issuer B 
+engagements and Confessore continued as the engagement quality reviewer.  DKM 
+continued to lack independence from Issuer A and Issuer B because Messineo owned 
+stock in both companies during the audit and professional engagement periods. 
+ 
+59. Rule 2-01(c)(1) (Financial Relationships) states that an accountant is not independent 
+if, at any point during the audit and professional engagement period, the accountant 
+has a “direct financial interest” in the accountant’s audit client, including when:  
+ 
+A. The accounting firm [or] any covered person in the firm…has any 
+direct investment in an audit client, such as stocks, bonds, notes, 
+options, or other securities. 
+ 
+ * * * 
+B. Any partner, principal, shareholder, or professional employee of the 
+accounting firm…has filed a Schedule 13D…with the Commission 
+indicating beneficial ownership of more than five percent of an audit 
+client’s securities. 
+ 
+17 C.F.R. §210.2-01(c)(1)(i)(A)-(B) 
+ 
+60. Rule 2-01(f)(11) defines “covered person” to include any “other partner, principal, or 
+shareholder from an ‘office’ of the accounting firm in which the lead audit 
+engagement partner primarily practices in connection with the audit.”  17 CFR 
+§210.2-01(f)(11).  “Office” means “a distinct sub-group within an accounting firm, 
+whether distinguished along geographic or practice lines.”  17 CFR §210.2-01(f)(15).    
+ 
+61. During the professional engagement periods of DKM’s audit of Issuer A and interim 
+review of Issuer B from January through April 2013, Messineo -- a DKM partner 
+working in the same small office as Klein -- owned stock in DKM’s clients Issuer A 
+and Issuer B.  As of April 15, 2013, when Issuer A’s Form 10-K was filed, Messineo 
+owned approximately 6% of the outstanding stock of Issuer A.   
+ 
+62. DKM was, therefore, not independent of its clients Issuer A and Issuer B with respect 
+to DKM’s audit and interim review of their public filings made in February 2013 and 
+April 2013, respectively, because Messineo possessed a direct financial interest (stock 
+ownership) in those companies during DKM’s professional engagement periods.  See 
+Regulation S-X Rule 2-01(c)(1).        
+ 
+14 
+ 
+K. IN 2013, MESSINEO CAUSED DKM NOT TO BE INDEPENDENT BECAUSE 
+HE WAS AN OFFICER OF DKM’S AUDIT CLIENTS ISSUER A AND ISSUER B 
+DURING THEIR RESPECTIVE AUDIT PERIODS. 
+ 
+63. Rule 2-01(c)(2) (Employment Relationships) states that an accountant is not 
+independent if, at any point during the audit and professional engagement period, the 
+accountant has an “employment relationship” with an audit client, including when: 
+ 
+A former officer, director, or employee of an audit client becomes a 
+partner, principal, shareholder, or professional employee of the accounting 
+firm, unless the individual does not participate in, and is not in a position 
+to influence, the audit of the financial statements of the audit covering any 
+period during which he or she was employed by or associated with that 
+audit client. 
+ 
+17 CFR §210.2-01(c)(2)(iv) (Employment at Accounting Firm of Former Employee of 
+Audit Client).   
+ 
+64. From at least January 2013 through April 2013, Messineo had space at DKM’s small 
+office in Clearwater, Florida along with Charles Klein and approximately 6-8 staff 
+personnel.  Messineo’s office was less than 10 feet away from the offices of those 
+providing audit services to Issuer A and Issuer B.   
+ 
+65. From December 2012 through April 2013, Messineo had access to all of DKM’s audit 
+files, including those for the audit of Issuer A and the interim review of Issuer B.  
+Messineo supervised the audit staff at DKM, including the audit manager who 
+worked on the Issuer A audit, in some of DKM’s other engagements. 
+ 
+66. During a significant portion of the professional engagement period for DKM’s audit 
+of Issuer A, Messineo possessed Issuer A’s books and records. 
+ 
+67. DKM was, therefore, not independent of its clients Issuer A and Issuer B with respect 
+to DKM’s audit and interim review of their financial statements made in February 
+2013 and April 2013 because Messineo -- a partner and shareholder of DKM -- was 
+the CFO of Issuer A and Issuer B during the audit period and in a position to 
+influence DKM’s audit and interim reviews.  See Regulation S-X Rule 2-01(c)(2). 
+ 
+L. MESSINEO CAUSED DKM NOT TO BE INDEPENDENT BY EMPLOYING 
+ISSUER C’S FORMER CFO TO AUDIT ISSUER C FOR THE PERIOD HE WAS 
+CFO.  
+ 
+68. Confessore was the CFO of Issuer C until April 12, 2011.  Following his resignation, 
+Confessore made himself available to Issuer C on a part-time basis to assist with 
+accounting matters.  On June 29, 2011, Issuer C filed a “Notification of Late Filing” 
+15 
+ 
+for its Form 10-K.  The notification explained that Issuer C was unable to complete 
+its accounting at the subsidiary level.  Issuer C’s notification identified Confessore as 
+the person to contact in regard to the notification. 
+ 
+69. In 2012, Issuer C engaged Messineo & Co. to perform audit services. Messineo 
+employed Confessore to participate in the year-end March 31, 2012 audit of Issuer C 
+even though Confessore had been CFO and worked for Issuer C during the audit 
+period.  As a result, Messineo & Co. was not independent of its client Issuer C.   
+ 
+70. In June 2013, DKM issued an audit report for Issuer C’s financial statements for the 
+period from April 1, 2011 to March 31, 2012.  Prior to his departure from DKM in 
+April 2013, Messineo was the partner responsible for the engagement and allowed 
+Confessore to participate despite his prior employment with Issuer C.      
+ 
+71. As a result of Messineo’s action, DKM was not independent of Issuer C with respect 
+to its public filings made in June 2013 because Confessore -- a partner of DKM -- 
+was the CFO of Issuer C during the audit period and participated in the audit.  See 
+Regulation S-X Rule 2-01(c)(2). 
+ 
+M. MESSINEO VIOLATED SECTIONS 13(d) AND 16(a) OF THE EXCHANGE ACT 
+AND RULES 13d-1, 13d-2, AND 16a-3 THEREUNDER WHEN HE FAILED TO 
+TIMELY FILE REQUIRED OWNERSHIP DISCLOSURES. 
+ 
+72. Messineo failed to file required Commission ownership disclosures, including Forms 
+3, 4, and 5 and Schedule 13Ds, concerning stock ownership in Issuer A and Issuer B, 
+within the time period required. 
+ 
+73. Section 13(d)  of the Exchange Act states:  
+ 
+(1) Any person who, after acquiring directly or indirectly the 
+beneficial ownership of any equity security of a class which is 
+registered pursuant to section 12 of this title…, is directly or 
+indirectly the beneficial owner of more than 5 per centum of such 
+class shall, within ten days after such acquisition…file with the 
+Commission, a statement containing such of the following 
+information….” 
+ 
+(2) If any material change occurs in the facts set forth in the statement 
+filed with the Commission, an amendment shall be filed with the 
+Commission….” 
+ 
+74. Rule 13d-1 (Filing of Schedule 13D and 13G) requires that a person satisfy his 
+obligations to file statements with the Commission under Section 13(d) by filing a 
+Schedule 13D or 13G. 
+16 
+ 
+ 
+75. Rule 13d-2 (Filing of Amendments to Schedules 13D or 13G) directs that: 
+ 
+(a)  If any material change occurs in the facts set forth in the Schedule 
+13D… including, but not limited to, any material increase of 
+decrease in the percentage of the class beneficially owned, the 
+person or persons who were required to file the statement shall 
+promptly file or cause to be filed with the Commission an 
+amendment disclosing that change.   
+   
+* * * 
+ 
+[Any change] equal to one percent or more…shall be deemed 
+“material” for purposes of this rule…. 
+ 
+76. Section 16(a) of the Exchange Act requires that every officer, director, or beneficial 
+owner of more than 10% of stock file with the Commission statements disclosing 
+their holdings and transactions of any stock of the issuer. 
+ 
+77. The statements shall be filed “within 10 days after he or she becomes such beneficial 
+owner, director, or officer….”  Statements shall also be filed for any change in such 
+ownership “before the end of the second business day following the day on which the 
+subject transaction has been executed….” 
+ 
+78. Rule 16a-3 (Reporting Transactions and Holdings) states that: 
+ 
+(a) Initial statements of beneficial ownership of equity securities 
+required by Section 16(a) of the Act shall be filed on Form 3.  
+Statements of changes in beneficial ownership required by that 
+section shall be filed on Form 4.  Annual statements shall be filed 
+on Form 5. 
+ 
+* * * 
+ 
+(f)(1)  A Form 5 shall be filed by every person who at any time during the 
+issuer’s fiscal year was subject to section 1 of the Act…[and] shall 
+be filed within 45 days after the issuer’s fiscal year end, and shall 
+disclose the following holdings and transactions not reported 
+previously on Forms 3, 4 or 5: 
+ 
+* * * 
+ 
+(iii)  all holdings and transactions that should have been reported 
+during the most recent fiscal year, but were not… 
+17 
+ 
+ 
+ 
+79. A Form 4 must be filed to report new acquisitions, and must be “filed before the end 
+of the second business day following the day on which the subject transaction had 
+been executed.  See Rule 16a-3(g)(1).  
+ 
+80. In January 2010, Messineo first acquired shares in Issuer A.  The following month, 
+February 2010, he became Issuer A’s CFO.  Within 10 days of becoming CFO, 
+Messineo was obligated to file a Form 3 disclosing his ownership of Issuer A stock.  
+See Section 16(a) of the Exchange Act; see also Rule 16a-3.  Messineo failed to do 
+so.  Instead, Messineo filed an erroneous Form 3 over three years late in 2013, after 
+he had resigned as CFO.  
+ 
+81. Messineo acquired 2,000,000 and 70,000,000 shares of Issuer A stock on December 
+28, 2010 and December 28, 2011, respectively.  Messineo failed to file Form 4s after 
+acquiring the stock or Form 5s for either FY 2010 or 2011 listing all holdings and 
+transactions that should have been reported previously on Forms 3 and 4.  See Section 
+16(a) of the Exchange Act and Rule 16a-3 thereunder.    
+ 
+82. By March 2011, Messineo owned 12% of Issuer A’s outstanding stock, and by March 
+2012 Messineo’s ownership share surpassed 30%.  Yet, Messineo never filed a 
+Schedule 13D with the Commission or any subsequent amendment disclosing his 
+greater than 5% beneficial ownership.  See Section 13(d) of the Exchange Act and 
+Rules 13d-1 and 13d-2 thereunder.     
+ 
+83. Messineo became CFO of Issuer B in September 2010 and resigned as Issuer B’s 
+CFO effective October 30, 2012.  Messineo acquired Issuer B stock on November 11, 
+2010.  Messineo has never filed a Form 3, Form 4, or Form 5 with the Commission in 
+connection with his ownership of Issuer B stock in violation of the securities laws.  
+See Section 16(a) of the Exchange Act and Rule 16a-3 thereunder.             
+ 
+N. VIOLATIONS 
+ 
+84. As a result of the conduct described above, Messineo & Co. and Messineo engaged in 
+improper professional conduct as defined in Rule 102(e)(1)(iv).  Messineo & Co. and 
+Messineo committed intentional and knowing conduct that resulted in violations of 
+applicable professional standards and committed repeated instances of highly 
+unreasonable negligent conduct each resulting in violations of applicable professional 
+standards that indicate a lack of competence to practice before the Commission. 
+ 
+85. As a result of the conduct described above, Messineo & Co. willfully violated and 
+Messineo willfully aided and abetted and caused violations of Rule 2-02 of 
+Regulation S-X. 
+ 
+18 
+ 
+86. As a result of the conduct described above, Messineo & Co. and Messineo aided and 
+abetted and caused 12 of its clients to violate Section 13(a) of the Exchange Act and 
+Rule 13a-1 thereunder or Section 15(d) of the Exchange Act and Rule 15d-1 
+thereunder. 
+ 
+87. As a result of the conduct described above, in his capacity as CFO Messineo willfully 
+violated Rule 13a-14 promulgated under the Exchange Act. 
+ 
+88. As a result of the conduct described above, in his capacity as CFO Messineo willfully 
+aided and abetted and caused Issuer B’s violations of Section 13(a) of the Exchange 
+Act and Rule 13a-1 and thereunder.  
+ 
+89. As a result of the conduct described above, in his capacity as CFO Messineo willfully 
+aided and abetted and caused Issuer A’s violations of Section 13(a) of the Exchange 
+Act and Rule 13a-13 thereunder.   
+ 
+90. As a result of the conduct described above, Messineo willfully violated Sections 
+13(d) and 16(a) of the Exchange Act and Rules 13d-1, 13d-2, and 16a-3 thereunder. 
+ 
+O. FINDINGS 
+ 
+91. Based on the foregoing, the Commission finds that Messineo & Co. and Messineo 
+engaged in improper professional conduct pursuant to Section 4C(a)(2) of the 
+Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+92. Based on the foregoing, the Commission finds that Messineo & Co. and Messineo 
+willfully violated, or willfully aided and abetted the violation of, provisions of the 
+Federal securities laws or the rules and regulations thereunder pursuant to Section 
+4C(a)(2) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of 
+Practice. 
+ 
+93. Based on the foregoing, the Commission finds that Messineo:  (a) willfully violated 
+Sections 13(d) and 16(a) of the Exchange Act, Rules 13a-14, 13d-1, 13d-2, and 16a-3, 
+(b) willfully aided and abetted and caused a violation of Rule 2-02 of Regulation S-X; 
+(c) willfully aided and abetted and caused 12 audit clients’ violations of Sections 
+13(a) and 15(d) of the Exchange Act and Rules 13a-1 and 15d-1 thereunder; and (d) 
+caused Issuer A’s and Issuer B’s violations of Section 13(a) of the Exchange Act and 
+Rules 13a-1 and 13a-13 thereunder.     
+ 
+94. Based on the foregoing, the Commission finds that Messineo & Co.: (a) willfully 
+violated Rule 2-02 of Regulation S-X; and (b) willfully aided and abetted and caused 
+12 clients’ violations of Sections 13(a) and 15(d) of the Exchange Act and Rules 13a-
+1 and 15d-1 thereunder.  
+ 
+19 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents Messineo & Co.’s and Messineo’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Respondents shall cease and desist from committing or causing any violations and 
+any future violations of Sections 13(a), 13(d), 15(d) and 16(a) of the Exchange Act and Rules 
+13a-1, 13a-13, 13a-14, 13d-1, 13d-2, and 16a-3 thereunder and Rule 2-02 of Regulation S-X. 
+ 
+B. Respondents are denied the privilege of appearing or practicing before the 
+Commission as accountants. 
+ 
+C. Respondents shall pay civil penalties of $25,000 to the Securities and Exchange 
+Commission.  Payment shall be made in the following installments:   
+ 
+Within 14 days of the issuance of the Order $10,000.00 
+Within 120 days of the issuance of the Order $5,000.00 
+Within 210 days of the issuance of the Order $5,000.00 
+Within 300 days of the issuance of the Order $5,000.00 
+ 
+If any payment is not made by the date the payment is required by this Order, the entire 
+outstanding balance of civil penalties, plus any additional interest accrued pursuant to SEC Rule of 
+Practice 600 shall be due and payable immediately, without further application.  Payment must be 
+made in one of the following ways:   
+ 
+ (1)  Respondents may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request;  
+ 
+ (2)  Respondents may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+ (3)  Respondents 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 
+ 
+20 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Peter Messineo and/or Messineo & Co., CPAs, LLC as a Respondent(s) in these proceedings, 
+and the file number of these proceedings; a copy of the cover letter and check or money order 
+must be sent to John T. Dugan, Associate Regional Director, Boston regional Office, Securities 
+and Exchange Commission, 33 Arch Street, Boston, MA 02110.   
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in 
+Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and 
+admitted by Messineo, and further, any debt for disgorgement, prejudgment interest, civil penalty 
+or other amounts due by Respondent under this Order or any other judgment, order, consent 
+order, decree or settlement agreement entered in connection with this proceeding, is a debt for 
+the violation by Messineo of the federal securities laws or any regulation or order issued under 
+such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 76608 / December 10, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3722 / December 10, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16994 
+ 
+ 
+In the Matter of 
+ 
+DKM CERTIFIED PUBLIC 
+ACCOUNTANTS, INC., 
+CHARLES U. KLEIN, CPA 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING ADMINISTRATIVE 
+AND CEASE-AND-DESIST PROCEEDINGS, 
+PURSUANT TO SECTIONS 4C AND 21C OF 
+THE SECURITIES EXCHANGE ACT OF 
+1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A CEASE-
+AND-DESIST ORDER 
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted against DKM 
+Certified Public Accountants, Inc. (“DKM”) and Charles U. Klein (“Klein”) (together 
+“Respondents”) pursuant to Sections 4C1 and 21C of the Securities Exchange Act of 1934 
+(“Exchange Act”) and Rule 102(e)(1)(ii) and Rule 102(e)(1)(iii) 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: 
+ 
+ 
+ 2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
+of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
+these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
+which the Commission is a party, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are 
+admitted, and except as provided herein in Section V, Respondents consent to the entry of this 
+Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Sections 4C and 
+21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of 
+Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order 
+(“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offer, the Commission finds3 that: 
+  
+A. SUMMARY 
+ 
+DKM is a small, Florida-based accounting firm.  Among other things, it has performed 
+audits of public companies whose stock is registered with the Commission and who file audited 
+financial statements with the Commission.  Klein is a partner at and part owner of DKM.  DKM 
+was not independent of three public company audit clients that they audited in 2012 and 2013. 
+ 
+In 2012 – 2013, Respondents audited and reviewed the annual and quarterly financial 
+statements of Issuer A and Issuer B (described below).  Klein was the lead engagement partner, and 
+Richard Confessore was the engagement quality reviewer.  During these engagements, Klein caused 
+DKM to not be independent of Issuer A or Issuer B because of business, employment, and financial 
+relationships involving Respondents and its clients.   
+ 
+First, at the same time Confessore performed engagement quality reviews for DKM on the 
+2012 Issuer A and Issuer B audit and interim reviews, he had a business relationship with Issuer A’s 
+                                                                                                                                                             
+ 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 violated, or willfully aided 
+and abetted the violation of any provision of the Federal securities laws or the rules and 
+regulations thereunder. 
+ 
+3  The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding.  
+ 
+ 3 
+and Issuer B’s Chief Financial Officer (“CFO”), Peter Messineo, who employed Confessore at 
+Messineo’s own audit firm, Messineo & Co., CPAs, LLC (“Messineo & Co.”).   
+ 
+Second, in late 2012, Messineo resigned as CFO of Issuer A and Issuer B and became a 
+shareholder and partner at DKM.  DKM continued to provide audit services to both Issuer A and 
+Issuer B even though:  (1) the companies’ former CFO was now a shareholder and partner at DKM 
+and in a position to influence the audits and reviews, and (2) Messineo had been the CFO during the 
+audit periods.   
+ 
+Third, at the time DKM performed the audit and interim review of Issuer A and Issuer B in 
+early 2013, Messineo owned stock in both Issuer A and Issuer B.  Klein knew that Messineo owned 
+this stock -- more than 5% of Issuer A’s outstanding shares -- when DKM conducted the audit and 
+review. 
+ 
+In addition, in 2013, DKM audited Issuer C’s annual financial statement covering the period 
+from April 1, 2011 – March 31, 2012.  Confessore participated in the audit despite having served as 
+Issuer C’s CFO during the audit period. 
+ 
+Performing these audits and reviews for Issuer A, Issuer B, and Issuer C violated the 
+independence rules of the Federal securities laws and the rules and regulations thereunder.  DKM’s 
+and Klein’s conduct was willful and constitutes improper professional conduct.   
+ 
+B. RESPONDENTS 
+ 
+ DKM Certified Public Accountants, Inc. (“DKM”) is registered with the Public 
+Company Accounting Oversight Board (“PCAOB”) as a public accounting firm based in 
+Clearwater, Florida.  DKM is a Florida corporation and successor to audit firms:  (i) Drake Klein & 
+Messineo CPAs PA; and (ii) Drake & Klein, CPAs PA (“Drake & Klein”).  In December 2012, 
+when Peter Messineo joined DKM, the firm changed its operational name from Drake & Klein to 
+DKM.  As of December 2012, DKM had four partners authorized to issue audit reports on behalf 
+of the firm, including Messineo, Confessore, and Charles Klein.   
+Charles U. Klein, age 60, resides in Dunedin, Florida and is currently President of DKM.  
+From approximately February 2012 through June 2013, Klein was the lead engagement partner for 
+the services DKM performed for Issuer A, Issuer B, and Issuer C.   These services included annual 
+audits and interim reviews of the financial statements of Issuer A, Issuer B, and Issuer C.  Klein 
+has been a licensed Certified Public Accountant (“CPA”) in Florida since 1985, excluding 1995 to 
+1998 when his license was inactive. 
+ 
+C. OTHER RELEVANT PARTIES 
+ 
+ Issuer A was incorporated in Delaware in 2005 and is currently headquartered in California.  
+During 2012 and 2013, Issuer A’s common stock was registered with the Commission pursuant to 
+Section 12(g) of the Exchange Act.  In its most recent Form 10-K filed with the Commission, 
+Issuer A states that its business “offers marketing tools and expertise to advertisers that combine the 
+quality and power of Flash video, interactive features, the ability to update their information and add 
+ 4 
+special events immediately and as frequently as desired.”  From February 2010 to November 2012, 
+Messineo served as CFO of Issuer A.  In 2012 and 2013, Issuer A engaged DKM to perform audit 
+services.       
+ 
+ Issuer B was incorporated in Nevada in 2004 and is currently headquartered in St. 
+Petersburg, FL.  During 2012 and 2013, Issuer B’s common stock was registered with the 
+Commission pursuant to Section 12(g) of the Exchange Act.  In its most recent Form 10-K filed 
+with the Commission, Issuer B states that its business “creates a unified solution path to securely 
+manage Advanced Metering Infrastructure and other Smart Grid optimization applications such as 
+substation and distribution automation.”  From September 2010 to October 2012, Messineo served 
+as CFO of Issuer B.  In 2012 and 2013, Issuer B engaged DKM to perform audit services. 
+Issuer C was incorporated in Colorado in 1981.  Currently, it is a Florida corporation 
+headquartered in Southbury, CT.  During 2012 and 2013, Issuer C’s common stock was registered 
+with the Commission pursuant to Section 12(g) of the Exchange Act.  In its most recent Form 10-K 
+filed with the Commission, Issuer C states that its business consists of “operating motor freight 
+carriers, providing truck load service throughout the forty-eight contiguous United States.”  
+Confessore resigned as CFO of Issuer C on April 12, 2011.  In 2012, Issuer C engaged Messineo & 
+Co. to provide audit services.  Messineo & Co. did not issue an audit report before DKM was 
+formed.  In 2013, Issuer C then engaged DKM to provide audit services for the same period for 
+which Messineo & Co. had been retained.   
+Richard Confessore, age 73, resides in Sarasota, Florida and has been a licensed CPA in 
+Florida since 1970.  Confessore is currently a Director and “Quality Review Partner” at DKM.  
+During 2011, Confessore was the CFO and worked at Issuer C.  During 2012-2013, Confessore 
+performed engagement quality reviews for the annual audits and interim reviews DKM performed 
+for Issuers A and B.  In addition, from June 2012 to December 2012, Confessore was an employee 
+for Messineo & Co, then a sole proprietorship owned by Peter Messineo, the CFO for both Issuer 
+A and Issuer B.   
+ 
+Peter Messineo, age 54, resides in Palm Harbor, Florida and is currently a partner at and 
+95% owner of Messineo & Co., which is a PCAOB-registered public accounting firm based in 
+Clearwater, Florida.  In 2012, he was the sole owner of Messineo & Co. (then named “Peter 
+Messineo, CPA”) and CFO of Issuer A and Issuer B.  From December 17, 2012 to April 16, 2013, 
+Messineo was a partner and one third owner of DKM and a shareholder of Issuer A and Issuer B 
+stock.   Messineo has been licensed as a CPA in New York since 1989 and in Florida since 2007.   
+ 
+D. IN 2012, AS LEAD ENGAGEMENT PARTNER KLEIN CAUSED DKM (THEN 
+KNOWN AS DRAKE & KLEIN) NOT TO BE INDEPENDENT WHEN DKM 
+CONDUCTED AUDITS AND REVIEWS OF ISSUER A AND ISSUER B. 
+ 
+1. Issuer A engaged DKM to perform reviews for the quarters ending June 30, 2012 (Form 
+10-Q filed August 14, 2012) and September 30, 2012 (Form 10-Q filed November 14, 
+2012).  Klein was DKM’s lead engagement partner and Confessore was DKM’s 
+engagement quality review (“EQR”) partner on these engagements. 
+ 
+ 5 
+2. During the audit and professional engagement periods for these Issuer A engagements, 
+Messineo was Issuer A’s CFO.  
+ 
+3. Issuer B engaged DKM to perform audit services for the annual period ending June 30, 
+2012 (Form 10-K filed October 15, 2012) and the quarter ending September 30, 2012 
+(Form 10-Q filed November 14, 2012).  Klein was DKM’s lead engagement partner and 
+Confessore was DKM’s EQR partner on these engagements. 
+ 
+4. During the audit and professional engagement periods for these Issuer B engagements, 
+Messineo was Issuer B’s CFO.  
+ 
+5. In June 2012, Messineo hired Confessore to work for him at Messineo & Co.  
+Confessore worked at Messineo & Co. until mid-December 2012.  Thus, Confessore 
+worked under Messineo -- the CFO of both Issuer A and Issuer B -- at the same time 
+Confessore conducted quality reviews for DKM of:  (i) Issuer A’s interim financial 
+statements filed August 14, 2012 and November 14, 2012; and (ii) Issuer B’s annual 
+financial statement filed October 15, 2012 (amended October 22, 2012).  Confessore 
+also worked for Messineo during the entire audit period of Issuer B’s interim financial 
+statements, filed November 14, 2012, which DKM and Confessore reviewed.    
+ 
+6. Confessore’s employment with Messineo constituted an improper business relationship 
+and conflict of interest.     
+ 
+7. Rule 2-01(b) of Regulation S-X (Qualifications of Accountants) states that the 
+“Commission will not recognize an accountant as independent, with respect to an audit 
+client, if the accountant is not…capable of exercising objective and impartial judgment 
+on all issues encompassed within the accountant's engagement.”  17 CFR §210.2-01. 
+ 
+8. Rule 2-01(c)(3) states certain “business relationships” are inconsistent with 
+independence:  
+ 
+Business Relationships.  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. 
+ 
+17 CFR §210.2-01(c)(3) 
+ 
+9. Rule 2-01(f)(11) defines “covered person” to include partners, principals, shareholders, 
+and employees of an accounting firm on the “audit engagement team.”  17 CFR 
+§210.2-01(f)(11).  The “audit engagement team” includes the “concurring or reviewing 
+partner.”  17 CFR §210.2-01(f)(7)(ii)(B).    
+ 
+ 6 
+10. PCAOB standards also require auditor independence.  PCAOB Rule 3520 (Auditor 
+Independence) requires that, “[a] registered public accounting firm and its associated 
+persons must be independent of the firm's audit client throughout the audit and 
+professional engagement period.” 
+ 
+11. PCAOB Auditing Standard No. 7 (Engagement Quality Review) requires that “an 
+engagement quality reviewer must have competence, independence, integrity, and 
+objectivity.”  See PCAOB AS 7.4. 
+ 
+12. PCAOB Interim Auditing Standard AU 230 (Due Professional Care in the Performance 
+of Work) “requires the independent auditor to plan and perform his or her work with due 
+professional care. Due professional care imposes a responsibility upon each professional 
+within an independent auditor's organization to observe the standards of field work and 
+reporting.”  See PCAOB AU 230.02. 
+ 
+13. DKM was not independent of Issuer A and Issuer B with respect to DKM’s audit and 
+interim reviews of financial statements filed from August 2012 through November 
+2012 because Confessore -- the engagement quality reviewer -- had a direct business 
+relationship with Messineo -- the CFO of clients Issuer A and Issuer B -- during 
+DKM’s audit and professional engagement periods.  See Rule 2-01(c)(3) of Regulation 
+S-X. 
+ 
+14. As lead engagement partner, Klein was responsible for ensuring DKM was independent 
+of Issuer A and Issuer B.         
+ 
+E. IN 2013, AS LEAD ENGAGEMENT PARTNER KLEIN CAUSED DKM NOT TO 
+BE INDEPENDENT OF ISSUER A AND ISSUER B. 
+ 
+15. Messineo resigned as CFO of Issuer A effective November 15, 2012 and as CFO of 
+Issuer B effective October 30, 2012. 
+ 
+16. In mid-December 2012, Messineo joined DKM.  Messineo was a one-third owner of 
+DKM.  While not a shareholder, Confessore was also a partner authorized to issue audit 
+reports on behalf of DKM.    
+ 
+17. Issuer A engaged DKM to perform audit services for the annual period ending 
+December 31, 2012 (Form 10-K filed April 15, 2013).  Klein was DKM’s lead 
+engagement partner and Confessore was DKM’s EQR partner on this engagement.   
+ 
+18. Issuer B engaged DKM to perform interim review services for the quarter ending 
+December 31, 2012 (Form 10-Q filed February 19, 2013).  Klein was DKM’s lead 
+engagement partner and Confessore was DKM’s EQR partner on this engagement.  
+DKM lacked independence because Messineo, Klein’s partner at DKM, had financial 
+and employment relationships with Issuer A and Issuer B.   
+ 
+ 7 
+19. Rule 2-01(c)(1) (Financial Relationships) states that an accountant is not independent 
+if, at any point during the audit and professional engagement period, the accountant has 
+a “direct financial interest” in the accountant’s audit client, including when:  
+ 
+A. The accounting firm [or] any covered person in the firm…has any direct 
+investment in an audit client, such as stocks, bonds, notes, options, or 
+other securities. 
+ 
+* * * 
+B. Any partner, principal, shareholder, or professional employee of the 
+accounting firm…has filed a Schedule 13D…with the Commission 
+indicating beneficial ownership of more than five percent of an audit 
+client’s securities. 
+ 
+17 CFR §210.2-01(c)(1)(i)(A)-(B) 
+ 
+20. Rule 2-01(f)(11) defines “covered person” to include any “other partner, principal, or 
+shareholder from an ‘office’ of the accounting firm in which the lead audit engagement 
+partner primarily practices in connection with the audit.”  17 CFR §210.2-01(f)(11).  
+“Office” means “a distinct sub-group within an accounting firm, whether distinguished 
+along geographic or practice lines.”  17 CFR §210.2-01(f)(15). 
+ 
+21. Rule 2-01(c) (2) (Employment Relationships) states that an accountant is not 
+independent if, at any point during the audit and professional engagement period, the 
+accountant has an “employment relationship” with an audit client, including when: 
+ 
+A former officer, director, or employee of an audit client becomes a partner, 
+principal, shareholder, or professional employee of the accounting firm, 
+unless the individual does not participate in, and is not in a position to 
+influence, the audit of the financial statements of the audit covering any 
+period during which he or she was employed by or associated with that 
+audit client. 
+ 
+17 CFR §210.2-01(2)(iv) (Employment at Accounting Firm of Former Employee of 
+Audit Client).   
+ 
+22. From December 2012 to April 2013, Messineo worked at DKM’s small office in 
+Clearwater, Florida along with Klein and approximately 6-8 staff personnel.  Messineo’s 
+office was less than 10 feet away from the offices of those providing audit services to 
+Issuer A and Issuer B.   
+ 
+23. From December 2012 to April 2013, Messineo had access to all of DKM’s audit files, 
+including those for the audit of Issuer A and the interim review of Issuer B.  Messineo 
+supervised the audit staff at DKM, including the audit manager who worked on the 
+Issuer A audit, in some of DKM’s other engagements. 
+ 8 
+ 
+24. During a significant portion of the professional engagement period for DKM’s audit of 
+Issuer A, Messineo possessed Issuer A’s books and records.  
+ 
+25. During Messineo’s tenure as a shareholder and partner at DKM, he owned stock in 
+DKM’s clients Issuer A and Issuer B.  As of April 15, 2013, when Issuer A’s Form 10-K 
+was filed, Messineo owned approximately 6% of the outstanding shares of Issuer A 
+stock.   
+ 
+26. Klein knew Messineo owned stock in Issuer A and Issuer B during the audit and 
+professional engagement periods for those clients.  Despite this knowledge, Klein 
+performed audit services for Issuer A and Issuer B. 
+ 
+27. DKM was not independent of Issuer A and Issuer B with respect to their public filings 
+made in February 2013 and April 2013 because Messineo -- a partner and shareholder 
+of DKM -- possessed a direct financial interest (stock ownership) in clients Issuer A 
+and Issuer B during DKM’s audit and professional engagement periods.  See Rule 2-
+01(c)(1) of Regulation S-X. 
+ 
+28. DKM was not independent of Issuer A and Issuer B with respect to their public filings 
+made in February 2013 and April 2013 because Messineo -- a partner and shareholder of 
+DKM -- was the CFO of Issuer A and Issuer B during the audit period and in a position 
+to influence DKM’s audit and interim reviews.   See Rule 2-01(c)(2) of Regulation S-X. 
+ 
+F. IN 2013, AS LEAD ENGAGEMENT PARTNER KLEIN CAUSED DKM NOT TO 
+BE INDEPENDENT BY EMPLOYING ISSUER C’S FORMER CFO TO AUDIT 
+ISSUER C FOR THE PERIOD HE WAS CFO. 
+ 
+29. Confessore was the CFO of Issuer C until April 12, 2011.  Following his resignation, 
+Confessore made himself available to Issuer C on a part-time basis to assist with 
+accounting matters.  On June 29, 2011, Issuer C filed a “Notification of Late Filing” for 
+its Form 10-K.  The notification explained that Issuer C was unable to complete its 
+accounting at the subsidiary level.  Issuer C’s notification identified Confessore as the 
+person to contact in regard to the notification. 
+ 
+30. In 2012, Issuer C engaged Messineo & Co. to perform audit services.  Confessore 
+performed work for Messineo & Co. concerning Issuer C, including the period for 
+which he had been CFO and worked for Issuer C.   
+ 
+31. In 2013, DKM agreed to audit Issuer C’s financial statements for the period from April 
+1, 2011 through March 31, 2012 despite Confessore’s prior position as CFO of Issuer C 
+during that time period.  Klein knew that Confessore had been the CFO of Issuer C.  
+DKM incorporated Messineo & Co.’s work into its audit of Issuer C, including 
+Confessore’s work.  On behalf of DKM, Klein signed the engagement report issued to 
+Issuer C in June 2013.   
+ 9 
+ 
+32. DKM was not independent of client Issuer C with respect to its public filings made in 
+June 2013 because Confessore – a partner of DKM – participated in the audit of Issuer 
+C, which covered the period Confessore had been the CFO and/or worked for Issuer C.  
+See Rule 2-01(c)(2) of Regulation S-X. 
+ 
+G. KLEIN AIDED AND ABETTED AND CAUSED DKM’S VIOLATION OF RULE 
+2-02 OF REGULATION S-X BECAUSE DKM’S AUDIT REPORTS DID NOT 
+COMPLY WITH PCAOB STANDARDS. 
+ 
+33. Rule 2-02(b)(1) of Regulation S-X (Representations as to the Audit included in 
+Accountants’ Reports) requires an accountant’s report to state “whether the audit was 
+made in accordance with generally accepted auditing standards.”  17 CFR §210.2-
+02(b).  These standards include the standards of the PCAOB. “[R]eferences in 
+Commission rules and staff guidance and in the federal securities laws to [generally 
+accepted auditing standards “GAAS”] or to specific standards under GAAS, as they 
+related to issuers, should be understood to mean the standards of the PCAOB plus any 
+applicable rules of the Commission.”  See SEC Release No. 34-49708. 
+ 
+34. DKM issued audit reports for its audits of Issuer C, Issuer A, and Issuer B for fiscal 
+years ending March 31, 2012, December 31, 2012 and June 30, 2012, respectively.  As 
+lead engagement partner, Klein signed the audit reports on behalf of DKM.  The audit 
+reports incorrectly state that DKM “conducted [its] audit in accordance with the 
+standards of the Public Company Accounting Oversight Board (United States).”   
+ 
+35. DKM’s audits were not conducted in accordance with PCAOB auditing standards 
+because they lacked independence as described above. See PCAOB Rule 3520 
+(requiring independence); AS 7 (same).  
+ 
+36. Accordingly, DKM violated and Klein aided and abetted and caused violations of 
+Rule 2-02 of Regulation S-X.  
+ 
+H. RESPONDENTS CONDUCT CAUSED ISSUER A, ISSUER B, AND ISSUER C TO 
+FILE FALSE OR MISLEADING REPORTS WITH THE COMMISSION IN 
+VIOLATION OF SECTION 13(a) OF THE EXCHANGE ACT AND RULES 13a-1 
+AND 13a-13 PROMULGATED THEREUNDER.   
+ 
+37. Exchange Act Section 13(a) and Rules 13a-1 and 13a-13 require an issuer to file 
+accurate annual and quarterly reports on Form 10-K and Form 10-Q, respectively.  
+ 
+38. Section 13(a) of the Exchange Act requires issuers to file annual reports certified by 
+“independent public accountants.”  Rule 10-01(d) of Regulation S-X requires that 
+prior to filing, interim financial statements included in quarterly reports on Form 10-
+Q “must be reviewed by an independent public accountant using professional 
+standards and procedures for conducting such reviews….”  17 CFR §210.10-01(d). 
+ 10 
+ 
+39. Respondents caused Issuer A, Issuer B, and Issuer C to violate Section 13(a) and 
+Rule13a-1 thereunder by causing them to file annual reports for the years ended 
+March 31, 2012, December 31, 2012 and June 30, 2012, respectively not certified by 
+independent public accountants, and by causing them to file annual reports that 
+included an audit report that incorrectly stated it had been conducted by an 
+independent public accounting firm in accordance with the standards of the PCAOB. 
+ 
+40. Respondents caused Issuer A and Issuer B to violate Section 13(a) and Rule 13a-13 
+thereunder by causing them to file quarterly reports which had not previously been 
+reviewed by independent public accountants.   
+ 
+I. VIOLATIONS 
+ 
+41. As a result of the conduct described above, DKM willfully4 violated and Klein willfully 
+aided and abetted and caused a violation of Rule 2-02 of Regulation S-X. 
+ 
+42. As a result of the conduct described above, DKM and Klein caused Issuer A, Issuer B, 
+and Issuer C to violate Section 13(a) of the Exchange Act and Rules 13a-1 thereunder. 
+ 
+43. As a result of the conduct described above, DKM and Klein caused Issuer A and Issuer 
+B to violate Section 13(a) of the Exchange Act and Rules 13a-13 thereunder. 
+ 
+44. As a result of the conduct described above, DKM and Klein engaged in improper 
+professional conduct as defined in Rule 102(e)(1)(iv) in that DKM and Klein 
+committed intentional and knowing conduct that resulted in a violation of applicable 
+professional standards or committed repeated instances of unreasonable negligent 
+conduct each resulting in a violation of applicable professional standards that indicate a 
+lack of competence to practice before the Commission. 
+ 
+J. FINDINGS   
+ 
+45. Based on the foregoing, the Commission finds that Klein and DKM engaged in 
+improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+46. Based on the foregoing, the Commission finds that Klein and DKM willfully violated, 
+or willfully aided and abetted the violation of, provisions of the Federal securities laws 
+                                                 
+4 A finding of willfulness does not require intent to violate, but merely intent to do the act which 
+constitutes a violation.  SEC v. K.W. Brown & Co., 555 F. Supp. 2d 1275, 1309 (S.D. Fla.2007), 
+citing Wonsover v. SEC, 205 F.3d 408, 413-15 (D.C. Cir. 2000); SEC v. Steadman, 603 F.2d 
+1126, 1135 (5th Cir. 1979); Arthur Lipper Corp. v. SEC, 547 F.2d 171, 180 (2d Cir. 1976). 
+ 11 
+and the rules and regulations thereunder pursuant to Section 4C(a)(2) of the Exchange 
+Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice. 
+ 
+47. Based on the foregoing, the Commission finds that Klein:  (a) willfully aided and 
+abetted and caused a violation of Rule 2-02 of Regulation S-X; and (b) willfully 
+caused Issuer A’s, Issuer B’s, and Issuer C’s violations of Section 13(a) of the 
+Exchange Act and Rules 13a-1 and 13a-13 thereunder.  
+ 
+48. Based on the foregoing, the Commission finds that DKM:  (a) willfully violated Rule 
+2-02 of Regulation S-X; and (b) willfully caused Issuer A’s, Issuer B’s, and Issuer C’s 
+violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 
+thereunder. 
+ 
+K. RESPONDENTS’ REMEDIAL EFFORTS 
+ 
+49. In determining to accept the Offer, the Commission considered remedial acts 
+promptly undertaken by Respondent and cooperation afforded the Commission staff. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ respective Offer. 
+ 
+ Accordingly, pursuant to Sections 4C and 21C of the Exchange Act, it is hereby 
+ORDERED, effective immediately, that: 
+ 
+A. Respondents shall cease and desist from committing or causing any violations and 
+any future violations of Section 13(a) of the Exchange Act, Rules 13a-1 and 13a-13 promulgated 
+thereunder, and Rule 2-02 of Regulation S-X. 
+ 
+B. Respondents are denied the privilege of appearing or practicing before the 
+Commission as an accountant. 
+ 
+C. After 2 years from the date of this order, Klein 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 Klein’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 
+  
+ 
+ 12 
+2. an independent accountant.   
+ 
+  Such an application must satisfy the Commission that:  
+ 
+(a) Klein, 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) Klein, 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 Klein’s or the firm’s 
+quality control system that would indicate that the Klein will not receive 
+appropriate supervision; 
+  
+(c) Klein 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) Klein acknowledges his responsibility, as long as Klein appears or 
+practices before the Commission as an independent accountant, to comply 
+with all requirements of the Commission and the Board, including, but not 
+limited to, all requirements relating to registration, inspections, concurring 
+partner reviews and quality control standards. 
+ 
+3. The Commission will consider an application by Respondent to resume appearing or 
+practicing before the Commission provided that his CPA license is current and he 
+has resolved all other disciplinary issues with the applicable boards of accountancy.  
+However, if CPA licensure is dependent on reinstatement by the Commission, the 
+Commission will consider an application on its own 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.  
+ 
+D. After 2 years from the date of this order, DKM may request that the Commission 
+consider its reinstatement by submitting an application (attention: Office of the Chief 
+Accountant) to resume appearing or practicing before the Commission as: 
+  
+1. a preparer or reviewer, or a 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 DKM’s work in its practice 
+before the Commission will be reviewed either by the independent audit 
+committee of the public company for which it works or in some other acceptable 
+manner, as long as it practices before the Commission in this capacity; and/or  
+ 
+ 13 
+2. an independent accountant.   
+ 
+Such an application must satisfy the Commission that: 
+ 
+(a) Respondent DKM 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. However, if 
+registration with the Board is dependent upon reinstatement by the 
+Commission, the Commission will consider an application on its other 
+merits; 
+  
+(b) DKM hired an independent CPA consultant (“consultant”), who is not 
+unacceptable to the staff of the Commission and is affiliated with a public 
+accounting firm registered with the Board, that has conducted a review of 
+DKM’s quality control system and submitted to the staff of the Commission a 
+report that describes the review conducted and procedures performed, and 
+represents that the review did not identify any criticisms of or potential defects 
+in the firm’s quality control system that would indicate that any of DKM’s 
+employees will not receive appropriate supervision.  DKM agrees to require 
+the consultant, if and when retained, to enter into an agreement that provides 
+that for the period of review and for a period of two years from completion of 
+the review, the consultant shall not enter into any employment, consultant, 
+attorney-client, auditing or other professional relationship with DKM, or any 
+of its present or former affiliates, directors, officers, employees, or agents 
+acting in their capacity. The agreement will also provide that the consultant 
+will require that any firm with which he/she is affiliated or of which he/she is 
+a member, and any person engaged to assist the consultant in performance of 
+his/her duties under this Order shall not, without prior written consent of the 
+staff, enter into any employment, consultant, attorney-client, auditing or other 
+professional relationship with DKM, or any of its present or former affiliates, 
+directors, officers, employees, or agents acting in their capacity as such for 
+the period of the review and for a period of two years after the review.  
+ 
+(c) DKM 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) DKM acknowledges its responsibility, as long as DKM appears or practices 
+before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited 
+to, all requirements relating to registration, inspections, concurring partner 
+reviews and quality control standards. 
+ 
+3. The Commission will consider an application by DKM to resume appearing or 
+practicing before the Commission provided that its CPA license is current and it has 
+resolved all other disciplinary issues with the applicable boards of accountancy.  
+ 14 
+However, if CPA licensure is dependent on reinstatement by the Commission, the 
+Commission will consider an application on its own 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. 
+ 
+E. DKM and Klein shall jointly and severally pay disgorgement, which represents 
+profits gained as a result of the conduct described herein of $33,000, prejudgment interest of 
+$2,043.87, and a civil money penalty in the amount of $25,000 to the Securities and Exchange 
+Commission.  Payment shall be made in the following four installments: 
+ 
+Within 14 days of the issuance of this Order $15,010.97 
+Within 90 days of the issuance of this Order $15,010.97 
+Within 180 days of the issuance of this Order $15,010.97 
+Within 270 days of the issuance of this Order $15,010.96 
+ 
+If any payment is not made by the date the payment is required by this Order, the entire 
+outstanding balance, plus any additional interest accrued pursuant to SEC Rule of Practice 600 or 
+pursuant to 31 U.S.C. §3717, shall be due and payable immediately without further application.   
+ 
+F. 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 SEC 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 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 15 
+Payments by check or money order must be accompanied by a cover letter identifying 
+DKM and Klein as Respondents in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to John T. Dugan, Associate 
+Regional Director, Boston regional Office, Securities and Exchange Commission, 33 Arch Street, 
+Boston, MA 02110.   
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 76611 / December 10, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3725 / December 10, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-16997 
+  
+ 
+In the Matter of 
+ 
+JOSEPH E. MOHR, 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 Joseph E. Mohr (“Respondent” or 
+“Mohr”) pursuant to Section 4C1 of the Securities Exchange Act of 1934 (“Exchange Act”) and 
+Rules 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, and except as provided herein in Section V, 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 
+From 2009 to 2012, Joseph Mohr performed engagement quality reviews in Florida for 
+audits and interim reviews of public companies conducted by Messineo & Co., CPAs, LLC 
+(“Messineo & Co.”).  At the time Mohr performed this work, he was not a licensed or registered 
+Certified Public Accountant (“CPA”) in Florida or in any state because he failed to renew his 
+Illinois registration in 2009.  Despite his lack of credentials, Mohr advertised himself as a 
+“CPA” and used the abbreviation in his title and on his professional papers.  Without a CPA 
+license or registration, Mohr used the abbreviation “CPA” in violation of Florida law. 
+ 
+In 2012, Messineo & Co. issued audit reports and granted permission for its respective 
+clients to use them without having received concurring approval from Mohr.  To hide its 
+transgressions of professional standards, Messineo & Co. asked Mohr to backdate the records of 
+his reviews so that the records displayed dates prior to its issuance of the associated reports.  Mohr 
+agreed.  For multiple issuers, Mohr backdated the records of his reviews.   
+ 
+By holding himself out as a Certified Public Accountant when he was not and by backdating 
+documents to conceal violations of professional standards, Mohr engaged in improper 
+professional conduct.    
+ 
+B. RESPONDENT 
+Joseph E. Mohr, age 49, resides in Spring Hill, Florida and is currently a visiting 
+assistant professor at a Florida university.  In 1988, Mohr passed the Illinois CPA exam.  He did 
+not, however, pursue a CPA license.  Later, in 2007, he became a “registered” CPA in Illinois.  
+Mohr’s registration expired on September 30, 2009.  From 2009 to 2012, Mohr performed 
+                                                 
+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.   
+3 
+engagement quality reviews (“EQRs”) for Messineo & Co.  At the time, Mohr lived and worked 
+in Florida, but was not licensed as a Certified Public Accountant (“CPA”) in Florida or in any 
+other state.  In addition, Mohr has been a self-employed consultant specializing in the areas of 
+business and finance and has served as Chief Financial Officer (“CFO”) or acting or interim 
+CFO for ten or more companies.  Most recently in 2014, Mohr served as acting CFO for a 
+Florida metal-working company and from 2010 to 2013 served as CFO for a Florida-
+headquartered oil and gas firm.     
+ 
+C. OTHER RELEVANT PARTIES 
+Messineo & Co., CPAs, LLC (“Messineo & Co.”) is registered with the Public 
+Company Accounting Oversight Board (“PCAOB”) as a public accounting firm based in 
+Clearwater, Florida.  The limited liability company operated as a sole proprietorship under the 
+name Peter Messineo, CPA from 2009 until December 17, 2012, when it effectively merged 
+with Drake & Klein, CPAs PA to form DKM Certified Public Accountants, Inc. (“DKM”).  
+Peter Messineo separated from DKM in April 2013 and began operating Messineo & Co. again, 
+but under its present name and form.  During 2012, it performed audit services for over 70 
+clients, but only had one partner -- sole owner Peter Messineo -- authorized to sign or issue 
+audit reports.  From 2009 - 2012, Messineo & Co. paid Mohr to perform EQRs for its public 
+company audit clients.   
+ 
+D. MOHR FALSELY REPRESENTED HIMSELF AS A CERTIFIED PUBLIC 
+ACCOUNTANT  
+1. In 1988, Mohr passed the Illinois CPA exam.  Mohr, however, did not pursue a CPA 
+license.  Later, on April 5, 2007, he became a “registered” CPA under Illinois law.  
+Mohr failed to renew his registration and it expired on September 30, 2009.  Mohr 
+never received his CPA license in Illinois, which would have permitted him to sign 
+audits and reviews.  
+ 
+2. Mohr has never held a CPA license or registration from any other jurisdiction.  Mohr 
+has not taken any continuing education courses for accounting within the last 10 years. 
+ 
+3. After his CPA registration expired in 2009, Mohr continued to use the abbreviation 
+“CPA” after his name and as part of his title in correspondence, invoices, and in 
+connection with his work as an independent contractor.  Mohr used the moniker 
+“Joseph E. Mohr, CPA, MBA, Finance” to describe himself and his credentials.     
+ 
+4. When performing EQRs for Messineo & Co. from October 2009 through December 
+2012, Mohr continued to advertise himself as a CPA.   
+E. BACKDATING DOCUMENTS 
+5. In 2012, Mohr performed EQRs for Messineo & Co. for its audits and interim reviews.  
+To document Mohr’s EQRs in compliance with auditing standards, Messineo & Co. 
+4 
+used a “Concurring Review Questionnaire,” otherwise known as a “Form 4.2,” in 
+connection with each audit.  See PCAOB Auditing Standard No. 7 (“AS 7”).     
+ 
+6. After completing an EQR, Mohr was supposed to answer the questions on the 
+Concurring Review Questionnaire and then sign and date the Questionnaire.  The date 
+on the form was to indicate when Mohr provided concurring approval of the issuance 
+of the audit report.  See AS 7.   
+ 
+7. Mohr then emailed the signed forms to Messineo & Co. where the executed Concurring 
+Review Questionnaires were included within the firm’s audit files.  See PCAOB 
+Auditing Standard No. 3 (“AS 3”) & AS 7. 
+ 
+8. In August 2012, Messineo & Co. began to conduct a review of its audit files to identify 
+any deficiencies and identified different engagements for which either:   
+ i. it was missing a Concurring Review Questionnaire signed by Mohr; or 
+ 
+ii. the signed Concurring Review Questionnaire was dated after the audit 
+report had been issued by Messineo & Co., indicating that Messineo & Co. 
+had issued the audit report prior to Mohr’s completion of his EQR. 
+ 
+9. As a result, Messineo & Co. personnel requested Mohr backdate his signature on 
+Concurring Review Questionnaires for public company audit clients.  Mohr complied.  
+He knowingly misrepresented the dates that he completed the respective EQRs for at 
+least three issuers. 
+ 
+10. Messineo & Co. personnel then inserted the backdated forms into its audit files, 
+including into files which were putatively “locked-down” because the audit report had 
+been issued more than 45 days previously.  See PCAOB AS 3.  
+F. MOHR’S USE OF THE ABBREVIATION “CPA” FROM OCTOBER 2009 
+THROUGH 2012 VIOLATED FLORIDA STATE LAW BECAUSE HE LACKED A 
+LICENSE AS A CERTIFIED PUBLIC ACCOUNTANT. 
+11. Florida statute Section 473.322 (Prohibitions; Penalties) makes it a criminal violation 
+for a person to knowingly assume or use:  
+ 
+the titles or designations “certified public accountant” or “public 
+accountant” or the abbreviation “C.P.A.” or any other title, designation, 
+words, letters, abbreviations, sign, card, or device tending to indicate that 
+the person holds a license to practice public accounting under this chapter or 
+the laws of any other state, territory, or foreign jurisdiction, unless the 
+person holds an active license under this chapter or has the practice 
+privileges pursuant to s. 473.3141; 
+   
+5 
+12. As discussed above, Mohr fraudulently continued to use the abbreviation “CPA” in 
+connection with his concurring reviews and his contracting work for several years after 
+his registration from Illinois terminated on September 30, 2009.   
+ 
+13. Accordingly, Mohr engaged in improper professional conduct.   
+G. MOHR’S BACKDATING OF DOCUMENTS VIOLATES PCAOB STANDARDS. 
+14. PCAOB Auditing Standard No. 7 (Engagement Quality Review) enumerates the 
+standards for an EQR or concurring review.  AS 7 requires an EQR to be performed for 
+every audit and interim review.  See PCAOB AS 7.1. 
+ 
+15. For both audits and interim reviews, AS 7 prohibits the firm from granting permission 
+to the client to use the engagement report until the engagement quality reviewer 
+provides concurring approval of issuance.  See PCAOB AS 7.13 & AS 7.18. 
+ 
+16. AS 7 requires that “an engagement quality reviewer must have competence, 
+independence, integrity, and objectivity.”  See PCAOB AS 7.14. 
+ 
+17. AS 7 requires that documentation of an EQR should “contain sufficient information to 
+enable an experienced auditor, having no previous connection with the engagement, to 
+understand the procedures performed by the engagement quality reviewer…to comply 
+with the provisions of this standard, including information that identifies: 
+ 
+* * * 
+c. The date the engagement quality reviewer provided concurring approval of 
+issuance or, if no concurring approval of issuance was provided, the reasons 
+for not providing the approval.” 
+See PCAOB AS 7.19. 
+ 
+18. AS 7 also states that “[d]ocumentation of an engagement quality review should be 
+included in the engagement documentation” and that “[t]he requirements related to 
+retention of and subsequent changes to audit documentation in PCAOB Auditing 
+Standard No. 3, Audit Documentation, apply with respect to the documentation of the 
+engagement quality review.”  See PCAOB AS 7.20 & AS 7.21. 
+ 
+19. PCAOB AU 230 (Due Professional Care in the Performance of Work) “requires the 
+independent auditor to plan and perform his or her work with due professional care. 
+Due professional care imposes a responsibility upon each professional within an 
+independent auditor's organization to observe the standards of field work and 
+reporting.”  See PCAOB AU 230.02. 
+ 
+20. Mohr violated AS 7 and AU 230 when he performed EQRs after the respective audit 
+report was issued and backdated his signature on the Concurring Review 
+6 
+Questionnaires (Form 4.2s) -- at Messineo & Co.’s request -- to a date before the 
+issuance of the audit report.   
+H. VIOLATIONS 
+21. As a result of the conduct described above, Mohr engaged in improper professional 
+conduct as defined in Rule 102(e)(1)(iv) of the Commission’s Rules of Practice, in that 
+Mohr violated applicable professional standards or committed repeated instances of 
+unreasonable negligent conduct each resulting in a violation of applicable professional 
+standards that indicate a lack of competence to practice before the Commission. 
+I. FINDINGS 
+22. Based on the foregoing, the Commission finds that Mohr engaged in improper 
+professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and 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 Mohr’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Mohr is denied the privilege of appearing or practicing before the Commission as 
+an accountant.  After 4 years from the date of this order, Mohr 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. 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 

raw/aaer/2015/AAER-3726.txt

@@ -0,0 +1,274 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 76633 / December 14, 2015 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3726 / December 14, 2015 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-17001 
+ 
+ 
+In the Matter of 
+ 
+CHARLES LOVELESS, CPA, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-DESIST 
+PROCEEDINGS, PURSUANT TO SECTION 
+21C OF THE SECURITIES EXCHANGE ACT 
+OF 1934, MAKING FINDINGS AND 
+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 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Charles Loveless, CPA (“Loveless” 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 oth er 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, and except as provided herein in Section V, Respondent consents 
+to the entry of this Order Instituting Cease-and-Desist Proceedings, Pursuant to Section 21C of the 
+Securities Exchange Act of 1934, 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 
+  
+ 1. Respondent, a former employee of Diebold, Inc. (“Diebold”), entered into a 
+cooperation agreement with the Division of Enforcement on March 23, 2010, in connection with the 
+Commission’s investigation of violations of the federal securities laws at Diebold, and related 
+enforcement proceedings.  That investigation and related enforcement proceedings against the 
+company and certain of its former senior executives are now concluded.  The Commission, having 
+taken into consideration Respondent’s substantial cooperation, enters this Order resolving the matter 
+with respect to Respondent. 
+ 
+ 2. As described below, Respondent, at the direction of management, made improper 
+accounting entries in Diebold’s books, records, and accounts in 2003 and 2004, while he was a 
+finance manager at the company.  As a result of the conduct described herein, Respondent caused 
+violations of Section 13(b)(2)(A) of the Exchange Act, and violated Rule 13b2-1 thereunder. 
+     
+Respondent 
+ 
+ 3. Respondent Charles Loveless, 50, is a resident of Massillon, Ohio.  He was a finance 
+manager at Diebold from 2001 to 2006, and reported directly to Michael McKenna.  From 2006 to 
+2008, Loveless was Diebold’s Manager of External Reporting.  In January 2008, Loveless 
+separated from Diebold.  Currently, Loveless is the Finance Director and Controller of a private 
+company in North Canton, Ohio.  Loveless is a certified public accountant in Ohio.  His license is 
+inactive.  Loveless entered into a cooperation agreement with the Division on March 23, 2010.   
+ 
+Other Relevant Individuals and Entity 
+ 
+ 4. Diebold, Inc. is an Ohio corporation headquartered in North Canton, Ohio.  Diebold 
+manufactures and sells ATMs and bank security systems.  Diebold’s common stock is registered 
+with the Commission pursuant to Exchange Act Section 12(b) and is listed on the New York Stock 
+Exchange.   
+ 
+ 5. Walden O’Dell, 69, is a resident of Columbus, Ohio.  O’Dell was the CEO and 
+Chairman of Diebold from 1999 to 2005.  He is retired.   
+ 
+ 6. Gregory Geswein, 60, is a resident of Toledo, Ohio.  Geswein was the CFO of 
+Diebold from 2000 to 2005.  Subsequently, Geswein was the CFO of Reynolds & Reynolds, Co. 
+                                                           
+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 
+from 2005 to 2006, and the CFO of Libbey, Inc. from May 2007 through June 2010.  Geswein 
+currently operates a restaurant in Akron, Ohio.  Geswein is not a certified public accountant.   
+ 
+ 7. Kevin Krakora, 59, is a resident of Canton, Ohio.  Krakora was Diebold’s 
+Controller from 2001 through 2005, and the company’s CFO from 2005 through March 2008.  
+Krakora was removed as Diebold’s CFO in March 2008, and later separated from the company in 
+2010.  From December 2011 through May 2012, Krakora worked part-time as a business 
+consultant.  From July 2012 through September 2013, Krakora operated a handyman franchise.  
+Krakora is currently unemployed.  Krakora is a certified public accountant in Ohio.  His license is 
+inactive.   
+ 
+ 8.  Sandra Miller, 47, is a resident of Houston, Texas.  Miller was Diebold’s Director 
+of Corporate Accounting from 2002 to 2006.  From 2006 through 2011, Miller was the Controller 
+at JoAnn Stores, Inc.  Currently Miller is a reporting and compliance director at a private company 
+in Houston, Texas.  Miller is a certified public accountant in Ohio.   
+ 
+  9.  Michael McKenna, 53, is a resident of New Hartford, New York.  McKenna was 
+Diebold’s Vice President of Global Finance from 2002 to 2005, and the company’s Vice President 
+of North American Finance from 2005 through 2007.  In July 2007, McKenna separated from 
+Diebold.  Since January 2010, McKenna has been the Finance Director and Controller of a private 
+company in Utica, New York.  McKenna is a certified public accountant in Ohio.  His license is 
+inactive.  McKenna entered into a cooperation agreement with the Division of Enforcement on 
+April 19, 2010.   
+Background 
+ 
+ 10. Loveless is a former employee of Diebold, Inc., a public company based in North 
+Canton, Ohio that manufactures and sells ATMs and bank security systems.  Loveless was a 
+finance manager at Diebold from 2001 to 2006, and the company’s Manager of External Reporting 
+from 2006 to 2008.  In 2003 and 2004, Loveless, at the direction of management, made improper 
+accounting entries in Diebold’s books, records, and accounts.  These improper entries assisted the 
+company and its management in artificially inflating Diebold’s reported earnings to meet forecasts.   
+ 
+ 11. Under generally accepted accounting principles (“GAAP”), an issuer is required to 
+accrue for anticipated liabilities.  Under GAAP, a liability should be released upon the occurrence 
+of a specified event or when the estimate should be revised in response to new information.  GAAP 
+prohibits maintaining general or excess reserves (e.g., “cookie jar” reserves).   
+ 
+ 12. As a finance manager at Diebold, Loveless had certain accounting responsibilities 
+for Diebold’s North American sales commission accrual account.  This account consolidated 
+several sub-accounts maintained by accounting personnel in Diebold’s North American business 
+units.  In 2003 and 2004, Loveless, and others, including management of Diebold, knew that this 
+account was frequently underaccrued because the business units were not properly recording 
+liabilities.  At the direction of management, no action was taken to correct it.  In 2003 and 2004, 
+the account was understated by approximately $2.7 million and $300,000, respectively.        
+ 
+ 4 
+ 13. Loveless also had accounting responsibilities for Diebold’s Shipped Not Installed  
+accrual account, which the company at times used as a cookie jar reserve.  At the direction of 
+management, on October 4, 2003, Loveless made an improper out-of-period entry increasing the 
+accrual in this account by $250,000, effective as of September 2003 (the third-quarter 2003).  On 
+October 7, 2003, Loveless improperly reversed this accrual in the fourth-quarter 2003.  There was 
+no legitimate accounting justification for these entries.  The improper entries assisted management 
+in artificially inflating the company’s reported earnings for the fourth-quarter of 2003. 
+14. As a result of the conduct described above, Respondent Loveless caused Diebold’s 
+violations of Section 13(b)(2)(A) of the Exchange Act, which requires Commission registrants 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 registrant. 
+ 
+15. As a result of the conduct described above, Loveless violated Rule 13b2-1 of the 
+Exchange Act, which states that no person shall, directly or indirectly, falsify or cause to be 
+falsified, any book, record or account subject to section 13(b)(2)(A) of the Exchange Act. 
+ 
+Cooperation 
+ 
+ 16. Loveless entered into a cooperation agreement with the Division of Enforcement on 
+March 23, 2010, in connection with the Commission’s investigation of violations of the federal 
+securities laws at Diebold and related enforcement proceedings.  As a result of the investigation, the 
+Commission filed the following enforcement actions, all of which are now concluded:   
+ 
+ 17. On June 2, 2010, the Commission filed a settled enforcement action against 
+Diebold in which it consented to a final judgment ordering injunctive relief and a $25 million civil 
+penalty.  See SEC v. Diebold, Inc., Civ. Action No. 1:10-CV-00908 (D.D.C.) / Lit. Rel. No. 21543. 
+ 
+ 18. On June 2, 2010, the Commission filed a settled compensation claw-back action 
+against Walden O’Dell, Diebold’s former CEO and Chairman, pursuant to Section 304 of the 
+Sarbanes-Oxley Act of 2002, in which he consented to a final judgment ordering him to reimburse 
+$470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of 
+Diebold stock.  See SEC. v. O’Dell, Civ. Action No. 1:10-CV-00909 (D.D.C.) / Lit. Rel. No. 
+21543. 
+ 
+ 19. On June 2, 2010, the Commission filed a contested enforcement action against 
+Gregory Geswein, Diebold’s former CFO.  On May 26, 2015, pursuant to a settlement, the court 
+entered a final consent decree against Geswein ordering him to pay $680,000 in disgorgement, a 
+$170,000 civil penalty, and prohibiting him for three years from acting as an officer or director of a 
+public company.  See SEC v. Geswein, et al., Civ. Action No. 5:10-CV-01235 (N.D. Ohio) / Lit. 
+Rel. Nos. 21543 and 23268. 
+ 
+ 20. On June 2, 2010, the Commission filed a contested enforcement action against 
+Kevin Krakora, Diebold’s former Controller and later CFO.  On May 26, 2015, pursuant to a 
+settlement, the court entered a final consent decree against Krakora ordering him to pay $400,000 in 
+ 5 
+disgorgement, a $100,000 civil penalty, prohibiting him for three years from acting as an officer or 
+director of a public company, and prohibiting him from appearing or practicing before the 
+Commission as an accountant, with a right to apply for reinstatement after three years.  See SEC v. 
+Geswein, et al., Civ. Action No. 5:10-CV-01235 (N.D. Ohio) / Lit. Rel. Nos. 21543 and 23268.  
+ 
+ 21. On June 2, 2010, the Commission filed a contested enforcement action against 
+Sandra Miller, Diebold’s former Director of Corporate Accounting.  On May 26, 2015, pursuant to 
+a settlement, the court entered a final consent decree against Miller that permanently enjoins her 
+from aiding and abetting any violation of Section 13(a), Section 13(b)(2)(A), and Section 
+13(b)(2)(B) of the Exchange Act, and Rules 13a-1, 13a-11, 13a-13, and 12b-20 thereunder, and 
+ordered disgorgement of $29,057, which was waived, and no penalty imposed, based on her 
+financial condition.  See SEC v. Geswein, et al., Civ. Action No. 5:10-CV-01235 (N.D. Ohio) / Lit. 
+Rel. Nos. 21543 and 23268. 
+ 
+ 22. Loveless provided significant cooperation in connection with the Commission’s 
+investigation of this matter and the related enforcement actions.   
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Loveless’s Offer. 
+ 
+ Accordingly, pursuant to Section 21C of the Exchange Act, it is hereby ORDERED that: 
+ 
+ A. Respondent Loveless cease and desist from committing or causing any violations 
+and any future violations of Section 13(b)(2)(A) of the Exchange Act, and Rule 13b2-1 thereunder.    
+ 
+ B. Respondent shall, within ten (10) days of the entry of this Order, pay disgorgement 
+of $7,724 to the Securities and Exchange Commission for transfer to the general fund of the United 
+States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, 
+additional interest shall accrue pursuant to SEC 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 
+SEC 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 
+ 6 
+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 
+Charles Loveless as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to Brian O. Quinn, Assistant 
+Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549. 
+ 
+C.  Respondent acknowledges that the Commission is not imposing a civil penalty 
+based upon his cooperation in a Commission investigation and related enforcement actions.  If at 
+any time following the entry of the Order, the Division of Enforcement (“Division”) obtains 
+information indicating that Respondent knowingly provided materially false or misleading 
+information or materials to the Commission or in a related proceeding, the Division may, at its sole 
+discretion and with prior notice to the Respondent, petition the Commission to reopen this matter 
+and seek an order directing that the Respondent pay a civil money penalty.  Respondent may 
+contest by way of defense in any resulting administrative proceeding whether it knowingly 
+provided materially false or misleading information, but may not: (1) contest the findings in the 
+Order; or (2) assert any defense to liability or remedy, including, but not limited to, any statute of 
+limitations defense. 
+ 
+V. 
+ 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in 
+Section 523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and 
+admitted by Respondent, and further, any debt for disgorgement, prejudgment interest, civil 
+penalty or other amounts due by Respondent under this Order or any other judgment, order, 
+consent order, decree or settlement agreement entered in connection with this proceeding, is a 
+debt for the violation by Respondent of the federal securities laws or any regulation or order 
+issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. § 
+523(a)(19). 
+ 
+  
+ By the Commission. 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2015/AAER-3728.txt

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+                U.S. SECURITIES AND EXCHANGE COMMISSION 
+         Litigation Release No. 23431 / December 16, 2015 
+         Accounting and Auditing Enforcement Release No. 3728 / December 16, 2015 
+          Securities and Exchange Commission v. Lee Cole, et al.,  Civil Action No. 12-CV-8167 (RJS) 
+
+         Court Imposes Injunction and $100,000 Civil Penalty Against Auditor Timothy Quintanilla 
+         
+ 
+	The United States Securities and Exchange Commission announced that, on December 4, 2015, Judge Richard J. Sullivan of the U.S. District Court for the Southern District of New York issued a final judgment, on consent of defendant Timothy Quintanilla, which permanently enjoined him from violating the antifraud provisions of the federal securities laws and ordered him to pay a $100,000 civil penalty.  Quintanilla was the former outside auditor of Electronic Game Card Inc. (EGMI).  This final judgment fully resolves the enforcement action before Judge Sullivan, in which final judgments were previously entered against three other defendants, former CEO Kevin Donovan, Lee Cole (Donovan's predecessor as CEO), and Linden Boyne (EGMI's former CFO), who the Commission charged with violations of the securities laws' antifraud provisions and other violations.  
+ 
+	The Complaint, filed in November 2012, alleged that Quintanilla, as the engagement partner for EGMI, violated the securities laws by authorizing the issuance of unqualified opinions for the years 2006 through 2008 by the accounting firm Mendoza Berger & Co. LLP ("Mendoza Berger").  The Complaint alleged that in Mendoza Berger's audit reports, Quintanilla knowingly misrepresented that it had conducted audits of EGMI's financial statements "in accordance with the standards of the Public Company Accounting Oversight Board (United States)" ("PCAOB") and that those statements "present[ed] fairly, in all material respects, the financial position" of EGMI.  In the course of its audit work, Quintanilla and the audit team he supervised failed to properly investigate a series of red flags, any number of which, if appropriately pursued, would have quickly uncovered large-scale fraud in EGMI's financial statements.  Other evidence indicated that Mendoza Berger simply failed to audit significant portions of EGMI's balance sheet.  To conceal those failures, Mendoza Berger employees, under Quintanilla's supervision, created and backdated documents for the EGMI audit file shortly before an inspection by the PCAOB in September and October 2009. 
+ 
+	Without admitting or denying the allegations of the Complaint, Quintanilla consented to the final judgment which: (a) permanently enjoins him from violating Section 17(a) of the Securities Act of 1933, Sections 10(b), 10A(a)(1),  and 10A(b)(1) of the Securities and Exchange Act of 1934, and Rule 10b-5 thereunder; and (b) orders him to pay a $100,000 civil penalty. 
+ 
+	For further information see  Litigation Release 22529  (November 9, 2012), 23099 (September 30, 2014). 
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